Agronomic and Economic Assessment of Transgenic Canola

4. Economic Analysis

4.1 Introduction And Approach

The economic analysis quantified the economic impact the introduction of transgenic canola varieties has had on western Canadian farmers between the crop years 1997 and 2000. The first year in which a significant number of farmers adopted transgenic canola seed varieties was in 1977. It was estimated that in 1997, over 15% of the canola acreage was seeded to transgenic varieties, up from 4% the previous year [1]. By 2000, almost 70% of canola producing farmers were using transgenic canola varieties on 55% of the acres.

From an economic perspective, there are two possible sets of impacts that the adoption of this new technology may have. These are as follows:

• direct impacts: the net impact on the economic returns due to the combined impacts on revenues and on operating costs from changes in key agronomic practices relating to pesticide use, fertilization, tillage, and other practices; and,
  
• indirect and induced impacts: the impacts on the rural communities, on the input supply industries serving the industry, on canola prices, and on other crop production in western Canada.

The economic approach was developed in an integrated fashion. The building blocks of the analysis were developed from the secondary research, the case studies, and the survey of a representative population of both transgenic and conventional canola growers within Alberta, Saskatchewan, and Manitoba. The Canola Industry Economic Model used the coefficients and parameters produced by these three building blocks in the execution of its analysis. The economic model had been used to:

• determine the direct impact on the prairie canola producers;
• conduct an indirect assessment of the environmental impacts and resource usages; and,
• provide estimates of the multiplier impact on the broader industry and nationally.

In a separate assessment, an economic evaluation of the impact of transgenic canola production on canola commodity prices was completed.

The schematic below illustrates the logic and approach of the analysis.

Figure 4.1
Economic Approach

The following section describes the structure and application of the Canola Industry Economic Model.

4.2 The Canola Industry Economic Model

4.2.1 Structure

The industry economic model was built to represent the economic impacts of conventional and transgenic canola production systems in western Canada. The major features of the model are listed below.

• The structure of the model parallels a typical farm enterprise budget, estimating the farm revenue and the cost of relevant production practices which are expected to vary between the two canola production systems. Other production costs such as depreciation, interest, administration, and overhead were not included. These factors were not considered to be impacted by the farmers choice of conventional or transgenic canola production systems.
  
• The model represents and simulates economic activity over the four crop production periods of 1997, 1998, 1999, and 2000.
  
• The model has three major components: one, a representation of the conventional canola production system; two, a representation of the transgenic canola production system; and three, an illustration of the differences between the two production systems.
  
• Each canola system model is comprised of three elements; a base data input table, a canola per acre enterprise budget, and an aggregate industry model. The data input table provides the detailed assumptions and calculations for the determination of the per acre revenue and costs of key management practices. The per acre enterprise budget was aggregated to represent the total population for each of the four years, based on the total number of acres in either transgenic or conventional canola production.
  
• Revenue was derived from the reported bushel yield, the average percentage dockage, and the farm level prices adjusted for the average grade received.
  
• The model aggregated the unit revenue and costs over the corresponding total estimated acreage which was devoted to transgenic and conventional canola production systems respectively over this four year period.

4.2.2 Data Assumptions

The survey data from the 637 canola growers was used in the economic model. This data set and assumptions were supplemented by the case study information.

The 2000 revenues and costs as supplied by the survey data became the benchmark for the economic analysis. The detailed calculations and assumptions have been discussed in the farm survey methodology and results sections.

From the 2000 benchmark, the revenue, cost, and gross margin calculations were estimated for the 1997 to 1999 historical period using standard techniques as discussed below.

4.2.2.1 Revenue Assumptions

Revenue was based on estimating the yield, grade, and dockage for the three historical years. The most critical parameters to estimate were the yield and price of canola between 1997 and 1999. These were estimated by indexing the actual yields and prices in 2000 for the relative changes in earlier years. Table 4.1 details these calculations.

To elaborate, the price used in 1997 for example, was 1.71 times greater than that used in the benchmark year, 2000. The amount of dockage and average grade were held constant to that received in 2000.

4.2.2.2 Cost Assumptions

As much as possible, relative costs over the analysis period were standardized. However, it was felt necessary to make some adjustments to reflect relative price changes for inputs. Selected input price indexes were used to backward adjust some of the major costs from the 2000 benchmark year.

