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For more information on this area, please contact:

George Frisvold
Extension Specialist

Phone: (520) 621-6269
Email: frisvold@ag.arizona.edu

Economics of Bt Cotton

The following information was presented at Arizona's Cotton Field Day, October 6, 1999. Preliminary results are part of the research project: The Effects of Bt Cotton Adoption: Regional Differences in Producer Costs and Returns.

George Frisvold
Associate Extension Specialist

Russell Tronstad
Associate Extension Specialist

Jorgen Mortenson
Research Assistant

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Bt Cotton: Commercially Available in 1996

Bt stands for Bacillus thuringiensis, a soil bacterium. The Bt toxin is activated within the gut of particular insect grubs that ingest it. The toxin breaks down rapidly in the environment and is harmless to humans, vertebrates, and most beneficial insects. Spray applications of bt are one of the most important insect management tools in certified organic production of many fruit and vegetable crops.

Through genetic engineering, the bt gene can be "inserted" into cotton, so that the plant produces its own bt toxin. Cotton plants expressing these modified genes provide control of tobacco budworm, pink bollworm, and cotton bollworm. In 1998, bt cotton accounted for over a quarter of U.S. harvested cotton acreage.

Pest Pressures on the Eve of Bt Adoption

In 1995, the year prior to bt introduction, tobacco budworms, cotton bollworms, and pink bollworms reduced U.S. cotton yields by over 4%--or by over a quarter billion dollars worth of cotton. Alabama growers by far faced the severest problems, as budworms developed resistance to pyrethroid insecticides. Budworm damage reduced Alabama yields by 29% despite growers averaging 6.7 insecticide applications to control budworms.

Bollworm / Budworm Pest Control Costs

In 1995, cotton growers made an average of 2.4 insecticide applications to control bollworms and budworms across the Cotton Belt, with application costs averaging nearly $10 / acre per application. The number of treatments applied to control these pests varied widely, from a high of 6.7 in Alabama to a low of virtually zero in California.

Bt Adoption Most Rapid in Alabama, Arizona

After facing heavy yield losses and high budworm control costs in 1995, Alabama growers were quick to adopt bt cotton. In 1996, about 75% of all Alabama cotton acres were planted to bt varieties. Adoption rates have since dropped, but remain above 60%. Arizona growers have also been early adopters of bt cotton. In 1998, bt cotton accounted for over 70% of harvested cotton acres. Adoption in other regions, particularly in the Southern Plains and California has been slow.

Regional Bt Adoption Rates Vary Widely

Map 1 shows bt acres as a share of harvested acres in 1998 by state and sub-state regions. Bt adoption rates are highest (over 60%) in Alabama, Arizona, Louisiana, and Mississippi. Although the Texas High Plains and the San Joaquin Valley account for a quarter of cotton acreage, there has been virtually no bt adoption in these areas. Lack of bt varieties adapted to local growing conditions is a constraint in the High Plains. California's One-Variety Cotton Law had slowed introduction of bt varieties there. The San Joaquin Valley also faces less pressure from pests that bt varieties control.

Half of Bt Cotton Acreage in Three States

Georgia--second only to Texas in total cotton acreage-- accounts for 1 in 5 acres planted to bt cotton. Nearly half of all 1998 bt cotton acreage was in Georgia, Mississippi, and Louisiana. Another 25% were in Alabama, Arizona, and Texas. Because of its shear size, Texas accounts for 9% of bt acreage, even though its rate of bt adoption is low. The effect of bt cotton adoption on U.S. cotton production and price will be most sensitive to how bt cotton performs in these 6 top bt states.

International Competition Growing

Globally, over 3 million acres are planted to bt cotton. The U.S.'s share of bt cotton acreage has fallen from 100% in 1996 to 83% in 1998. Greater adoption overseas will increase international competition and place further downward pressure on world cotton prices. So far, overseas adoption has had negligible effect on cotton prices. This may change, though, if there is more widespread adoption in China. In 1997, on the 10,000 acres of bt cotton grown in China for seed, bt yields were over 30% above the provincial average. Reports for the 1998 Chinese crop suggest a yield advantage of 5-10% for bt cotton.

