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 nonselective 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, blueberry container 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, 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 .10 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 . 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-crop producing 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 . These regulations have the potential to ensure that there is some demand for non-GM grain. 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, nonadopters may indirectly benefit from the introduction of transgenic rice. There is good evidence that foreign regulations have affected export demand for transgenic crops, but there is mixed evidence of price premia for traditional non-GM grains. For example, after the United States started growing GM corn, EU corn imports from the United States dropped from 2.1 million metric tons in 1995 to just under 22,000 metric tons by 2002 [USDA, Foreign Agricultural Service 2003b]. Notably, however, the gap in U.S. corn sales to the EU was filled by Argentina, a transgenic producer that only grows varieties approved by the EU . On the other hand, imports of U.S. corn byproducts to the EU have dropped only slightly since 1995 . The U.S. GM soybean export share in Europe has suffered as well, declining by more than 50 percent since 1997 . Price premia exist for non-U.S. corn in Japan and the Republic of Korea, traditional soybeans in Japan, and non-transgenic corn at elevators in the U.S., typically ranging from 3 to 8 percent . However, there is little evidence for price differentials between the GM and non-GM product in the canola market . The global market for rice differs from the market for soybeans in that the majority of rice sold is for human consumption rather than for animal feed. As a result, the market-acceptance issue is likely to be a key determinant of the success of transgenic rice adoption in California . As can be seen in Table 1, the export market for California rice accounts for approximately one-third to one-half of total annual production with Japan and Turkey as the major destinations. California Japonica rice imported by Japan is channeled through a quota system that was negotiated at the Uruguay Round in 1995. Most of California’s rice exports are purchased by the Japanese government and used for food aid and for other industrial uses, including food and beverage processing . Only a small portion of this imported high-quality rice is released into the domestic Japanese market .
Turkey is reportedly attempting to severely restrict imports of transgenic crops through health regulations, despite importing corn and soybeans from the United States , growing blueberries in containers while Japan requires labeling of 44 crop products that contain more than 5 percent transgenic material as one of the top three ingredients . Currently, several varieties of HT and viral resistant rice have entered the Japanese regulatory system for testing but have not yet been approved for food or feed use . As an illustration of potential market resistance, Monsanto suffered setbacks in Japan in December 2002 when local prefecture authorities withdrew from a collaborative study to develop a transgenicrice cultivar after being presented with a petition from 580,000 Japanese citizens . In 2002, China imposed additional restrictions on transgenic crops, including safety tests and import labeling . However, this action may be nothing more than a trade barrier to reduce soybean imports from the United States. In addition, China is worried that introducing biotech food crops may jeopardize trade with the EU. Nevertheless, China is not taking a back seat in transgenic crop research, as it has a major ongoing research program on biotech rice and other crops and is predicted to be an early adopter . There is also some skepticism in the United States with regard to GM crops. Aventis was sued in 2000 over accidental contamination of taco shells by transgenic corn that was not approved for human consumption, resulting in an expensive food recall. The company subsequently decided to destroy its 2001 LibertyLink® rice crop rather than risk its potential export to hostilenations . Kellogg Company and Coors Brewing Company have publicly stated that they have no plans to use transgenic rice in their products due to fears of consumer rejection, and several consumer and environmental groups favor labeling of foods made from transgenic crops . For most food and beverage products manufactured by these companies, however, rice accounts for a small input cost share, resulting in little financial incentive to support GM crop technology. In May 2004, Monsanto announced that it was pulling out of GM wheat research in North America, partly due to consumer resistance. This has important implications for commercialization of GM rice because both grains are predominantly food crops. Many California rice farmers are concerned over the confusion regarding GM crops and do not want to jeopardize export market sales. This fear has been exacerbated by Measure D on the November 2004 ballot in a major rice-producing county that would have prohibited farmers from growing GM crops. A 2001 survey of California growers performed by the University of California Cooperative Extension showed that, of the respondents, 24 percent planned to use transgenic varieties, 37 percent would not, and the remainder were undecided . Of those growers who answered “no,” 78 percent responded that market concerns were a reason. Nevertheless, if profitability at the farm level increases, it is likely that a subset of California producers will adopt the technology . Presumably, those with the most significant weed problems and hence the highest costs would be the first to adopt.UCCE produces detailed cost and return studies for a wide variety of crops produced in California, including “Rice Only” and “Rice in Rotation.” The studies are specific to the Sacramento Valley region where virtually all California rice is produced. Figures on herbicide applications are based on actual use data as reported by DPR and UC Integrated Pest Management Guidelines . The most recent study completed for rice is by Williams et al. and is used as the basis for this study. As the potential adoption of transgenic rice is unlikely to significantly change farm overhead expenses on average, we focus on returns and operating costs per acre as reported in the sample-costs document. However, given weed-resistance evolution, changing regulations from DPR, and changes in the 2002 Farm Bill, the baseline cost scenario is adjusted here to account for changes in herbicide-use patterns, prices of herbicides and rice, and projected government payments. Using information from the 1999 pesticide use report compiled by DPR, the 2001 sample costs assume applications of bensulfuron and triclopyr, both broadleaf herbicides, on 25 and 30 percent of the acreage, respectively, and applications of the grass herbicides molinate and methyl parathion on 75 and 45 percent, respectively, of the acreage. These figures are updated using data from Rice Pesticide Use and Surface Water Monitoring, a 2002 report by DPR, as interpreted by the authors.