Advances in genetic engineering involve more than scientific breakthroughs. Potential economic effects - some possibly undesirable - also need to be considered.biotechnology; agricultural commodities; agricultural policy

Carter, Harold O.

Logan, Samuel H.

Lohr, Luanne

English

Research Papers in Economics

Agricultural policy implications of 
biotec  hnolog  y  Samuel H. Logan  Harold 0.  Carter  Luanne Lohr 
New  technologies,  cultural  practices, 
and  resources so  far have enabled agri- 
culture to keep pace with the expanding 
world population and increasing demand 
for food. The rate of  increased agricultur- 
al productivity,  however,  has slowed  in 
recent years. 
Now  advances in  genetic engineering 
of  plants and animals apparently will al- 
low  major, sudden increases  in  agricul- 
tural productivity.  To some persons, ge- 
netic  engineering  and  other  new 
biotechnologies  are the  solution  to  the 
world’s hunger and health problems. Pub- 
lic and private-industry scientists and re- 
search leaders, for example, ranked  ge- 
netic engineering  of  plants and  animals 
first when asked to evaluate areas of  re- 
search with the greatest potential impact 
on  agricultural productivity  and with at 
least a 50 percent probability of  being in- 
troduced for commercial adoption by the 
year 2000 (see Yao-chi Lu, “Forecasting 
Emerging Technologies  in  Agricultural 
mechanisms, scientists will be able to ma- 
nipulate  those  beneficial  to  agriculture 
(for  example, encourage  stress  resis- 
tance) or harmful to agriculture (for ex- 
ample, break  down  insect  resistance to 
pesticides). The new technology has vast 
potential for plants and animals: growth 
regulation; embryo transplants;  gene in- 
sertion; disease control; resistance to en- 
vironmental  and  biological  stress from, 
for example, saline or drought conditions; 
nitrogen fixation; and pesticide and herbi- 
cide  tolerance. These  accomplishments 
may take much less time by genetic engi- 
neering  than  by  selective breeding  or 
cross-breeding,  if  the  more  traditional 
methods could achieve such results at  all. 
Despite  the strong interest  and  re- 
search emphasis on  genetic engineering, 
the field is still relatively new. The theor- 
ies  and  methods  of  gene  splicing  have 
been developed, but knowledge of  which 
genes transmit a given trait is far from 
complete.  Also,  the  factors that trigger 
Advances in genetic engineering involve more than 
scientific breakthroughs.  Potential economic effects - 
some possibly undesirable - also need to be considered. 
Production” in Emerging Technologies in 
Agricultural  Production, U.S.  Depart- 
ment  of  Agriculture,  October  1983). To 
others, genetic engineering conjures up a 
myriad  of  problems -  ethical, environ- 
mental, economic, and political.  The re- 
ality  probably  lies  somewhere  between 
these extremes. 
In  this  report,  we  consider  economic 
and policy ramifications that may accom- 
pany  developments in  genetic engineer- 
ing, referring to a  few specific projects 
for illustration. “Genetic engineering,” as 
used here, is the manipulation of  the infor- 
mation flow of  a biological system that is 
performed by  the genetic structure of  an 
organism.  This  manipulation  is  accom- 
plished  by  regulating  or altering the 
genes. 
By  “revising” or recoding the genetic 
structure of  an organism, researchers 
might  make plants  resistant to  various 
diseases,  herbicides,  or unfavorable  soil 
conditions; enhance the process of  photo- 
synthesis; or improve the chemical (nutri- 
ent or  caloric) composition of  the  plant 
for human  andlor animal consumption. 
With  an understanding  of  the  genetic 
workings  of  plant  and  animal defense 
the  genes’  activity  are not  yet  known. 
Each plant or animal cell contains thou- 
sands of  genes that affect particular phys- 
iological processes, but scientists can now 
work with only one gene at a time. 
Although altering the genetic structure 
becomes much more difficult as the num- 
ber  of  genes  involved  increases,  major 
achievements are on the horizon in cases 
involving relatively  simple processes. 
Howard  Bachrach,  in the same publica- 
tion as Lu, notes: 
Transformation  that  can  be  effected 
through  single-gene splicings have  the 
greatest prospects for early success. Fortu- 
nately,  these  include the  resistance  of 
plants to  a wide variety of  organisms in- 
cluding fungi, bacteria, viruses, mycoplas- 
mas,  nematodes  and  insects,  which  con- 
sume 25 to  30 percent of  American crops. 
Some new technologies will be in  use 
by the end of  the 1980s  according to some 
observers.  A  California  research  com- 
pany has put an herbicide-resistant  gene 
into  certain  plants,  which  allows  the 
plants to withstand weed spray. The com- 
pany expects to commercialize this find- 
ing within two years. Another  company 
has  developed  a  bovine  somatotropin 
(BST), which  will  significantly  increase 
milk production in dairy cows. Commer- 
cial availability of  BST is expected in the 
next  two  or  three  years.  UC  scientists 
have developed a bacterium that lowers 
the temperature at which frost develops 
on  the leaves of  plants. This type of  re- 
search has enormous  potential  for  in- 