The first section of Table 4.2 provides the standard farm price indexes, as well as some selected and relevant individual price indexes. The second section reveals the adjustment factor used in the model relative to the cost factor in the 2000 crop year.

To complete the 2000 year, contact was also made with Statistics Canada to get selected indicators for first quarter. The Agricultural Input Monitoring System of the Statistics and Data Development Branch of Alberta Agriculture, Food and Rural Development was also utilized.

The crop production price index was used to measure changes in tillage, seed, and herbicide and fertilizer application costs. The chemical and fertilizer price index was used to estimate changes in chemical and fertilizer costs.

It is interesting to note that over this particular period, there were no dramatic changes in these input prices.

4.2.2.3 Distribution of Canola Acres: Transgenic and Conventional

In order to determine the aggregate impacts of transgenic canola, it was necessary to have reasonable estimates of the number of acres in transgenic and conventional canola production. Table 4.3 shows the distribution of these proportions. The number of acres in transgenic and conventional canola production were estimated using the producer survey.

The calculation of acres harvested under either conventional or transgenic production systems was determined using the following steps.

1. From the total harvested acres, the proportion (2.4%) of acreage under 80 acres were first removed.
2. The proportions of acres using the SMART trait production system were then estimated and removed from the sample. SMART trait acreage varied from 14% in 1997 to over 20% in 2000.
3. The removal of SMART trait varieties and farms under 80 acres resulted in the net relevant canola acreages which were using either conventional or transgenic production systems.
4. This acreage was then proportioned between conventional and transgenic production systems, based on the estimated adoption rate to the transgenic system. This rate varied from 15% in 1997 to 66% in 2000.

The resulting adjustments suggested that of the total acreage of canola in the western provinces, the proportion in transgenics grew from 15% in 1997 to 66% in 2000.

4.2.2.4 Technology Use Agreement

The TUA applies to farmers who have contracted to seed Roundup Ready canola. From the producer survey, approximately 72% of the transgenic seeded acreage, and therefore the population, were seeded using this product. As such, the average cost per acre of the TUA is 72% of the acreage fee of $15.00, or $10.76 per acre.

4.2.2.5 Fixed Costs

No changes in fixed costs between conventional and transgenic systems were quantified or applied in this analysis. It was noted that the transgenic production system supported the trend toward reduced tillage practices. On the surface, this would suggest a lower level of equipment investment and a corresponding reduction in fixed costs. However, the farm survey and case study interviews suggested that the trend toward the adoption of reduced tillage practices were caused primarily by other agronomic and economic considerations. As such, they were not considered in this analysis.

4.3 Economic Model Results

4.3.1 Direct Economic Impacts

4.3.1.1 Per Acre Impacts, Benchmark (2000)

The assessment of the direct economic impacts began with an assessment of the comparative per acre results of revenues and costs between the two canola production systems for the benchmark year 2000. Table 4.4 summarizes the per acre revenues and costs for the two systems, and the difference between the systems.

The results from this comparative summary of the 2000 year are as follows:

• The gross revenue for the transgenic production system was found to be $153.95 per acre, versus $138.47 for conventional production systems. This equated to a $15.48 per acre, or 11% advantage for the transgenic system. Accounting for the higher revenue was the slightly greater yield and the lower dockage under the transgenic system.
  
• Seed and seed application costs were higher for the transgenic by $7.33 per acre, without considering the average TUA costs of $10.76 per acre.
  
• An important difference was the higher average herbicide cost for the conventional varieties. This averaged approximately $9.00 per acre or 40% higher than the pesticide costs of the transgenic varieties.
  
• Transgenic growers used marginally greater amounts of fertilizers than did the conventional canola growers. Fertilizer costs for the transgenic systems were about $1.72, or 7% higher.
  
• The tillage and harrowing costs were significantly different. Conventional varieties had a greater emphasis on tillage and higher costs by nearly 47%. However, harrowing costs were slightly higher for the transgenic system. Overall, the tillage and harrowing costs were about $6.85, or 74% higher for the conventional system.
  
• An important cost difference for the transgenic varieties is the TUA costs, estimated to average about $10.76 per acre based on the proportion of producers who used Roundup Ready varieties.
  
