| Summary |
 Since the first commercial plantings in 1996, genetically modified (GM) crops have expanded rapidly and now constitute a significant proportion of the world’s broadacre crop output. By 2007, GM crop coverage globally exceeded 114 million hectares. A key driver of the rapid adoption of GM crops is the benefit farmers gain by switching to these crops. Benefits include increased crop yield, reduced farm input costs, including pesticide, herbicide and farm labour, and more efficient farm management.
GM varieties of cotton, soy bean, maize and canola are the principal GM crops grown. The main producing countries by volume are the United States of America (50 per cent of global total), Argentina (17 per cent), Brazil (13 per cent), Canada (6 per cent), India (5 per cent) and China (3 per cent).
Australia’s commercial experience with GM field crops is limited to GM cotton and carnations. GM canola has been approved for commercial release by the Office of the Gene Technology Regulator (OGTR) and for commercial production by the New South Wales and Victorian governments from the 2008 season. Over the longer term, other broadacre GM crops may also be available for adoption by Australian farmers.
In this report the nature of costs and benefits from GM crop adoption is first discussed. A quantitative assessment is then presented to examine the potential economic benefits of further GM crop adoption in Australia at the regional and state levels. Crops considered include canola, soy bean, maize, wheat and rice. |
| Benefits and costs of GM crop adoption |
| The following discussion is based on international experiences and literature review. |
| Yield effects |
| In comparison to non-GM production systems, the adoption of GM crops could reduce yield losses through better protection against external factors such as insect pests and weeds. The yield benefit from GM crop adoption varies across regions and is determined by agronomic growing conditions and the level of pest/weed incidence in any given place and time. |
| Pesticide and herbicide use |
| Insect-resistant GM crops provide their own protection against pests and therefore reduce, or in some cases eliminate, the need for pesticides. Herbicide tolerant crops allow the use of relatively inexpensive broad spectrum herbicides which effectively control most weeds affecting the crop. This allows farmers to replace previous mixes of expensive and more toxic weed specific herbicides, and increases their flexibility in crop rotations as they are no longer affected by the slow breakdown of herbicide residues in the soil profile. |
| Farm management and labour savings |
| Managing GM crop production is generally easier and less time consuming than non-GM crop production. Also, GM crops reduce the number of annual sprays required and enable minimum tillage or no tillage cropping, therefore reducing labour, machinery and fuel costs. |
| Environment and occupational health and safety |
| Reductions in chemical applications could result in a reduction in environmental costs associated with spraying and reduced contamination of soils and groundwater. In addition, pesticide and herbicide-resistant GM crops provide occupational health and safety benefits by reducing the need for farmers to handle toxic chemicals. |
| Flow-on effects |
| Agricultural industries have many linkages with other sectors of the economy. Beyond the farm gate, crops may require storage, processing, transportation and handling. When new technologies such as GM crops are adopted, and total production rises, demand for those services will also rise. |
| Off-farm income |
| GM crop adoption may require farmers to spend less time in the field and they may be able to work off-farm to increase their household income. |
| Seed prices, technology fees and user agreements |
| Farmers opting to grow GM crops are likely to face additional costs in terms of higher seed prices, technology fees and restrictive user agreements. Higher GM seed prices and the charging by GM seed providers of technology fees to users — largely based on the area of land planted to GM crops —increases the cost of using GM seed compared with non-GM seed. Technology user agreements, imposed either by the technology provider or user industry groups, could entail additional costs to growers by requiring adherence to regulations such as mandatory buffer zones. |
| Segregation cost |
On-farm segregation arrangements can mean higher costs because of the need for certified planting seed, various crop management techniques (including appropriate separation distances between crops and control of unintended presence of GM crops in non-GM crops), and the need to clean equipment after harvesting, handling, storing and transporting GM grain types.
Additional costs in the central receival system include extra grain testing requirements and more labour because of a longer receival period. The additional costs are likely to be small relative to on-farm costs and benefits, reflecting the economies of scale with bulk handling of grain. |
| International and Australian experiences |
| Yield gains |
Australian field trials have demonstrated that GM canola has the potential to significantly increase yields in Australia. For example, the results of Monsanto field trials, conducted side-by-side with HT canola and alternative non-GM canola varieties, indicate that glyphosate tolerant canola provides significant yield gains compared with non-GM varieties through improved weed management. In North America, GM canola yield advantages have averaged 6–10 per cent.
International experiences suggest yield gains from the cultivation of GM soy bean are likely to be limited. Although significant increases in yield have been reported by Romanian farmers, this could be because traditionally poor weed control before the introduction of HT soy bean has meant a greater yield increase following introduction than in other countries.