creasing agricultural production (table 1). 
While most people support such tech- 
nological growth, there are many dimen- 
sions involved and many unforeseen out- 
comes for the future of  agriculture. 
Individual  producers, processors,  whole- 
sale and retail marketers, and consumers 
will feel the effects. 
Farmers may  have  to make rapid 
changes in  their operations to adopt the 
new  technologies  and  remain  competi- 
tive.  They will expect reduced  costs, in- 
creased yields, or both. The nature of  the 
product itself may also change as genetic 
engineering alters protein  content or en- 
hances photosynthesis. Such  develop- 
ments will require a continued emphasis 
on management practices and planning. 
Suppliers will face changing  demand 
for products they market to farmers. The 
development of  pesticide-resistant plants 
could  increase  demand  for  pesticides. 
There will  be  new  products  to  market: 
hormone  implants for  animals, plant 
sprays, and new seed stock. New methods 
of  marketing  and  providing  service  to 
customers will be required. The question 
of  property rights on marketable biotech- 
nologies is already an issue. 
Food processors and marketers will be 
affected,  because  changing  agricultural 
products  may  require  changes  in  han- 
dling,  safety  standards, and  processing 
techniques.  For example, the develop- 
ment of  a  genetic structure to preserve 
freshness  or  shelf  life  of  food  products 
would  affect inventory  planning.  Safety 
and  quality  regulations  will  need  to  be 
reexamined continually to keep pace with 
scientific developments. 
Consumers should expect lower rela- 
tive prices and improved quality from the 
new biotechnologies. (This does not neces- 
sarily mean, however,  that  per  capita 
food consumption will increase.) New pro- 
ducts and new forms of  old products will 
call for education  about their nutritional 
attributes. 
Given such changes, planning is need- 
ed. Larger farms with  innovative,  well- 
20  CALIFORNIA AGRICULTURE, JULY-AUGUST 1987 educated managers and the ability to ob- 
tain financing and handle risk will have a 
distinct advantage. The position that one 
region or nation has over another in crop 
production because of  weather, soil, and 
other  environmental  conditions  could 
change if  environmental tolerance  is in- 
serted into plants. Decisions on where to 
produce and process a crop could then be 
based to a greater extent on  transporta- 
tion and marketing considerations and the 
relative abilities to use the complex tech- 
nologies. 
The possible release of  the production 
location constraint is significant to Cali- 
fornia agriculture with its important ex- 
port markets. The creation of  plants that 
tolerate drought, can use salt water, are 
nitrogen-fixing, or produce increased pro- 
tein would  greatly  aid  developing coun- 
tries in  meeting their own food needs, if 
the particular technologicdl improvement 
is transferable. 
The private sector has been character- 
ized by rapid growth of  research compan- 
ies (and  the  quick  exit of  some) in  the 
search for the innovation that will provide 
the  economic  “gold  mine.”  Patentable 
changes, through the Plant Variety Pro- 
tection Act, offer monopoly power to the 
firm with the first “billion dollar  gene.” 
But monopolies may be broken overnight 
with the next discovery. Firms will have 
to make a substantial investment in re- 
search and development just to maintain 
their position in the industry. 
Genetic  engineering  may  substitute 
new inputs for existing ones (such as new 
seed stock) or add products for items now 
used (injections, sprays, implants for ani- 
mals). New inputs will call for new supply 
firms, and if  a desirable trait is not car- 
ried through from one generation  to the 
next (as was the case with hybrid corn), an 
entirely new supply source will develop in 
response. New  food products may be de- 
veloped that can be produced in an entire- 
ly nontraditional, factory-like setting. 
The  following example  illustrates 
some of  the ramifications of  genetic engi- 
neering and resulting policy questions. 
Research  at Cornell University  indi- 
cates that the bovine somatotropin, when 
injected into a cow, has the potential to 
stimulate milk production by  as much as 
25  percent  over  the  lactation  period. 
While  a  somewhat  higher energy ration 
must be  fed, no  ill effects on  either the 
animal or  milk  quality have been  ob- 
served  during  the  relatively  short  time 
the experiments have been conducted. 
Although  the  timing  depends on  how 
quickly producers adopt the new technol- 
ogy, the rapid addition of  25 percent more 
milk is not attractive in an industry whose 
excess capacity is already a severe prob- 
lem. The price of  milk could be expected 
to  drop, because  consumer  demand  for 
milk  and  milk  products  is relatively  in- 
elastic:  total  consumption  doesn’t in- 
crease as much  in  percentage  terms as 
the price falls.  The Cornell studies esti- 
mate that, if  price supports for dairy pro- 
ducts were removed and BST were intro- 
duced, the number of  dairy farms could 
fall by 40 percent. With the same assump- 
tions, Michael J. Phillips, of  the federal 
