No. 7-1998

Transgenic Virus Resistant Potatoes in Mexico:

Potential Socioeconomic Implicationsof North-South Biotechnology Transfer

Matin QaimAgricultural Economist

Center for Development Research (ZEF)

Published by: The International Service for the Acquisition of Agri-biotechApplications (ISAAA).

Copyright: (1998) International Service for the Acquisition of Agri-biotechApplications (ISAAA) and Center for Development Research (ZEF).

Reproduction of this publication for educational or other non-commercial purposes isauthorized without prior permission from the copyright holder, provided the source isproperly acknowledged.

Reproduction for resale or other commercial purposes is prohibited without the priorwritten permission from the copyright holder.

Citation: Qaim, M. 1998. Transgenic Virus Resistant Potatoes in Mexico: PotentialSocioeconomic Implications of North-South Biotechnology Transfer. ISAAA Briefs No.7. ISAAA: Ithaca, NY. pp. 48.

Edited by: David Alvarez and Anatole Krattiger.

Author’s address: Center for Development Research, Universität Bonn, Walter-Flex-Str. 3, D-53113Bonn, Germany, Tel.: ++49-(0)228-73-18 41, Fax: ++49-(0)228-73-18 69, E-Mail:mqaim@uni-bonn.de Web: http://www.zef.de

ISBN: 1-892456-09-5

Available from: The ISAAA Centers listed below. For a list of other ISAAA publications, contact the nearest Center:

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isaaa@cornell.edu

Also on: www.isaaa.cornell.edu

Cost: Cost US$ 10 per copy.Available free of charge for developing countries.

i

Contents

Executive Summary ....................................................................... iii

List of Figures ................................................................................. v

List of Tables .................................................................................. v

List of Abbreviations and Acronyms.............................................. vi

1. Introduction ................................................................................................................................................1

2. Conceptual Framework ...............................................................................................................................22.1 Scenario Approach .............................................................................................................................22.2 Methodology ......................................................................................................................................32.3 Data for Analysis ................................................................................................................................5

3. The Mexican Potato Sector..........................................................................................................................63.1 National Potato Production ................................................................................................................63.2 Potato Marketing and Trade Channels ...............................................................................................15

4. The Recombinant Potato Technology ........................................................................................................204.1 Background of Agricultural Biotechnology in Mexico .......................................................................204.2 The Biotechnology Transfer Project ...................................................................................................204.3 Agronomic Technology Potentials .....................................................................................................224.4 Technology Adoption ........................................................................................................................244.5 Technology-Inherent Risks.................................................................................................................274.6 Biosafety Developments ....................................................................................................................27

5. Counting Potential Technology Benefits and Costs ...................................................................................285.1 Benefits at the Individual Farm Level .................................................................................................285.2 Structure of Scenarios to be Analyzed ...............................................................................................295.3 Aggregate Benefits and Distributional Effects .....................................................................................315.4 Costs of the Technology Project ........................................................................................................335.5 Summary Measures of Economic Effects ............................................................................................335.6 Sensitivity of Results ..........................................................................................................................34

6. Conclusions and Policy Implications .........................................................................................................35

Acknowledgements........................................................................................................................................37

References .....................................................................................................................................................37

Appendix A: Supplementary Tables and Figures ...........................................................................................40

Appendix B: List of Personnel Contacted......................................................................................................47

iii

Executive Summary

Despite the rapid international development of bio-technology, we still lack knowledge and informationabout how low- and middle-income countries can bestaccess this promising technology. Nor are the socio-economic repercussions of applying biotechnology inthese countries’ agricultural sectors well understood.This study seeks to fill in some of the gaps in ourknowledge by analyzing a biotechnology transfer proj-ect that provided proprietary recombinant potato tech-nology to Mexico.

In 1991, the government of Mexico and the private UScorporation Monsanto entered into a North-South bio-technology transfer agreement in which Monsantoagreed to donate non-conventional virus resistancetechnology for potatoes. ISAAA developed andbrokered the agreement, and the Rockefeller Founda-tion provided funding for the project. Two public Mexi-can research institutes, CINVESTAV and INIFAP,carried out product development and adapted the tech-nology to local potato varieties. In 1993, the first trans-genic potato field trials in Mexico took place. Therelease of three transformed varieties (Alpha, Norteñaand the red variety Rosita) with resistance to the potatoviruses PVX and PVY is expected in 1999. After seedmultiplication by national seed producers, farmers’technology adoption could start from the year 2000onwards, under optimistic assumptions. In addition, anew project phase began in 1997, when Monsanto do-nated technology that confers resistance to PLRV, aneconomically more important virus in Mexico than PVXor PVY, but for which non-conventional resistance hadnot previously been available. The release to seedgrowers for multiplication of Norteña and Rosita varie-ties resistant to all three viruses is scheduled for 2001.The use, however, of the PLRV technology in Al-phathe country’s most popular and widely used po-tato varietyis prohibited in the current licensingagreement. Since none of these technologies have yetreached farmers’ fields, the socioeconomic effects ofthese innovations are quantitatively analyzed within anex ante framework by means of an equilibrium dis-placement model of the Mexican potato market.

The most pressing phytosanitary problem in Mexicanpotato production does not have biotechnological norconventional solutions. Virus resistance nevertheless isthe priority need for which proven technologies areavailable. The limited use of pathogen-free seed mate-rialonly 23 percent of the land devoted to growingpotatoes is cultivated with certified seedsleads to vi-rus-induced yield losses that are much higher than in

countries with better developed potato seed industries.Genetic resistance is therefore likely to considerably in-crease potato yields, even without additional inputs.On average, the potential net yield gain of the trans-genic varieties is projected to be 5 percent with resis-tance to PVX and PVY only, with an increase to 22percent when resistance to PLRV is added. These pro-ductivity increases will raise income levels for Mexicanpotato farmers and will also benefit domestic consum-ers, who will pay lower prices as long as the interna-tional potato trade remains limited. In a closed potatoeconomy, consumers would capture about half of thetotal economic benefits created by these biotechnologyapplications. Increased international potato tradeapossible outcome of the NAFTA trade agree-mentwould slightly reduce the overall advantage ofthe technology, though with an increased benefit sharefor domestic producers.

This study includes an analysis of hypothetical scenar-ios in which the Alpha variety also possesses resistanceto PLRV. The results show that if Monsanto were to do-nate PLRV resistance for the Alpha variety, then theproject’s Internal Rate of Return (IRR) would increasefrom 50 to 64 percent, and, even more impressively,the aggregate benefits of the biotechnology transfercould triple. The additional cost of including this resis-tance would be low because of Mexico’s previous ex-perience in related technology development.Furthermore, because Alpha is not widely grown incountries other than Mexico, Monsanto’s own com-mercial interest in transforming the variety would notbe more than moderate.

New agricultural technologies are often criticized forfostering inequality among farmers. The potential ef-fects of the distribution of recombinant potato technol-ogy, therefore, are explicitly considered in this study interms of different farm sizes. On average, potato farmsin Mexico are larger than those devoted to more basicfood crops. In addition, potato production is predomi-nantly for commercial purposesproduction forhousehold consumption is negligible. Still, there arestriking differences between different potato farm types.In the northern parts of the country, large potato pro-duction units with advanced technological standardspredominate, while in the central and southern parts ofMexico there are more small, resource-poor farms. Thesmaller the farm, the fewer the purchases of certified,clean seed material. Most of the smaller producers usefarm-saved seeds or buy tubers destined for the freshmarket from larger producers. The repeated vegetative

iv

reproduction of potato seeds leads to a constant virusbuildup in the stock, so that virus-induced yieldlossesand thus agronomic technology potentialsarehighest in smaller farming systems. So, while PVX-PVY-PLRV resistant varieties decrease per unit productioncosts on large farms by 13 percent, small-scale produc-ers’ costs are even cut by 32 percent. These significantbenefits would be limited, however, by the current seeddistribution system, which is based upon a farm type-specific pattern of variety use. Many small and me-dium-scale farmersespecially those cultivating inhigher altitudesoften use local red colored varieties,which are less susceptible to potato late blight than im-ported cultivars. But wealthier large-scale farmers, theprimary market for certified seeds, never use these redvarieties. Private seed producers, therefore, have no in-centive to sell them. In fact, Mexico has no formal seedmarket for colored potato varieties. Establishing a seeddistribution system for these potato varieties is essentialto making the benefits of biotechnology available to allof Mexico’s potato farmers. While CINVESTAV worksto transform the most important red vari-etyRositafor virus resistance, and while transgenicbreeder material will be available at the R&D level, theinstitutional bottleneck in the current seed distributionsystem will hamper efforts to multiply and disseminateit. Without particular programs developed to addressthese constraints, the adoption of biotechnology by re-source-poor farmers would be unsatisfactory, and thiswould create greater income disparities between largeand small-scale farmers.

In order to increase the participation of small and me-dium-scale farmers in the new technology, a subsidizedseed distribution mechanism for the transgenic Rositavariety is proposed. Its implementation could be basedon an already existing instrument for the country’smaize and bean sectors under the national programAlianza para el Campo. To speed up the adoption ofimproved varieties by smaller farmers, government or-ganizations buy certified seeds of maize and beans atcommercial prices and sell them to resource-poorfarmers at subsidized rates. Extending this program toinclude potatoes would help to equalize the benefits ofthe recombinant technology. The guaranteed demandfor transgenic Rositas by the state would automaticallycreate enough incentive for private seed producers tostart handling this variety. Moreover, these subsidieswould exclusively address those most in need, sincewealthier large-scale farmers do not use the red variety

Rosita. Scenario calculations demonstrate that the pro-posed distribution mechanism would have positive im-plications in terms of equity and would enhance overallefficiency at the same time: the IRR would rise from 50to 59 percent. These results clearly show that a newtechnology’s general agronomic suitability for a certainenvironment is only one element that influences its ac-tual effects. The institutional factors and support sys-tems that make possible the technology’s diffusion andapplication are also crucial aspects that determine itssocial and economic impacts.

Apart from the immediate advantages to Mexico’s potatosector, the biotechnology transfer project will have posi-tive repercussions of a much broader scope. The trans-genic potatoes are the first recombinant technology to bereleased by national organizations in Mexico. To thispoint, institutional constraints in the NARS and a lack ofeffective cooperation between institutes have preventedbiotechnology from reaching farmers’ fields. Under theproject, new inter-organizational connections have beenestablished between CINVESTAV, a leader in molecularresearch, and INIFAP, with its experience in potatobreeding. The transfer also significantly contributed tohuman-capacity building, increased self-confidence anddirected R&D to well-defined goals. Moreover, it en-hanced international relations between involved re-searchers and stake-holders. The experience the NARSgained through the transfer project can already be seen,for instance, in the 50 percent reduction in time neededto develop PLRV resistance in comparison to the firstPVX-PVY technology. This positive institutional evolutionwill facilitate Mexico’s own biotechnology generation, aswell as the acquisition and adaptation of foreign tech-nologies in the future. In addition, the project establishedand consolidated biotechnology regulatory mechanismsin Mexico, a sine qua non for any country wishing to takepart in the biotechnology revolution. All these develop-ments might produce positive technology spillovers forother developing countries too.

If appropriate social support mechanisms can be im-plemented, the project could successfully demonstratethat modern proprietary agricultural biotechnology ap-plications can help low- and middle-income countriesmeet their urgent development objectives. Donor or-ganizations should recognize that such transfer pro-grams are great opportunities to promote an equitableinternational biotechnology evolution that will open upnew vistas of technological and institutional innovation.

v

List of Figures

Figure 1: Conceptual framework for ex ante technology analysis................................................................................2Figure 2: Technical change on the Mexican potato market.........................................................................................4Figure 3: Development of potato production in Mexico (1961-1997) .........................................................................7Figure 4: Map of the main potato producing states of Mexico ....................................................................................9Figure 5: The potato seed distribution system in Mexico ..........................................................................................12Figure 6: Wholesale potato price development in Mexico-City during 1996 and main harvesting seasons of

important potato producing states ........................................................................................17Figure 7: Time frame of the biotechnology transfer project.......................................................................................22Figure 8: Structure of analyzed scenarios .................................................................................................................30

Figure A 1: Production shares of the main potato producing states of Mexico (1996)................................................41

List of Tables

Table 1: Regional differences in Mexican potato production ......................................................................................9Table 2: Cycles in certified potato seed production..................................................................................................12Table 3: Average potato enterprise budgets per ha by farm type (in 1998 M$)..........................................................14Table 4: Average per unit cost of potato production by farm type (in 1998 M$)........................................................16Table 5: Development of Mexico’s import tariffs and quotas for fresh potatoes within the NAFTA (1994-2004)........18Table 6: Cost of potato production in Mexico and in the USA (in 1998 M$).............................................................18Table 7: Potato expenditure shares of Mexican households (percent) .......................................................................19Table 8: Current average virus-induced potato yield losses and potential net yield gains through transgenic

resistance by farm type (percent) ..........................................................................................24Table 9: Production shares of different potato varieties by farm type ........................................................................25Table 10: Potato enterprise budgets per hectare without technology and with PVX-PVY resistance technology

by farm type (in 1998 M$)....................................................................................................29Table 11: Potato enterprise budgets per hectare without technology and with PVX-PVY-PLRV resistance

technology by farm type (in 1998 M$) .................................................................................29Table 12: Benefits and distributional effects of the technology for the different scenarios..........................................32Table 13: Summary measures of economic effects for different scenarios .................................................................34

Table A 1: Regional indicators of potato production in Mexico ................................................................................40Table A 2: Cumulative technology adoption under the current seed distribution system

(without special distribution mechanism) .............................................................................41Table A 3: Cumulative technology adoption under the assumption of a specially established seed distribution

mechanism for transgenic Rositas.........................................................................................42Table A 4: Shift factor K without and with seed distribution mechanism for transgenic Rositas

(Alpha not included for PLRV)..............................................................................................42Table A 5: Shift factor K without and with seed distribution mechanism for transgenic Rositas

(Alpha included for PLRV)....................................................................................................43Table A 6: Annual technology-induced changes in economic surplus in the ‘No Trade’ scenarios

(in thousand 1996 M$).........................................................................................................44Table A 7: Annual technology-induced changes in economic surplus in the ‘Trade’ scenarios

(in thousand 1996 M$).........................................................................................................45Table A 8: Financial cost of the technology project (in thousand 1996 M$)..............................................................46

vi

List of Abbreviations and Acronyms

ABC Agricultural Biosafety Committee

APHIS Animal and Plant Health Inspection Service of the USDA

c.i.f. Cost Insurance Freight

CIMMYT Centro Internacional de Mejoramiento de Maíz y Trigo (International Maize and Wheat Im-provement Center)

CINVESTAV Centro de Investigación y de Estudios Avanzados (Center for Research and Advanced Studies)

CIP Centro Internacional de la Papa (International Potato Center)

CONPAPA Confederación Nacional de Productores de Papa (National Potato Confederation)

f.o.b. Free on Board

FAO Food and Agriculture Organization of the United Nations

GM Gross Margin

INEGI Instituto Nacional de Estadística, Geografía e Informática (Mexican Statistical Institute)

INIFAP Instituto Nacional de Investigaciones Forestales, Agrícolas y Pecuarias (National Institute for Ag-ricultural Research)

IPRs Intellectual Property Rights

IRR Internal Rate of Return

ISAAA International Service for the Acquisition of Agri-biotech Applications

M$ Mexican Peso

NAFTA North American Free Trade Agreement

NARS National Agricultural Research System

NGO Non Governmental Organization

NPV Net Present Value

NYG Net Yield Gain

PLRV Potato Leafroll Virus

PVX Potato Virus X

PVY Potato Virus Y

R&D Research and Development

SAGAR Secretaría de Agricultura, Ganadería y Desarrollo Rural (Ministry of Agriculture)

SECOFI Secretaría de Comercio y Fomento Industrial (Ministry of Foreign Trade)

SNICS Servicio Nacional de Inspección y Certificación de Semillas (National Service for Seed Inspectionand Certification)

SNIM Servicio Nacional de Información de Mercados

Std. Dev. Standard Deviation

UNAM Universidad Nacional Autónoma de México (National Autonomous University)

UPOV Union pour la Protection des Obtentions Végétales (Union for the Protection of New Varieties ofPlants)

US$ United States Dollar

USDA United States Department of Agriculture

ZEF Zentrum für Entwicklungsforschung (Center for Development Research)

1

1. Introduction

Although modern biotechnology holds great promisefor developing countries, the application of biotech-nology in these countries is more a matter of heateddebate than reality. Meanwhile, the technology evolu-tion in the industrialized world continues to rapidlyprogress (James, 1997). Developing countries and de-velopment organizations are eager to identify strate-gies that will ensure that the new technology does notbypass themespecially the small-scale farmers whostand to benefit most. They seek to harness its poten-tial in order to meet stated development objectives,which involves not only defining their R&D prioritiesbut also developing policies to adequately shape theirinstitutional frameworks. Because genetic engineeringdiffers from other technologies in many respects, poli-cies derived from previous technology experiencemight be inappropriate (Cohen, 1994). More specificinformation, therefore, is needed to guide the deci-sion-making process. This study attempts to providesuch information through an ex ante analysis of thesocioeconomic implications of new transgenic potatotechnology in Mexico.

In 1991, a North-South biotechnology transfer be-tween the private life-sciences company Monsanto(USA) and the Center for Research and AdvancedStudies (CINVESTAV), a public Mexican organization,was initiated. The project was brokered by the Inter-national Service for the Acquisition of Agri-biotechApplications (ISAAA), which also provides institutionalsupport throughout the implementation phase. Fund-ing for the transfer project was provided by theRockefeller Foundation. The transfer agreement in-cludes Monsanto’s donation of genes and know-howto CINVESTAV for the development of local varietiesof virus-resistant, transgenic potatoes. In the followingyears, related research was conducted both at Mon-santo and CINVESTAV. Transgenic potatoes were fieldtested in Mexico for the first time in 1993, and multi-location field trials have been taking place since 1997in cooperation with the National Institute for Agricul-tural Research (INIFAP). The commercial release of thefirst mature technology is expected in 1999. This willbe one of the first approved transgenic crop varietiesthat local scientists in a developing country have pro-duced through gene transfer and product develop-ment. The project is also of particular interest becauseof its explicit private-public interaction. The domi-nance in industrial countries of private sector biotech-nology research requires the international community

to identify and develop new and innovative models oftechnology transfer for the benefit of developingcountries. An analysis of the Monsanto-Mexico proj-ectone of the first of its kind worldwidecan pro-vide some initial insights into this challenge.

The transfer project’s main beneficiaries will be theproducers and consumers of Mexico’s potato sector,which will be directly impacted by the use of trans-genic potatoes. This study evaluates and quantifies thebenefit potentials produced by technology improve-ments through a market equilibrium displacementmodel; in a further step these benefits are contrasted tothe corresponding costs of research and extension.Moreover, the equity implications of the technologyare explicitly analyzed. Poverty in Mexican agricultureis a widespread phenomenon and small-scale farmersare particularly affected (McKinley and Alarcón,1995). The project regards resource-poor small-scalefarmers as the main target group. Therefore, distribu-tion effects are scrutinized in terms of farm sizes.Strategies to disseminate the technology and place it inthe hands of small-scale farmers have not yet beenidentified. It is hoped that the study can provide someimpetus in this respect, too. To gain a better under-standing of the importance of developing such strate-gies, the impacts of different policy alternatives onefficiency and equity are juxtaposed within scenarioconsiderations. In addition to the direct benefit poten-tials of the technology in the Mexican potato sector,the transfer project also produces more indirect insti-tutional benefits in the national agricultural researchsystem (NARS). Because these indirect benefits are dif-ficult to be quantified, they are qualitatively discussed.

Chapter 2 briefly presents the conceptual frameworkof the pre-release technology study and of the datacollection procedures. Chapter 3 offers an overview ofthe Mexican potato sector, discussing the general as-pects of its role in Mexican agriculture and describingthe different potato farming systems. Details of theNorth-South biotechnology transfer and characteristicsof the recombinant potato technology are discussed inchapter 4, and its economic evaluation in terms ofbenefits and costs for different defined scenarios is car-ried out in chapter 5. The last chapter draws conclu-sions and discusses the policy implications of theresults of the study, one of the first quantitative indepth analyses of the socioeconomic implications ofmodern biotechnologies in a developing country.

2

2. Conceptual Framework

Recombinant potato technology in Mexico has notyet been commercially releasedit has not yet beenplanted in farmers’ fields. It could be argued that it istoo early for a quantitative evaluation because noth-ing is actually observable. However, evaluating tech-nology only after ex post data is available suffers fromthe disadvantage of producing results that cannotserve as policy guidelines for optimizing the technol-ogy’s socioeconomic effects. An ex ante framework,therefore, has been developed to deliver quantitativeand timely information on the potential implicationsof the introduction of biotechnology. For a more de-tailed discussion of the conceptual issues regarding exante biotechnology evaluations, see Qaim and vonBraun (1998).

2. 1 Scenario ApproachEx ante analyses of technology are associated withuncertainty. Many future events are unknown andmust be anticipated. The basic research for the proj-ect analyzed here has already been carried out byMonsanto, and the project itself is in the final stagesof technology development. Much is already known,therefore, about the technology itself. Still, we lackfacts about the future diffusion and application of thetechnology. Appropriate assumptions for these stages

are necessary to arrive at realistic conclusions. Thestructure of these assumptions can be visualized by abranched tree as shown in Figure 1. Eventsand thusassumptions (shown as little circles) are not merechance parameters but depend on policy decisions atdifferent levels. The degree and speed of technologyadoption by farmers, for example, depends on insti-tutional mechanisms at the level of factor and inputmarkets (e.g., seed prices, extension efforts, access torural credit, etc.). Similarly, the technology’s influ-ence on producer prices depends on the nationalpotato market price and trade policies, among others.The assumption patterns lead to different scenarios,which are numbered from 1 to 8 in Figure 1.

