Surplus distribution from GM maize adoption in Kenya: A disaggregated ex-ante analysis Anwar Naseem,...
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Transcript of Surplus distribution from GM maize adoption in Kenya: A disaggregated ex-ante analysis Anwar Naseem,...
Surplus distribution from GM maize adoption in Kenya:
A disaggregated ex-ante analysis
Anwar Naseem, Rutgers UniversityLatha Nagarajan, IFDC
Carl Pray, Rutgers University
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.
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
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)
1998 2000 2002 2004 2006 2008 2010 2012 20140.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1.6
3.4
2.1
Area Mha
Production Mill tons
Yield T/ha
Consumption (Food) Mil tons
Source: FAO, 2014
ContextKenyan Maize Utilization
ContextMaize Marketing Channel
Source: Kirimi et al (2011)
ContextMaize Value Chain Simplified
Input suppliers Seeds Fertilizer Chemical
Farmers
Smallholders Large
Processors
Posho Millers Commercial
Consumption Food use Feed use
Node 1 Node 2 Node 3
Expected Impacts from GM Maize(Bt-, HT-, DT- Maize)
Stakeholders Expected Impact Magnitude
Input suppliers
Multinational seed & biotech Royalties, new / expanded markets for hybrids +++
Regional-African & domestic firms
Expand markets for hybrids, protect current market, R&D expansion
++
Pesticide firms
Insecticides Small decline in pesticide use -
Herbicides HT increases demand and use ++
Producers - Farmers
Small Improved yields, reduced input costs, reduce risk of loss, increase home consumption
+++
Medium-Large Improved yields, reduced input costs, reduce risk of loss, increase marketed surplus
++
Processors (Millers – feed /food) ?
“Posho” Millers Reduced prices; inferior processing technology; limited capacity to expand
++
Commercial Millers Reduced prices; better processing technology; excess capacity
+++
Consumers (Rural and Urban) Reduced prices +
Economic Surplus in Multistage Production
PR0 PR1
P SR0
SR1
DR0
QP0
PP0
PP1
DP0
SP0
DF
SF0
SF1
Processing Inputs
P
Farm Quantity
P
PF0
QF0
Retail Quantity
DP1
PF1
QF1
QR0 QR1
QP1
PR0
P SR0
DR0
QP0
PP0
DP0
SP0
DF
SF0
Processing Inputs
P
Farm Quantity
P
PF0
QF0
Retail Quantity QR0
PR0 PR1
P SR0
SR1
DR0
QP0
PP0
PP1
DP0
SP0
DF
SF0
SF1
Processing Inputs
P
Farm Quantity
P
PF0
QF0
Retail Quantity
DP1
PF1
QF1
QR0 QR1
QP1
Key Equations
0 0
0 0
0 0 0 0
Farmer Surplus Processor Surplus
(1 0.5 )
( )(1 0.5 )
( )( / )(1 0.5 ) ( )( / )(1 0.5 )F P
CS PR QR Z Z
PS PR QR K Z Z
PF QF K Z Z PPQP K Z Z
Where K is the vertical shift of supply function,Z is the relative price reduction ε is the demand elasticityη is the supply elasticity
Farmer surplus can be further disaggregated between small and large land ownersProcessor surplus can be further disaggregated between “posho” millers and commercial
Change in innovator profits are IS A L
Yield Assumptions
Yield Assumption – Farm size based
Acreage (million ha)
Production (million tonnes)
Yield (tonnes / ha)d
Small Large TOTAL Small Large TOTAL Small
Large Mean Yield
1.6336b 0.4084b 2.042a 2.2778 0.9762 3.254a 1.3943 2.390 1.5935
Adoption Assumptions (2016-2025)(Area shares are % of total hybrid area)
2016 2017 2018 2019 2020 2021 2022 2023 2024 20250%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Non GM
30%
BRDT; 0.4
HT
0.2IR+DT
IR
5%
Years
% sh
are
of h
ybrid
s are
a
GM pipeline:2016- Bt2018- BtDT2022-HT2025-BtHtDT
Source: Calculated by authors based on assumptions
Baseline Parameter Values Value Source and assumptionsDemand 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 ( )
0.80.680.92
DeGroote et al (2011)Assumed
Average maize seed priceFarm level ( ) Retail level ( )
10542 KES/MT11314 KES/MT
Nzuma and Sarker (2010)
Domestic SupplyMarketed supply of maize by smallholder ( )
Marketed supply of maize by large landowners ( )
1.8824 MT0.9762 MT
Assumes 50% of the smallholder production is marketed, and 100% by large landowners
Domestic DemandDemand by Posho Miller ( )
Demand by Commercial Miller( )
0.4198 MT2.3788 MT
Assumes 85% of total marketed supply is processed by commercial millers
2p2c2s2l
Results
Trait
Farmers(Producer Surplus)
Millers(Consumer Surplus) Total
Producer
Surplus
Total Consum
er Surplus
Total Surplus
Small Large Total Posho Commercial Total
Bt 4.7 3.1 7.8 0.2 0.4 0.6 8.4 15.7 24.0BtDT 34.3 14.7 49.0 1.1 2.5 3.6 52.6 98.7 151.3HT 0.4 1.0 1.4 0.0 0.1 0.1 1.5 2.8 4.3BRDT 2.8 1.7 4.5 0.1 0.2 0.3 4.8 9.0 13.7TOTAL 42.2 20.5 62.7 1.4 3.2 4.6 67.2 126.1 193.3
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.
Trait Year
Total seed market
(US$ Mill)
GM seed market (% to total seed
market value)
Non GM 2012-13 69 0
Bt 2016 80 10
BtDT 2018 85 34
HT 2022 103 63
BRDT 2025 118 90
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
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
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