Increasing chemical use, in conjunction with growing weed resistance and limited options for chemical weed control, has raised costs and depleted the bottom line for many rice producers in California. Many of the restrictions on farm chemical use can be traced to growing recognition of environmental externalities from chemicals used on the land and political pressure from environmental groups. For example, a recent district-court ruling banned the application of 38 pesticides along Northwest salmon streams, and estimates of the economic impact of the decision vary wildly .1 Environmental groups such as Greenpeace oppose the adoption and diffusion of genetically modified food crops such as GM2 rice. This opposition is largely based on the uncertainty of potentially adverse health and environmental impacts of GM rice and the lack of labeling requirements for GM foods. This is a potentially ironic position for environmental groups to take, given the possible environmental advantages of GM crops over more conventional varieties that depend heavily on the use of multiple chemicals and applications that may prove more damaging than the corresponding GM regime. This issue is critical in California, cannabis commercial where agriculture is intensive and a relatively heavy user of chemicals. The economic impact on growers from chemical use regulations depends critically on the number of substitution possibilities available for cost-effective weed control.
The more options individual rice growers have to control weeds, the less severe will be the adverse impact of the regulations on grower profits. However, environmental activists, regulators, and the courts view a wide range of available chemicals that have varied environmental risks as undesirable. In recent years, widespread adoption of GM crops such as herbicide-tolerant soybeans and canola and pest-resistant [e.g., Bacillus thuringiensis ] corn and cotton has provided growers with new production alternatives that reduce chemical usage. But the new technologies are not without controversy as some consumers have expressed resistance to purchasing foods made from transgenic materials. In California, environmental groups and organic-rice farmers are also opposed to any cultivation of GM rice in the state. This report examines these issues in the context of California rice production. In particular, we estimate the potential economic impacts of one alternative weed-management strategy, namely, cultivation of HT transgenic rice. Potential grower benefits, measured by net returns over operating costs per acre of first-year adoption, are calculated using a partial-budgeting approach3 based on a representative cost structure. Sensitivity analysis is then utilized to account for the heterogeneity in growing conditions across the state as well as uncertainty regarding yields, technology fees, and government assessments on transgenic seed.
To augment these results, the partial-budgeting approach is applied to data from an independent three-year field trial designed to evaluate alternative herbicide regimes, including one transgenic rice cultivar. Potential environmental benefits of the technology are also discussed. The report proceeds as follows: The next section reviews available information on transgenic rice and describes the potential impacts of grower adoption in California, including market-acceptance issues. We then describe our methodology and present results for a typical Californiarice producer. Next, a range of estimated impacts based on alternative yield differentials and technology fees is presented, followed by a Monte Carlo analysis. The subsequent section provides an economic analysis corresponding to the three-year field study. Environmental regulations for rice production and potential environmental impacts of the new technology are then evaluated, and the final section discusses the limitations of our analysis and concludes.In 2003, California rice growers harvested 495,000 acres of rice, which yielded 39.6 million hundredweight , constituting about 16.5 percent of acreage and 20 percent of total rice production in the United States . The vast majority of California’s rice is of the medium-grain variety while the southern U.S. states primarily produce long-grain varieties. Over the last several years, there has been no discernible trend in California acreage planted or in total volume of production. World rice prices, on average, have been on a decreasing trend4 and, simultaneously, California growers have faced increasing production costs, especially in the area of weed management [U.S. Department of Agriculture , Economic Research Service 2002].
The top three weeds in California rice production are barnyardgrass, watergrass, and sprangletop while various other broadleaf plants, grasses, sedges, and cattails affect production [Gianessi et al.; California Rice Commission 2003]. Interestingly, red rice, a weed of the same genus and species as domesticated rice, is not a major problem in California despite being the number one weed in Louisiana, Arkansas, and Missouri . The combined effect of lower prices and higher production costs has put downward pressure on California rice grower returns and led to considerable research efforts to improve overall weed management through cultural, chemical, and other management means. In California, both chemical and non-chemical techniques are used for weed control . Recently, however, California rice production has experienced what has been called an “epidemic” of herbicide resistance, especially from watergrass, which has resulted in herbicide costs increasing to close to $200 per acre for some growers .5As such, technologies that allow for a small number of applications of chemicals where efficacy is not affected by the resistance problem, as would most likely be the case for HT rice, have the potential to significantly lower this component of rice production costs. There are currently no commercialized GM rice varieties anywhere in the world. However, many transgenic varieties are in the “development pipeline,” including HT, insect resistant , bacterial and fungal resistant, and nutrient-enhancing “Golden Rice,” which produces beta-carotene, a substance that the body can convert to Vitamin A. A non-transgenic but genetically altered variety called Clearfield® IMI by BASF, a mutated HT variety, was released in the United States in 2002 . Approximately 200,000 acres of Clearfield® were planted across the Southeast in the 2003 growing season, accounting for about 8 percent of the seeded area in that region . Countries that are major rice producers and consumers, including China and Japan, are rapidly developing and testing GM rice varieties . For instance, China has approved for environmental release three insect-resistant rice varieties and four disease-resistant varieties and is developing HT, salt-tolerant, pipp racking and nitrogen-fixing cultivars . Many of these varieties have the potential to be of value to producers through reduced disease or pest-control costs and to the environment through reduced use of chemicals, thereby reducing runoff and water pollution. China will likely be one of the first countries in the world to commercialize GM rice. In the United States, the two most widely visible, potentially commercially viable transgenic rice cultivars are Roundup Ready® rice by Monsanto and LibertyLink® by Bayer CropScience . Both are HT varieties—the former is resistant to Roundup® and the latter to Liberty® , both non-selective herbicides able to control a broad spectrum of weeds . Glyphosate is currently registered for rice in California but not widely utilized while glufosinate is not registered [California Department of Pesticide Regulation ]. As such, it is unlikely that local weeds have developed a natural resistance to these chemicals, unlike, for example, bensulfuron methyl . In 1999, LibertyLink® rice cleared biosafety tests by USDA’s Animal and Plant Health Inspection Service but is not commercially available at this time . The primary direct effects of HT transgenic-rice adoption on the cost structure of California rice growers are reductions in herbicide material and application costs and the likely increased cost of transgenic seed.