Carrying out benefit-cost calculations for these sce-narios will reveal the economic effects of policy al-ternatives yet to be determined. Thus, constraints inthe institutional arrangements can be identified andadjustment decisions made accordingly. Although thetechnology has almost left the development stage,testing different assumptions within R&D is stillworthwhile because the contractual arrangementsbetween Monsanto and CINVESTAV are flexible. In-quiring about the effects of transforming different po-tato varieties, for example, may suggest policy and

Figure 1: Conceptual framework for ex ante technology analysis

Scenario Results and Recommendations

Potato Market (Techn. Application)

NARS (Techn. Development)

Factor Markets (Techn. Diffusion)

1 2 3 84 75 6

Monsanto (Basic Research)

ISAAA

3

strategy changes. The evolution of technology is not aunidirectional process, but consists of linkages andfeed backs between different stages of its develop-ment. The framework depicted in Figure 1 representsthese dynamics, and its use will help shape optimaltechnology support mechanisms.

2.2 MethodologyTime is an important factor when evaluating the eco-nomic impacts of technology. The benefits of re-search usually lag significantly behind the researchinvestments themselves, and neglecting this fact leadsto overestimating net benefits. In our case, the con-sideration period will start in 1991 (year 0), the be-ginning of the technology transfer project. This meansthat the cost of the basic research for the technologyis not considered. Since we merely analyze the tech-nology transfer project to Mexico, this is correct be-cause the basic research itself carried out byMonsanto will have impacts in other countries, too.The analysis captures a period of time up until theyear 2015 (year 24), during which benefits and costswill be juxtaposed on an annual basis. After that timeframe, the technology may become obsolete or besubstituted by other innovations. Moreover, costs orbenefits accruing after that period will not considera-bly change the results because of the discountingprocedure. We calculate the Net Present Value (NPV)and the Internal Rate of Return (IRR) as economicsummary indicators of the technology. Equations (1)and (2) show the underlying formulas:

( )∑= +

−=

24

0 1tt

tt

r

CBNPV (1)

( )∑= +

−=

24

0 10

tt

tt

IRR

CB(2)

where r is the discount rate, and Bt and Ct is thestream of benefits and costs in year t, respectively.

How to Measure Technological BenefitsWhen dealing with the quantification of technologi-cal benefits, the question of adequate welfare meas-ures arises. The use of welfare measures in benefit-cost analyses has been extensively discussed in theeconomic literature. Like most of the other empiricalstudies, we use economic surplus criteria. Althoughfrom a theoretical point of view this procedure doesnot correctly treat the income effect of price changes,this problem is qualified by other sources of inaccu-racy in technology evaluations, such as estimatingtechnology-induced productivity change (cf. Alston etal., 1995). Different authors have shown that agri-cultural technologies related to one market may alsohave positive repercussions on other markets evenbeyond the farm sector (e.g., Hazell and Ramasamy,1991). For the purpose of the quantitative model,however, we focus only on the potato market. This

appears justified because potato production employsonly a very small fraction of all the factors involved inMexican agriculture, and so no significant spilloverinto other markets should be expected. The possibilityof technological innovation creating broader institu-tional innovation, which could further facilitate bio-technology dissemination in Mexico, is disregarded inthe model. These possible benefits receive separateattention in a qualitative discussion.

Starting from an initial price and quantity equilibriumin the Mexican potato market, the new transgenic vi-rus resistant varieties will increase the productivity ofpotato production and will therefore cause the potatosupply curve to shift downwards. This is conceptuallyshown in Figure 2, where S0 is the supply curve with-out, and S1 is the supply curve with the introductionof the transgenic varieties. The shift of the supplycurve (equilibrium displacement) changes the welfareof potato producers and consumers. The change inproducer surplus is equal to area ebcd minus areap0aep1. Whether this is a net gain or a loss for pro-ducers depends on the price elasticities of supply anddemand.1 Consumers realize a benefit through thelower prices they have to pay for a unit of potatoes.The gain in consumer surplus is represented by areap0abp1. As chapter 3 demonstrates, this conclusionholds for a closed potato economy such as Mexico’s.Imports of fresh potatoes from the USA and Canada,however, could increase in the future due to theNAFTA. Taking into account potato production vol-umes in the NAFTA member countries, Mexicowould then be a small potato importing country inthe terminology of trade. Potato producers wouldthen face a totally elastic demand curve so that thetechnology would not entail a change of the potatomarket price. All of the change in economic surpluswould accrue to potato producers. Since it is notclear exactly how trade flows will develop over time,the open economy alternative will be accounted forin the scenario calculations.

There has been a controversial debate in the literatureabout the nature of the supply curve shift (cf. Nortonand Davis, 1981). Whether the shift is parallel, im-plying the same absolute shift for high and low costproducers, or pivotal, indicating a lower absolute shiftfor low cost producers, has not been determined ontheoretical grounds. The issue remains an empirical

1 For non-economists it might be surprising that producerscould suffer a welfare loss through new agricultural tech-nologies under certain market constellations. This is so be-cause the productivity gain will induce increases of theproduced quantities, which in turn decreases the equilib-rium price. If the percentage price loss is greater than theproduction increase, the farmer has lower revenues than inthe initial situation without the technology. Price decreasesare particularly relevant if price responsiveness of consum-ers is low for the commodity of interest.

4

Figure 2: Technical change on the Mexican potato market

b

a

e

q1q0

price

quantity

S0

S1

p0

p1

D

c

d

question. In subsequent chapters this study arguesthat a parallel shift is the more likely alternative forMexico’s potato technology. To formulate supply anddemand functions, we assume linear curves to makehandling them algebraically easier. Although little isknown about the true shape of the curves, differentauthors have shown that errors of functional mis-specification in many cases are small, particularlywhen the research induced supply shift is parallel(e.g., Voon and Edwards, 1991; Zhao et al., 1997).

Distribution AspectsNew agricultural technologies have often been criti-cized for reinforcing inequality among producers andfostering income concentration (e.g., Griffen, 1974).Resource-poor, small-scale farmers are the primary tar-get group of this technology project, so a special focuson this group of farmers is appropriate when analyzingits technological implications. This requires, however,some modifications to the basic market model outlinedabove. Binswanger (1980) and Hayami and Herdt(1977) were the first to include aspects of producer in-come distribution into the equilibrium displacementframework. The approach anticipates a disaggregationof the total industry supply curve into the partial supplycurves of defined producer groups. We consider pro-ducer groups of different farm sizes, all facing the sameaggregate demand curve. This allows for divergent ratesof technical change attained by individual farm groups,which is important because the technology’s adoptionrates and potential to increase productivity may varyamong different farming systems. The following model

assumes market clearing at a single pricepotatoes areassumed to be an homogeneous product, regardless ofwho produces them or where they are produced:

Supply:

( )iisis tcpqq ,,, = (3)

Demand:

( )pqq dd =(4)

Market clearing:

∑=

=n

idis qq

1, (5)

where qs,i is the potato quantity supplied and tci is thetechnical change realized by producer group i. qd isthe total quantity demanded while p is the price be-ing the same for consumers and all n producergroups. Differentiating equations (3) to (5) leads to thefollowing system:

Supply:

+= iis

is

is Kp

dp

q

dq,

,

, ε (6)

5

Demand:

p

dp

q

dqd

d

d ⋅= ε (7)

Market change:

∑=

=⋅n

i d

d

is

isi q

dq

q

dqss

1 ,

,(8)

where εs,i is the price elasticity of supply and ssi is thesupply share of producer group i. εd is the price elas-ticity of demand. Ki is the proportionate vertical shiftdown in the ith supply curve due to a cost reduction.Equation (8) can be solved for the relative change ofthe equilibrium price:

p

dpK

p

dpss d

n

iiisi ⋅=

+⋅∑

=

εε1

,

(9)

⇔

( )

( )∑

∑

=

=

⋅−

⋅⋅=

n

iisid

n

iiisi

ss

Kss

p

dp

1,

1,

εε

ε

(10)

The change in the equilibrium price and the changesin the quantities produced and consumed are suffi-cient for calculating the implications of the economicsurplus. Annual change in producer surplus (PS) forthe individual producer groups, annual change inconsumer surplus (CS) and the change in total eco-nomic surplus (TS) due to technical progress are de-fined as follows (cf. Alston et al., 1995):

Change in PS:

⋅+⋅

+⋅=∆

is

isiisi q

dqK

p

dpqpPS

,

,, 5.01

(11)

Change in CS:

⋅+⋅⋅−=∆

d

dd q

dq

p

dpqpCS 5.01

(12)

Change in TS:

∑=

∆+∆=∆n

ii CSPSTS

1

(13)

In the open economy alternative, there is no changein consumer surplus. The change in producer surplusfor the individual groups is:

Change in PS:

( )isiiisi KKqpPS ,, 5.01 ε⋅⋅+⋅⋅=∆(14)

This model is appropriate for analyzing the distribu-tional consequences of the new transgenic potato va-rieties among different farm sizes. It will be the basisfor the aggregate benefit calculations in chapter 5.The calculations have to be carried out for all theyears of the consideration period in which shifts ofthe supply curve are caused by the technology. Forthe summary measures of economic effects, thechange in TS can then be inserted in equations (1)and (2) to represent the gross annual benefit (B) in agiven year t.

2.3 Data for AnalysisData requirements for the study can be subdividedinto two broad categories. First, potato market data isneeded. As the algebraic formulations indicate, thisinvolves produced and consumed quantities, pricesand price elasticities associated with supply and de-mand. On the producer side, the data must be disag-gregated in accordance with the different farmgroups. This market related data was taken from theavailable literature and from Mexican agriculturalstatistics. Special considerations must also be madeabout the evolution of the figures over time. Detailson that as well as the individual published sourcesare given throughout the text when the data are pre-sented. Second, information on the technology itselfand its implications for agricultural practice areneeded. The downward shift factor of the supplycurve is summarized in the model formulation as K,which contains the different parts of information thatare not observable yet. Ki,t, (i.e., the shift factor for theindividual producer group i in a given year t), is de-fined as:

tipotiti ACK ,,, ⋅= (15)

where Ci,pot is the potential per unit cost reduction ofgroup i attributable to the transgenic technology, andAi,t is the group and time-specific technology adop-

6

tion rate. In the case of neutral technical change, Ci,pot

can be calculated as the technology-induced poten-tial net yield gain (NYG) divided by the price elastic-ity of supply. But the transgenic potato varieties tendto save land, so we compare enterprise budgets forthe individual groups both with and without the an-ticipated technology in order to derive realistic esti-mates of the per unit cost reduction.

As indicated in section 2.1, the different parametersneeded for the analysis are not just unknown futurefacts but depend a great deal on decisions made atthe different stages of the technology evolution (seeFigure 1). In order to get a better understanding of thisframework, two interview surveys were carried out,one in the Mexican NARS, and the other one in thepotato farmers’ surroundings. These surveys alsohelped to supplement market-related data that werenot available in secondary sources.

NARS SurveyCompiling information at the stage of the NARS pre-dominantly aimed to learn more about the recombi-nant virus resistance technology. This involved dataon R&D costs, a time pattern of the technology evo-lution, and information to derive the aforementionedpotential net yield gain (NYG). Semi-structured inter-views with eight researchers directly associated withthe technology projectfour from CINVESTAV andfour from INIFAPwere conducted for this purpose.In addition, one potato seed producer that had al-ready multiplied transgenic potatoes for field trialpurposes was surveyed. To gain an insight into thecontractual arrangements of the North-South technol-ogy transfer, one representative each from Monsantoand ISAAA was contacted. Taking into account thestatements of people directly associated with the re-search project raises the problem of biased informa-tion due to vested interests or subjective viewpoints

(cf. Mills and Karanja, 1997). So we included in thesurvey a number of interviews with independent re-searchers and experts of the potato sector to get amore objective picture. This was particularly impor-tant because published data on current yield lossescaused by virusesa crucial determinant to derivethe NYGare hardly available in Mexico or else-where. Furthermore, different scientists from the In-ternational Potato Center (CIP) in Peru wereinterviewed to obtain external viewpoints about po-tatoes and their problems. A complete list of thecontacted experts is given in Appendix B.

Farmers SurveyThe survey in the farmers’ surroundings focused ongathering insights into potato farming systems. Thesemi-structured interviews concentrated on farmers’access to markets, sources of tuber seeds, experienceswith other technologies, the input-output relations ofpotato production, and other specific problems asso-ciated with growing potatoes. These data made itpossible to realistically anticipate how the technologycould change current production patterns and perunit cost figures. Another crucial variable obtainedfrom this information is the technology adoption rate(A). For the analysis of the distributional conse-quences of the new potato varieties, potato farmerswere subdivided into three groups according to farmsize (small-scale, medium-scale, and large-scale). 12interviews with each group36 interviews inallwere carried out in six of the most importantpotato producing states of Mexico. The surveyedstates are Sinaloa, Coahuila, and Nuevo Leon in thenorthern part of the country and Michoacan, Mexico-State, and Puebla in the central and southern regions.In all of these states, the survey of the farmers wassupplemented with field experience and by two inter-views with agricultural engineers (12 in total) of dif-ferent provincial rural organizations.

3. The Mexican Potato Sector

Although potato production in industrialized coun-tries has declined during the last 30 years, this trendwas more than offset by production increases in de-veloping countries, which actually caused world-wide production to rise (FAO/CIP, 1995). In the early1960s, developing countries accounted for approxi-mately 11 percent of worldwide potato production.In the early 1990s they accounted for 31 percent.Significantly, the area cultivated with potatoes in thisgroup of countries has grown faster than that of anyother major food crop over the past 30 years. Scott(1996) mentions different reasons for the greater in-terest of developing countries in potatoes. On theproduction side, the increased use of high yieldingrice and wheat varieties with shorter duration haveenabled farmers to grow an additional crop on the

same fields, and potatoes fit very well into these ro-tation patterns. On the consumption side, the grow-ing incomes of food consumers have diversified poorpeople’s cereal-based diets, increasing demand forpotatoes. Thus, potatoes become an increasinglyimportant source of food, rural employment, and in-come in developing countries. These global trendswill likely continue into the future. From a globalviewpoint, Mexico is not a very large producer ofpotatoes, but among the Latin American countries itranks fifth after Colombia, Brazil, Argentina andPeru.

3.1 National Potato ProductionFigure 3 shows the development in Mexico of thepotato area, production, and average yields from

7

Figure 3: Development of potato production in Mexico (1961-1997)

0

10

20

30

40

50

60

70

80

90

100

110

120

130

1961 1966 1971 1976 1981 1986 1991 1996

Are

a, P

rodu

ctio

n

0

2

4

6

8

10

12

14

16

18

20

22Y

ield

Area ('000 ha)

Production (0'000 t)

Yield (t/ha)

Source: Based on data from FAO (1998).

1961 to 1997. The area cultivated with potatoes grewsignificantly up until the late 1970s. Over the lasttwenty years there has been a slight decreasing trend.In 1996, about 63,000 hectares of potatoes were har-vested, accounting for 0.4 percent of the country’stotal land under annual crops. In Mexico, however,potato is viewed as a horticultural crop, and amongthe annual horticultures it ranks second after tomatoin terms of area. In 1996, potatoes made up 2.6 per-cent of the national plant production sector’s value(INEGI, 1997a), a significant rise given the previousfigure of only 1 percent in 1985 (Bonilla et al. 1992).Potato yields and overall potato production increasedconsiderably. Yields per hectare tripled from 1961 to1997, and national production even quadrupled. Dueto intensified production and technical progress inthe potato sector, the close convergence of area andproduction in the 1960s and 1970s has since loos-ened somewhat. Current average yields in Mexico of20.5 tons per hectare are lower than those of theUnited States or Western Europe (33 t), but they areamong the highest in Latin America. While the im-portance of potato production for processing pur-poses has also increased during the last ten years andwill continue to do so, the lion’s share of total pro-duction in Mexico is for the fresh market. It is esti-mated that 70 percent of the production volumes are

sold as fresh potatoes, 15 percent are used as tuberseeds, and the remaining 15 percent are sold to thefood processing industry (SAGAR/INIFAP, 1997).2

3.1.1 Potato VarietiesThe most important potato variety in Mexico is Alpha,accounting for 60 percent of the total production vol-ume. Alpha is an old, white-colored Dutch varietythat was introduced to the Mexican market over 50years ago. It can be marketed as fresh potato or forindustry use. While Alpha was formerly important inthe United States, it has since almost completely dis-appeared due to the availability of superior varietieswith higher yields and better quality for processingpurposes. The same holds true for other potato pro-ducing regions in the world. In Mexico, however, Al-pha is still the dominant variety because of its positivepost-harvest performance. Mexico is one of the fewcountries where potatoes are washed before arrivingat retail outlets. Moreover, in the Mexican marketingchain, potatoes are often exposed to sunlight. Alphacan stand these conditions better than other varieties,leading to lower post-harvest losses and better con-sumer acceptance. But when industry demand for

2 For comparison: In the USA, 60 percent of potato produc-tion is for processing purposes (FAO/CIP, 1995).

8

processing potatoes rose during the past ten years,new white varieties entered the Mexican market,slightly reducing Alpha’s importance. Varieties withbetter processing characteristics, such as Atlantic, Gi-gant, Herta and others, are gaining ground in Mexico.The basic germplasm for these varieties is predomi-nantly imported from Canada, the United States, orThe Netherlands. All white varieties together accountfor 85 percent of Mexico’s national potato produc-tion.

The remaining 15 percent are local red-colored va-rieties, Rosita being the most important. The nationalpotato-breeding program of INIFAP breeds the localvarieties.3 Many of these varieties are highly resistantto late blight (Phytophtora infestans) (cf. Flores andCadena, 1996; Parga and Flores, 1995). Because theCentral Plateau of Mexico is the geographic origin ofPhytophtora infestans, a great number of wild potatospecies possess resistance to this fungus pathogen(Niederhauser, 1989). This makes Mexico a favorablebreeding location for late blight resistance. Varietiesbred by INIFAP are even used in parts of Asia and Af-rica. In Mexico, however, larger farmers never use thecolored, local varieties. Notwithstanding the muchhigher susceptibility of Alpha, Atlantic, and other im-ported varieties to late blight, resource-rich farmersprefer them because they are better accepted by con-sumers and industry. Resource-poor farmers, in turn,often cannot afford the necessary heavy fungicide ap-plications. And so those cultivating potatoes underthe highland conditions of Central Mexico frequentlyuse red local potato varieties.

3.1.2 Phytosanitary AspectsEconomically, the most important potato disease inMexico is late blight, caused by the fungus Phytoph-tora infestans. Although local varieties with a highdegree of resistance to late blight have been releasedby INIFAP, many of them were not widely adopted.Especially among larger farmers, the disease is con-trolled by the extensive use of fungicides; in somecases up to 30 fungicide applications per crop cyclehave been reported (Parga and Flores, 1995). Ac-cording to the interviewed experts, the second mostimportant potato disease in Mexico is purple topwilt.4 This is caused by mycoplasma pathogenstransmitted either through the tuber seed or by leaf-hoppers as vectors. Viruses follow next in economicimportance. Among the viruses, the potato leafroll vi-rus (PLRV) causes the most severe yield losses, fol-lowed by potato virus Y (PVY), and potato virus X(PVX) (Salazar, 1997). Apart from virus transmissionthrough infected seed material (secondary infection),

3 INIFAP also bred white local varieties like Ireri, Mi-choacan, Norteña and others, some of which are also suit-able for processing. Yet, these varieties did not yet findlarge-scale applications.4 The local Spanish name of the disease is punta morada.

PLRV and PVY are spread by aphids (primary infec-tion). Primary infection of PVX is through directphysical contact. In general, secondary infectionscause greater yield losses than primary infectionsalone because the virus invades the growing plantsystematically (Hill, 1990). There are no chemicalmeans to directly combat viruses or mycoplasmas.Prophylactic measures include using certified patho-gen-free seeds and controlling insect-vectors with in-secticides. Other potato diseases with economicimportance in Mexico are blackleg, caused by bacte-ria, nematodes, and other fungal diseases (Fusariumand Verticillium). Because of the great susceptibility ofpotatoes to different diseasesaggravated by favor-able climatic conditions for pests in Mexicothecrop receives some of the highest amounts of pesti-cides in the country.

3.1.3 Potato Producing Regions24 of the 32 Mexican states produce potatoes. Thegeographic location of some of the major producingstates is shown in the map in Figure 4. Only five ofthese states (Sinaloa, Nuevo Leon, Mexico-State,Guanajuato, and Puebla) make up 54 percent of thenational production. Individual production shares ofthe main potato producing states are shown in FigureA1 in Appendix A. Due to the diverse agroclimaticconditions in its different regions, Mexico is one ofthe few countries worldwide where potato productiontakes place year round and fresh potatoes enter themarket every month. National production peaks inlate summer and fall, the harvesting time of thespring-summer cropping season. Still, around 40 per-cent of all potatoes are produced in the fall-winterseason (SAGAR, 1996). In some regions (e.g., Sinaloaon the Pacific Coast) it is too hot to produce potatoesduring the summer months. In other regions, how-ever, a considerable proportion of farm-ersespecially those with access toirrigationcultivates potatoes in two cycles per year.