• On the basis of total relevant direct costs, the transgenic system costs were $110.00 per acre, compared to $105.14 for conventional.
•  
• On the basis of gross margin (revenue – minus relevant direct costs), the transgenic varieties generated $43.95 per acre, versus $33.33 for the conventional varieties, approximately a $10.62 per acre difference.

4.3.1.2 Multi-Year Per Acre Results

The graphs below present the per acre results over the four year analysis period, 1997 through 2000. As indicated, the revenue and costs, based on the benchmark 2000 year, were projected over the three historical production years.

Figure 4.2 describes the revenue, direct costs, and gross margin over the four year crop production years 1997 to 2000. The revenue has shown a continual drop while direct costs had been relatively constant. This net result is the fairly dramatic fall in gross margin for transgenic production systems from $110.96 per acre in 1997, to $43.95 in 2000, as a result in declining prices for canola.

Figure 4.2
Per Acre Results, Transgenic Canola

In a similar fashion, Figure 4.3 shows the decline in revenue and gross margins for the conventional canola varieties. The gross margin for conventional canola declined from $93.24 per acre in 1997 to $33.33 in 2000.

Figure 4.3
Per Acre Results, Conventional Canola Varieties

Figure 4.4 recognizes the relative direct economic impacts of transgenic canola. This chart shows the change in the gross margins of the two systems, and plots the differences between the gross margins. Over this four year period, the per acre gross margin of transgenic varieties ranged from nearly $17.72 in 1997, to $10.63 in 2000. This is a first indicator of the relative advantage producers, who have adopted the transgenic production system, have experienced.

Figure 4.4
Gross Margin Analysis

Figure 4.4 also illustrates the fact that the variance in gross margin between transgenic and conventional canolas is narrowing over the period 1997 to 2000. This is due in large part to a decline in canola prices in this time period.

4.3.1.3 Statistical Significance

The gross margins between the transgenic and conventional canola production systems are considered significant.

The table below illustrates the range of expected variability around the mean value of the gross margins for the two production systems.

This table indicates there is no overlap in the expected gross margin results at the limit of the margin of error. These estimates are valid at a 95% level of statistical confidence.

The next section quantifies the aggregate economic impacts of transgenic canola varieties.

4.3.1.4 Aggregate Direct Impacts

As a first step in understanding the calculation of the aggregate impacts, it is necessary to estimate the number of acres which have been seeded and harvested under the two different systems. Figure 4.5 shows the change in the total number of acres in canola production; the growth in transgenic canola and the decline in conventional canola production.

The acres in transgenic canola production are estimated to have grown from 1.5 million acres in 1997 to 6.6 million acres by 2000. Alternatively, there has been a complete reversal in conventional canola production, from 8.6 million in 1997, to 3.2 million acres in 2000.

The aggregate results are based on the product of the per acre gross margins and the total transgenic or conventional acres.

Figure 4.5
Acres in Transgenic and Conventional Canola

Tables 4.5 and 4.6 show the aggregated results for both transgenic and conventional systems.

Based on the results of the above two tables, several measures of the economic impacts of transgenic canola varieties are explained and estimated.

4.3.1.5 Direct Aggregate Economic Impact

The first and most important variable is developing an overall assessment of the direct economic impact of transgenic canola. The measurement of net economic benefit is defined as the net difference in gross margin per acre between transgenic and conventional varieties, applied to the number of acres in transgenic canola production on a year-by-year basis.

Aggregate economic impact = difference in gross margin per acre x number of acres in transgenic production

For example, the unit gross margin in 1997 was $110.96 and $93.24 per acre for transgenic and conventional systems, respectively, a difference to the advantage of transgenic of $17.72 per acre. In that year, an estimated 1.51 million acres were in transgenic production. This resulted in a deemed $26.7 million net direct impact of transgenic canola on the western Canadian canola industry ($17.72 times 1.51 million acres).

It is important to note that the economic impact cannot be defined as simply the difference in the aggregate gross margin between the two systems.

Figure 4.6 summarizes the calculations of the direct economic impacts. The direct annual and cumulative impacts are shown in 2000 year dollars by using the rate of input price inflation as a factor.