For maize, Bt varieties in the United States, Spain and South Africa have achieved yield advantages of between 5 per cent and 11 per cent compared with non-GM varieties.
GM wheat and GM rice are crops that may be adopted in the future. GM wheat field trials conducted in northern America show a yield advantage of 9 per cent for GM wheat resistant to glyphosate. Chinese field trials of GM rice have indicated yield advantages of 3–7 per cent. |
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| Reductions in farm cost |
There are international experiences showing overall cost reduction benefits for GM canola and GM soy bean production. These cost reductions are net of increases in GM seed cost and based on Canadian and United States commercial production experiences. The main contributor to cost reductions in GM canola and GM soy bean is reduced herbicide application and consequently less herbicide, labour and machinery use. Less machinery use implies reduced use of fuel and associated materials and also less machinery time.
Similar to farmers in the United States, Australian maize farmers have only a small window of time in which to spray maize pests. Therefore the cost offset from using less pesticide by adopting pest-resistant GM maize will be smaller than for other GM crops. Experiences in the United States indicate there could be an increase in material costs for maize production because of the higher cost of GM seeds, which is not fully offset by reductions in other material costs. |
| Method for estimating economic impacts of GM crops in Australia |
ABARE’s regional general equilibrium model of the Australian economy (Ausregion) was used to analyse the economic impacts of changes in yield and costs of production in selected agricultural industries arising from the adoption of GM crop technology. The regional representation in Ausregion includes all of Australia’s states and territories. The Ausregion model also offers the user the flexibility to separate out sub-regions. For the purpose of this report, the New South Wales Murray Catchment Management Area, the Rest of New South Wales and each of the major grain-producing states — Victoria, South Australia, Western Australia and Queensland — are separately identified. The Murray Catchment Management Area is separated out because it is a key canola growing region and to highlight the impact of GM crop cultivation on a regional economy.
The reference case in Ausregion includes GM cotton. The period covered in the analysis extends to 2017-18.
Two scenarios have been simulated and compared to the case of no new adoption, or the reference case. The ‘canola-only scenario’ examines the impact of adopting only GM canola crops. The other scenario, the ‘five-crops scenario’, analyses adoption of canola alongside four other GM food crops that are either commercially grown in other countries — soy bean and maize — or have undergone field trials, being wheat and rice.
For each scenario, two alternative adoption time lines are considered: early adoption (from 2008-09) and delayed adoption (from 2013-14). |
| Regional/state income impacts |
| The potential economic impacts of cultivating GM crops at the state and regional levels are measured by changes in gross regional products (GRP) from the reference case, aggregated to 2017-18 and presented in 2006-07 present value terms (expressed as ‘in 2006-07 dollars’ hereafter). |
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| Canola-only scenario |
In the scenario where only GM canola is adopted, GRP is projected to increase for all states/regions. The highest increase in GRP in absolute terms is projected to occur in the ‘Rest of New South Wales’ region (that is, New South Wales excluding the Murray Catchment Management Area), at $273 million (in 2006-07 dollars) over 10 years to 2017-18, under the early adoption scenario. Under the alternative scenario of delayed adoption, the benefit for the ‘Rest of New South Wales’ is estimated at a total of $121 million (in 2006-07 dollars), over five years to 2017-18.
Significant economic benefits of adopting GM canola are also projected for other states. For example, the estimated economic benefit to Western Australia from adopting GM canola from 2008-09 for the next 10 years would be around $180 million in 2006-07 dollars. Similarly, the cumulative benefit to South Australia from adopting canola over the same period is estimated to be around $115 million in 2006-07 dollars.
Delaying the adoption of GM canola for five years would lead to an estimated forgone benefit of $97 million (in 2006-07 dollars) for Western Australia. Similarly, a delay of five years to adopt GM canola would lead to South Australia foregoing an estimated economic benefit of $66 million (in 2006-07 dollars). |
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| Five-crops scenario |
The cumulative benefits of adopting all five prospective GM crops over 2008-09 to 2017-18 are projected to be $174 million in Queensland, $551 million in the Murray Catchment Management Area, $1.1 billion in Victoria, $1.4 billion in South Australia, $2.4 billion in Western Australia and $2.9 billion in the Rest of New South Wales (all in 2006-07 dollars).
Under the delayed adoption scenario, the cumulative benefits over 2013-14 to 2017-18 would be around $115 million in Queensland, $243 million in the Murray Catchment Management Area, $486 million in Victoria, $615 million in South Australia, $1.1 billion in Western Australia and $1.3 billion in the Rest of New South Wales (all in 2006-07 dollars). |