Production conditions in the North vary significantlyfrom those in central and southern Mexico. Potatoproduction in the North is predominantly an activityof large-scale farmers cultivating white varieties usingadvanced production technologies. In the central andsouthern regions, by contrast, there are also manysmall-scale farmers engaged in potato production,particularly in the states of Puebla, Tlaxcala, Vera-cruz, and Mexico-State, where potatoes are some-times grown more than 3000 m above sea level. AsTable 1 indicates, almost all of the production in theNorth takes place under irrigated conditions, whileless than half of the production in the South is irri-gated. Analogously, average yields are significantlyhigher in the North. Highest yields are obtained in theregion of Coahuila and Nuevo Leon, with an averageof some 35 tons per hectare. In Puebla and Veracruz,on the other hand, average yields only reach around

9

Figure 4: Map of the main potato producing states of Mexico

Table 1: Regional differences in Mexican potato production

Prod. Share of Farm Types

Share of IrrigatedProd.

Small(< 5ha)

Medium(5-20 ha)

Large(> 20 ha)

Share of WhiteVarieties

Aver. Yield(t/ha) a

North 0.96 0.01 0.19 0.80 1.00 23.5

Central and South 0.46 0.23 0.28 0.48 0.70 17.0

Total Mexico 0.72 0.12 0.24 0.64 0.85 19.8a This is a 1994-1996 average.

Sources: See Table A1 in Appendix A.

11 tons. Given these facts, it is not surprising that thenorthern states account for some 52 percent of totalproduction, while they make up only 44 percent ofthe national potato area. A more complete descrip-tion of the individual states’ indicators can be foundin Table A 1 in Appendix A.

3.1.4 Potato Farming SystemsBefore the 1992 land reform, 42 percent of the totalagricultural land in Mexico was common ejido land(Randall, 1996). The ejidatarios (ejido members) had

user rights but were not allowed to rent or sell theland. Although some forms of common productionexisted, most of the potato enterprises operated on anindividual basis. The 1992 agrarian reform gave for-mal land titles to the ejidatarios. Today, potato pro-duction is almost exclusively a private and individualactivity, and so no differentiation will be made be-tween ejido and non-ejido farming systems.

In many Latin American countries, potato cultivationtakes place predominantly in small production

10

unitsoften less than one hectarewith much of theproduce kept for household consumption (cf. Scott,1985; Zeballos, 1997). This is different in Mexico.Although no reliable statistical data on farm sizes inthe Mexican potato sector exist, it is evident that po-tato producers are larger on average than producersof basic food crops.5 Potato farms of less than onehectare are rare, and production is first and foremostfor commercial purposes. Even on the smaller farmsthe share of potatoes kept for household consumptionis below 10 percent. Because potato is a much moreinput intensive crop than are basic cereals grown inMexico, cash income is needed to produce it, whichis why it is primarily a commercial crop. The produc-tion cost per hectare of potatoes under small-holderconditions is usually two to three times higher thanthat of maize (Biarnès, 1995). The substantial cashoutlay for agricultural inputs along with high interan-nual price and yield fluctuations make potato pro-duction a comparatively risky business, particularly inrain-fed areas. In unfavorable years resource-poorpotato farmers must abandon their production. Still,the average expected income from potato cultivationis higher than that of other crops, which makes it at-tractive. Colin (1995) found that scarce financial re-sources are the main constraint to expanding potatoproduction for small-scale farmers in Mexico. For thepurpose of this study, we subdivide all Mexican po-tato producers into three groups according to the areacropped with potatoes. The parameter area has aclose correlation with other variables, such as overallhousehold income, technology level, and potatoyields, which makes it a good indicator of living stan-dards for potato producing farm households (cf. San-tiago and Ruvalcaba, 1995).

• The first group consists of small-scale farmerswith less than 5 hectares of potatoes. Almostnon-existent in the northern potato regions, thisgroup makes up the majority of all potato farmersin many central and southern statesan esti-mated 70 percent in Puebla and Veracruz, for in-stance. In highland areas, small-scale farmingsystems are the only form of agricultural use.Most of the small potato producers cultivate po-tatoes for commercialization, in addition tomaize and beans partly for home consumption.In altitudes over 3000 m, where potatoes can stillbe grown, farmers practice a cropping rotationwith feeding oats. Here, the cultivation of redpotato varieties predominates. Small-scale farm-ers generally do not have access to irrigation.Due to low average yields on comparatively

5 The latest Mexican Agricultural Census of 1991 gives aver-age hectare amounts per potato producing unit by state.However, this refers to the official situation before the 1992land reform. These figures do crucially underestimate thesize of today’s production units because since 1992, manyejido farmers rented or sold their land to larger producers,which was officially prohibited before the reform.

small holdings, the production share of thisgroup is much smaller than the number of pro-duction units might suggest. As Table 1 shows,the small-scale farmers make up about 12 per-cent of the total national production.

• The second group consists of medium-scalefarmers with potato growing areas between 5and 20 hectares. While in the northern statessuch farms would be considered small, in manycentral and southern states farmers with 20 hec-tares are among the largest producers of the re-gion. Medium-scale potato farmers grow mostlybasic food crops in addition to potatoes. De-pending on the region, some of them also engagein the production of other horticultural crops. Itis estimated that about half of the medium-scalefarmers have access to irrigation facilities. Me-dium-scale farmers cultivate white potato varie-ties as well as local red ones. The contribution ofthis group to national potato production is 24percent.

• The third group consists of large-scale farmerswith potato growing areas of more than 20 hec-tares. This is the dominant potato farm type innorthern Mexico, where many producers haveholdings of more than 100 hectares. Apart frombasic food production, cropping patterns ofteninclude vegetables and other horticultural cropsfor national and international markets. Almost100 percent of the large-scale farmers producepotatoes under irrigated conditions. They useonly white potato varieties. Large-scale farmersaccount for 64 percent of the national potatoproduction.

3.1.5 Potato Seed IndustryAccording to Pray and Ramaswami (1991), the seedindustry is considered to consist of all enterprises thatproduce or distribute seeds.6 Thus, the seed industrycomprises the levels of plant breeding research, seedproduction, and seed distribution.

Potato BreedingAs stated earlier, INIFAP, partly in cooperation withuniversity research potato breeding, conducts Mex-ico’s national potato program. INIFAP’s main locationfor its potato program is near the city of Toluca. Inaddition, new potato lines are developed and evalu-ated at other INIFAP sites in Mexico to test their re-gional suitability. The responsible authority for theapproval of variety release and registration is the Na-tional Service for Seed Inspection and Certification(SNICS). Apart from INIFAP, there are also foreignsources of potato germplasm. While Alpha material

6 When talking of potato seeds, potato tuber seed is meanthere. The use of true potato seed in Mexican agriculture isnegligible.

11

has already been in use in Mexico for a long time, inrecent years the use of other externally bred varieties(Atlantic, Gigant, Herta, etc.) gained importance inthe country’s potato sector. Much of the basic breedermaterial for these varieties is imported from Canada.Other countries exporting potato germplasm to Mex-ico are the United States and The Netherlands.

Seed ProductionAlthough seed production for basic crop species wastraditionally the task of the National Seed ProductionCompany (PRONASE), private enterprises, in fact,have carried out potato seed production. Until thelate 1980s, however, the major share of certified po-tato seeds (some 75 percent) was imported primarilyfrom Canada. Superior technology and more favor-able climatic conditions gave Canadian seed produc-ers a cost advantage in spite of the high transportationcost. This situation changed somewhat in 1988, whenthe use of tissue culture techniques was introducedinto the Mexican seed industry (Fernández, 1989).Furthermore, an import ban on potato seeds from1992 to 1995 helped to develop a more competitivenational seed production sector.7

Today, there are 17 private producers of certified po-tato seeds in 7 different states of Mexico (Mexico-State, Chihuahua, Guanajuato, Baja-California, Coa-huila, Nuevo Leon, and Sinaloa). The seed producersobtain the basic germplasm for the varieties in theform of seedlings or minitubers from INIFAP or fromforeign suppliers. 10 of the 17 enterprises have theirown laboratory equipment, which allows them to usehigh temperature treatment and micropropagationtechniques in order to obtain pathogen-free seedlings.These seedlings are planted for one cycle in greenhouses before several cycles of field cultivation fol-low for seed multiplication. Table 2 shows the differ-ent cycles as well as the corresponding seedcategories of the national certification system. Pricesper unit of seeds decrease in each cycle, and com-mercial sales to potato farmers seldom take placebefore the level of registered I seeds.

Seed DistributionNo special seed distribution system exists in Mexico.Those farmers that use certified or registered seedsbuy the material directly from the seed producingenterprises without intermediaries. Often, potatofarmers producing in one region personally travel toother regions in order to choose their planting mate-rial for the next season. The farmer covers the cost ofseed transportation. Because of interregional tradeand the comparatively high number of seed suppliersin different regions, the potato seed market in Mexico

7 For 1996 and 1997 it is estimated that around 20 percentof the certified potato seeds used in Mexico were imported(CONPAPA, 1997a). Moreover, basic germplasm is im-ported for seed production within the country.

can be regarded as quite competitive. Only some 23percent of the area devoted to potato production,however, is cultivated with registered or certified seedmaterial (i.e., 77 percent is planted with seeds frominformal sources (CONPAPA, 1996)).

Large-scale farmers buy potato seeds in regular in-tervals and often recycle them for two to three pro-duction cycles. Although many of them acquirecertified seeds annually, they usually buy fresh ma-terial only for part of their total potato area. Some ofthe large-scale farmers have green house equipmentso that they can produce their own high quality po-tato seedsoften with foreign germplasm. Medium-scale farmers rarely use certified seeds. The majorityof them acquire seeds from informal markets (i.e.,they buy potatoes destined for the fresh market fromlarger farmers and use them as seed material.) Thepurchased potatoes are usually recycled for a cou-ple of years. Small-scale farmers never buy potatoseeds on formal seed markets. For the most part theyrecycle their own seeds from the previous harvest.Small amounts of potatoes for sowing are sometimesbought from neighbors or farmers of the same re-gion, so there is little renovation of seed material.

There are several factors that limit a more wide-spread use of certified potato seeds, especiallyamong smaller farmers. Lack of information aboutthe advantages of using high quality seeds is surelyone of them. One should keep in mind, however,that seeds account for a large share of the total costof potato production (see section 3.1.7). Using cer-tified seeds at a significantly higher cost increasesrisk and presupposes timely liquidity. Another con-straint for small-scale farmers is that they have lim-ited access to formal seed markets. As mentionedabove, there are no traders to mediate between seedproducers and consumers. While it makes sense forlarge-scale farmers to travel to distant regions to buyseeds, this is grossly inefficient for the smallamounts small-scale farmers need.

The described patterns of seed sources for the indi-vidual farm groups have different implications fordifferent potato varieties. As described in section3.1.4, large-scale farmersthe primary consumersof the formal seed marketexclusively cultivatewhite varieties. Local red varieties are only grownby small-scale and to some extent by medium-scalefarmers in higher altitudes. These farmers do not buycertified seeds, so there is no effective demand forformal seed markets to sell red varieties. Conse-quently, there is no incentive for potato seed pro-ducers to handle them. In fact, no enterpriseproduces certified seeds for red varieties. Figure 5represents the potato seed industry. As the figure in-dicates, medium and small-scale farmers producingred varieties are completely disconnected from theformal system.

12

Table 2: Cycles in certified potato seed production

Cycle 0 1 2 3 4 5 6 7

Location LaboratoryGreenHouse Field Field Field Field Field Field

Result TissueCulturedSeedlings

Minitubers Pre-BasicSeeds

BasicSeeds

RegisteredI

Seeds

RegisteredII

Seeds

RegisteredIII

Seeds

CertifiedSeeds

Source: Gálvez (1997).

Figure 5: The potato seed distribution system in Mexico

Large-Scale Farmers with Green

Houses

Large-Scale Farmers

Medium-Scale Farmers

(White Varieties)

Small-Scale Farmers

(White Varieties)

Medium-Scale Farmers

(Red Varieties)

Small-Scale Farmers

(Red Varieties)

Foreign Potato Seed Producers

Foreign Germplasm Suppliers

INIFAP Potato Program

National Potato Seed Producers

3.1.6 Other Factor Markets and Rural InstitutionsCreditPublic development banks have traditionally pro-vided the main share of agricultural credit in Mexico.Low repayment rates, subsidized interest ratespartlynegative in real termsand the difficulty of mobiliz-ing rural savings led to inefficiencies and constantlyshrinking amounts of loan disbursements (Arroyo andLeón, 1996). Because of the higher relative transac-tion cost when dealing with small amounts of credit,small-scale farmers were particularly affected by

these developments. The financial system was re-structured in 1988, and private banks gained in im-portance. Farmers’ access to credit remained limited,however, due to the lack of collateral within the ejidosector and the inflationary problems associated withhigh and volatile nominal interest rates. Even with theintroduction of formal land titles for ejido land in1992, the situation did not improve because ofdeeper structural impediments in the rural economy,which were exacerbated by tightened monetary poli-cies during the 1994/95 financial crisis. As stated ear-

13

lier, potato production is a much riskier business thanthe cultivation of other crops. As a result, credit forpotato growing is almost unavailable. Again, smallerfarmersproducing potatoes under rain-fed condi-tionsare the most affected. Only two of the inter-viewed small and medium-scale potato farmersreported that they had some experience with formalagricultural credit at all, and this was under the sub-sidized interest rate circumstances of the 1980s. In-formal credits based on family kinship or friendshipgenerally involve smaller amounts of money for con-sumptive purposes, and they are mostly only on ashort-term basis (Colin, 1995). It was argued in sec-tion 3.1.5 that the lack of timely financial resourceavailability is one reason for the scant use of certified,clean potato seeds among smaller farmers. Myhre(1996) even includes limited access to credit as oneof the main constraints for rural modernization inMexico.

Extension and Technical AssistanceTraditionally, different public institutions imple-mented agricultural extension in Mexico.8 Partly, thisservice was combined with credit provision. Themain emphasis of the government-implemented advi-sory services has always been on staple food produc-tion, mostly maize, beans, and to a lesser extent otherbasic grains. But within the overall structural adjust-ment efforts, the Mexican agricultural extensionservice was thoroughly reformed and government ex-penditures were sharply reduced (OECD, 1997). Cur-rently, occasional training for suppliers of privateservices and temporary cost-sharing programs forfarmers that contract private specialists are supportingthe privatization of technical assistance. In the 1995-2000 National Development Plan the programAlianza para el Campo was launched. Alianza para elCampo seeks to stimulate technological develop-ments in the Mexican agricultural sector (cf. SAGAR,1997). The program fosters the decentralization ofdecision-making in agricultural policies, and its indi-vidual components are tailored to the specific needsof different producer groups. Experts stated that theybelieved Alianza para el Campo might be an effectiveinstrument to modernize the agricultural sector, pro-vided that the program continues over time. The pro-gram’s components, however, once againpredominantly focus on basic grainspotato produc-tion is not included. And so, while the larger potatoproducers of northern Mexico hire their own full-timeagricultural engineers, small-holder potato growershave no access to technical assistance. This hampersthe dissemination of innovations in the potato sector

8 Often, the establishment of new governments in six-yearcycles was associated with the creation of additional organi-zations in the rural economy. Over time this led to an exag-gerated number of organizations entailing inefficiencies dueto a wide spreading of available resources, lack of continuityof individual programs and uncertainties in implementingbecause of partly overlapping mandates.

among small-scale farmers. An indication of this gapbetween applied research and agricultural productionis that several local, well-adapted new potato varie-ties that have been bred and released by the INIFAPpotato program have so far not been widely adoptedby Mexican farmers.

Producer OrganizationsIn 1988, the National Potato Confederation(CONPAPA) was established to integrate different lo-cal and regional producer associations, some ofwhich existed previous to that date. CONPAPA repre-sents potato producers vis à vis state and federal gov-ernments and vis à vis upstream and downstreampotato market enterprises (CONPAPA, 1997b). Amajor activity of CONPAPA in the early 1990s wasthe successful protection of potato producers’ inter-ests in the NAFTA negotiations with the United Statesand Canada. Since then, the organization has soughtto improve potato production and marketing by pro-viding information through seminars, documentationservices, and other activities. Membership inCONPAPA presupposes the existence of a local pro-ducer organization. Although today there are 29 af-filiated local associations, CONPAPA mostlyrepresents larger potato producers. None of the inter-viewed small-scale producers reported membershipin a potato growers’ association. It is evident that abetter organization among smaller farmers could bebeneficial for many reasons, the most important ofwhich being a more efficient commercialization oftheir potato crops and better access to financial andtechnical services.

3.1.7 Cost of Potato ProductionTable 3 shows the average variable cost of potatoproduction differentiated by farm type. The underly-ing sample consists of 36 farmers, 12 for each of thethree groups. Corresponding to the less intensivecropping patterns of small potato growers, their costof production per hectare is much lower than it is forthe larger farmers. Nevertheless, even for small-scalefarmers the cost of production in absolute terms issubstantial. Small-holders also use considerable pro-portions of purchased inputs, which underscores thecrop’s status as predominantly commercial for allfarm types in Mexico. The different figures of the farmtypes’ enterprise budgets are derived as arithmeticmeans of the individual farmers’ statements in thesurvey. In some cases, the variation of statements ishigh (see Table 4 for standard deviations of importantvariables). This is particularly so between individualstates, with a notable North-South gradient. Large-scale farmers in Coahuila and Nuevo Leon, for exam-ple, have average variable costs of almost 50,000 M$per hectare, whereas the same category of farmers inPuebla only invests about half of this amount. Themain differences are due to agro-chemical use, withthe highest intensities in the northern and northeast-ern potato regions of Mexico.

14

Table 3: Average potato enterprise budgets per ha by farm type (in 1998 M$)

Small-Scale Medium-Scale Large-Scale

Amount of Seed Potatoes (t/ha) 3.00 3.13 3.72Cost per t of Seed Potatoes a 1880.13 2385.58 3047.07

Gross Margin Calculation

Rent for Area 166.67 587.50 831.67Cost for Seed Potatoes 5640.40 7466.88 11335.08Chemical Seed Treatment b 350.00 350.0 730.00

Irrigation (Operation Cost) 0.00 420.00 1216.67Fertilizers 2144.44 4076.25 6059.67Pesticides 2100.00 4743.75 9897.17Hired Labor 1358.33 3606.25 4577.92

Total Variable Cost 11759.84 21250.63 34648.17Yield (t/ha) 11.10 20.86 31.75Farm-Gate price per t 1568.33 1963.75 1947.83Gross Revenue 17408.50 40963.83 61843.71Gross Margin 5648.66 19713.20 27195.54

Notes: 1 US$ = 8.30 M$ according to the average official exchange rate in early 1998. Minor deviations from the ex-pected sums and products in the enterprise budgets are due to rounding errors.a The cost per t of seed potatoes is not an observable market price. For the derivation of the figures, the frequency of seedpurchases among farm types and the individual seed sources were accounted for. Farm-saved seeds were valued at 20percent above the farm-gate price of fresh potatoes to adjust for the cost of storing the tubers, including storage losses.b Often, the seeds are treated with fungicides and nematicides before sowing.

Source: Author’s interview survey (1998).

Per hectare cost differences, however, do not giveinformation about the competitiveness of farmers indifferent regions because the obtained yield levels arealso significantly different (see below for competitive-ness considerations).

Cost StructureIn all cases, seed potatoes account for the largest pro-portion of the total cost of production. While seedsmake up around one third of the variable cost formedium and large-scale farmers, they represent al-most half of the cost for small-holders. But it shouldbe noted that because they usually use farm-savedseeds this cost is not associated with an equal mone-tary outlay for small farmers. This is also why the costper unit of seed potatoes is higher for medium andlarge-scale producers who purchase seed materialmore often. For purchased seeds, the cost per unit in-cludes the cost of transportation from the seed sup-plier to the potato farm. The given figures also takeinto account the fact that medium and large-scalefarmers occasionally reproduce their own seed mate-rial (cf. section 3.1.5).

Pesticides also make up a considerable share of theproduction cost for all three farm types. For small-scale farmers, pesticides rank third after seeds andfertilizers, but for the other two farm types they ranksecond in the overall cost structure. On average, fun-gicides account for half of the total pesticide cost.The share can even be higher, particularly for farmersgrowing varieties with a great susceptibility to lateblight. Insecticides make up the rest of the pesticidebudget.9 They are primarily used to control virus andmycoplasma vectors, and to a much lower extent toavoid direct insect damages. In general, pesticide ap-plications on potatoes are very high in comparison toother field crops grown in Mexico. Especially in thelarge-scale farming systems of the North, where thelack of financial resources is not a serious constraint,pesticide deployment is often overdone. Althoughmany large farmers have hired private agriculturalengineers for technical assistance, knowledge of effi-cient, environmentally sound pest management israther low. Against the background of trade liberali-

9 Weed hoeing is usually done manually so that herbicidesare used only seldom. Although nematicides are used some-times, too, the cost is negligible on average.

15

zation and increasing competition with foreign potatoproducers, introducing integrated pest managementstrategies could be important for improving produc-tivity, especially in the large farm sector.

Although fertilizer budgets between farm types varyconsiderably in absolute terms, the importance of fer-tilizers in relative terms is more or less the same forall three groups: it accounts for 18 percent of the totalvariable cost of production. As regards hired labor,even small-scale farmers employ seasonal workers.Potato is a labor-intensive crop, and labor require-ments exceed the on-hand labor capacity of the farmfamily, especially during the peak sowing and har-vesting season. To a great extent, both sowing andharvesting procedures are carried out manually. Thisis also true for many of the large farms, which areusually highly mechanized otherwise, because of thecomparatively low cost of unskilled labor in Mexico.Since harvesting activities claim by far the highestamount of total labor, overall labor requirements perunit area may vary significantly according to obtainedyields. The statements of surveyed farmers on totallabor employed in the potato crop varied between 45and 120 man-days per hectare and production cycle.A similar range is reported by Santiago and Ruval-caba (1995), with a national average of 90 man-days.