Figure 4.6
Annual and Cumulative Economic Impacts of Transgenic Canola

Figure 4.6 shows the annual economic impact of transgenic canola production systems to range from $29.0 to $81.0 million. On a cumulative basis, the net direct benefit of this production system is estimated to have generated a benefit of $249.0 million to the industry over these four years, expressed in 2000 dollars. It is noted that the annual economic impact has declined in 2000.

In addition to the direct economic impact based on the calculated results of the producer survey, an additional estimate of impact has been developed based on the farmers own estimate of net income for transgenic and conventional production systems. The farmers estimated, based on the direct survey question, that transgenic production systems provided them a $5.80 per acre net income advantage over their conventional canola production system.

The industry economic model was re-run using this farmer estimated $5.80 net income difference per acre in 2000. All revenue and cost assumptions were maintained for the previous years as in the original model calculations.

Figure 4.7 summarizes these calculations.

Figure 4.7
Direct Economic Impact, Producer Survey Estimate

Using producer estimates of net income, the annual impact was found to vary from $18.0 million to $47.0 million over this four year analysis period. The cumulative direct economic impact, using the farmers own estimates, totalled $144.0 million over this period, expressed in 2000 dollars.

In summary, the calculated total direct economic impact over the four years is estimated at $249.0 million. The producer based estimate accumulates to $144.0 million.

A principal result of this analysis is that the direct economic impact of the adoption of transgenic canola production systems is within the range of $144.0 and $249.0 million, presented in 2000 dollars.

4.3.1.6 Opportunity Cost Impact

An additional evaluation of the opportunity cost experienced by the industry was completed. A possible opportunity cost may exist given the following: a) there is a net economic benefit of this technology, and b) a number of farmers have not adopted this technology.

Therefore, the potential opportunity cost is defined as the per acre net impact of transgenic canola, applied to the number of acres which did not use transgenic canola.

Figure 4.8 shows the opportunity cost to the industry of not having fully adopted transgenic canola. Also included on this chart is the annual economic impact, repeated from the previous chart.

Figure 4.8
Opportunity Costs of Transgenic Canola

The opportunity cost was of course high at the beginning of the analysis period, estimated at $151.0 million in 1997, when only about 15% of the farmers had adopted transgenic canola production systems. By 2000, this opportunity cost had declined to $34.0 million, as nearly 66% of the farmers have now adopted this system.

4.3.1.7 Summer Fallow Opportunity Costs

A further important economic impact for evaluation relates to the relative emphasis on summer fallow practices between transgenic and conventional canola. Of total land typically in canola production, 13% was retained in summer fallow under the transgenic system. For conventional canola production, about 22% was summer fallowed.

This lesser use of summer fallow, and greater emphasis on reduced tillage practices under transgenic canola production is a potential benefit of this system. Alternatively, there is an opportunity cost to conventional canola production, in that additional acres are tied up in summer fallow, versus crop production.

This opportunity cost has been estimated, based on the incremental difference in acres in summer fallow between transgenic and conventional canola. The added acres are a lost opportunity for production. The net opportunity cost is the net difference in acres, times the gross margin per acre of transgenic canola, times the total acres under summer fallow in conventional canola. Table 4.7 and Figure 4.9 provide the results.

Figure 4.9
Summer Fallow Opportunity Costs

The annual opportunity cost of summer fallow falls from $26.0 million in 1997 to $4.0 million in 2000. Values are expressed in 2000 dollars. The cumulative opportunity cost is estimated to be $57.3 million over this four year period.

4.4 Environmental Impacts

The environmental impacts have been considered in this analysis. The primary approach was to quantify the relative use of physical inputs such as herbicides, fertilizer, and energy between transgenic and conventional canola production. The results of this analysis are described below.

4.4.1 Herbicide Use

The two production systems exhibited significantly different practices with respect to the use of herbicides. From a general environmental perspective, the lower use of herbicides would be considered positively contributing to environmental welfare. This does not bring into consideration toxicity or residue levels.

The total quantities of herbicides has been determined. The survey information provided the unit quantities of chemical used for herbicide application. The specific per acre quantities used have been aggregated over the total acres in transgenic and conventional canola production, and a comparative use of chemical was estimated.

Figure 4.10 and Figure 4.11 show the relative use of herbicides between the two systems.

Figure 4.10 traces the quantities of herbicides used. The total use over this period varied from over 24,000 tonnes in 1997, to about 17,000 tonnes in 2000. The change in use between the two systems reflects the relative number of acres devoted respectively to the two systems.

