1. The Political Economy of Adoption of GM Rice Technology in India
Gal Hochman, Latha Nagarajan, Carl Pray

2. Genetically modified crops
Although GM technology for some important food crops is available and has demonstrated benefits to small farmers and consumers in other developing countries, regulations and policies in India are holding back its deployment in food production.
If suitable GM technology were not available, political decisions and regulations would not have any direct bearing on the matter.
Since the requirement of NOCs, only Gujarat, Punjab and Andhra Pradesh (A.P.) have approved field trials of GM maize in their state and only A.P. approved field trials of GM rice.

3. Genetically modified crops
However, scientists on the biosafety technical committees in India have reached the conclusion that some GM food crops such as Bt Brinjal are not only available for use, but they are safe and will have positive economic impacts.
However, policy makers in the Ministry of the Environment and Forests (MoEF) vetoed Genetic Engineering Approval Committee’s (GEAC) approval of Bt eggplant.
In addition field trials of most GM crops have ground to a halt because the GEAC now requires no objection certificates (NOCs) from all state Chief Ministers before the field trials can continue.
Since the requirement of NOCs, only Gujarat, Punjab and Andhra Pradesh (A.P.) have approved field trials of GM maize in their state and only A.P. approved field trials of GM rice.

4. Economic interests
What is behind these policy and regulatory constraints to production of GM food in India?
To try and answer this question, we will
Try and identify what economic interests can lead to the formation of policy; and
which groups and which regions of the country could gain or lose economic benefits from the adoption of the GM technology.

5. What we show
When simulating the introduction of a GM technology, we separate between two effects:
The impact of the technology on input uses (e.g., insect resistance trait reduces use of insecticides, while nitrogen use efficient trait reduces the need for fertilizers), and
The adoption of the GM technology reduces crop risk and thus leads to better crop management and further investment in the production processes resulting in higher yield.

6. What we show We, then, show that economic gains are largest in
regions with efficient rice producers and
in regions whose production process benefits the most from the GM trait:
For example, herbicide tolerance traits benefits regions whose labor cost share is highest
While HT impacts allocation of inputs, it has less of an impact on yield. On the other hand, IR and NUE impact yield much more.
Policy maters: The minimum support price of paddy rice to Indian farmers affects (significantly) the distribution of benefits among the various stakeholders.

7. What do we do
We develop a state-level supply chain model that evaluates and quantifies implications from the introduction of GM rice on surpluses of stakeholders along the supply chain of rice.

8. The rice supply chain The analysis distinguishes among
agricultural inputs (i.e., labor, machine, chemicals, seeds, and water)
upstream paddy market
Midstream milling markets
Downstream market for rice and processed rice.

9. The upstream market Production structure:
The paddy rice is produced using chemicals, machinery, labor, seeds, and irrigation
The paddy rice production function is calibrated using cost- share of inputs reported in the data (i.e., Indian Commission for Agriculture Costs and Prices).
We assume 5% of paddy rice produced is used as seeds for next year, the rest is sold to the mills / procurement
Throughout the analysis, the minimum support price is constant at 900 Rs. / 100 kg (i.e., 9000 Rs. / metric ton)

10. A shift in supply of paddy rice
PMSP
Subsidy D
Qr1
Qr1

11. Midstream market While Qr denotes paddy rice, X denotes milled rice
The mill production structure: X=B⋅Qrγ
Where 0<γ<1 and B>0
The paddy yield:
Rice = 67%
Husk = 21%
Rice Bran = 8%
Small Broken = 2%
Rice Husk small = 1-2%
The milled rice price is double that of the paddy rice price

12. Downstream market Rice is used for consumption, We assumed:
20% loss of paddy rice
Out of the 80%
67% used to produce milled rice, which is consumed as food
29% creates value (e.g., used to produce processed food), and adds 17 US$ per ton. Afew million metric tons are used to produce Chira, Khoi, and Muri, as well as other products.
Final rice price is 20% higher than the midstream price, reflecting a retail profit margin of 7% to 10%

13. The simulated scenarios
We assess the impact of adoption of the following traits:
Insect resistant,
Herbicide tolerant,
Nitrogen use efficient, and
Yield enhancer.

14. The rice supply chain: Total factor productivity and input shares

15. Farmers’ operating costs are 75% of revenues
The calibration suggests highest productivity in Gujat, Punjab, and Uttarakhand.
The analysis also suggests average total factor productivity of 0.76
The log-linear structure suggests the following average cost shares:
fertilizers – 0.07,
machine – 0.10,
bullock – 0.07,
labor – 0.41,
seeds – 0.05,
insecticides – 0.02 and
irrigation – 0.03.