ProductivitiesAs could be expected from the production intensities,average potato yields increase with the farm size andso do gross revenues per hectare. Farm-gate pricesreceived by small-scale farmers are lower than theyare for the other groups. This divergence can mainlybe attributed to three factors:

• Small-scale farmers have limited price informa-tion and comparatively low amounts of potatoesto sell, so they have little power to negotiateprices.

• Small-scale farmers often live in more remote ar-eas, which makes the cost of marketing the pro-duce higher and results in lower farm-gateprices.

• The quality of potatoes produced by small-holders is often below that of larger farmers interms of form, size, and physical defects of tu-bers. Moreover, small farmers often produce redpotato varieties, which command lower pricesthan white varieties.

The lower yields and lower prices received by small-scale farmers entail significantly lower revenues andgross margins in comparison to the other groups. Thesmall-scale farmers’ average gross margin per hectareis only 29 percent, and 21 percent of that for the me-dium and large-scale farmers, respectively. From amarket efficiency point of view, however, it is moreappropriate to consider the cost of production perunit of produce instead of the gross margin. The unit

cost of potato production for the different farm typesis shown in Table 4.

It is somewhat surprising thatdespite significantlydistinct production conditions and intensitiesthecosts of production per unit of output are similar forthe three farm types. The same holds true for the totalunit cost, including the fixed cost. Direct data onfixed costs were not collected within the interviewsurvey. Valdivia (1995), however, could show thatthe average per hectare cost for machinery in Mi-choacanexpressed as a percentage value of thevariable costis almost identical between the differ-ent potato farming systems (approximately 8 percent).We make the same assumption for other fixed costitems, which is realistic because substantial econ-omy-of-scale-effects do not occur. Large-scale farmersusually have sophisticated building facilities and theyoften employ several permanent workers and em-ployees (including engineers, secretaries, etc.).Smaller producers do not face such overhead costitems. Given these considerations, fixed costs asabout 10 percent of the variable costs appear to be agood approximation.

Table 4 also shows the standard deviations of the in-dividual cost figures in the sample. As was mentionedabove, the range of the individual farmers’ per hec-tare values is quite high. But it is interesting that stan-dard deviations of per unit costs within the groups aremuch lower. This strengthens the claim that the con-siderably different production patterns in Mexico donot have severe implications on capital productivity.As regards farm types, there are no significant effi-ciency differences between small and large potatoproducers, a finding consistent with Biarnès et al.(1995).10

3.2 Potato Marketing and Trade Channels3.2.1 Potato CommercializationThe major wholesale markets for fresh potatoes inMexico are Mexico-City, Guadalajara, and Monter-rey, with smaller wholesale outlets in a few other cit-ies. These wholesale markets may be suppliedthrough different channels. Many farmers sell theirpotatoes directly to the wholesalers. Larger farmershave their own means of transportation; smaller farm-ers pay volume fees for hired trucks. Apart from thisdirect marketing channel, there are different local andregional agents acting as intermediaries between pri-mary producers and wholesalers, especially forsmaller farmers with limited amounts of potatoes. Theform of payment that farmers receive from wholesal-ers or intermediary traders may vary within one year.During times of scarce supply, cash is paid when theproduce is handed over. Often during times of mar-

10 This statement assumes a homogeneous product producedby all farm types, i.e. it is abstracted from quality aspects.

16

Table 4: Average per unit cost of potato production by farm type (in 1998 M$)

Small-Scale Medium-Scale Large-Scale

M$ Std. Dev. M$ Std. Dev. M$ Std. Dev.

Variable Cost per ha 11759.84 3162.73 21250.63 4398.41 34648.17 8975.20

Total Cost per ha 12935.83 3479.01 23375.69 4838.25 38112.98 9872.73

Var. Cost per t of Production 1059.45 30.81 1018.60 66.90 1091.28 102.59

Total Cost per t of Production 1165.39 33.89 1120.46 73.59 1200.41 112.85

Note: 1 US$ = 8.30 M$ according to the average official exchange rate in early 1998.

Source: Author’s interview survey (1998).

ket saturation, however, producers sell their potatoesat uncertain prices on a commission type basis andreceive their money after one or two weeks. One rea-son for the delayed payment is that the traders washthe potatoes, which often reveals problems of inferiorquality (cf. Elizondo, 1989).

The wholesale markets are the main centers for thedistribution of potatoes to the different retail outlets ofthe country. For the formation of prices according tosupply and demand, the wholesale market of Mexico-City plays the pivotal role because of its nationaldominance in terms of traded potato volumes. Unlikeother wholesale markets, Mexico-City receives pota-toes from all parts of the country, and it is the onlyplace that handles large amounts of red potatoes. Al-though physical distances can be substantial, there isa close price transmission between the differentwholesale markets. As mentioned earlier, the supplyof fresh potatoes takes place uninterruptedly duringthe whole year, but there are significant seasonal andinterannual supply differences that make potatoprices variable. Price variation was ranked as the po-tato crop’s number one problem by the majority ofinterviewed farmers in the survey. While interannualprice fluctuations are hard to predict, price develop-ments within one year show a fairly regular pattern.The seasonal price fluctuation for Alpha and for redcolored varieties is exemplary shown for 1996 in Fig-ure 6.

Although prices for red varieties are always belowthat of Alpha potatoes, it can be seen that there is aclose linkage between both price developments. Thetypical feature of the annual potato price evolution isthat prices start rising in February until they reach apeak lasting from April to June, after which a constantdecrease occurs during the second half of the year.The figure also provides the main harvesting seasonsof Mexico’s different potato producing regions. Theprincipal beneficiaries of the price peak are the po-

tato growers of Sinaloa, Sonora, and to some extentthose of Guanajuato. The main potato harvest in mostof the central and southern statesespecially thosewith a high prevalence of small-scale farmers culti-vating under rainfed conditionsis between July andDecember, when producers face much lower prices.This is also the reason for the more pronounced pricedecrease of red colored potatoes in comparison to thewhite ones. While Alpha is produced throughout thecountry, red potatoes are grown exclusively by small-and medium-scale farmers in the central and southernstates (cf. Table 1 above). Larger producers of whitevarieties in these regions often have their own cooledstoring facilities, which allows them to delay theirsales and circumvent low prices without significantstorage losses.

The commercialization channel of potatoes for in-dustry use is different from that of fresh potatoes. Be-sides a couple of smaller firms, there are two mainenterprises (Sabritas and Barcel) with different plantsin Mexico that buy potatoes directly from farmerswithout intermediaries.11 Large-scale farmers in thenorth are the dominant suppliers. These farmers oftenhave contractual agreements with the industry thatdetermine varietal selection, quality standards, andprices in advance. Farmers usually receive pricesfrom the processing enterprises that are less than theaverage prices for fresh market potatoes, but theagreements are attractive because there is less uncer-tainty associated with industry sales.

3.2.2 International Potato TradeFresh PotatoesMexico can be regarded as a closed economy interms of its fresh potato market. Potato exports arealmost zero, while the importation of fresh potatoes

11 The processing industry in Mexico predominantly pro-duces potato crisps and to a lesser extent dehydrated pota-toes (cf. Gómez, 1995).

17

Figure 6: Wholesale potato price development in Mexico-City during 1996 and main harvesting seasons of importantpotato producing states

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

M$/

kg

AlphaColor

Michoacan

SinaloaSonora

Guanajuato

PueblaVeracruz

CoahuilaNuevo Leon

Mexico-State

Chihuahua

Guanajuato

Tlaxcala

Notes: The average 1996 exchange rate of the Mexican peso with respect to the US dollar was: 1 US$ = 7.60 M$ (INEGI,1997b). Besides the indicated main harvesting season, there is a smaller second season in several states.

Source: Author’s presentation based on data provided by CONPAPA and SNIM.

(including seed potatoes) accounted for only 3 per-cent of the national production in 1996, an amountwhich is more or less representative for precedingyears (CONPAPA, 1997a). Consumer preferences forlocally used varieties as well as tariff and non-tariffbarriers have traditionally been the impediments tothe integration of Mexico into the international potatomarkets. Furthermore, due to the successful repre-sentation of potato farmers’ interests in the NAFTAnegotiations through the National Potato Confedera-tion (CONPAPA, see section 3.1.6), the potato sectorreceived special attention. Notwithstanding the com-paratively low importance of potatoes in the overallMexican economy, the crop received in the NAFTAregulations the highest degree of protection among allagricultural products (CONPAPA, 1996).

With the beginning of the NAFTA in 1994, fresh po-tatoes started with an import tariff of 272 percent.12

12 In contrast to fresh potatoes for consumption, seed pota-toes in Mexico can be imported tariff-free from NAFTAmember countries.

This tariff must be reduced to zero within a time pe-riod of 10 years. And there are also certain quotas forfresh potatoes that can be imported tariff-free from theUnited States and Canada. These quotas increase an-nually by 3 percent until complete trade liberalizationis achieved in 2004. The developments of import tar-iffs and quotas for fresh potatoes are shown in Table 5.

Because of the reduced barriers to potato trade in theNAFTA, international potato flows will likely increasesignificantly from 2004 onwards. Transportation costsshould not represent a serious constraint becauseeven today potatoes are moved over long distanceswithin Mexico or within the United Statescrossingthe border will not make a big difference. Further-more, in other parts of the world transportation costshave not prevented a considerable expansion of theinternational potato trade in the last few decades(FAO/CIP, 1995). Given the higher production costsin Mexico as compared to the United States and Can-ada, liberalized trade will probably lead to rising po-tato imports into the country.

18

Table 5: Development of Mexico’s import tariffs and quotas for fresh potatoes within the NAFTA (1994-2004)

Import Quota (t)

Year Import Tariff (Percent) USA Canada

1994 272 15,000 4,0001995 261 15,450 4,1201996 250 15,914 4,2441997 239 16,391 4,3711998 228 16,883 4,5021999 217 17,389 4,6372000 206 17,910 4,7762001 155 18,448 4,9192002 104 19,001 5,0672003 52 19,572 5,2192004 0 Free Free

Source: SECOFI (1994).

Table 6: Cost of potato production in Mexico and in the USA (in 1998 M$)

Mexico USA

Small-Scale

Medium-Scale

Large-Scale Idaho

NorthDakota

Total Cost of Production (M$/ha) 12935.83 23375.69 38112.98 33576.37 23141.04Average Yield (t/ha) 11.10 20.86 31.75 38.90 27.60Cost per t of Production (M$/t) 1165.39 1120.46 1200.41 863.15 838.44

Note: 1 US$ = 8.30 M$ according to the average official exchange rate in early 1998.

Sources: Author’s interview survey (1998) for data on Mexico. Patterson et al. (1993), Preston (1996) and USDA (1997) fordata on the USA.

The low average competitiveness of the national po-tato sector is illustrated in Table 6 above which jux-taposes the unit cost of production in Mexico withthe corresponding figure for Idaho and North Dakota,two of the major potato producing states in the USA.The increase of imports at lower prices would imply adecrease in Mexican potato production. Non-competitive national producers would have to exitfrom the potato sector. It is generally held that mostlysmall-scale producers would abandon their produc-tion. This might be the case because of their slightlylower quality standards. In terms of production costs,however, Table 6 again stresses that small-scale farm-ers are as competitive as large-scale producers.

On the other hand, there are arguments against an ex-tended trade flow of fresh potatoes from North to South(cf. Gómez, 1995). Mexican potato consumers preferthe Alpha variety, but the dominant variety in theUnited States is Russet Burbank. Moreover, there arecertain consumer groups in Mexico that prefer red po-tatoes, which are not produced in the other NAFTAcountries. Such preferences can be expected to gradu-

ally change with increased international market inte-gration, but adjustment processes take time. Further-more, seasonal aspects of potato production might playa role. In the United States and Canada, the potato har-vest is in the fall, but in Mexico fresh potatoes areavailable all year around, which makes seasonal ex-ports from Mexico conceivable if certain quality stan-dards can be met. Such South-North seasonal tradeflows of potatoes are important, for example, from theMediterranean countries of North Africa to the Euro-pean Union during the winter months. How potatotrade flows within the NAFTA region will develop inthe future cannot be anticipated with absolute certaintyin the ex ante framework. Of course, international po-tato trade will have an impact on the change in eco-nomic surplus within the quantitative model. We willdeal with it by analyzing the two extremes: a closedeconomy and an open economy alternative.

Processed PotatoesInternational trade in processed potatoesparticu-larly importssignificantly increased in Latin Amer-ica during the 1990s (Scott et al., 1997). Therefore,

19

referring only to the flow of fresh potatoes might bemisleading when the implications of trade for na-tional producers are analyzed. In volume terms,processed potatoesconverted to fresh tuberequivalentsaccounted for half of Mexico’s totalpotato imports in 1996. In terms of value they evenaccounted for two thirds. Most of these processedpotato imports are in the form of frozen French Friescoming from the United States. Although there areseveral industry plants producing potato crisps inMexico, there is almost no capacity to produce fro-zen French Fries. Within the NAFTA regulations,trade protection for processed potato products ismuch lower than that given to fresh tubers. Importtariffs in 1994 started between 15 and 20 percent(according to the individual processed products) witha reduction to zero by 2004 (cf. Gómez, 1995). Thefuture development of processed potato trade flowswill depend more on the evolution of national con-sumer preferences and the ability of the Mexicanfood industry to react efficiently to changing nationaldemand patterns rather than on tariff trade-barriers.

3.2.3 Potato ConsumptionMexican consumers view potato not as a staple foodbut more as a vegetable. With an average annualdemand of 12.3 kg per capita in the early 1990s,potato consumption is much lower than in those re-gions of the world where the crop represents a pri-mary source of food energy (FAO/CIP, 1995).

Table 7 shows the potato budget shares for house-holds according to the 1993 household income andexpenditure survey. The average food expenditurerelative to total household expenditure in Mexico is33 percent.

As might be expected for a vegetable-type food, theweight of potatoes in total household expenditure isin general rather small. It is, however, much larger forthe poorer segments of the population than it is forthe better off. Although distributional implications ofthe transgenic potatoes on the consumer side are notexplicitly considered in the market model, this ex-

penditure pattern reveals that potato price reductionscreated by the technology would have a greater im-pact on poorer people’s real incomes and improveincome distribution.

Looking back to historic potato consumption figures,the per capita intake of potatoes in Mexico has in-creased remarkably. During the early 1960s, for in-stance, per capita consumption was only 7.5 kg peryear. The income elasticity of potatoes is 0.82 (Ibarra,1986), which appears quite high in comparison to theelasticity estimates for countries where potato is astaple food (see e.g. Horton, 1987). In many industrialcountries, the potato income elasticity is even nega-tive (i.e., potato consumption declines with increasingincomes). By contrast, rising living standards in Mex-ico would diversify the population’s diet, which isbased on maize and beans, towards potatoes. Today,70 percent of all potatoes are consumed as fresh tu-bers in Mexico. It is likely, however, that potato con-sumption will shift more and more towards processedpotatoes in the future. The demand for French Frieswill especially increase since fast-food is gainingpopularity. A change in Mexican food habits is fos-tered by the liberalized trade conditions with theUnited States and Canada.

Aggregate consumption projections for the futuremust take into account the expected growth rates ofthe population and of per capita income. The popu-lation increased at an annual rate of 1.9 percent inthe 1990-95 period (World Bank, 1997), a figure thatwe extrapolate into the future for the time horizon ofthe analysis. Following Norton et al. (1987), we im-pose a corresponding exogenous rightward shift onthe national potato demand curve in the quantitativemarket model. Per capita income growth, in turn, isneglected. The average annual growth rate of the percapita Gross National Product was only 0.1 percentduring the last decade, and its future development isuncertain.

Price elasticities of potato demand are important forthe quantitative analysis of technology implications,

Table 7: Potato expenditure shares of Mexican households (percent)

Expenditure Deciles a

Exp. Share of Potatoes in Total I II IX XTotal Monetary Household Expenditure 0.42 0.86 0.70 0.33 0.19Monetary Household Food Expenditure 1.28 1.53 1.30 1.00 0.84a The total population is subdivided into 10 different strata according to their overall household expenditure, with decile Irepresenting the relatively poorest and decile X the richest households.

Source: INEGI (1993).

20

but reliable estimates for Mexico could not be foundin the literature. Still, by using consumer theory andimposing the restriction of pointwise separability, theown price elasticity of demand (εd) can be calculatedwith a method developed by Frisch (1959):

( ) ηηηω

ε ⋅−⋅−⋅= bbd 11

(16)

where η is the income elasticity of potato demand, bis the potato budget share and ω is the flexibility of

money, an elasticity coefficient describing how themarginal utility of income changes with changing in-comes. The absolute value of ω usually increaseswith lower levels of income and estimates range from–3 for different low income countries and –1 for theUnited States (cf. Sadoulet and de Janvry, 1995). ForMexico we assume a flexibility of money of –2. Thus,we obtain a coefficient of –0.41 for the price elasticityof potato demand.

4. The Recombinant Potato Technology

In this chapter, the technology transfer project be-tween Monsanto and CINVESTAV, the technologydevelopment within Mexico, and the agronomic po-tentials and risks of the recombinant technology willbe discussed. First, a brief overview of the relevantaspects of the Mexican agricultural biotechnologysituation is provided.

4.1 Background of Agricultural Biotechnology inMexicoMexico is one of the more advanced countries in re-gards to agricultural biotechnology in Latin America.13

Research in this area began in the 1970s with the es-tablishment of a couple of tissue culture laboratoriesby different public organizations. That developmentcontinued during the 1980s, and today there are sev-eral biotechnology institutes in Mexico with consid-erable experience and high reputations bothnationally and internationally (Pedraza et al., 1998).The Center for Research and Advanced Studies(CINVESTAV) in Irapuato, which belongs to the Na-tional Polytechnic Institute, is one of these outstand-ing organizations. It possesses a team of 71researchers exclusively dedicated to basic and ap-plied research in agricultural biotechnology. Many ofthe researchers received education and training in theUnited States or Europe. In the second half of the1980s, CINVESTAV-Irapuato was also one of the firstorganizations in Latin America to begin research onplant genetic engineering.

Today, there are three institutes with experience ingenetic engineering in Mexico, CINVESTAV-Irapuato,the Institute for Biotechnology of the NationalAutonomous University (UNAM), and the Interna-tional Maize and Wheat Improvement Center(CIMMYT), which is one of the centers of the Con-sultative Group on International Agricultural Research(CGIAR). Yet until now no transgenic crop variety hasbeen developed into a commercial application in

13 The most advanced countries in the region with respect tobiotechnology are Argentina, Brazil, Cuba, and Mexico.

Mexico.14 The task of academic organiza-tionsassigned by the government technology pol-icyis to focus on excellent research for evaluationby publication records in renowned scientific jour-nals. For researchers in academic institutes there islittle incentive to develop technology products up tothe level of final release (cf. Solleiro et al., 1996). Thislatter task belongs to the private sector orin thecase of agricultureto the National Institute for Agri-cultural Research (INIFAP), an administrative entity ofthe Mexican Ministry of Agriculture (SAGAR). Effec-tive linkages between molecular research and agro-nomic product development have so far beenmissing.

INIFAP is now involved in the technology transferproject, too. Although INIFAP’s engagement in bio-technology is still in its infancy because the instituteembarked upon this area of research only in 1992,15 ithas excellent expertise in potato breeding and inmore practical aspects of the Mexican agriculturalsector. The virus resistant potatoes developed byCINVESTAV in collaboration with INIFAP will be thefirst transgenic varieties released by national institu-tions in Mexico orexcepting Chinain any otherdeveloping country. These innovative institutionallinkages and the capacity-building in the NARS initi-ated by the North-South technology transfer shouldalso be seen as project benefits. They could open upchannels for future biotechnology development anddistribution in Mexico far beyond the potato technol-ogy itself.

4.2 The Biotechnology Transfer ProjectThe biotechnology transfer project between Mon-santo and CINVESTAV was initiated in 1991. It in-volves the donation of coat protein genespatented

14 Although already several thousands of hectares are grownwith transgenic cotton and tomatoes in Mexico, these areproducts of the United States biotechnology industry (Mon-santo and Calgene) (cf. James, 1997).15 INIFAP is planning to increase its biotechnology capacitysubstantially in the future.

21

by Monsantofor resistance to Potato Virus X (PVX)and Potato Virus Y (PVY) and also the transfer ofknow-how for the corresponding genetic transforma-tion process in potatoes. The project is facilitated andinstitutionally supported by ISAAA and is financiallysponsored by the Rockefeller Foundation. The timeframe of the technology transfer project is shown inFigure 7, and it is explained in the text below.

Resistance to PVX and PVYDuring the first year of the project (1991), scientistsfrom CINVESTAV were trained in Monsanto laborato-ries in the protocol for the transformation and regen-eration of the Russet Burbank potato. The transfer ofthe genes is accomplished by the use of the Ti plas-mid of Agrobacterium tumefaciens, which containstwo coat proteins so that resistance to PVX and PVYcan be conferred in a single transformation process.16

The Russet Burbank protocols were subsequentlyadapted to the Alpha variety. After the establishmentof the facilities at the CINVESTAV laboratories inIrapuato, the transformation of Alpha began in 1992.The first small field trial with transgenic Alphas wascarried out in 1993 in Irapuato. Apart from Alpha, thecontractual arrangements with Monsanto also allowCINVESTAV to transform other varieties for resistanceto PVX and PVY. Imported varieties suitable for proc-essing, however, are excluded from the agreement. In1994, CINVESTAV transformed two more varieties,the red variety Rosita and the locally bred white vari-ety Norteña (see section 3.1.1). In total, 189 breedinglines of the three varieties were transformed for resis-tance testing. In 1995, the first field trial outsideCINVESTAV facilities with the objective to test for ag-ronomic traits was carried out on 40 breeding lines incollaboration with INIFAP. The best performing linesout of each variety were then selected, and in 1997multi-location field trials were conducted with 5 linesof Rosita and 10 lines of Alpha and Norteña, respec-tively. These multi-location trials took place at the ag-ricultural stations of INIFAP in the states ofGuanajuato, Mexico-State, Sonora, and Coahuila.Multi-location field tests are continuing in 1998.CINVESTAV and INIFAP are expected to release thefirst transgenic potatoes with resistance to PVX andPVY for commercial use in 1999. The transgenicbreeder material will be transferred to the potato seedproducers free of charge.