Figure 4.11 allows a quantification of the potential environmental impacts as related to herbicide use. The chart first shows the total amount of consumption for two scenarios: a) if all the acres would have used herbicides at the conventional rate per acre; and b) if all acres under production would have used herbicides at the transgenic herbicide rate.

Figure 4.10
Relative Use of Herbicides (tonnes)

As shown, the total use of herbicides would have been lower if all land had been in transgenic canola. The actual amount is shown on this same chart as the potential gain. This gain is expressed in negative values to reflect the potential reduction in pesticide consumption. It shows the potential reduction in herbicides averages about 10,000 tonnes per year.

Figure 4.11 shows the actual reduction in the use of herbicides due to the adoption of transgenic canola. This was based on the reduced use of chemical over the number of acres in transgenic canola production. The actual reduction in the use of herbicides varies from 1,500 tonnes in 1997, to about 6,000 tonnes in each of 1999 and 2000.

Overall, the impact of the adoption of transgenic canola production has contributed significantly to the reduction of chemical herbicide usage.

No conclusion is made on the specific environmental impact of this reduced herbicide use.

Figure 4.11
Transgenic Canola Impact on Herbicide Consumption

4.4.2 Fertilizer Use

The use of chemical fertilizers was estimated for each of the canola production systems.

The costs of fertilizer use between the two production systems were $28.15 and $26.43 per acre for transgenic and conventional, respectively. These values are not significant. Further, if the higher proportion of summer fallow areas is considered in the conventional system, fertilizer usage is almost identical between transgenic and conventional.

4.4.3 Fuel Consumption

A determination of the difference in fuel consumption was made between transgenic and conventional canola production. Overall, there were added operating costs for conventional canola production due to the greater emphasis on tillage and herbicide applications. From the per acre unit analysis, the net difference in operating costs for all tillage, harrowing, fertilizer, and chemical herbicide applications was determined. This information was then used to determine differences in fuel consumption as listed in Table 4.8.

From the added operating costs of conventional production systems, the proportion of fuel cost was estimated, and from this, the number of litres this cost represented.

The estimate of fuel savings was determined by the product of the fuel saving per acre used by transgenic canola production system, and the number of acres under transgenic production in each of the four analysis years. Fuel price is indexed from the 2000.

The net result of this analysis shows that the added fuel consumption on conventional production systems averaged between 5.1 and 6.3 litres per acre. The aggregate impact of this has been significant, varying from a saving of 9.5 million litres in 1997, to 31.2 million litres in 2000. This fuel saving is shown in Figure 4.12 below.

Figure 4.12
Fuel Savings for Transgenic Canola

4.4.4 Transgenic Canola's Impact On Canola Prices

An important consideration is the potential impact that transgenic canola production may have had on canola market prices. Theoretically, if transgenic canola has resulted in a significant increase in production, this could have a negative impact on prices. This is dependent on the amount of the increase, the degree of causality between Canadian production and canola prices, and the potential that other factors may be influencing the change in canola prices.

First, the trends in canola prices and total Canadian production have been traced over the period 1982 to 2000 as shown in Figure 4.13. Trend lines have been statistically placed on these variables to better understand how they have moved over time. It is important to note that the production trends have been consistently growing since the beginning of this period. At the same time, the trend line for canola prices has been essentially flat over this period.

Figure 4.13
Canola Prices and Production, 1982-2000

Source: AAFC, Strategic Policy Branch, Market Analysis Division, Winnipeg, Nov. 27.

This analysis was extended further through comparing the movement of other commodity prices over this same period. The average prices and trend lines for wheat, corn, canola, and soybeans are shown in Figure 4.14. There have been very similar trends in these commodity prices over this period. In particular, the pattern of soybean and canola prices appear to be the most comparable over this period.

Figure 4.14
Trends in Selected Commodity Prices, 1982-2000

To further examine the relationships between these commodity prices and canola, correlation coefficients were calculated. Such correlations depict which variables have trended together most closely. A high correlation coefficient however does not indicate causality.

Table 4.9 indicates the correlations between these commodity prices, concluding that soybean and canola prices have trended together most closely over this period. The correlation coefficient is .84 or 84%. Perfect correlation would be indicated by a factor of 1.0 or 100%.

