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Genetically Modified Crop Innovations and Product Differentiation: Trade and Welfare Effects in the Soybean Complex

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Abstract

We develop a new partial equilibrium, four-region world trade model for the soybean complex comprising soybeans, soybean oil, and soybean meal. In the model, some consumers view genetically modified Roundup Ready (RR) soybeans and products as weakly inferior to conventional ones; the RR seed is patented and sold worldwide by a U.S. firm; and producers employ a costly segregation technology to separate conventional and biotech products in the supply chain. The calibrated model is solved for equilibrium prices, quantities, production patterns, trade flows, and welfare changes under different assumptions regarding regional government's production and trade policies, differentiated consumer tastes, and several other demand and supply parameters. Incomplete adoption of RR technology naturally arises in the free trade equilibrium, with the United States producing both genetically modified and conventional soybeans. The United States, Argentina, Brazil and the Rest of the World all gain from the introduction of RR soybeans, although some groups of agents (producers or consumers) may lose. Compared to free trade with no domestic bans, a ban on RR production in the Rest of the World improves that region's welfare at some levels of segregation costs but hurts the United States. Introduction of the same ban in Brazil benefits its farmers but makes the region worse off, and an import ban on RR products significantly reduces welfare of all agents. Price support programs for U.S. farmers, despite hurting the United States, have the potential to further improve the world's efficiency. The distribution of welfare between consumers and producers appears to be sensitive to several parameters of the model, but region-level outcomes are robust with respect to most of them and are sensitive only to parameters defining the share of consumers conscious of genetically modified organisms and the elasticity of demand for conventional product varieties.

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  • Andrei Sobolevsky & GianCarlo Moschini & Harvey E. Lapan, 2002. "Genetically Modified Crop Innovations and Product Differentiation: Trade and Welfare Effects in the Soybean Complex," Center for Agricultural and Rural Development (CARD) Publications 02-wp319, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    • Handle: RePEc:ias:cpaper:02-wp319
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    1. Antonio Seccia & Antonio Stasi & Luigi Roselli, 2006. "Atteggiamento dei consumatori nei confronti dell'evoluzione del sistema agro-alimentare: l'introduzione di alimenti geneticamente modificati," Economia agro-alimentare, FrancoAngeli Editore, vol. 10(1).
    2. Kaye-Blake, William & Saunders, Caroline M., 2006. "Estimated Contribution of Four Biotechnologies to New Zealand Agriculture," 2006 Annual meeting, July 23-26, Long Beach, CA 21133, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Kaye-Blake, William & Saunders, Caroline M. & Fairweather, John, 2005. "Optimal uptake of second-generation genetically-modified crops," 2005 Conference (49th), February 9-11, 2005, Coff's Harbour, Australia 137932, Australian Agricultural and Resource Economics Society.

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