Resistance to PLRVA new project phase began in 1997, when ISAAAbrokered a further royalty-free licensing agreementwith Monsanto to additionally donate a replicasegene to CINVESTAV that encodes for resistance toPotato Leafroll Virus (PLRV). The Rockefeller Founda-tion is also financially supporting this transfer. Thereplicase gene was identified and isolated more re-

16 For more technical details see Rivera-Bustamante (1995)and Kaniewski et al. (1990).

cently than the coat proteins for PVX and PVY, and sothe PLRV technology was not available in 1991 whenthe original project begun.17 CINVESTAV is allowedto use the PLRV resistance mechanism in Rosita,Norteña, and a dozen other varieties, but its use inAlpha is prohibited at this stage of the technologytransfer agreement. The introduction of the replicasegene into PVX and PVY resistant Rosita and Norteñastarted in 1997. Large-scale field trials in cooperationwith INIFAP are expected in 1999 and 2000. The firstcommercial release of the two transgenic varietieswith combined resistance to the three virus typescould occur as early as the year 2001.

Technology Transfer ArrangementsCINVESTAV received the genes and the transforma-tion know-how from Monsanto free of charge. ThePVX and PVY technology may be used for Alpha andother specified Mexican varieties. The contract, how-ever, explicitly excludes the transformation of inter-nationally used processing varieties, like Atlantic,Russet Burbank, etc. The use of the PLRV technologyis exclusively confined to local varietiesAlpha isexcluded in addition to the processing varieties. PLRVis economically much more important than PVX andPVY, and Alpha is the most important variety inMexico among large-scale farmers who regularly buycertified seeds. Monsanto could have, therefore, acommercial interest in transforming and releasing thevariety in the future. On the other hand, Alpha is notwidely grown in countries other than Mexico, andCINVESTAV/INIFAP already have experience intransformation and product development with this va-riety. It is conceivable, therefore, that Monsanto willfinally give its permission to CINVESTAV to use PLRVresistance technology in the Alpha variety.

CINVESTAV and INIFAP are allowed to protect thetransformed varieties under the national IntellectualProperty Rights (IPRs) regulations. Since 1994, plantvarieties in Mexico can be protected by the legisla-tion of Plant Breeders’ Rights under the UPOV act of1991. The varieties will eventually be protected fordefensive reasons, but not for commercial purposes.Mexico is allowed to share the technology and thetransgenic products with all the countries of LatinAmerica and Africa. The export of any of the trans-formed material to the USA or to other countrieswhere Monsanto patented its technology is explicitlyexcluded in the contract. New negotiations will berequired if Mexican potato exports become relevantin the future.

17 Monsanto released PLRV resistant Russet Burbank potatoesin the USA in 1996. PVX and PVY resistance is also a ma-ture technology there, but these two viruses are of minorimportance in the potato producing regions of the USA.There is no commercial application of this technology inthat country.

22

Figure 7: Time frame of the biotechnology transfer project

1991 1993 1995 1997 1999 2001 2015

Training of Mexican

Scientists in the USA

Transformation of A for PVX

and PVY Resistance

Small-Scale Field Trial

with A (PVX, PVY)

Transformation of R and N for PVX and PVY

Resistance

Field Trial with

A, R and N (PVX, PVY)

Multi-Location Field Trials with

A, R and N (PVX, PVY)

Transformation of R and N for

PLRV Resistance

Variety Approval and First Release of

A, R and N (PVX, PVY)

Field Trials with R and N (PVX, PVY, PLRV)

Maintenance of Transgenic Breeding Lines

Variety Approval and First Release of R and N (PVX, PVY, PLRV)

Seed Production and Commercialization

Technology Adoption and Application in Agriculture

Establishment and Consolidation of Biosafety and Food Safety Regulations in Mexico

Note: A means Alpha, R is Rosita and N is Norteña.

Monsanto’s Interest in the ProjectSince Monsanto donated the virus resistance technol-ogy to Mexico, the underlying incentives for thecompany to participate in the North-South transferproject are not initially obvious. Private enterpriseshave to maximize their profits, so we don’t expectidealistic behavior from them. We can find the forcesbehind such behavior, however, by adopting a long-term strategic perspective:

• There are still public concerns about biotechnol-ogy and genetic engineering in generalandagainst the “Global Players” in particular. Todemonstrate that farmers in developing countriescan also benefit from proprietary transgenictechnologies improves the status of biotechnol-ogy and of private industry.

• Through the technology donation, Monsanto im-proves its own image as a “responsible globalcitizen” against the backdrop of North-Southinequalities and food insecurity in the ThirdWorld. The cost of this public relations effect isrelatively low becausedue to the specific con-tractual agreementsMonsanto does not foregocurrent short-term commercial potentials (cf.Commandeur, 1996).

• While quantitative seed demand in most indus-trialized countries is stagnating, the seed marketsof developing countries are growing and willcontinue to grow in the future. There are long-

• term market potentials for the private seed in-dustry of the North if they expand their focus toinclude the needs of developing countries. Thetransfer project allows Monsanto to test its re-combinant technology under unique climaticand socioeconomic conditions (cf. Massieu,1998).

• So far, private enterprises from industrializedcountries have been active only to a limited ex-tent in developing country seed markets, par-ticularly with respect to biotechnology. Theproject gives Monsanto the opportunity to gainnew experiences and to build up an institutionalnetwork. This involves not only direct coopera-tion with local partner organizations but also theestablishment of mechanisms to facilitate futurecommercial technology projects (e.g. biosafetyissues and biotechnology distribution channels).

4.3 Agronomic Technology PotentialsPotential Effects on Potato YieldsSection 3.1.2 observed that PVX, PVY, and PLRV arethe economically most important potato viruses inMexico. They cause losses in terms of yield quantityand quality. Virus-induced quality reduction also of-ten leads to non-marketable output, so quality lossescan be translated into commercial yield losses aswell. This is accounted for in the subsequent consid-erations.

23

There is very little published information availableabout average potato yield losses caused by virusesin Mexico. To make up for this lack, a review of theavailable national and international literature(SAGAR/INIFAP, 1997; Rivera-Bustamante, 1997;Salazar, 1997; Marks et al., 1992; CIP, 1990; Hill,1990; Piña, 1984; Debrot, 1975) was supplementedby interviews with Mexican potato experts (see sec-tion 2.3). They were asked to give estimates on av-erage yield losses induced by the three virus types,both when there is infection by only one virus andwhen the infection is multi-viral. The range of an-swers was rather narrow. An arithmetic mean wascalculated from the individual statements, whichwas then cross-checked with potato researchersfrom the International Potato Center (CIP) in Peruand with Monsanto’s experience in transgenic Rus-set Burbanks in the United States. This procedure re-sulted in the following estimates: Average yieldreduction in Mexico due to PVX is 5 percent, withlittle variation across the country. Due to climaticfactors, greater regional differences in the severity ofinfections can be observed for PVY and PLRV.While PVY is more widespread in the North andNorth-West of Mexico, PLRV causes greater prob-lems in the temperate zones of the Central Plateau.Nonetheless, both virus types can be foundthroughout all regions. Countrywide average esti-mates for yield reductions are 10 percent for PVYand 17 percent for PLRV. When different virusesinfect potatoes at the same time, the combined ef-fects often are far more severe than those of eitherinfection alone, although individual yield losses donot simply sum up. The average yield reduction ofPVX and PVY together is estimated at 12 percent.When all three viruses are prevalent, which is typi-cal in Mexico, the average loss is 25 percent. Differ-ences in losses between potato varieties can occur,but they are negligible.

Using the transgenic technology will avoid yieldlosses. A translation into potential net yield gains(NYG) can be derived by taking the actual obtainedyieldwith virus infectionsas the reference basis.18

Keep in mind that resistance genes do not confer ab-solute immunity (Ascencio, 1998). A certain degree ofinfection cannot be avoided despite resistance. Al-though the resistance mechanism itself is not lostthrough vegetative propagation, the remaining infec-tion might increase when farmers repeatedly repro-duce the transgenic tuber. Little is yet known about

18 Although PVX and PVY resistant potatoes have alreadybeen field-tested, the trial procedure did not allow state-ments on technology-induced yield effects. Therefore, po-tential net yield gains of the technology are based on anappropriate translation of estimated data on current viruslosses. Percentage yield loss statements do not refer to actualyields, but to hypothetical yield levels without virus prob-lems.

the performance of the resistance-degree over time.Given the assumption that transgenic seeds are re-newed every five to seven years by potato producers,experts estimate a resistance-degree of 85 percent(i.e., the technology could reduce the current yieldlosses by this percentage).

Because distributional implications of the technologyhave yet to be assessed, it is important to note thatsignificant variations in virus-induced yield losses ex-ist between farming systems. Large-scale farmersregularly renew their seeds with certified material, sothat they have better control over secondary virus in-fections than smaller farmers, who often recycle theirown tubers or purchase seeds in informal markets.Moreover, larger farmers use higher amounts of in-secticides, which reduces the number of primary PVYand PLRV infections transmitted through aphids. Thepotential, therefore, of the transgenic virus resistanceto reduce yield losses is greater in the case of small-scale farmers. Yield losses and corresponding poten-tial technology net yield gains are shown in Table 8for the individual farm types. Regional differenceshave been accounted for by referring to the major lo-cations of farm types in the country (i.e., larger farm-ers are dominant in the North whereas smallerfarmers predominate in the Central and South).

Potential Effects on Pest Management StrategiesIt might be argued that, particularly in the case oflarge-scale farmers, the technology could lower thecost of pest management in addition to having directeffects on commercial yields. But this is not verylikely because there are no specific managementstrategies exclusively directed at virus problems. Thetechnology will probably not influence the intervalsof purchasing certified seeds for larger farmers sinceother pathogens (mycoplasmas, fungi, and bacteria)are also spread through the tuber. The application ofinsecticides should also not be expected to decreaseconsiderably because in most instances the chemicalsemployed are not specific. The same insecticides thatcontrol the leafhoppers that transmit mycoplasmasusually control the aphids that transmit PVY andPLRV. Aphids and leafhoppers often have differenttimes of activity in spreading pathogens to potatoes,and so timely chemical applicationstargeted to ei-ther of the insectscould considerably reduce insec-ticide amounts. But this requires increased knowledgeof efficient pest management among farmersnot vi-rus resistant potato varieties.

Advantage of Transgenic Potatoes Over ConventionalTechnologyThere are essentially two ways to keep economiclosses caused by secondary virus infections in pota-

24

Table 8: Current average virus-induced potato yield losses and potential net yield gains through transgenic resistanceby farm type (percent)

Small-Scale Medium-Scale Large-Scale

Current Yield Losses a

PVX and PVY 15 12 7PLRV 25 17 10PVX, PVY and PLRV 35 25 15

Technology Net Yield Gains b

Resistance to PVX and PVY 9 7 4Resistance to PLRV 21 13 7Resistance to PVX, PVY and PLRV 46 28 15a These values are percentages from the hypothetically obtainable yield without virus problems.b These values are percentages from the current actual yield. It is assumed that all three viruses are prevalent and that theresistance-degree is 85 percent.

Sources: Author’s calculations based on the interview survey (1998) and different available literature sources indicated inthe text.

toes low.19 The first alternative is to develop aconven-tional seed production program, which through theuse of virus detection, eradication, and tissue culturetechniques delivers pathogen-tested certified plantingmaterial to potato farmers. In most developed coun-tries, seed production programs are efficient andfarmers regularly buy certified potato tuber seeds.These countries have only minor virus-induced yieldand quality losses (CIP, 1990). In many developingcountries, however, farmers often reproduce theirown potato seeds, which creates a constant virusbuildup in the stock. Institutional requirements to es-tablish a well-functioning seed program, where alltypes of farmers regularly purchase clean seeds, aresubstantial. In Mexico, commercial seed producersalready propagate virus-free seed material, but its useis rather limited, especially among small and me-dium-scale farmers (cf. section 3.1.5).

The second alternative is the development of geneticresistance, transmitted through vegetative propagation,which makes its practical implementation much easierin developing countries. Resistance can generally beachieved by either traditional breeding or by genetictransformation. Because potato is tetraploid, its im-provement by breeding and selection is very difficult.CIP scientists have identified genes in the potato germ-plasm that confer extreme resistance to PVX and PVY,and through marker-assisted breeding it is tried to de-

19 A third alternative is the introduction of botanical potatoseeds (true potato seeds). Viruses are usually not transmittedthrough the sexual seed of the potato. CIP has some positiveexperience with true potato seed programs, but so far theirworldwide use is still very limited.

velop resistant varieties. Good sources of PLRV resis-tance, however, could not yet be found inside the po-tato germplasm (Ghislain et al., 1997). Direct genetransferin which other organisms can also be thesource of resistanceoffers the advantage of bringingforth technologies that would not otherwise be avail-able at this stage. The genetic transformation of pota-toes in comparison to other crops is comparatively easyand inexpensive, which makes it an appropriate tech-nology for developing countries. It remains to be seenhow effectively the transgenic virus resistant potatoescan be reproduced by farmers themselves.

There is another major advantage of gene technology-mediated resistance over conventional resistancebreeding in potatoes. In countries with a mature po-tato industry, varietal replacement is usually muchslower in potato than for other arable crops (Walker,1994). Established market qualities and known yieldperformances of certain varieties lead to a low ac-ceptance among farmers of new varieties. In Mexico,this is reflected by the long durability of the Alpha va-riety. Conventional crossbreeding produces new va-rieties with yield and quality characteristics that areoften distinct from the varieties used before. Withtransgenic resistance technology only one desiredgene is added to the genome of a well established va-riety, and so farmers’ acceptance and adoption of thetechnology will be much higher.

4.4 Technology Adoption4.4.1 Adoption by ProducersAs discussed in chapter 2, the potential technologyadoption rate of potato producers is a crucial variablefor assessing the economic impact of the new varie-

25

ties. Adoption is defined here as the proportion oftotal potato production under the new transgenictechnology. Important factors that influence technol-ogy adoption are the expected profitability of the in-novation from the farmers’ point of view, thecomplexity of understanding and handling it, and itsdivisibility. Of course, adoption may vary over farmtypes according to the peculiarities of the technology.Biotechnologies integrated into seeds are expected tobe rather scale-neutral in this respect (Qaim and vonBraun, 1998).

The adoption of new crop varieties is usually associ-ated with a certain degree of risk for the farmer, sincethe exact yield, quality performance, and necessaryadjustments to the traditional cropping intensities areunknown. This is one reason why the adoption of newvarieties over time has often been modeled as an S-shaped logistic function (see e.g. CIMMYT, 1993). Theprevious section argued that this uncertainty aspect issomewhat different in the case of transgenic potatoes,for in this instance only one new resistance mechanismhas been introduced into varieties that are already wellestablished. Rather than being a function of the sub-jective risk perception, the attractiveness of using thetechnology is primarily a question of the transgenicseed price, which farmers will weigh against the ex-pected net yield gain. CINVESTAV and INIFAP planfor all seed producers to receive the technology incor-porated into the breeder material free of charge. Thiswill make the operation of producing certifiedseedsand thus the costequivalent for transgenicand non-transgenic potatoes. Given the competitivestructure of Mexican potato seed markets, seed pricesare primarily determined by the cost of seed produc-tion. Except for possible production bottlenecks in thefirst year after technology release, seed prices of trans-genic and non-transgenic potatoes are expected to bethe same. It is therefore presumed that the adoption ofthe transgenic technology by Mexican potato produc-ers is a linear function determined by the given patternof variety use and farmers’ behavior in respect to re-

newing their seed material. The function is kinked atthe upper bound of technology adoption, which isequal to the current production share of the three va-rieties Alpha, Rosita, and Norteña. These shares areshown in Table 9.

We let the share of Rosita be represented by the shareof all red-colored varieties. As Rosita is the most im-portant of the red varieties, this might be simplified butit is not an unrealistic approximation. Although the useof varieties is subject to change over time, Walker(1994) showed in a cross-country study that this is usu-ally a rather slow process. It is assumed that the slightlydeclining trend observed in recent years in the use ofAlpha will be halted due to the advantages of the newtechnology, and that variety use over the considerationperiod will stay more or less constant.

Technology adoption needs to be considered sepa-rately for the PVX-PVY resistance in Alpha, and forPVX-PVY-PLRV resistance in Rosita and Norteña from2001 onwards. Although 1999 marks the first releaseof PVX and PVY resistant varieties, significant adoptionwill not start before 2000 because it will take a year tomultiply sufficient amounts of seeds. Likewise, notice-able adoption of PVX-PVY-PLRV resistant varieties willnot occur before 2002.

Adoption Based on the Current Seed DistributionSystemOn the basis of the seed market observations describedin section 3.1.5, seed purchase and technology adop-tion behavior is defined as follows: large-scale farmersbuy certified seeds every year for 33 percent of theirtotal potato area, which means that there will be com-plete seed renovation with transgenic material afterthree years for the respective varieties. Medium andsmall-scale farmers annually buy seeds for only 20percent and 15 percent of their potato area, respec-tively. Although medium and small-scale farmers usu-ally purchase seeds from informal markets, in the

Table 9: Production shares of different potato varieties by farm type

Variety Small-Scale Medium-Scale Large-Scale Total

Alpha 0.29 0.50 0.69 0.60

Norteña 0.01 0.01 0.02 0.02

Red-Colored Varieties 0.69 0.27 0.00 0.15

Other Varieties 0.01 0.22 0.29 0.23

Total 1.00 1.00 1.00 1.00

Sources: SAGAR/INIFAP (1997) supplemented by the interview survey (1998).

26

case of white varieties transgenic potatoes will alsopenetrate these markets after about two years.20 Forred varieties, however, this is different. Seed ex-change of red varieties takes place only in informalmarkets. The existence of a formal seed market for acertain variety is the precondition for the introductionof the technology into this variety. Under the currentseed distribution system, therefore, transgenic virusresistance will not be disseminated in red varieties.This leaves small and medium-scale farmers out ofthe loop.21 Even though transgenic Rositas are avail-able from a technical point of view, there is no com-mercial incentive for private seed producers tomultiply them. Alpha with resistance to PVX and PVYand Norteña with resistance to PVX, PVY, and PLRVwill be in fact the only transgenic varieties reachingfarmers’ fields. Table A 2 in Appendix A shows thetechnology adoption profile of the individual farmtypes against the background of these assumptions.

Establishment of a Special Seed Distribution Mecha-nismEstablishing a special seed distribution mechanismwould be one way to make transgenic Rositas avail-able to small and medium-scale farms. Because ofmarket failures (high transaction costs on factor andinput markets) targeted government intervention isrequired. There are two major alternatives. The first isto sell transgenic Rositas at commercial prices. Itwould then be necessary to establish a subsidizedextension service for the potato crop that would per-suade farmers of the profitability of entering formalseed markets to access the technology. The emer-gence of these markets for red varieties would need tobe promoted by the state. Since smaller farmers arenot used to buying certified seeds, this could be aprolonged process and would require a more pro-found restructuring of factor market institutions (e.g.,access to credit, see 3.1.6). The second alternative isto sell transgenic potato seeds at subsidized prices.One advantage for farmers of transgenic potatoes isthat they do not need to buy the technology everyyear they use it. Once they have acquired the mate-rial they can reproduce their own seeds for a certainlength of time. We argue, therefore, that the subsi-dized seed alternative appears to be the more effi-cient one. A mechanism to distribute improved seedsof maize and beans to small-scale farmers has re-cently been established in Mexico under the programAlianza para el Campo (cf. section 3.1.6). The com-ponent is called Kilo por Kilo and offers small farmers

20 It needs to be stressed again that the development of theresistance-degree is uncertain when the tubers are repeat-edly reproduced. Here it is assumed that informal marketsreceive enough fresh material so that the net yield gain ofthe technology can be kept stable over time.21 The involved organizations are planning the developmentof a specific dissemination program to reach small-scalefarmers in cooperation with local NGOs, but a clear strategyhas not yet been identified.

with less than five hectares an exchange of one kilo-gram of harvested grain (or its monetary equivalent)for one kilogram of improved certified seeds (SAGAR,1997). The cost of improved seeds for farmers re-mains exactly the same as if they used farm-savedmaterial. The implementation of Kilo por Kilo is basedmainly on a decision at the level of the individualstate, which underlines the government’s objective ofdecentralizing decision-making in agricultural poli-cies. Those interviewed stated that extending this ini-tiative to the red potato sub-sector was imaginable,and that the upper bound of transgenic Rosita adop-tion could then be reached within two years. Theadoption profile shown in Table A 3 in Appendix A isbased on the assumption that all small and medium-scale red potato growers will benefit from Kilo porKilo or a similar mechanism implemented in the years2002 and 2003. In order to maintain the resistance-degree in Rosita, it might be necessary to repeat thetwo-year-lasting distribution program after a couple ofyears. For illustrative purposes, we assume that Kilopor Kilo is initiated on a country-wide basis. The ac-tual implementation, however, could begin with pilotprojects in individual states or communities. Admin-istratively, state institutions would buy certified seedsfrom commercial seed producers in order to sell themto identified red potato producers at lower prices.Identifying eligible smaller producers would not be aproblem because large-scale farmers do not use redvarieties anyway. The guaranteed demand for trans-genic Rositas at commercial prices by the state wouldautomatically create enough incentive for privateseed producers to start handling this varietythe ad-ditional promotion of formal seed markets for red va-rieties would not be required.