Office of  Technology Assessment, figures 
that cow numbers could drop by  30  per- 
cent. 
A major question about increased pro- 
duction  resulting  from  biotechnological 
developments such as BST is what would 
happen  to  the  resources  that would  be- 
come redundant. If  dairy farms were re- 
duced by 40 percent, what alternative em- 
ployment would producers have? With 30 
percent fewer cows, what would  happen 
to industries servicing dairies? What use 
would be made of  the land no longer need- 
ed for growing dairy feed? Reducing de- 
mand  for hay  and  grain  would  also de- 
crease water needs for irrigation. Lower 
dairy production  could permit realloca- 
tion  of  scarce water  supplies  for  other 
uses,  especially  in  urban  areas.  At  the 
same time,  higher  energy  feed  require- 
ments for the remaining dairy cows might 
require changes in crop rotation patterns 
to supply the feed. 
The implications  of  BST  thus  extend 
beyond the dairy industry. A question fac- 
ing members of  government and industry 
is how supply can be controlled in the face 
of  significant production increases stem- 
ming  from a  relatively  low-cost geneti- 
cally engineered alteration. Can such poli- 
cy  needs  be  foreseen  to  avert  the 
economic consequences?  What  policy 
changes would facilitate the departure of 
unneeded resources? Advance planning is 
essential to ease the pain of  severe adjust- 
ments in agriculture. 
The biological effects of  genetic engi- 
neering may  sometimes be  of  greater 
concern than the economic consequences. 
Some groups fear that the altered organ- 
isms may cause damage or be able to gain 
TABLE 1. Projections of increased production 
by year 2000, various US.  commodities 
Production 
Commodity  1982  2000  Increase 
% 
(1,000 Ib)  12.3  24.7  101 
Corn (bushels/acre)  115  139  12 
Cotton (Ib/acre)  481  554  15 
Rice (bushels/acre)  105  124  18 
Soybeans (bushels/ 
acre)  30  37  12 
Wheat (bushels/acre)  36  45  25 
Milk per cow 
SOURCE.  Michael  J.  Phillips.  Office  of  Technology 
Assessment. “Enhancing Competitiveness: Research and 
Technology  in  Agriculture.”  Paper  presented  at 
Symposium  on  Competition in the World Market Place: 
The  Challenge  for  American  Agriculture.  Kansas City. 
1985. 
a selective advantage over other organ- 
isms. Accidents may occur in the future, 
but overreaction to potential dangers also 
can  result  in  excessive  regulation  that 
could stifle advancement. 
Researchers have  little experience 
with or knowledge of  how genetically en- 
gineered plants and animals will interact 
with and affect the environment. Accept- 
able levels of  risk need to be established 
by the scientists, on the one hand, and the 
public, on the other. 
The questions accompanying BST and 
other developments  illustrate the  focus 
needed in policy planning for the new bio- 
technologies: the biological (environmen- 
tal) and economic implications of  success- 
ful research  achievements.  Assistant 
Secretary of  Agriculture Orville Bentley, 
in remarks to the USDA Challenge Forum 
on Biotechnology (February 1987), report- 
ed that the USDA is developing guidelines 
for evaluating the former: “All phases of 
all federally funded  biotechnology  re- 
search will be subject to these unified fed- 
eral guidelines,  and  we  will  encourage 
voluntary  compliance by  industry and 
other nonfederally funded organizations.” 
Coordinated planning for the economic 
policy  implications  of  biotechnological 
developments remains to be implement- 
ed, although the Office of  Technology As- 
sessment  and  Cornell  University  have 
studied the expected productive gains and 
economic feasibility of  some of  the break- 
throughs. The government, with its plan- 
ning  and  policy  agencies and  its ties to 
land grant institutions, is in a good posi- 
tion to act as a catalyst to such coordinat- 
ed research programs. Industry trade as- 
sociations  offer  another  mechanism  for 
planning. 
Federal constraints on research topics 
seem inappropriate and  stifling.  In  the 
private sector, the feasibility  of  biotech- 
nological research projects will be deter- 
mined  by  the  potential  payoff  and  the 
likelihood of  scientific success. Basic re- 
search will continue to be more the pur- 
view  of  the  universities  and  public  re- 
search bodies, but will require injection of 
outside funding support. While the avail- 
ability of  funding has a major impact on 
the direction that  research  programs 
take, it is doubtful that any one agency, 
private or  public, has sufficient  knowl- 
edge to  prescribe  what  these  programs 
should be. It is more efficient in the long 
run to allow research projects to develop 
freely, but with definite biological guide- 
lines for  release of  new  or altered pro- 
ducts and  with  analysis of  the potential 
economic effects in the context of  existing 
and alternative agricultural policy. 
Samuel H. Logan and Harold 0. Carter are Profes- 
sors of Am?cultural Economics, and Luanne Lohr is 
a graduaTe research assistant, Department  of Agri- 
cultural Economics, University of California, Davis. 
CALIFORNIA AGRICULTURE, JULY-AUGUST  1987  21 

Agricultural policy implications of biotechnology

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics