1. Surplus distribution from GM maize adoption in Kenya: A disaggregated ex-ante analysis Anwar Naseem, Rutgers University Latha Nagarajan, IFDC Carl Pray, Rutgers University

2. Motivation No GM crops have been approved for cultivation in Kenya, in spite of ex ante evidence suggesting significant benefits Bt maize (De Groote et al., 2011) - 33% to producers and 67% to consumers Drought tolerant (Kostandini, Mills and Mykerezi, 2011) yield increase 68% to producers and 32% consumers Drought tolerant and WEMA (Dalton, Pray and Paarlberg 2011); gains to producers (depending on assumptions) yields have no impact on consumers Herbicide tolerant (Kalaitzandonakes, Kruse, and Gouse, 2012) Only report total surplus $41-146 million.

3. Motivation Yet welfare gains vary within groups – Consumers (rural vs uban; food vs feed) – Producers (smallholders vs farmers) – Seed and biotech firms (foreign vs domestic; small vs large) – Others along the value chain Wholesalers Processors Retailers

4. Objectives To estimate the distribution of benefits / losses among key agents along the Kenyan maize value chain To understand whether the distribution of these benefits / losses explains the position of key interest groups vis a vis GM crop policy and their lobbying efforts

5. Trends in maize area, production, yield and consumption (2000- 2013) 5 Source: FAO, 2014

6. Context Kenyan Maize Utilization

7. Context Maize Marketing Channel Source: Kirimi et al (2011)

8. Context Maize Value Chain Simplified

9. Expected Impacts from GM Maize (Bt-, HT-, DT- Maize) StakeholdersExpected ImpactMagnitude Input suppliers Multinational seed & biotechRoyalties, new / expanded markets for hybrids+++ Regional-African & domestic firms Expand markets for hybrids, protect current market, R&D expansion ++ Pesticide firms InsecticidesSmall decline in pesticide use- HerbicidesHT increases demand and use++ Producers - Farmers SmallImproved yields, reduced input costs, reduce risk of loss, increase home consumption +++ Medium-LargeImproved yields, reduced input costs, reduce risk of loss, increase marketed surplus ++ Processors (Millers – feed /food)? “Posho” MillersReduced prices; inferior processing technology; limited capacity to expand ++ Commercial MillersReduced prices; better processing technology; excess capacity +++ Consumers (Rural and Urban)Reduced prices+

10. Economic Surplus in Multistage Production

11. Key Equations Where K is the vertical shift of supply function, Z is the relative price reduction ε is the demand elasticity η is the supply elasticity Farmer surplus can be further disaggregated between small and large land owners Processor surplus can be further disaggregated between “posho” millers and commercial Change in innovator profits are

12. Yield Assumptions

13. Yield Assumption – Farm size based Acreage (million ha) Production (million tonnes) Yield (tonnes / ha) d SmallLargeTOTALSmallLargeTOTALSmall LargeMean Yield 1.6336 b 0.4084 b 2.042 a 2.27780.97623.254 a 1.39432.3901.5935

14. Adoption Assumptions (2016-2025) (Area shares are % of total hybrid area) Source: Calculated by authors based on assumptions

15. Baseline Parameter Values ValueSource and assumptions Demand Elasticity Demand elasticity of Posho Miller( ) Demand elasticity of Commercial Miller ( ) -0.53 -0.83 Nzuma (2008) Supply Elasticity Supply elasticity of smallholder( ) Supply elasticity of Large landowners ( ) 0.8 0.68 0.92 DeGroote et al (2011) Assumed Average maize seed price Farm level ( ) Retail level ( ) 10542 KES/MT 11314 KES/MT Nzuma and Sarker (2010) Domestic Supply Marketed supply of maize by smallholder ( ) Marketed supply of maize by large landowners ( ) 1.8824 MT 0.9762 MT Assumes 50% of the smallholder production is marketed, and 100% by large landowners Domestic Demand Demand by Posho Miller ( ) Demand by Commercial Miller( ) 0.4198 MT 2.3788 MT Assumes 85% of total marketed supply is processed by commercial millers

16. Results Trait Farmers (Producer Surplus) Millers (Consumer Surplus) Total Produc er Surplus Total Consum er Surplus Total Surplus SmallLargeTotalPoshoCommercialTotal Bt 4.73.17.80.20.40.68.415.724.0 BtDT 34.314.749.01.12.53.652.698.7151.3 HT 0.41.01.40.00.1 1.52.84.3 BRDT 2.81.74.50.10.20.34.89.013.7 TOTAL 42.220.562.71.43.24.667.2126.1193.3 Share in PS/CS 21.81%10.60%32.41%0.74%1.64%2.37%34.78%65.22% Share in TS 67.3%32.7%31.0%69.0% Surplus in $ million for the period 2016-2026

17. Impacts on seed and biotech industry The Kenyan maize hybrid market size currently US$ 69 Million – Dominated by Kenya Seed Company – 70 % of the maize market share – Local, domestic firms – 20 %; MNCs – 10 % With GM introduction in 2016 the seed market is projected to double in sales – around US$ 118 million in 2025, with 90 % of sales from sale of GM seeds. 17 TraitYear Total seed market (US$ Mill) GM seed market (% to total seed market value) Non GM2012-13690 Bt20168010 BtDT20188534 HT202210363 BRDT202511890

18. Impacts on seed and biotech industry -2 Assumptions: Area of hybrids & adoption from previous FIG., hybrid seed price $2.1/kg, seed rate 25kg/ha, Bt seed price 25% higher, Bt+DT price 30% higher, Bt+DT+HT 40% higher, and royalty is 40% of price increase. Seed and biotech industry Margin: Major benefits to Kenyan seed companies (60 % of market sales). Bt and drought tolerance royalty free. HT requires royalties

19. Impact on pesticide industry profits, prices, and quantity used Bt introduction may have variable impacts – agro- ecologically – Insecticide Use – mostly in high intensity areas only – US$ 10 – 25 /ha – up to 8 % of CoP – 5 % reduction in use of insecticides for borers & incremental yield benefits are expected. HT introduction will increase the use of herbicides and its demand – Weeding costs represent 45 – 75 % of total labor cost – Herbicides account for < 2 % of cost of cultivation expenses – 15% farmers use H/C currently 19

20. How do the potential winners and losers influence GM policy? Seed industry - STAK – KSC (Parastatal and market power) Farmers – Kenya farmers association – small – Kenya Cereal Growers Association – – KAON – organic…. – Export farmers (of other cash crops) Millers – – Cereal Millers Association – food and feed – big guys – United Grain Millers and Farmers Association (UGMFA) posho/hammer millers Pesticide industry – – Kenya association – Crop life for fake inputs and currently on herbicide use/HT in Africa campaign Consumers --- Consumer international, NGOs 20

21. Conclusion Consumer gains as group but limited on a per capita basis; limited collective action Little gain for processors / millers Gain for smallholders but limited political power Gain for seed industry