4.4.2 Acceptance by ConsumersIn many industrial countriesespecially inEuropefood consumers are skeptical about pur-chasing genetically engineered products. Consumersdo not consider transgenic and non-transgenic fooditems as the same, even if they are in scientific terms.Of course, such caveats matter for ex ante economicanalyses, since they crucially impact on the market-ing potentials of biotechnology-derived food prod-ucts. In developing countries, there is little experiencewith consumers’ acceptance of gene technology ap-plied in agriculture. It is hypothesized, however, thatan extreme reservation against transgenic food is aphenomenon pertinent only to the richer countries,where the availability of food in quantitative terms isnot a serious constraint.22 In Mexico, public aware-ness of and knowledge about biotechnology is rather

22 This statement should not be misinterpreted to suggest thatfood safety is not an important issue in countries with scarcefood supplies. But the task of food-safety regulations is thecontrol of potential harmful effects on human health, as op-posed to moral and ethical reservations against gene tech-nology.

27

low (cf. Chauvet and Massieu, 1996), and so con-sumers are not expected to reject the transgenic po-tatoes. For the purpose of modeling the potatomarket, we consider transgenic and conventionalpotatoes as an homogenous good.

4.5 Technology-Inherent RisksIn the debate about genetic engineering, the risks ofthe technology often rise to the fore. Critiques insistthat the direct manipulation of the genetic make-upof organisms will create new and unpredictable riskdimensions for the environment and for humanhealth. Although scientific knowledge in this area isstill limited, thorough and extended risk studies havebeen conducted in the recent past. These have con-cluded that there are no risk elements associatedwith transgenic plants that are specific to gene tech-nology. Certain risks do exist, but the same phenom-ena could occur in conventionally bred plants aswell. There are no new risk dimensions associatedwith gene technology as a whole, and risk assess-ments should be carried out for individual technolo-gies on a case-by-case basis. Virus resistanttransgenic potatoes in Mexico present four differentcategories of risks:

• First, there is the risk of a vertical gene transferinto the environment. Relatives of domesticatedpotato varieties grow wild in Mexico, whichmakes gene exchange possible (Hannemann,1994). Because of clonal propagation tech-niques, however, male fertility of domesticatedpotato varieties is generally low. Moreover, out-crossing is very unlikely to occur betweentransgenic and wild species beyond physicaldistances of 20 m (McPartlan and Dale, 1994).Still, an undesired gene flow could theoreticallytake place, and so attributes of weediness needto be considered. Although the introduction ofvirus resistance possesses a certain fitness ad-vantage for natural relatives, this advantage isnot likely to be very dominant. Viruses are notthe first limiting factor for wild potato species intheir biotopes, and virus pressure at one loca-tion may vary substantially from year to year.

• Second, new and more aggressive virus typescould emerge through a transgenic recombina-tion between viral genomes or a heteroencapsi-dation phenomenon (Tepfer, 1993). There isparticular concern about this when using trans-genes derived from viruses (both coat proteinand replicase are viral genes). The probability ofa transgenic recombination event, however, ismuch lower than that of a natural recombinationbetween viruses infecting the same plant (Ghis-lain and Golmirzaie, 1998). This risk in regardsto transgenic technology is therefore below thenaturally occurring risk.

• Third, there is the risk of resistance-breakingthrough a selection of resistant virus strains. Littleis known about the probability of this, but so farthere is no evidence that it will happen withgreat speed. From this point of view it is advan-tageous that the transgenes do not confer abso-lute immunity, which would increase theselection pressure for viruses. In general, resis-tance-breaking is more likely to occur in the PVYtechnology, because this virus type has a highgenetic variation, thus increasing the probabilityof existing resistant strains. The genetic variationis lower for PVX and lowest for PLRV. Overall, incomparison to pathogen-derived genes that areused for the considered transgenic potatoes, therisk of resistance-breaking is lower when plant-derived transgenes are used (Ghislain et al.,1997). It should be mentioned, however, that therisk of breaking down does not constitute a riskfor human health or the environment. It is aneconomic risk that would render the technologyuseless.

• Fourth, food safety issues should always be con-sidered for all transgenics destined for humanconsumption. In the case of coat protein andreplicase-mediated virus resistance in potatoes,no special risk for human health has been identi-fied. The transgenes are isolated from viruses thatalways infect potatoes to some extent. Therefore,human digestion is confronted with these viralgenes whenever any potatoes are consumed. TheFood and Drug Administration, which is respon-sible for food-safety regulations in the UnitedStates, has deregulated the release of the usedgene constructs.

The very low probability of events and the limitedknowledge about the possible costs of such events pre-vent us from including risk aspects into the quantitativeanalysis. Summarizing the different aspects in qualita-tive terms, the inherent risks of the virus resistancetechnology are low and therefore acceptable from asocial point of view. But biosafety issues in relation tothe technology should receive further attentionnowand after they are commercially released. In particular,the risk of a potential gene flow into the center of ge-netic diversity must be carefully monitored.

4.6 Biosafety DevelopmentsIn 1988, the Campbell company wanted to conductthe first field trials of transgenic crops in Mexicodealing with Bacillus thuringiensis (Bt) tomatoes. TheMexican authorities gave permission for these trialswithout further investigation, and they were con-ducted in 1988/89.

The need for biosafety regulatory mechanisms wasrealized at that moment, and so SAGAR established abiosafety working group in 1988, which was institu-

28

tionalized as the Mexican Agricultural BiosafteyCommittee (ABC) a year later (Carreón, 1994). TheCommittee consists of representatives from govern-ment organizations and of members of leading na-tional biotechnology research institutes. It closelyfollows the USDA/APHIS guidelines.

With CINVESTAV’s application for the first field test-ing of transgenic Alphas in 1993, new regulatory is-sues arose for the ABC. This was the first field test withgenetically modified organisms carried out by a na-tional organization, and it also involved a transgenicvariety that had not been tested elsewhere in theworld. In 1992, ISAAA organized a regional biosafety

workshop in Costa Rica to provide information aboutthe experience of several developed countries in ca-pacity building (see Krattiger and Rosemarin, 1994).Institutional promotion through the exchange of con-sultants and advice is ongoing between Mexican or-ganizations, Monsanto, and ISAAA. The ABC is aflexible institution and meetings are held according tothe number of received applications, on average twicea year. Before approval is given for the commercialrelease of a new transgenic variety, three full cycles offield tests are required. The Committee is now also re-sponsible for handling food-safety issues. Variety reg-istration by SNICS presupposes the approval of theABC when recombinant technology is involved.

5. Counting Potential Technology Benefits and Costs

In this chapter, the measurable quantitative effects ofthe recombinant potato technology are assessed. First,in section 5.1, the potential impacts on potato enter-prise budgets will be discussed at the level of the in-dividual farm. The different scenarios to be analyzedon an aggregate level are presented in section 5.2,and the rest of the chapter is dedicated to the calcu-lation of benefits and costs of the technology projectbased on the individual scenario assumptions.

5.1 Benefits at the Individual Farm LevelThis section juxtaposes potato enterprise budgets cur-rently observed in the Mexican potato sector (seesection 3.1.7) with hypothetical budgets where thetransgenic virus resistance technology has been intro-duced. These with-technology budgets take into ac-count the technological features and potentialsdiscussed in section 4.3.1. Table 10 shows the com-parison for the PVX-PVY technology.

The technology has the greatest potential to increasehousehold income from potato production for small-scale farmers, followed by medium-scale farmers, andwith the lowest potential increase for large-scalefarmers. This pattern is not surprising given the cur-rent virus-induced yield losses for the individual farmtypes. That the percentage increases of the gross mar-gins are much higher than the aforementioned netyield gains of the technology is due to the cost ofproduction being held constant. This is realistic underthe assumption that small and medium-scale produc-ers do not change their seed purchase behavior andcan acquire transgenic potatoes on informal seedmarkets. If, however, all farmers bought certifiedtransgenic seeds on formal seed markets (at a realisticprice of 3500 M$ per t), the increases of the grossmargin would be negative for the small and medium-scale farmers, at least in the first year of acquiring the

technology.23 For large-scale farmers, the increase ofthe gross margin would then be around 2.5 percent.These figures underline that PVX and PVY are not themost pressing problems in Mexican potato produc-tion. Resistance to these two viruses alone is benefi-cial for farmers only if it is not associated with anextra cost. The indicated per unit cost reduction onlyrefers to the variable cost. The technology is not ex-pected to affect the fixed cost of potato production.

Table 11 shows the same comparison of enterprisebudgets for the combined resistance to PVX, PVY,and PLRV. Under the assumption of constant costs ofproduction, the technology-induced percentage in-crease of the gross margin is substantial, with highestpotentials again for the smaller farmers. Even if farm-ers bought transgenic seeds at formal market prices,the gain would be 56 percent, 40 percent, and 28percent for the small, medium, and large-scale farm-ers, respectively. This shows that the combined tech-nology with resistance to all three viruses also haslarge commercial capabilities. Moreover, it clearlydemonstrates that the benefits of gene technologymust not be confined to larger producers. On thecontrary, the advantages of the transgenic potatotechnology could be much greater for small-scalefarmers.

To prevent misinterpretations of the potential benefitson the individual farm level, two aspects should bementioned:

• The with-technology enterprise budgets shown inthis section assume per se that farmers are usingthe transgenic potatoes. It is abstracted from

23 A neglected aspect here is that when buying fresh, certi-fied seeds, yields would further be increased, because theinfection with mycoplasmas and other tuber-spread patho-gens would also be lower. This, however, cannot be consid-ered a net yield gain of the virus resistance technology.

29

Table 10: Potato enterprise budgets per hectare without technology and with PVX-PVY resistance technology by farmtype (in 1998 M$)

Small-Scale Medium-Scale Large-Scale

WithoutTechnol.

WithTechnol.

WithoutTechnol.

WithTechnol.

WithoutTechnol.

WithTechnol.

Variable Cost of Production 11759.84 11759.84 21250.63 21250.63 34648.17 34648.17Yield (t) 11.10 12.01 20.86 22.32 31.75 33.02Var. Cost per t of Production 1059.45 979.17 1018.60 952.09 1091.28 1049.31Farm-Gate Price per t 1568.33 1568.33 1963.75 1963.75 1947.83 1947.83Gross Revenue 17408.50 18835.64 40963.83 43830.90 61843.71 64317.35Gross Margin (GM) 5648.66 7075.80 19713.20 22580.27 27195.54 29669.18

GM Increase (Percent) - 25.27 - 14.54 - 9.10Unit Cost Reduction (Percent) - 7.58 - 6.53 - 3.85

Note: 1 US$ = 8.30 M$ according to the average official exchange rate in early 1998.

Source: Author’s calculations.

Table 11: Potato enterprise budgets per hectare without technology and with PVX-PVY-PLRV resistance technology byfarm type (in 1998 M$)

Small-Scale Medium-Scale Large-Scale

WithoutTechnol.

WithTechnol.

WithoutTechnol.

WithTechnol.

WithoutTechnol.

WithTechnol.

Variable Cost of Production 11759.84 11759.84 21250.63 21250.63 34648.17 34648.17Yield (t) 11.10 16.21 20.86 26.70 31.75 36.51Var. Cost per t of Production 1059.45 725.47 1018.60 795.90 1091.28 949.00Farm-Gate Price per t 1568.33 1568.33 1963.75 1963.75 1947.83 1947.83Gross Revenue 17408.50 25422.63 40963.83 52432.13 61843.71 71115.27Gross Margin (GM) 5648.66 13662.79 19713.20 31181.50 27195.54 36467.10

GM Increase (Percent) - 141.88 - 58.18 - 34.09Unit Cost Reduction (Percent) - 31.52 - 21.86 - 13.04

Note: 1 US$ = 8.30 M$ according to the average official exchange rate in early 1998.

Source: Author’s calculations.

institutional bottlenecks that might restrict farm-ers’ access to the technology. It has already beenmentioned in preceding chapters that these in-stitutional constraints are significant in the Mexi-can potato sector.

• The enterprise budgets build on the assumptionthat potato farm-gate prices will not change dueto technology use. While this might be realisticfor some early adopters, a more widespreadtechnical change will lower potato prices, asproducers face a downward sloping demandcurve.

Both aspects are taken into account in the marketequilibrium displacement model explained in chapter2 and carried out in the subsequent sections.

5.2 Structure of Scenarios to be AnalyzedIt was indicated earlier that the quantitative analysiswould be carried out for different scenarios. Criticalparameters that are subject either to project-endogenous policy decisions or to exogenous uncer-tainty factors have been stressed in previous chapters.Before benefits and costs are computed, this section ismeant to shed light on the assumptions for the differ-

30

Figure 8: Structure of analyzed scenarios

Alpha Included for

PLRV

With Distribution Mechanism

Alpha Not Included for

PLRV

Without Distribution Mechanism

With Distribution Mechanism

Without Distribution Mechanism

No Trade

TradeNo

TradeTrade

No Trade

TradeNo

TradeTrade

1 2 3 4 5 6 7 8

ent scenarios to be analyzed. The structure of this isvisualized in Figure 8. According to the descriptionsin Section 2.1, assumptions have to be made at threedifferent levels.

• Level of R&D: Current contractual arrangementsbetween Monsanto and CINVESTAV prohibit theuse of the PLRV resistance in the Alpha variety. Itis conceivable, however, that ongoing negotia-tions will result in permission to also include Al-pha. To show the implications of this potentialnew agreement, an ‘Alpha Not Included’ alter-native, representing the current situation, and an‘Alpha Included’ alternative is analyzed. The‘Alpha Included’ alternative assumes that PVX-PVY-PLRV resistant Alpha could be released to-gether with Rosita and Norteña in the year 2001,which would not be unrealistic given a quickconsent by Monsanto.

• Level of Factor Markets: Given the current in-stitutional arrangements in the seed distributionsystem, technology adoption by small and me-dium-scale farmers will be rather slow, andtransgenic Rositas will not be distributed at all. Insection 4.4.1, the possible establishment of aspecial mechanism to distribute transgenic Rosi-

tas at subsidized prices was discussed (the Kilopor Kilo mechanism). The analysis will include a‘Without Distribution Mechanism’ alternative,which corresponds to the actual situation, and a‘With Distribution Mechanism’ alternative.

• Level of the Potato Market: This analyzes theimpact of increased international potato trade onthe technology-induced change in economicsurplus. Today, Mexico is essentially a closedpotato economy. But, as mentioned in section3.2.2, this could change within the NAFTA areaafter the year 2004. Therefore, a ‘No Trade’ anda ‘Trade’ case will be considered as the two ex-tremes. In the ‘No Trade’ case, only the nationaldemand curve is relevant, which is downwardsloping and shifting rightwards over time due topopulation growth (cf. section 3.2.3). In the‘Trade’ case, we assumefrom 2004 on-wardsa totally elastic demand curve at the av-erage c.i.f. import price of fresh potatoes at theMexican border observed in 1996. The horizon-tal demand curve is a good approximation be-cause Mexico’s share in total potato productionwithin the NAFTA region was only 4.6 percent in1996 (FAO, 1998).

31

The different alternatives on the first two levels hingeon decisions made within the framework of the tech-nology project itself. The scenario results constitute,therefore, an appropriate base of information for deci-sion-makers. Of course, the assumptions have to takeinto account both the benefits and the costs. The de-velopment of trade flows, on the other hand, is moreor less exogenous to the technology project. Techni-cal change in the Mexican potato sector will ofcourse impact on the competitiveness of nationalproduction, but technical change should also to beexpected in the USA and Canada. Therefore, the ‘NoTrade’ and the ‘Trade’ alternatives account for un-certainty about exogenous future developmentsnotfor particular policy decisions to be made within theproject.

5.3 Aggregate Benefits and Distributional EffectsBefore the technology-induced changes of economicsurplus in the Mexican potato market are analyzedwithin the individual scenarios, there are some gen-eral issues and assumptions to be explained that ap-ply to all of the different cases. First, the analysis iscarried out at the farm level (i.e. market clearing is as-sumed at farm production quantities and farm-gateprices). For both figures, an arithmetic average for the1994-1996 period is taken, and the mean 1996 levelof the Mexican peso is the monetary reference (seeTable A 1 in Appendix A). Second, the endogenousshift of the supply curve is modeled as a parallel one(cf. section 2.2). This is a reasonable assumptionagainst the background of the empirical findings oncost patterns in Mexican potato production. Althoughthe rate of technical change will differ among farmtypes because of divergent potential per unit cost re-ductions and anticipated adoption rates, no pro-nounced contrasts in the efficiency of productioncould be traced to farm types. Third, for the without-technology benchmark we assume a constant supplycurve over time. Notwithstanding some technicalchange even without the considered project, thisconventional progress would come in addition to thetransgenic progress in the with project alternative.Therefore, the relative distance of the with and with-out supply curve is the same, regardless of whetherthere is an exogenous shift or not (cf. Qaim and vonBraun, 1998). Fourth, price elasticities of potato pro-duction could not be found in the literature and arebased on assumptions. Given the fact that price re-sponsiveness of larger high input farmers is usuallyhigher than that of small-holders, supply elasticities of0.3, 0.4, and 0.5 for the small-, medium-, and large-scale farmers are assumed, respectively. These valuesare consistent with figures in other studies on theeconomic impacts of potato technologies in variousdeveloping countries (cf. Walker and Crissman,1996).

The farm type specific patterns of the shift factor K areshown in Tables A 4 and A 5 in Appendix A for thedifferent scenarios. The estimates for K are based onthe farm type and technology specific unit cost re-ductions derived in section 5.1 multiplied by the an-ticipated rates of adoption (see section 4.4.1). Thecomplete results of the calculations on the technol-ogy-induced surplus changes for Mexican potato pro-ducers and consumers are given in Tables A 6 and A7. They are summarized in Table 12.

The overall technology-induced changes in the eco-nomic surplus measures are significantly positive forall scenarios. It should be stressed again that the cal-culations are built on the assumption that farmers willuse the technology without paying a higher price forthe potato seeds as compared to their traditionalsources of seed material (i.e., farmers do not carry thecost of the technology). If seed prices increase, perunit cost reductions and technology adoption rateswould decreaseparticularly for small- and medium-scale farmerswith a concomitant fall in economicsurplus measures.

‘No Trade’ ScenariosIn all four different scenarios, the technology haspositive impacts on the different potato producergroups and on potato consumers. There are, however,significant differences in the absolute amounts ofbenefits that can be realized according to the differentassumptions. The relatively lowest additional surplusis created under the current framework conditions(i.e., Alpha is excluded from transformation for PLRVresistance and there is no mechanism to distributetransgenic Rositas). Establishing a Rosita distributionmechanism would double the overall benefits, andincluding the Alpha variety for PLRV resistance wouldtriple them. Together, the combined adjustmentswould more than quadruple the economic surplus.The distribution mechanism is also very desirable be-cause of equity considerations. The share of the pro-ducer surplus attributable to small-scale farmers inthe ‘Without Distribution Mechanism’ scenarios issignificantly below their initial production share. So,while small-holders would not loose through thetechnology in absolute terms, they would in relativeterms (i.e., there would be an increasing income con-centration among Mexican potato producers). As Ta-ble 12 indicates, the proposed Kilo por Kilo seeddiffusion program for Rosita would not only avoid in-creasing concentration but would also significantlyimprove income distribution in the potato sector. Inboth ‘With Distribution Mechanism’ scenarios, small-scale farmers capture the highest share of the totalchange in producer surplus. The proportion attribut-able to medium-scale farmers would also rise consid-erably. The surplus for large-scale farmers, on the

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Table 12: Benefits and distributional effects of the technology for the different scenarios

Producers ProducersSmall Medium Large Consum. Small Medium Large Consum.

N o T r a d e

Alpha Not Incl. / Without Distr. Mechan. Alpha Incl. / Without Distr. Mechan.

Annuity a 1110 9045 28097 43874 420 22071 84522 127590Share b 0.03 0.24 0.74 0.53 0.04 0.20 0.76 0.54

Alpha Not Incl. / With Distr. Mechan. Alpha Incl. / With Distr. Mechan.

Annuity a 70521 38485 133 87656 74038 51738 56132 172076Share b 0.65 0.35 0.00 0.45 0.41 0.28 0.31 0.49

T r a d e

Alpha Not Incl. / Without Distr. Mechan. Alpha Incl. / Without Distr. Mechan.

Annuity a 2662 9657 33106 9184 9251 26747 98806 15351Share b 0.06 0.21 0.73 0.17 0.07 0.20 0.73 0.10

Alpha Not Incl. / With Distr. Mechan. Alpha Incl. / With Distr. Mechan.

Annuity a 50475 34140 28864 15832 57498 51637 94522 22030Share b 0.45 0.30 0.25 0.12 0.28 0.25 0.47 0.10a The annuity is calculated over the 1999-2015 period for the annual changes of producer and consumer surplus, respec-tively. A discount rate of 10 percent is used. Figures are in thousand 1996 M$. The average 1996 exchange rate with re-spect to the US dollar was: 1 US$ = 7.60 M$ (INEGI, 1997b).b For the producers, the share refers to the farm type’s proportion in the change of total producer surplus. These valuescan be compared with the farm types’ initial production shares (small: 0.12; medium: 0.24; large: 0.64) in order to test fordistributional effects of the technology. For the consumers, the share refers to the part of the overall economic surpluschange captured by potato consumers.