However, these correlations do not directly answer the question: did the increased production over the past years result in the recent fall in canola prices, and by extension, has the adoption of transgenic canola production resulted in this price impact?

To answer this, a regression analysis was conducted between canola prices, and canola production.

The results of this regression show no significant causality between the level of canola production, and price. The details of the regression are:

Dependant Variable: Canola price, dollars per tonne
Independent variable: canola production, tonnes per hectare

Multiple R squared: .162
Adjusted R squared: -.031
T value: .67
F value: .46
Standard error: 67.39

These results clearly show that there is almost no relationship or causality between the level of production, and the price of canola. In addition to the very low R squared, the T and F values were not significant. These values would have to exceed 1.73 and 4.45 for the T and F value respectively, to be significant. As previously indicated, there was a close correlation between other commodity prices such as soybeans. Canola prices appear to be more influenced by other commodity prices.

In addition, a regression was completed between canola and soybean prices. In this case, the regression showed a high R-squared (.83), and significant T and F tests (in excess of the threshold values of 1.73 and 4.45 for the T and F values respectively).

Overall, the price of canola appears to be established within the context of the international markets of corn, soybeans, and other oilseeds versus being more influenced by the level of Canadian production.

4.4.5 Long Term Impacts of Transgenic Canola on Prices and Exports

Significant issues exist with respect to consumer attitudes toward Genetically Modified (GM) commodities and foods. In particular, the European Community (EU) has not approved the importation of Canadian and U.S. genetically modified canola. Minimal efforts are underway to segregate the production, shipping, storage, and marketing of GM and non-GM canola, both in the United States and Canada.

Countries like Australia have not gone forward as fast as Canada and the U.S. into genetically modified food crops [2]. This has led to at least isolated sales into the European community, destined to oilseed crushing plants in Europe. [3]

Markets now indicate that on a limited basis, a non-GM premium has appeared in the marketplace. As reported in the Australian, up to US $5.00 per tonne premium was received for a shipment of non-GM canola. [4]

Considerable uncertainty exists as to the degree and duration of consumer and market resistance to transgenic canola. It is possible that there could be some price impacts and the closing of some markets, at least in the short run for transgenic canola.

A full economic assessment of this impact is considered impossible given the political controversy around this issue.

4.5 Secondary And Multiplier Impacts

Another consideration the adoption of a new technology such as transgenic canola production systems may have, is the impact on the rural or larger communities in western Canada. Typically, any change in direct economic activity creates indirect and induced impacts in the surrounding region.

In the case of transgenic canola production, there have been economic gains at the producer level. This has been previously defined as the net change in gross margin attributable to the adoption of transgenic canola. Examples of potential indirect and induced impacts of this technology could be as follows:

• the added investment in additional processing plant capacity for the added canola supply;
• local industry investment and development in added infrastructure for input supplies of seed, pesticides, fertilizers, equipment, consulting services, etc.;
• added shipping, handling, processing, and marketing facilities;
• the potential impact on training, education, and information services; and,
• the attraction of new secondary industry investment.

Secondary impacts are generally defined in terms of added investment, income, and employment which the direct impact has initiated. The measurement tool is usually expressed as a multiplier, applied to the level of direct impact. These multipliers are determined on the basis of regional or provincial input-output models. Multipliers generally vary from just over one, to as high at four for some industries. A multiplier of 1.5 for example, suggests that the total impact of an industry is 1.5 times the direct economic impact. If the direct impact of an industry is $1,000.00, the total impact at all levels in the economy, including the direct impact, is therefore $1,500.00.

For the purpose of estimating the multipliers which may apply to adoption of transgenic canola, secondary research has led to the estimation of conservative indicators. One study, conducted by Ernst & Young, on the biotechnology industry in the United States [5] produced a number of multiplier estimates for this industry. These were an employment multiplier of 2.9, an income multiplier of 2.3, and a personal income multiplier of 2.0.

An additional study conducted at Purdue University [6] measured the impact of agriculture and other industries in Indiana. The agriculture output multipliers varied from a low of 1.5 to a high of 2.2 for the agricultural industry.