An HT cultivar differs from conventional seed in that a particular gene has been inserted into the rice plant that renders the species relatively unharmed by a particular active chemical ingredient, thus allowing application of broad-spectrum herbicides directly to the entire planting area . This has the potential to simplify overall weed management strategies and to decrease both the number of active ingredients applied to a particular acreage and the number of applications of any one herbicide, thus decreasing weed-management costs. Reduced chemical use provides the major cost saving for growers. Similarly, herbicide application costs per acre depend on the specific chemical involved and the means of application. Typically, application by ground is 60 to 80 percent more expensive than aerial applications . For this study, other pest-management practices and fertilizer applications are assumed not to change with adoption of HT rice. The cost of transgenic rice seed will be greater than that of conventional seed because companies that sell transgenic varieties typically charge a premium to recoup their research investment costs.8 Based on Roundup Ready® corn and soybeans as a reference point, the technology fee is approximately 30 to 60 percent of conventional seed costs per acre . Seed price premiums are in a similar range for Bt corn varieties . In addition to the technology fee, seed costs for transgenic rice will likely change as a result of the California Rice Certification Act of 2000 signed by Governor Gray Davis in September 2000. With the full support of CRC,9 the CRCA provides the framework for a voluntary certification program run by the industry, offering assurances of varietal purity, area of origin, and certification of non-GM rice . A second, mandatory provision of the CRCA involves classification of rice varieties that have “characteristics of commercial impact,” defined as “characteristics that may adversely affect the marketability of rice in the event of commingling with other rice and may include, but are not limited to, those characteristics that cannot be visually identified without the aid of specialized equipment or testing, those characteristics that create a significant economic impact in their removal from commingled rice, and those characteristics whose removal from commingled rice is infeasible” . Under this legislation, any person selling seed deemed to have characteristics of commercial impact, which would include anytransgenic cultivars, must pay an assessment “not to exceed five dollars per hundredweight.” This fee is currently assessed at $0.33 per cwt with specific conditions for planting and handling divided into two tiers . In addition, the first handler of rice having these characteristics will pay an assessment of $0.10 per cwt . The $0.33 seed assessment is approximately 2.4 percent of average seed costs while the $0.10 fee represents 1.5 percent of average output price. A portion of these assessments is likely to be passed to the grower, depending on the relative elasticities of supply and demand in the seed and milling markets. In addition to generating cost savings, cultivation of HT rice will affect revenues as well. Net returns will be positively correlated with transgenic yield improvements. HT crops are not engineered to increase yields; rather, they are designed to prevent yield losses arising from pest or weed infestation. As such, potential yield gains depend on the degree of the pest and/or weed problem and the efficacy of the HT treatment relative to the alternatives. Many adopters of transgenic corn, cotton, canola, and soybeans have experienced positive yield effects on the order of 0 to 20 percent . However, under more ideal conditions, a yield drag may occur if the cultivar exhibiting the genetic trait is not the highest-yielding variety or if the gene or gene-insertion process affects potential yields . Field tests of LibertyLink® in California have generally found a yield drag of between 5 and 10 percent relative to traditional medium-grain M-202 varieties . Similar results were found for HT soybeans at the time of their introduction . To the extent that a yield drag actually exists in the field, it is expected to quickly dissipate over time as a greater number of varieties with the HT trait become available.Another effect of GM rice cultivation on California growers’ returns is the potential development of price premia for conventional medium-grain rice varieties in world rice markets. Despite the predictions and evidence of producer financial benefits from transgenic crops, there is demand uncertainty in world grain markets, especially in the European Union and Japan . Although challenged by many of the major transgenic-cropproducing countries , the EU has prohibited imports of new GM crops. Many other countries have varying GMcrop threshold labeling regulations, including China, Japan, the Republic of Korea, the Russian Federation, and Thailand . Due to segregation requirements and the higher unit cost of production of non-GM crops, this introduces the potential for a price premium for non-GM rice. As a result, non-adopters may indirectly benefit from the introduction of transgenic rice.