Source: Author’s calculations.

other hand, would shrink to zero should Alpha re-main excluded from PLRV transformation. These sce-nario results clearly demonstrate how importantinstitutional framework conditions are for analyzing atechnology’s implications, and they emphasize theneed for intelligent decisions in order to eliminatebottlenecks in the system. Furthermore, it is worthmentioning that consumers capture around half of theoverall change in economic surplus in all scenarios,due to falling potato prices caused by increasing out-puts. Confining the analysis to agricultural producerscrucially underestimates the total benefit of a tech-nology, particularly in the case of non-traded com-modities. Falling potato prices in Mexico will entailpositive distributional effects among consumers, be-cause poorer people spend higher proportions of theirincome on potatoes (see section 3.2.3).

‘Trade’ ScenariosFor the ‘Trade’ scenarios a totally elastic demandcurve is assumed from 2004 onwards, when importtariffs for fresh potatoes in Mexico are reduced tozero. The average c.i.f. import price for potatoes was

used as the constant reference for the model compu-tations. It was 2,146 M$ in 1996 (CONPAPA, 1997).When adjusted for the cost of transportation andhandling, this figure is consistent with f.o.b. exportprices of different US potato producing states pro-vided by the USDA (1997). This price is 12 percentbelow the 1996 domestic price in Mexico, so thatnational production would fall accordingly. Althoughprice responsiveness slightly differs across farm types,it is assumed that the farmer groups equally reducetheir production in relative terms, so that productionshares remain constant. This is realistic because highcost producers will have to leave the sector, and theycan be found among the smaller as well as among thelarger farmers. Because the technology does notlower producer prices, the technology-inducedchange in producer surplus is higher in the openeconomy in comparison to the ‘No Trade’ scenarios.The price decrease in 2004 is an effect of the tradeliberalization and must not be attributed to the newtransgenic varieties. Correspondingly, the change inconsumer surplus is zero after 2004, so that the con-sumers’ proportion in overall economic benefits is

33

much lower than in a closed potato economy. Al-though producer surplus measures differ in their ab-solute magnitude when comparing the ‘Trade’ andthe ‘No Trade’ scenarios, the results are similar inrelative terms. Trade actually enhances the large pro-ducers’ benefit share in the ‘With DistributionMechanism’ scenarios, but still the small-scale farm-ers’ proportion of technology gains is much higherthan their initial production share. The two analyzedalternativesno trade at all, and free tradeare thetwo extremes, and it can be expected that the futurewill lie somewhere in-between. It could be shown,however, that the international trade situation doesnot alter the validity of the above given statementsconcerning desired institutional adjustments to fullyreap the technology potentials.

5.4 Costs of the Technology ProjectAs explained in section 4.2.1, there are different or-ganizations involved in financing and implementingthe technology project. The financial costs carried bythese organizations are explained separately. Anoverview of the financial costs is given in Table A 8in Appendix A.

Basic Cost

• Rockefeller Foundation: The Rockefeller Foun-dation sponsored the technology transfer fromMonsanto to Mexico. The budget includes thesalary for one researcher and technical staff atCINVESTAV, training of Mexican scientists atMonsanto, laboratory equipment, operationcosts, costs for large-scale field trials carried outin cooperation with INIFAP, and administrativeoverheads.

• CINVESTAV: Notwithstanding the support by theRockefeller Foundation, there are certain mate-rial contributions also made by CINVESTAV.These contributions consist of the salaries for ad-ditional involved national researchers, part of thelaboratory and green house equipment and op-eration cost, and the cost for the first small-scaletransgenic field trial in 1993. The salary and op-eration cost will continue until the release of thePVX-PVY-PLRV resistant varieties in 2001. From2002 onwards, only a minor cost for the mainte-nance of the transgenic breeding lines is in-curred.

• Monsanto: The cost for Monsanto consists of theopportunity cost for management personnel,lawyers for negotiating the transfer agreements,and other project-related expenses, such as trav-elling to Mexico. An opportunity cost of thetechnology itself is not considered.

• ISAAA: The cost incurred by ISAAA is predomi-nantly due to its facilitating functions, technol-ogy assessment activities (e.g. biosafety), and

• administrative operations, such as initiating andmaintaining relationships with the technologydonor, the recipient, and the funding organiza-tion.

These basic costs are equal for all the different sce-narios. Moreover, an institutional amount is added forthe 1993-2002 period to cover the cost of inter-organizational contacts within Mexico and the con-solidation and implementation of bio- and food safetyregulatory mechanisms.

Additional Cost for Scenario AssumptionsIn the ‘Alpha Included for PLRV’ scenarios, the extracost that arises from transforming and developing anadditional transgenic variety is accounted for. Thisextra cost is rather low because the know-how andthe equipment are already available.

In the ‘With Distribution Mechanism’ scenarios, inwhich transgenic Rosita is diffused by a Kilo por Kilo-type program, the following calculation was con-ducted. Approximately 15,000 hectares are cultivatedwith red varieties in Mexico. The average sowing rateis 3 tons of seeds per hectare, so that 45,000 tons oftransgenic Rosita tuber seeds are required to coverthe total area. A common price for certified seeds isabout 3,500 M$ per ton, which is on average 1,500M$ above the cost of farm-saved seeds. This differ-ence is the amount of the seed subsidy, so that thetotal subsidy is 67.5 million M$ for the entire areacropped with red potato varieties. An administrativecost of 12.5 million M$ for carrying out the diffusionprogram is added. The overall cost is spread over thetwo-year implementation phase (2002-2003). It is as-sumed that the program will be repeated in 2010-2011 in order to maintain the resistance-degree. Thisis a substantial cost because the whole country is in-cluded for illustrative purposes. Yet, as mentionedbefore, a seed distribution program could also firstbegin with a smaller pilot project level. Moreover, itmight be possible to provide subsidized transgenicseeds to only a part of the red variety area, whichwould then diffuse into the remaining area via infor-mal markets.

5.5 Summary Measures of Economic EffectsBenefits and costs of the biotechnology transfer proj-ect are confronted over the whole 1991-2015 period.The cost of basic research carried out by Monsanto isnot considered because it will create much broaderinternational benefits, and it would be misleading toinclude it into an analysis confined to Mexico. Theresults of the summary benefit-cost measures aregiven in Table 13 for the individual scenarios.

The Internal Rates of Return (IRRs) are in a reasonabledimension for long term technology projects (i.e., al-though the benefits only occur after a considerable

34

Table 13: Summary measures of economic effects for different scenarios

Alpha Not IncludedWithout Distr. Mech.

Alpha Not IncludedWith Distr. Mech.

Alpha IncludedWithout Distr. Mech.

Alpha IncludedWith Distr. Mech.

N o T r a d e

NPV 330594 764100 974575 1410269IRR 49.9 58.5 59.7 64.4

T r a d e

NPV 217328 485573 610492 882158IRR 47.7 55.9 57.0 61.7

Notes: The Measures are calculated over the whole 1991-2015 period. IRRs are in percentage terms. For NPV computa-tions, a discount rate of 10 percent is used. NPV figures are given in thousand 1996 M$. The average 1996 exchange ratewith respect to the US dollar was: 1 US$ = 7.60 M$ (INEGI, 1997b).

Source: Author’s calculations.

time lag behind the R&D investments, there is a suffi-ciently high return in the future to compensate for theopportunity cost of investments). This holds true forall assumptions, but there are significant differencesbetween the individual scenarios. The economicmeasures are lowest under the current frameworkconditions (‘Alpha Not Included for PLRV’ and‘Without Distribution Mechanism for Rosita’). It wasdiscussed in the previous section that establishing asubsidized seed distribution system for transgenic Ro-sita is very expensive. Nonetheless, the benefit-costfigures demonstrate that this investment is not onlyjustified from an equity point of view but would alsoconsiderably enhance efficiency. The same efficiencystatement also applies for the inclusion of the Alphavariety into the PLRV resistance transformation, thecost of which would be rather low. It should bestressed that the cost side embraces the total cost ofthe transfer (i.e., cost items associated with the proj-ect but carried by organizations outside of Mexico arealso considered). If only the national cost was in-cluded, the benefit-cost relationship would be evenhigher.

5.6 Sensitivity of ResultsIn the analysis, there are a lot of parameters involvedthat are subject to uncertainty because of the unavail-ability of precise data or because they refer to futureevents. Therefore, the sensitivity of the results andstatements shall be tested with respect to the keyvariables. First of all, although great effort was madeto acquire realistic data, the exact potential net yieldgain (NYG) and hence the per unit cost reduction (C)of the technology is not known. Of course, these arepivotal variables that influence the supply curve’sshift factor (K). Still, even with a 90 percent reductionof C for the individual farm types, none of the IRR

figures falls below the 10 percent cut-offpointrepresenting the opportunity cost of money.The same robustness applies for variations of theadoption rate (A). Even when the adoption is delayedby 10 years, the project does not lose its profitability.These variations have no impacts on distributionaleffects when parameters are modified proportionallyfor all producer groups.

Furthermore, the sensitivity of the scenario resultswas tested with respect to the price responsiveness ofconsumers and producers. We varied the price elas-ticity of potato demand within a range of 0 and –2,and the elasticity of supply between 0 and 2. Whilethe overall profitability as well as the total changes ineconomic surplus remain positive over these varia-tions, the distributional effects change. The lower thevalue of the demand elasticity in absolute terms, thelarger the benefit share that is captured by potatoconsumers and vice versa. Distribution among pro-ducer groups also differs, with a variation of the de-mand elasticity. Values between 0 and –0.25 entailnegative changes in producer surplus for the small-scale farmers when no special distribution mecha-nism for red varieties is established. Likewise, risingsupply responsiveness leads to distributional effectsin favor of consumers and larger farmers, at the costof small-scale producers when institutional frame-work conditions are not improved. Supply elasticityvalues above 0.8 lead to negative results for small-holders in the ‘Without Distribution Mechanism’scenarios. Strikingly, however, with the establishmentof a special distribution mechanism, the opposite istruethe small-holder share of the producer surplusis even larger with a high price responsiveness ofsupply in comparison to lower elasticity values.These findings stress the paramount importance of in-

35

stitutional adjustments to eliminate bottlenecks thatprevent small-holder participation in technologybenefits. In general, the sensitivity analysis reveals

the robustness of the statements over a wide range ofparameter variation.

6. Conclusions and Policy Implications

The recombinant PVX, PVY, and PLRV resistancetechnology has the potential to increase the produc-tivity of Mexico’s potato sector. The benefits will berealized predominantly by per unit cost reductions inpotato production through higher obtained yields. Asignificant technology-induced change in croppingintensities and pest management strategies, such asthe reduction of insecticide applications, cannot beexpected. Three potato varieties (Alpha, Rosita,Norteña) have successfully been transformed withPVX and PVY resistance. Although PVX and PVY areeconomically important in Mexico, yield losses dueto PLRV are much higher. Transformation for PLRVresistance has also been carried out by CINVESTAVin Rosita and Norteña, but Alphathe most widelyused variety in Mexicois still excluded from PLRVresistance in the transfer agreements with Monsanto.The scenario results show that the overall technologybenefits could be tripled if Monsanto would givepermission to CINVESTAV to introduce the PLRV re-sistance-gene into Alpha. Due to the increasing expe-rience of Mexican organizations, the cost ofdeveloping PLRV resistant Alphas would be ratherlow. Furthermore, because Alpha is not widely culti-vated in other countries besides Mexico, Monsanto’sown commercial interest in the variety is reduced,which makes a modification of the technology trans-fer agreements conceivable.

The analysis places particular emphasis on scrutiniz-ing the distributional implications of the technology.If the current potato trade situation for Mexicowithonly minor imports and exportscontinues into thefuture, domestic potato consumers will benefit sub-stantially from the technical progress through fallingpotato prices. The technology-induced change in theconsumer surplus accounts for about half of the totaleconomic benefit caused by the transgenic potato va-rieties. The advantages to consumers of agriculturaltechnologies were often neglected in economic stud-ies of the Green Revolution. Since poor consumers inMexico spend larger proportions of their income onpotatoes, the positive real income effects are higherfor them than they are for richer households. An in-creased international trade with potatoes in the futurewould reduce the benefits accruing to food consum-ers.

Potato farming-systems in Mexico are very diverse.On the one hand, there are resource-poor farmerswith only small potato holdings farming in high alti-tudes under rainfed conditions. On the other hand,

potatoes are also grown by large-scale farmers underirrigated and input-intensive conditions. New agri-cultural technologies have often been criticized forbeing biased towards large-scale producers, thus re-inforcing inequality and income concentration amongfarmers. But resistance technologies incorporated intoseeds do not require additional complementary in-puts, so they fit very well into small-holder farmingsystems. The transgenic resistance in potatoes has,furthermore, the advantage of building upon the ge-nome of already established varieties. The risk ofadopting the technology is minimized in comparisonto conventional crossbreeding, where genome modi-fication is more profound.

Regarding the distributional implications of transgenicvirus resistant potatoes among producers, two differ-ent aspects must be considered. First, there are theagronomic technology potentials. These are highestfor small-holders because small-scale farmers primar-ily use farm-saved seeds and apply less pesticides.Current yield losses due to primary and secondary vi-rus infections are more substantial than for largerproducers. Second, the access to the technologymatters. Although the red variety Rosita, which isused mostly by smaller producers, has been trans-formed with resistance for PVX, PVY, and PLRV, it isunlikely that under the current seed and factor marketsituation transgenic Rositas will reach farmers’ fields.Suppliers of certified seeds do not handle this varietybecause there is no demand for it by larger farmers,the primary customers of formal seed markets.Smaller farmers do not purchase certified seeds yet,so formal seed marketsa precondition for technol-ogy disseminationare non-existent for red varieties.If bottlenecks in the multiplication and diffusion sys-tem of the technology cannot be eliminated throughpublic action, then technology adoption by smallfarmers will be limited in spite of its great suitability.In order to prevent increased income concentrationamong potato producers, a state-implemented subsi-dized distribution mechanism for the transgenic Ro-sita variety is suggested. The Mexican programAlianza para el Campo models seed technologytransfers to resource-poor farmers by a mechanismcalled Kilo por Kilo in the maize and bean sectors. Ifsuch a mechanism were extended to the red potatosub-sector, it would be a promising alternative forsmaller farmers to access the recombinant technol-ogy. Identifying eligible farmers would be rather easy,because wealthy farmers do not use Rosita anyway(i.e., the variety has an incorporated self-selection

36

characteristic). Although a high subsidy amountwould be required to guarantee the speedy adoptionof the technology by small-holders, scenario calcula-tions demonstrate that the cost is justified on eco-nomic grounds. A subsidized seed distribution systemwould significantly improve the equity and efficiencyimplications of the technology at the same time.

Although the quantitative analysis is restricted to thepotential benefits of the transgenic technology in theMexican potato sector, it must be remembered thatthe biotechnology transfer project will have muchwider positive repercussions in the national agricul-tural research system. Virus resistant potatoes will bethe first transgenic product developed by Mexican re-search organizations, significantly increasing knowl-edge, self-confidence, and international relationsbetween involved researchers and stake-holders. Forproduct development, new linkages betweenCINVESTAV (experienced in molecular research) andINIFAP (with experience in potato breeding) havebeen established. This is of special importance be-cause bringing biotechnology research results tofarmers’ fields is a serious constraint for the MexicanNARS. Moreover, the development of biosafety andfood safety regulations was an essential part of thistransfer project. Although the Agricultural BiosafetyCommittee responsible for these issues already ex-isted, it was consolidated and guidelines were furtherdeveloped within the project.

The experience gained by the NARS through thetransfer project can already be seen, for instance, inthe 50 percent reduction of the time needed to de-velop PLRV resistance in comparison to the first PVX-PVY technology. This positive institutional evolutionwill facilitate Mexico’s own biotechnology genera-tion, as well as the acquisition and adaptation of for-eign technologies in the future. Moreover, thesedevelopments might produce positive technologyspillovers for other developing countries. Kenya’s in-terest in acquiring transgenic Rositas from Mexico is acase in point. South-South technology transfers be-tween countries with similar agronomic requirementsbut divergent technological capabilities could be animportant pathway for poor countries to gain betteraccess to modern biotechnologies. These widerbenefit potentials of the technology project are noteasily quantified, but they are likely much greaterthan the direct productivity increases in the Mexicanpotato sector.

To highlight the main points of the use of modernbiotechnologies in low and middle income countriesand of biotechnology transfer programs:

• Agricultural biotechnologies hold great eco-nomic potentials for food producers and con-sumers in developing countries. The privatebiotechnology sector of industrial countries canplay an important role in making certain basictechnologies available.

• Transgenic resistance incorporated into seeds fitsvery well into small-scale and large-scale farm-ing systems alike, making possible equitabletechnology participation. Benefit potentials mighteven be greater for small-scale producers.

• The actual impacts of a biotechnology innova-tion are not only a function of technologicalcharacteristics but also are very dependent onsocial and institutional support mechanisms.Technology policy in developing countries,therefore, should not be confined to R&D, butshould also include technology diffusion andapplication. Timely socioeconomic informationis sorely needed to identify and eliminate institu-tional bottlenecks.

• North-South technology transfers are an appro-priate way to improve the biotechnology R&Dand regulatory capacity of developing countries.But the institutional requirements of project im-plementation in recipient countries are substan-tial, requiring a certain minimum level of initialknow-how and experience for a project’s suc-cess. Capacity-formation associated with tech-nology transfers will stimulate technologygeneration and application in a country and willalso facilitate the assimilation of foreign tech-nologies. The donation of proprietary technolo-gies can pave the way for future commercialbusinesses of private enterprises.

• Target countries with a comparatively strongtechnological capability can later play importantroles in delivering know-how and technologyproducts to less developed countries withinSouth-South biotechnology transfers.

• The international community in general and do-nor organizations in particular should more ex-plicitly recognize the great opportunities ofNorth-South and South-South biotechnologytransfer programs that include partnerships withthe private sector. The door is open to new tech-nological and institutional innovations in devel-oping countries that will promote an equitableinternational biotechnology evolution.

37

Acknowledgements

This paper is part of an ongoing research project onthe economics of agricultural biotechnology andbiodiversity carried out at the Center for Develop-ment Research (ZEF), Bonn, and funded by the Ger-man Research Society (Deutsche Forschungs-gemeinschaft – DFG). The Mexican case study wassponsored by the German Agency for Technical Co-operation (Deutsche Gesellschaft für TechnischeZusammenarbeit – GTZ) and the German Ministry forEconomic Cooperation and Development (Bundes-ministerium für Wirtschaftliche Zusammenarbeit undEntwicklung – BMZ). The financial support providedby these organizations is gratefully acknowledged.

For their kind logistic assistance and interesting dis-cussions during my field work in Mexico, I would like

to thank Dr. Michelle Chauvet and her research teamat the Autonomous Metropolitan University in Mex-ico-City, and Dr. Maria Santiago and her students ofthe Postgraduate College in Montecillo. Furthermore,I am much obliged to all the interview partners fortheir friendly provision of the necessary data and in-formation for the analysis. Special thanks are due tothe professional staffs of CINVESTAV, INIFAP, Mon-santo, ISAAA, and CIP for their openness and pa-tience.

I am grateful to Dr. Anatole Krattiger (ISAAA) and Dr.Joachim von Braun (ZEF) for their valuable commentson the study. Thanks goes also to David Alvarez forediting the manuscript. The usual caveat applies re-garding responsibility for the errors that remain.

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40

Appendix A: Supplementary Tables and Figures

Table A 1: Regional indicators of potato production in Mexico

Production Share of Farm Types

StateProduction

(t)Area(ha)

Yield(t/ha)

Farm-GatePrice (M$/t)

IrrigatedProd.

Shareof Red

Varieties Small Medium Large

Northern StatesBaja California 7589 289 26.6 2232.54 1.00 0.00 0.00 0.34 0.66

Baja California Sur 672 47 14.2 2238.85 1.00 0.00 0.00 0.00 1.00

Chihuahua 83590 6312 13.3 2278.95 0.76 0.00 0.00 0.37 0.64

Coahuila 76414 2084 36.6 3171.95 0.99 0.00 0.00 0.11 0.89

Durango 4362 622 7.0 3133.10 0.29 0.00 1.00 0.00 0.00

Nayarit 2432 141 16.3 1631.63 1.00 0.00 0.50 0.50 0.00

Nuevo Leon 138940 4217 32.9 3239.77 1.00 0.00 0.00 0.08 0.92

San Luis Potosi 814 48 11.1 4477.35 1.00 0.00 0.20 0.50 0.30

Sinaloa 205263 8992 22.8 2351.06 1.00 0.00 0.00 0.16 0.85

Sonora 90516 3536 25.6 2224.84 1.00 0.00 0.00 0.20 0.80

Zacatecas 27902 908 30.8 3059.48 1.00 0.00 0.06 0.64 0.30

Total North 638495 27196 23.5 2650.1 0.96 0.00 0.01 0.19 0.80

Central and Southern StatesAguascalientes 15150 686 22.4 2798.67 1.00 0.00 0.00 0.50 0.50

Chiapas 11255 1240 9.1 2987.49 0.00 0.30 0.74 0.26 0.00

Distrito Federal 1892 132 14.2 2591.42 0.00 1.00 0.14 0.61 0.26

Guanajuato 109709 4119 26.6 2706.91 1.00 0.00 0.00 0.10 0.90

Guerrero 232 19 8.0 3928.88 0.00 0.00 1.00 0.00 0.00

Hidalgo 24770 1349 18.4 2041.29 0.33 0.70 0.20 0.33 0.48

Jalisco 46469 1233 37.8 1882.52 0.02 0.00 0.06 0.31 0.64

Mexico-State 118814 6370 18.5 2539.05 0.39 0.35 0.30 0.30 0.40

Michoacan 63114 3294 19.0 2003.58 0.76 0.00 0.17 0.38 0.45

Morelos 1557 108 14.7 2011.81 0.00 0.35 0.00 1.00 0.00

Puebla 95765 8643 11.1 2091.90 0.44 0.60 0.37 0.31 0.33

Tlaxcala 57675 3216 17.7 1603.69 0.15 0.75 0.38 0.37 0.26

Veracruz 54644 4849 11.3 1739.28 0.00 0.60 0.38 0.26 0.36

Total Central and S. 601046 35257 17.0 2222.76 0.46 0.30 0.23 0.28 0.48

Total Mexico 1239540 62454 19.8 2442.89 0.72 0.15 0.12 0.24 0.64

Notes: Data on production, area, yield and farm-gate prices are arithmetic averages from the 1994-1996 period. Farm-gate prices are in-flated to 1996 Mexican pesos by agricultural price indices (INEGI, 1997b). Farm types are separated by hectares grown with potatoes:small-scale: <5ha, medium-scale: 5-20 ha, large-scale: >20 ha.