For purposes of measuring the secondary impacts of transgenic canola technologies, a range of multipliers were selected and applied to the net economic gains or direct impacts. It was considered that a reasonable and conservative range is of a lower limit of 1.25, to a higher limit of 1.9. The total impact of this technology is shown in Table 4.10. In addition, Figures 4.15 and 4.16 depict the direct economic impacts and the total cumulative impacts using these multipliers, at the lower and upper levels.

Figure 4.16 summarizes the cumulative total economic impact of transgenic canola production systems. The direct impacts accumulate to $240.5 million by 2000. Including the indirect impacts, the accumulated economic benefit is estimated to be between $300.0 and $457.0 million.

Figure 4.15
Multiplier Impacts of Transgenic Canola

 

Figure 4.16
Cumulative Direct and Secondary Impacts of Transgenic Canola

4.6 Economic Analysis Summary And Conclusions

The analysis provided an economic assessment of the adoption of transgenic production systems by Canadian farmers in the western provinces of Alberta, Saskatchewan, and Manitoba. The primary source of data for the economic assessment was from the producer survey of 650 farmers in the fall of 2000. This base information was supplemented by 13 detailed case studies in these three provinces, along with secondary research.

The economic assessment covered the four recent crop years, 1997 through 2000, in which there had been a significant adoption of this new canola production system. Farm level per acre revenue and costs were estimated for the transgenic and conventional systems.

The economic assessment measured the direct and indirect impacts of this technology. Direct impacts are those economic effects on the agricultural producer. Indirect effects include the other impacts which may have resulted from the direct impacts, on the regional economy. The essential results are summarized below.

4.6.1 Direct Economic Impacts

4.6.1.1 Per Acre Impacts

The direct economic impact of transgenic canola is measured on the basis of the differential in the gross margin between the two canola production systems. The gross margin is defined as revenue, less the direct costs of agronomic practices which are different between the two systems. Specifically, agronomic practices such as seeding, tillage, herbicide, and fertilizer management represent the most important possible sources of differences between the two systems. Other costs of production are not considered, and as such, the gross margin as used in this analysis is not comparable to that used in standard farm enterprise analysis.

The analysis determined a significant difference between the gross margins for the two systems over the four year analysis period. This difference amounted to $10.62 higher for the transgenic system over the conventional, a 30% advantage in 2000.

The primary reasons for this advantage related to both changes in revenue and cost between the two systems. Revenue of the transgenic system was $15.48 dollar per acre higher in 2000, due to a higher yield and a lower level of dockage.

The direct costs were higher for the transgenic system by $4.86 per acre. The TUA, fertilizer, and seed costs were the major contributors to these higher costs. Other individual costs factors, such as herbicide and tillage cost were lower for transgenic canola. The most significant cost difference was the much lower herbicide cost, of approximately $9.00 per acre.

During the study period, the gross margin narrowed between the two systems. In 1997, the transgenic gross margin was $17.72 higher, falling to $16.26 in 1998, $13.51 in 1999, and $10.62 in 2000, mainly as a result of declining canola prices.

4.6.2 Aggregate Impacts

The aggregate impact of the adoption of transgenic canola production was measured by the net gain in gross margin of transgenics over the acreage harvested under the production system.

The number of transgenic acres increased from approximately 1.5 million acres in 1997 to 6.1 million acres in 2000.

Applying the per acre higher gross margin for transgenics to these acres is a measure of the economic impact. Expressing this annual impact in 2000 dollars resulted in $28.8 million in 1997, up to $72.9 and $81.2 million in 1998 and 1999 respectively, and then down to $66.0 million in 2000.

The cumulative net impact of this adoption is estimated at $249.0 million over this four year period.

4.6.3 Opportunity Costs

4.6.3.1 Opportunity Cost of Growing Conventional Canola

Another method of assessing the impact of the adoption of a new technology is to measure the cost of not adopting it. In this case, a cost can be attributed to the land which remained in conventional canola production systems.

This approach to estimating these costs resulted in an opportunity cost of $151 million in 1997 when most of the acres were still under the conventional system. This opportunity cost dropped to $33.8 million by 2000.

4.6.3.2 Summer Fallow Opportunity Costs

The transgenic production system resulted in a greater use of reduced tillage practices and lesser acres in summer fallow. The opportunity cost of summer fallow is not being able to seed it in productive crops.