16. Number of approved field trials
2009
2010
2011
2012
Companies
Yield 2 3
BASF, DuPont, Bayer, MAHYCO
Insect resistance 1
Metahelix
Herbicide tolerance 4
DuPont
Stacked
(IR & HT)
Bayer
Stress tolerance
U of Calcutta

17. The simulated scenarios
Four counter factual scenarios are assumed
Insect resistance (IR);
Herbicide tolerance (HT);
Nitrogen use efficiency (NUE);
Yield increase (YI);

18. Insect resistance
When simulating the effect of the introduction of IR rice on various economic agents along the supply chain, we made the following assumptions:
The seed cost per hectare of IR genetically modified rice increases by 10% relative to that of the non-GMO rice.
The introduction of IR rice led to a reduction in risk and thus better crop management and use and more investment in cultivation and production of rice, formally resulting in a 5% Hicks-neutral technological change (Anderson 2008).
The introduction of IR transgenic rice results in a decline of 15% in the use of pesticides (recall that our assumptions suggests that price of pesticides is fixed). Formally, we assumed that the amount of pesticides used declines by 15%, and that the cost- share of insecticides declines by 15%.

19. Input use: IR

20. Herbicide tolerance Assumptions made for the numerical analysis:
The introduction of HT traits affects seeds costs, and the cost of seeds goes up by 10% (Hareau et al., 2005);
The introduction of HT traits results in a 5% Hicks-Neutral shift (Anderson);
The introduction of HT traits leads to a 10% increase in the amount of herbicides used.
The introduction of HT traits leads to the elimination of weeding labor (on average, 25% of total weeding costs).

21. Manual weeding costs

22. Nitrogen Use Efficiency
When simulating the counter-factual scenario of the adoption of NUE traits, we made the following assumptions:
The introduction of NUE traits affected seeds costs, whereby the cost of genetically modified seeds goes up by 10% (Hareau et al., 2005);
The introduction of NUE traits results in a 5% Hicks-Neutral shift; and
The introduction of NUE traits leads to a 15% decline in amount of fertilizers used.

23. Yield increasing
Yield increasing trait will improve the crops yield, without impacting the input use.
The yield modification will also impact the price of the seeds.
Specifically, we assume seed prices go up by 10% and the yield trait increases yield via a Hicks-Neutral technological change of 15%.

24. Impact on Yield

25. Impact on prices: levelIR HT
NUE
Yield
Midstream 0
1800
Midstream 1
1675
1764
1698
1436
Downstream 0
2160
Downstream 1
2098
2142
2109
1970

26. Percent price change

27. Benefit to farmers (hectare: 10,000 square meters)IR HT
NUE
Yield
Andhra Pradesh
531
3470
707
1618
Assam
110
1519
154
407
Bihar
233
1932
335
915
Chattisgarh
198
826
272
723
Gujarat
334
2179
461
1281
Haryana
442
1410
554
1198
Karnataka
373
2146
644
1517
Madhya Pradesh
104
213
193
427
Orissa
124
1702
320
614
Punjab
1005
1398
1104
2947
Tamil Nadu
199
2036
579
977
Uttar Pradesh
234
1750
460
1030
West Bengal
258
1745
520
1077

28. Field trials completedIR HT
NUE
Yield
Average
Andhra Pradesh (11) 2 1
1.75
Gujarat
(7) 5 7 4
4.5
Punjab
(1) 11
3.5

29. Benefits: Supermarkets and moms and pops stores

31. Fertilizers are over utilized in India
The benefits from the adoption of NUE to the economy, however, are much larger
Assuming the price of fertilizers is fixed, a 25% reduction in nitrogen use (which in accounted for about 60% of total fertilizer use) suggests a 15% reduction in cost of fertilizers
equivalent to an annual saving of 33,676 million Rs. – almost 600 million US$.

32. Concluding remarks
The analysis suggests that benefits are largest in the efficient rice producing regions,
But also in regions where the benefit from the change in input-use is most substantial.
The results suggest that the technologies that resulted in the largest impact on production cost, ceteris paribus, yielded the largest gain to farmers but the lowest benefit to consumers (HT versus IR and NUE).
When the technology resulted in a substantial yield increase (yield enhancing trait) the benefits to the consumers are largest.
Policy plays a key role when quantifying the benefits from the various technologies