Sources: SAGAR (1994, 1995, 1996); For share of red varieties and production shares of farm types SAGAR/INIFAP (1997) supplementedby information from the author’s interview survey (1998).

41

Figure A 1: Production shares of the main potato producing states of Mexico (1996)

Sinaloa16%

Nuevo Leon11%

Mexico-State10%

Guanajuato9%Puebla

8%

Sonora7%

Chihuahua7%

Coahuila6%

Michoacan5%

Tlaxcala5%

Veracruz4%

Others12%

Source: SAGAR (1996).

Table A 2: Cumulative technology adoption under the current seed distribution system (without special distribution mechanism)

Small-Scale Medium-Scale Large-ScaleYear PVX-PVY PVX-PVY-PLRV PVX-PVY PVX-PVY-PLRV PVX-PVY PVX-PVY-PLRV1999 0.000 0.000 0.000 0.000 0.000 0.0002000 0.000 0.000 0.000 0.000 0.234 0.0002001 0.000 0.000 0.000 0.000 0.469 0.0002002 0.044 0.000 0.100 0.000 0.690 0.0072003 0.087 0.000 0.200 0.000 0.690 0.0132004 0.131 0.002 0.300 0.002 0.690 0.0202005 0.174 0.003 0.400 0.004 0.690 0.0202006 0.218 0.005 0.500 0.006 0.690 0.0202007 0.261 0.006 0.500 0.008 0.690 0.0202008 0.290 0.008 0.500 0.010 0.690 0.0202009 0.290 0.009 0.500 0.010 0.690 0.0202010 0.290 0.010 0.500 0.010 0.690 0.0202011 0.290 0.010 0.500 0.010 0.690 0.0202012 0.290 0.010 0.500 0.010 0.690 0.0202013 0.290 0.010 0.500 0.010 0.690 0.0202014 0.290 0.010 0.500 0.010 0.690 0.0202015 0.290 0.010 0.500 0.010 0.690 0.020

Note: In this Table, it is assumed that Alpha is not endowed with resistance to PLRV over the whole period. This assumption will bemodified in other scenarios.

Source: Author’s calculations based on assumptions explained in section 4.4.1.

42

Table A 3: Cumulative technology adoption under the assumption of a specially established seed distribution mechanism for transgenic Rositas

Small-Scale Medium-Scale Large-ScaleYear PVX-PVY PVX-PVY-PLRV PVX-PVY PVX-PVY-PLRV PVX-PVY PVX-PVY-PLRV1999 0.000 0.000 0.000 0.000 0.000 0.0002000 0.000 0.000 0.000 0.000 0.234 0.0002001 0.000 0.000 0.000 0.000 0.469 0.0002002 0.044 0.345 0.100 0.135 0.690 0.0072003 0.087 0.690 0.200 0.270 0.690 0.0132004 0.131 0.692 0.300 0.272 0.690 0.0202005 0.174 0.693 0.400 0.274 0.690 0.0202006 0.218 0.695 0.500 0.276 0.690 0.0202007 0.261 0.696 0.500 0.278 0.690 0.0202008 0.290 0.698 0.500 0.280 0.690 0.0202009 0.290 0.699 0.500 0.280 0.690 0.0202010 0.290 0.700 0.500 0.280 0.690 0.0202011 0.290 0.700 0.500 0.280 0.690 0.0202012 0.290 0.700 0.500 0.280 0.690 0.0202013 0.290 0.700 0.500 0.280 0.690 0.0202014 0.290 0.700 0.500 0.280 0.690 0.0202015 0.290 0.700 0.500 0.280 0.690 0.020

Note: In this Table, it is assumed that Alpha is not endowed with resistance to PLRV over the whole period. This assumption will bemodified in other scenarios.

Source: Author’s calculations based on assumptions explained in section 4.4.1.

Table A 4: Shift factor K without and with seed distribution mechanism for transgenic Rositas (Alpha not included for PLRV)

Small-Scale Medium-Scale Large-Scale

YearWithout

DistributionMechanism

WithDistributionMechanism

WithoutDistributionMechanism

WithDistributionMechanism

WithoutDistributionMechanism

WithDistributionMechanism

1999 0.000 0.000 0.000 0.000 0.000 0.0002000 0.000 0.000 0.000 0.000 0.008 0.0082001 0.000 0.000 0.000 0.000 0.017 0.0172002 0.003 0.112 0.007 0.036 0.026 0.0262003 0.007 0.224 0.013 0.072 0.027 0.0272004 0.010 0.228 0.020 0.079 0.027 0.0272005 0.014 0.232 0.027 0.086 0.027 0.0272006 0.018 0.235 0.034 0.093 0.027 0.0272007 0.022 0.239 0.034 0.093 0.027 0.0272008 0.024 0.242 0.035 0.094 0.027 0.0272009 0.025 0.242 0.035 0.094 0.027 0.0272010 0.025 0.243 0.035 0.094 0.027 0.0272011 0.025 0.243 0.035 0.094 0.027 0.0272012 0.025 0.243 0.035 0.094 0.027 0.0272013 0.025 0.243 0.035 0.094 0.027 0.0272014 0.025 0.243 0.035 0.094 0.027 0.0272015 0.025 0.243 0.035 0.094 0.027 0.027

Note: K is derived as the potential unit cost reduction multiplied by the technology adoption rate (cf. chapter 2).

Source: Author’s calculations.

43

Table A 5: Shift factor K without and with seed distribution mechanism for transgenic Rositas (Alpha included for PLRV)

Small-Scale Medium-Scale Large-Scale

YearWithout

DistributionMechanism

WithDistributionMechanism

WithoutDistributionMechanism

WithDistributionMechanism

WithoutDistributionMechanism

WithDistributionMechanism

1999 0.000 0.000 0.000 0.000 0.000 0.0002000 0.000 0.000 0.000 0.000 0.008 0.0082001 0.000 0.000 0.000 0.000 0.017 0.0172002 0.003 0.112 0.007 0.036 0.048 0.0482003 0.007 0.224 0.013 0.072 0.063 0.0632004 0.021 0.238 0.035 0.094 0.092 0.0922005 0.028 0.246 0.045 0.104 0.092 0.0922006 0.043 0.260 0.067 0.126 0.092 0.0922007 0.058 0.274 0.089 0.148 0.092 0.0922008 0.072 0.288 0.112 0.171 0.092 0.0922009 0.085 0.302 0.112 0.171 0.092 0.0922010 0.095 0.312 0.112 0.171 0.092 0.0922011 0.095 0.312 0.112 0.171 0.092 0.0922012 0.095 0.312 0.112 0.171 0.092 0.0922013 0.095 0.312 0.112 0.171 0.092 0.0922014 0.095 0.312 0.112 0.171 0.092 0.0922015 0.095 0.312 0.112 0.171 0.092 0.092

Note: K is derived as the potential unit cost reduction multiplied by the technology adoption rate (cf. chapter 2).

Source: Author’s calculations.

44

Table A 6: Annual technology-induced changes in economic surplus in the ‘No Trade’ scenarios (in thousand 1996 M$)

Alpha Not Included for PLRVWithout Distribution Mechanism With Distribution Mechanism

Producers ProducersYear Small Medium Large Consum. Small Medium Large Consum.1999 0 0 0 0 0 0 0 02000 -1184 -2368 10718 9881 -1184 -2368 10718 98812001 -2466 -4930 22355 20595 -2466 -4930 22355 205952002 -2909 -3201 33613 35656 39021 14691 16372 626002003 -2123 1212 34266 41358 86574 38720 -1570 975972004 -1091 6328 34791 47766 91352 45478 -2524 1063672005 184 12184 33916 53361 96540 53054 -4928 1144152006 1568 18529 32910 59340 102002 61194 -7526 1229492007 3432 19531 33717 62671 108138 63970 -8391 1289232008 4895 20634 34664 65974 114022 66920 -9187 1349782009 5346 21468 36043 68800 119013 69673 -9625 1406652010 5740 22343 37497 71715 124129 72546 -10064 1465602011 5978 23269 39052 74689 129276 75554 -10481 1526362012 6225 24234 40671 77785 134636 78686 -10916 1589652013 6483 25239 42357 81010 140218 81949 -11369 1655562014 6752 26285 44113 84369 146031 85346 -11840 1724202015 7032 27375 45942 87867 152086 88885 -12331 179568

Alpha Included for PLRVWithout Distribution Mechanism With Distribution Mechanism

Producers ProducersYear Small Medium Large Consum. Small Medium Large Consum.1999 0 0 0 0 0 0 0 02000 -1184 -2368 10718 9881 -1184 -2368 10718 98812001 -2466 -4930 22355 20595 -2466 -4930 22355 205952002 -6325 -10032 64914 64382 35502 7800 47552 914182003 -7828 -10214 86666 89427 80523 27094 50424 1459732004 -8117 -3319 128077 146105 83900 35664 90043 2053312005 -5588 3946 129946 157487 90417 44674 90362 2192022006 -473 22812 127203 176623 99838 65552 86039 2409762007 5095 43385 124021 197091 109902 88233 81216 2641952008 11145 65780 120370 218970 120649 112839 75857 2889432009 19079 67846 123602 230795 133571 116844 77257 3036862010 25075 70199 127506 242270 144625 121221 79249 3181962011 26114 73110 132792 252315 150621 126247 82535 3313882012 27197 76141 138298 262776 156866 131481 85957 3451282013 28325 79298 144032 273671 163370 136933 89520 3594372014 29499 82585 150003 285018 170143 142610 93232 3743402015 30722 86009 156223 296835 177197 148523 97097 389860

Source: Author’s calculations.

45

Table A 7: Annual technology-induced changes in economic surplus in the ‘Trade’ scenarios (in thousand 1996 M$)

Alpha Not Included for PLRVWithout Distribution Mechanism With Distribution Mechanism

Producers ProducersYear Small Medium Large Consum. Small Medium Large Consum.1999 0 0 0 0 0 0 0 02000 -1184 -2368 10718 9881 -1184 -2368 10718 98812001 -2466 -4930 22355 20595 -2466 -4930 22355 205952002 -2909 -3201 33613 35656 39021 14691 16372 626002003 -2123 1212 34266 41358 86574 38720 -1570 975972004 3266 12566 46249 0 73923 50419 46249 02005 4457 16962 46249 0 75191 54918 46249 02006 5648 21370 46249 0 76460 59430 46249 02007 6841 21649 46249 0 77730 59715 46249 02008 7687 21928 46249 0 78631 60000 46249 02009 7837 21928 46249 0 78790 60000 46249 02010 7936 21928 46249 0 78896 60000 46249 02011 7936 21928 46249 0 78896 60000 46249 02012 7936 21928 46249 0 78896 60000 46249 02013 7936 21928 46249 0 78896 60000 46249 02014 7936 21928 46249 0 78896 60000 46249 02015 7936 21928 46249 0 78896 60000 46249 0

Alpha Included for PLRVWithout Distribution Mechanism With Distribution Mechanism

Producers ProducersYear Small Medium Large Consum. Small Medium Large Consum.1999 0 0 0 0 0 0 0 02000 -1184 -2368 10718 9881 -1184 -2368 10718 98812001 -2466 -4930 22355 20595 -2466 -4930 22355 205952002 -6325 -10032 64914 64382 35502 7800 47552 914182003 -7828 -10214 86666 89427 80523 27094 50424 1459732004 6545 22340 158074 0 77414 60422 158074 02005 8936 28296 158074 0 79961 66516 158074 02006 13433 42631 158074 0 84747 81184 158074 02007 17948 57093 158074 0 89553 95977 158074 02008 22482 71679 158074 0 94377 110895 158074 02009 27035 71679 158074 0 99220 110895 158074 02010 30081 71679 158074 0 102460 110895 158074 02011 30081 71679 158074 0 102460 110895 158074 02012 30081 71679 158074 0 102460 110895 158074 02013 30081 71679 158074 0 102460 110895 158074 02014 30081 71679 158074 0 102460 110895 158074 02015 30081 71679 158074 0 102460 110895 158074 0

Note: Free trade within the NAFTA region is assumed from 2004 onwards.

Source: Author’s calculations.

46

Table A 8: Financial cost of the technology project (in thousand 1996 M$)

All Scenarios

YearRockefeller

Found. CINVESTAV Monsanto ISAAAInstitutional

CostDistribut.

MechanismAlpha Incl. for

PLRV1991 666 144 760 152 0 0 01992 666 182 380 152 0 0 01993 666 160 190 152 50 0 01994 666 220 190 152 50 0 01995 666 144 152 152 50 0 01996 152 144 152 152 50 0 01997 405 144 152 76 50 0 01998 253 144 152 76 50 0 501999 253 144 152 76 50 0 1002000 0 144 0 76 50 0 1002001 0 72 0 0 50 0 502002 0 4 0 0 50 40000 02003 0 4 0 0 0 40000 02004 0 4 0 0 0 0 02005 0 4 0 0 0 0 02006 0 4 0 0 0 0 02007 0 4 0 0 0 0 02008 0 4 0 0 0 0 02009 0 4 0 0 0 0 02010 0 4 0 0 0 40000 02011 0 4 0 0 0 40000 02012 0 4 0 0 0 0 02013 0 4 0 0 0 0 02014 0 4 0 0 0 0 02015 0 4 0 0 0 0 0

Note: Values given in US dollars have been converted to Mexican pesos by the average 1996 exchange rate:1 US$ = 7.60 M$ (INEGI, 1997b).

Source: Author’s interview survey (1998).

47

Appendix B: List of Personnel Contacted

Directly Associated with theProject

Dr. Rafael F. Rivera-BustamanteHead of Genetic Engineering DepartmentCINVESTAV-IrapuatoLibramiento Norte – Carr. Irapuato-LeónApartado Postal 62936500 Irapuato (Gto.) MexicoTel. (52) 462-39655Fax. (52) 462-45849E-mail: rrivera@irapuato.ira.cinvestav.mx

Dr. Luis Rafael Herrera EstrellaCINVESTAV-IrapuatoAddress see above

J. Trino Ascencio-IbáñezCINVESTAV-IrapuatoAddress see above

Rosa Ma. Rangel-CanoCINVESTAV-IrapuatoAddress see above

Dr. José Antonio Garzón TiznadoLeader of Biotechnology ProgramINIFAPCuliacán (Sin.) MexicoTel. (52) 67-144051E-mail: drbiotec@vas.vasnet.mx

Dr. Antonio Rivera PeñaPotato BreederINIFAP-TolucaApartado Postal 10-252142 Metepec 2 (Mex.) MexicoTel./Fax. (52) 72-324555

M.C. Victor Manuel Parga TorresPotato BreederINIFAP-ArteagaBlvd. Fundadores 304Arteaga (Coah.) MexicoTel. (52) 84-830120

Ing. Ramiro Rocha RodríguezPotato BreederCampo Experimental BajíoINIFAP-CelayaCarr. Celaya-Sn Mig. de Allende Km 6.5Apartado Postal 11238000 Celaya (Gto.) MexicoTel. (52) 461-15262Fax. (52) 461-15431

Ing. José Fox QuezadaPotato Seed ProducerEl Cerrito SPR de RLCarr. León-Cueramaro Km 13Rancho San CristobalSan Francisco del Rincón (Gto.) MexicoTel. (52) 44-153585

Dr. Anatole F. KrattigerExecutive DirectorISAAACornell University260 Emerson HallIthaca NY 14853 (USA)Tel. (1) 607-254-4635Fax. (1) 607-255-1215E-mail: afk3@cornell.edu

Dr. Robert HorschManager, Crop TransformationAgracetus, Inc. (Monsanto)8520 University GreenMiddleton, WI 53562 (USA)Tel. (1) 608-836-7300 ext. 208E-mail: rbhors@monsanto.com

Dr. James C. ZalewskiManager, Technical ApplicationsNatureMark Potatoes (Monsanto)250 Bobwhite Ct. Suite 300Boise, ID 83706-3983 (USA)Tel. (1) 208-333-2814Fax. (1) 208-389-2280E-mail: James.C.Zalewski@monsanto.com

Not Directly Associated with theProject

Dr. Mateo A. Cadena HinojosaPotato VirologistCampo Experimental del Valle de MéxicoINIFAP-Chapingo (Mex.) MexicoTel. (52) 595-42499Fax. (52) 595-46528

Dr. Oswaldo A. Rubio CovarrubiasCoordinator of National Potato ResearchINIFAP-TolucaAddress see above

M.C. José Luis Mendoza RoblesFarming Systems ResearcherCampo Experimental Valle del FuerteINIFAPApartado Postal 342 (Los Mochis)Carr. Los Mochis-Culiacán Km 19San José Rios (Sin.) MexicoTel. (52) 689-60320Fax. (52) 689-60212

Dr. Alberto Zuloaga AlbarránDirector GeneralInstituto de Investigación y CapacitaciónAgropecuaria Acuícola y Forestal delEstado de México (ICAMEX)Conjunto SEDAGROC.P. 52140 Metepec (Mex.) MexicoTel. (52) 72-322646Fax. (52) 72-322116

Ing. Francisco Xavier Flores GutiérrezRegional CoordinatorPrograma Regional Cooperativo de Papa(PRECODEPA)Address see above INIFAP-TolucaE-mail: precodepa@acnet.net

Dr. Leopoldo Jucikovsky Z.Specialist in Potato DiseasesInstituto de FitosanidadColegio de Postgraduados (CP)C.P. 56230 Montecillo (Mex.) MexicoTel./Fax. (52) 595-10220E-mail: fitsanid@colpos.colpos.mx

Dr. Rafael Rodríguez MontessoroPotato VirologistInstituto de Fitosanidad (CP)Address see above

Dr. Michelle ChauvetRural SociologistDepto. de SociologíaUniversidad Autónoma MetropolitanaAv. San Pablo 180Col. Reynosa TamaulipasAzcapotzalco, D.F.Tel. (52) 5-724-4344Fax. (52) 5-394-8093E-mail: ecs@hp9000a1.uam.mx

Dr. Yolanda C. Massieu TrigoRural SociologistUniversidad Autónoma MetropolitanaAddress see aboveE-mail: ymt@hp9000a1.uam.mx

Dr. Maria de J. Santiago C.Agricultural EconomistInstituto de Socioeconomía, Estadistica eInformaticaColegio de Postgraduados (CP)Address see aboveTel. (52) 595-10358Fax. (52) 595-10191E-mail: ecomjsc@colpos.colpos.mx

Ing. Manuel J. Villarreal GonzálezPotato Seed ProducerTechnical DirectorViVi BiotecnologíaEx. Hacienda SantiaguitoSanta Maria Rayon (Mex) MexicoTel. (52) 714-41281Fax. (52) 714-41273

Ing. Manuel VillaverdePotato Seed ProducerASPROSVolcán de Ceboruco 207Col. XinantécatlApartado Postal 190Toluca (Mex.) MexicoTel. (52) 72-192122Fax. (52) 72-198648

48

Ing. José Antonio Cepeda RumayorPresident of CONPAPAAgrícola JancerHector Saucedo 1657-4Saltillo (Coah.) MexicoTel. (52) 84-302320Fax. (52) 84-302325

Ing. Agr. Ana Cecilia Ríos VivarCONPAPALope de Vega 125, 8 pisoCol. Chapultepec Morales11570 México, D.F.Tel./Fax. (52) 5-255-4853

Dr. Héctor Lozoya SaldañaTechnical DirectorInternational Cooperative Program forPotato Late Blight (PICTIPAPA)Apartado Postal 2-252142 Metepec (Mex.) MexicoTel. (52) 72-323194Fax. (52) 72-321429E-mail: picti@infoabc.com

Ing. Gabriel Angel Lozano PérezHead of Agricultural ProgramSAGAR-Delegación Estatal de Puebla26 Norte 1202Col. HumboldtPuebla (Pue.) MexicoTel. (52) 35-3399 ext. 126

Contacted CIP Scientists

Dr. Luis F. SalazarPotato VirologistHead of Pathology DepartmentInternational Potato Center (CIP)Apartado Postal 1558Lima 12, PeruTel. (51) 1-349-6017Fax. (51) 1-349-5638E-mail: l.salazar@cgnet.com

Dr. Thomas S. WalkerHead of Social Science DepartmentInternational Potato Center (CIP)Address see aboveE-mail: t.walker@cgnet.com

Dr. Gergory J. ScottEconomistInternational Potato Center (CIP)Address see aboveE-mail: g.scott@cgnet.com

Dr. Ali M. GolmirzaieHead of Genetic Resource DepartmentInternational Potato Center (CIP)Address see aboveE-mail: a.golmirzaie@cgnet.com

Dr. Marc GhislainMolecular BiologistInternational Potato Center (CIP)Address see aboveE-mail: m.ghislain@cgnet.com