Arizona's Adoption of Bt Cotton

Bt adoption rates were initially the highest in the Western counties of LaPaz and Mohave with a 45% adoption rate in 1996. This compares to a 25% adoption rate for Pinal and Maricopa in 1996.

Although adoption is quite low for Southeastern Arizona, isolated areas with "pinkie hotspots" have testified to dramatic beneficial results from bt cotton.

Adoption for Maricopa and Pinal counties reached 89% in 1998. This high adoption rate raises concern about producing pink bollworms that will be resistant to bt technology.

Estimating Beltwide Impacts of Bt Adoption

Bt cotton adoption affects individual growers in 3 ways:

A Cost Effect. Adopter pest control costs can fall, but seed costs rise.

A Yield Effect. Adopter yields can increase.

A Price Effect. Higher yields and greater production across the Belt lowers prices. Lower prices affect both adopters and non-adopters.

To estimate these 3 impacts:

1. We developed a 31-region mathematical programming model of U.S. cotton supply and demand. The model was calibrated to replicate actual cotton acreage (bt and conventional), average yields, production, prices, domestic demand, and exports for the years 1996-8.

2. Based on surveys of available studies of bt cotton published in the Proceedings of the Beltwide Cotton Conferences, extension bulletins, and other sources, we developed low, medium, and high estimates of the yield gains from bt adoption for each region.

3. The simulation model was "shocked" to estimate what yields would have been if bt cotton had not been available in 1996-8. This approach is similar to economic studies of the impacts of pesticide cancellations.

In remaining research, we will also develop low, medium, and high estimates of the pest control cost savings of bt adoption (net of seed premiums and technology fees) for all the regions in the model. Below, we present some preliminary results including cost effects for Arizona.

Four Economic Impacts of Bt

Seed and Technology Fees: For 1996-7 seed and technology fees ranged from $33.4 to $35.0 per acre. Due to a rebate policy, all bt producers paid $32/acre in 1998.

Reduction in Pesticide Control Costs: We estimate that the average cost reduction in pesticides applied from 1996 to 1998 for acreage planted to bt cotton has ranged between $25 and $65 per acre.

Yield Effect: Acreage planted to bt cotton from 1996 to 1998 is estimated to have yielded 5% more on average than if traditional cotton would have been planted.

Price Effect: We estimate that prices are .8¢/lb. lower or revenues are $8 to $10 per acre less for all Arizona producers from increased production due to bt technology.

Impact on Gross Revenues (Preliminary)

Map 2 shows estimated changes in annual gross returns from bt adoption averaged over 1996-8 by region, assuming "medium" yield increases from bt adoption. Gross returns measure gains to adopters from higher yields and losses to both adopters and non-adopters from lower prices. Future research will include the impacts of pest control cost reductions. This will increase the measure of overall gains of bt adoption, particularly in high adoption areas. The largest gains are concentrated in the Southeast and in Arizona. States with the largest gains are those with combinations of high rates of adoption, significant cotton acreage, and good bt performance. In regions with low adoption rates, non-adopter revenue losses outweigh adopter gains.

Conclusions

Bt adoption (in Arizona and Beltwide) has increased Arizona cotton grower returns $5 million per year (+/- $2 million) as adopter gains outweigh non-adopter losses.

Cotton market model simulations suggest that Beltwide bt adoption has reduced the price of cotton by 1/2 - 1¢ per pound. Bt adoption has contributed only slightly to the 22¢ drop in Arizona cotton prices since 1995.

Annual gains to Arizona bt cotton adopters have averaged between $6-10 million. Until suitable substitutes become available, this reasonably measures the value to cotton growers of maintaining the effectiveness of existing bt varieties by managing resistance.

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