The opportunity cost has been calculated, based on the difference in acres of summer fallow, times the gross margin per acre of transgenics, times the number of conventional summer fallow acres.

The analysis found that the opportunity cost of these added acres in fallow varied from a high of $27.5 million in 1997, to a low of $3.6 million by 2000.

4.7 Indirect And Induced Impacts

4.7.1 Multiplier Impacts

An important factor to measure is the direct impacts the technology change may have on the region and community. These impacts can include added investment in processing capacity, new infrastructure, and other investment.

A range of multipliers were applied to give an indication of these impacts. The multipliers were applied to the net direct aggregate impact. This range of impact was from $33.0 to $51.0 million in 1997. This increased to a range of between $87.0 and $132.0 million in 1998, and $100.0 and $152.0 million in 1999. The impact fell off in 2000 to between $81.0 and $123.0 million. It is important to note that the multiplier impact included the direct impacts.

4.7.2 Total Economic Impacts

The total economic impacts due to the adoption of transgenic production systems included the direct and indirect impacts, accumulated over the four year analysis period.

The table below summarizes these impacts.

Comparing these calculated direct benefits to the producer survey estimate of $144.0 million net benefit, provided a range of direct impacts of between $144.0 and $249.0 million.

4.7.3 Impacts On Canola Prices

One possible impact that the adoption of transgenic production systems could have is on price. If the transgenic system encourages added production, in a limited market, this could lead to a drop in prices, and potentially a reduction in producer returns.

To evaluate this possible impact, a statistical analysis was conducted on canola prices, production, and on the movement of other similar commodities, such as wheat, corn, and soybeans.

As a result of this analysis, no statistical correlation, or causality could be found that would lead to the conclusion that this technology adoption has led to a drop in prices.

It was found that canola prices are linked very closely to other commodity prices, in particular soybeans.

In the future however, there may be other external impacts on the price and use of transgenic canola. There are certain markets, led by the EU, who are restricting the importation of genetically modified products such as canola.

The future impacts of these trends cannot be fully evaluated at this time.

4.8 Environmental And Resource Use Results

The potential environmental impacts of the adoption of transgenic canola production systems have been investigated from the perspective of resource consumption. This approach made the assumption that a higher level of use of certain inputs such as chemical herbicides, chemical fertilizers, and fossil fuels, were potentially more harmful to the environment.

The use of these key production inputs were evaluated.

4.8.1 Herbicide Use

It was found that under the transgenic system, less quantities of herbicides were used per acre than with the conventional system. Given the lesser use per acre, the amount of total reduction in herbicide use was determined by the product of this unit savings, and the number of acres in the transgenic system. It was found that 1,500 tonnes of herbicide were saved in 1997, increasing to 6,000 tonnes per year by 2000.

The potential opportunity savings, assuming that all the canola acreage would have been under transgenic production, would have resulted in an annual reduction in herbicide use of between 9,000 and 11,000 tonnes per year.

4.8.2 Fertilizer Use

There was found to be no significant change in fertilizer due to the adoption of the transgenic system.

4.8.3 Fuel Savings

The more extensive tillage and herbicide applications for conventional canola systems of production leads to the greater use of fossil fuels, deemed a negative factor for the management of the environment.

The amount of added fuel use was estimated between 5 and 6 litres per acre more for conventional over transgenic canola. The total amount of fuel savings was estimated by applying this per acre savings over the number of transgenic canola acres in production. The amount of fuel savings ranged from 9.5 million litres in 1997, to 31.2 million litres in 2000.

In summary, the transgenic canola production systems, have in this analysis period, contributed significantly to the reduction in the use of chemical herbicides and fossil fuels.

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Footnotes

[1] Canola Council of Canada, internal reports.

[2] Australia Non-GM Grains Cash in Winning Trade Hand, Australia, August 12,2000.

[3] Asia Pulse via COMTEX, Australia's Non-Genetically Manipulated Canola Oil Dominates the European Market, Jan 8,1999.

[4] Ibid., Non-GM Grains Cash in Winning Trade Hand.

[5] Ernst & Young Economic Consultants and Quantitative Analysis, The Economic Contributions of the Biotechnology Industry on the US Economy, May 2000.

[6] David Broomhall, The Use of Multipliers in Economic Impact Estimates, Community Development, Purdue University, Cooperative Extension Service, EC-686.