UW-Madison UW-Madison

Seeds of Change in the Biotech Revolution’s Marketplace
Since biotech seeds were introduced in 1996, world acreage planted in genetically modified (GM) corn, soybean and cotton has increased 70-fold, with over half of those acres in the U.S. American farmers now spend over $7 billion a year on GM seeds, whose genetic makeup is patented by the companies that developed them.
This "biotechnology revolution" has followed the Green Revolution of the post-WWII period, while the public-sector-based conventional plant breeding that increased yields in the post-war decades has given way to private research and development of GM germplasms. Patent protection for "life forms" in the 1980s led the shift from public to private seed development that has had a major effect on the farmer's bottom line.
Agricultural productivity powered American economic growth over the last century, with new technology adoption by farmers at the heart of this growth. While there is still some debate about GM crops, growers have embraced biotech seeds as a way to decrease spending on pesticides and herbicides, and GM supporters point to these new crops as better for the environment and farm profits.
At the same time, the U.S. seed market has grown into a major industry, with large biotech companies investing in research and development to improve crop productivity through genetic modification. The market is highly concentrated and controlled by a few vertically integrated companies carrying out development, seed production and distribution down the line. For example, a series of firm mergers in the 1980s led to the top four firms gaining control of 55% of the soybean seed market, and 72% of the corn hybrid seed market by 2007.
Guanming Shi, who studies intellectual property rights and firms’ strategic behavior in imperfectly competitive markets, wants to know how companies price their seeds in the context of the biotech revolution. "During this period, markets have changed," she explained. "New seeds are being developed with different genetic trait bundles, and the seed industry has integrated. Farmers in some regions want seeds with insect resistance, while others want herbicide tolerance, and these factors drive the market. Farmers’ needs in the center of the corn belt differ from those on the periphery."
"To our knowledge, we are the first researchers to examine such issues."
But what prompts a farmer to adopt a new technology like biotech seeds, new machinery or agrochemicals? How do farmers learn about these technologies and how important is learning-by-doing versus the "neighborhood effect," or what economists call social networks?
Along with their interest in questions of technology adoption, Shi and her AAE colleagues Jean-Paul Chavas and Kyle Stiegert are analyzing the pricing, trait bundling, efficiency, to help understand the potential effects of market power in the U.S. seed industry. "To our knowledge, we are the first researchers to examine such issues," Shi said. "Our research has produced empirical results on seed markets that relate to trait bundling and bundle pricing, product differentiation, and price discrimination."
The research team will also try to understand how seed companies’ pricing strategies will affect farmers’ adoption decisions and hence overall agricultural productivity. They hope to replicate for the current biotech seed revolution the seminal 1957 study by Zvi Griliches analyzing dissemination and adoption of hybrid corn varieties developed in the early 1930s.
Chavas, Shi, Stiegert and their students are using data from annual surveys over the past decade of farm-level information on seed purchases, acreage, seed types and prices. Their study will take account of such novel impacts as the biofuel initiatives of 2007-08 and a merger of Monsanto with Delta Pine and Land in 2008. The project is funded by USDA and has supported several AAE graduate students.
Guanming Shi (center) and her collaborators Jean-Paul Chavas (left) and Kyle Stiegert (right), with students in the applied industrial organization research group.
Ultimately, Shi and her colleagues hope to shed new light on how quickly farmers will adopt biotech seeds, especially the newer ones with multiple, or "stacked," genetic traits. By looking at the relative role of social learning they want to understand how social networks can contribute to economic development. And they will examine how the functioning of U.S. seed markets affects farm welfare, productivity and efficiency. “We hope this study will help policy makers protect and expand innovations while also spreading the benefits of new technology to farmers and consumers," Shi explained.
AAE News
Last updated on Fri, May 13, 2011 9:32am