ECONOMICS OFADOPTING BT COTTON: EVIDENCE FROM PAKISTANI PUNJAB

KHUDA BAKHSH

Department of Environmental and Resource Economics

University of Agriculture, Faisalabad, Pakistan

October 2009

SOUTH ASIAN NETWORK FOR DEVELOPMENT AND ENVIRONMENTAL ECONOMICS (SANDEE)

POBOX 8975, EPC 1056

Kathmandu, Nepal

SANDEE Working Paper No.
Abstract

The project has been designed to analyze the economic performance of Bt cotton seed along with traditional cotton seed and to determine possible reduction in pesticide use, if any due to adoption of Bt cotton seed in the irrigated districts of Punjab province of Pakistan. An effort has been made to compare cost, yield and income of cotton growing farmers over a period of time. It aims at to determine the impacts of factors on yield of cotton growers in the study area by using production function. Reduction in pesticide use can result in decline in the cost of production on the one hand and less health hazards on the other hand. Keeping in view this important environmental aspect, the present study intends to work out economic viability of adopting Bt cotton.

Keywords: Bt cotton adoption, Panel data, Pesticide use, Yield, Endogenous variables, Fixed effects

JEL Classification: Q

ECONOMICS OFADOPTING BT COTTON: EVIDENCE FROM PAKISTANI PUNJAB

Khuda Bakhsh

  1. Introduction

Bt cotton, having resistance to several insects and pests, especially bollworms has been adopted in many developed and developing countries. USA, Australia, China, Mexico, Argentina, South Africa, and India have allowed the cultivation of Bt cotton at commercial level (Qaim, et al., 2006). Quite a lot of studies conducted in the developing countries provide strong evidences in the favor of adoption of Bt cotton. Thirtle, et al. (2003), Qaim and de Janvry (2005), Qaim and Matuschke (2005), Qaim, et al. (2006) and Bennett, et al. (2006) concluded that the farmers who had cultivated Bt cotton harvested higher yields at reduced pesticide usage. Reduction in pesticide application caused substantial decline in cost of production.

However, limited research work has been conducted in Pakistan on this issue. Mostly, studies have information of limited scope (Hayee, 2005; PARC, 2007, Arshad, et al., 2007), since cross sectional single year data have been employed. The issue of trying to look at cross sectional single year data is questionable. Thus, a time series dimension is more appropriate to decide whether Bt cotton performs better than non-Bt cotton and how much economic benefits would be available to farmers when they adopt it. Therefore, the present study makes the assessment of the performance of Bt cotton on farmers’ field for a period of two crop growing seasons. The study presents an analysis of data collected from a large sample of farmers growing Bt cotton and non-Bt cotton seeds, providing an evidence whether adoption of Bt cotton has positive or negative impacts on productivity. It also provides an insight whether Bt cotton should be commercialized on large scale. It would help researchers to initiate new research and development in evolving new Bt varieties.

Bt cotton and Pakistan

Cotton is an important cash crop of Pakistan. It provides raw material to textile and other related industries in the country for unskilled, semi and fully skilled labour force at the farm and industrial levels. Cotton growers however, are facing numerous problems, such as low yields, poor response to fertilize and pesticide, etc. Other notable problems are rising incidence of disease and insect attacks and price fluctuations and small land holdings. Small sized farms dominate in the Pakistan’s agriculture. Due to small land holdings the small farmers are more vulnerable to above-mentioned problems, mainly due to limited financial viability exposing their livelihood to higher risk. For cotton growers, the crucial factor is the disease and insect pressure, forcing the growers to make more use of plant protection measures. Statistics show that the use of pesticide has substantially increased over time. Before 1970, the pesticide use was negligible. At the present pesticides are the most important inputs in cotton production (around 70 percent imported pesticide is used in cotton production). The research institutes are working hard to evolve new varieties, which are resistant to different insects. However, the threat of insect and pest incidence persists as usual.

Pakistani cotton growers are experiencing rising cost of production, mainly due to increased use of pesticide. So, the rising cost of production points out that there is a dire need to reduce cost of production of cotton growers so that the cotton growers could compete in the world market, especially in the era of trade liberalization and globalization. Adoption of Bacillus thuringiensis(Bt) cotton could help in this regard.

The research questions of the study are as follows:

  • Comparatively of the two types of cotton seeds, namely Bt cotton seed and non-Bt cotton seed are practiced in Pakistan. Bt cottonseed is supposed to give higher returns due to reduced use of pesticide. Comparative economics of these two types of cotton seeds requires to be studied in the province of Punjab, being the main suppliers of raw cotton to textile industry in Pakistan. Bt cotton seed is available in the market with its given price, although it is illegal. Now farmers have the choice either to adopt Bt cotton at prevailing market price or not to adopt it. The first question is whether adoption of Bt cotton seed leads to decline in pesticide use in cotton production?
  • Whether yield and income generated from Bt cotton is higher than yield and income from non-Bt cotton?

Based on the above research questions, objectives of the study include to determine whether adoption of Bt cotton has reduced pesticide use on the farmers’ fields and to estimate the possible change in yield and income for farmers who have adopted Bt cotton.

REVIEW OF LITERATURE

In Pakistan, cotton crop is the crucial cash crop, providing raw materials to textile industry and is one of the largest contributors of exports. However, cotton growers are facing the severe problem of rising cost of production due to more use of pesticides to control different types of harmful insects. The increased use of pesticides has created many problems to sustainability of cotton production due to its non-competitiveness in the world market. One of the solutions to make cotton competitive is to reduce cost incurred on pesticide use. Genetically Modified cotton seed is the most suitable option to decrease pesticide use.The perceived benefits and costs of adopting Bt cotton are summarizedin Table 1.

Table 1. Benefits and costs of Bt cotton

Private / Social
Benefits of Bt vs. non-Bt / 1. Less pesticide use (Bennett et al., 2006, Qaim et al., 2006)
2. Farmers’ less exposure to pesticide use
3. Increased yield due to less pest attack thereby increasing income of farmers (Thirtle et al., 2003) / 1. Less health hazards to women cotton pickers
2. Increased income would lead to more spending on health and education (Huang et al., 2002, 2005)
Costs of Bt vs. non-Bt / High seed cost (Bennett et al., 2006) / Low adoption of Bt would lead increasing pesticide use thereby more health hazards to farmers and society as a whole (Wu et al., 2008)

Adoption of GM seeds first was practiced in the developed countries and gave substantial returns in the forms of reduced use of insecticide sprays and higher monetary benefits to farmers. Since Bt cotton seed is highly costly, Hubbell, et al. (2000) suggest that a subsidy of US$21/acre on Bt cotton was required to reduce insecticide use by 35 percent in USA, since demand for Bt cotton was responsive for prices in the range of US$20/acre to US$40/acre.

Bt cotton seed spread widely in the developing countriesduring the recent years. Studies from developing countries showed that positive gains in yield and income are the outcome of adoption of Bt cotton. For example, Bennett, et al. (2006) used two cotton seasons data covering four cotton growing states of India. In most cases, farmers were growing Bt cotton and non-Bt cotton on the same farm simultaneously in the study area. Results showed that yields were significantly higher on Bt cotton fields compared to non-Bt cotton fields in both seasons. Expenditures on Bt cotton seeds were three times of non-Bt cotton seeds. Very little bollworm spray was applied to the Bt sampled fields in the second season compared to the first season. Reason may be that during first season, farmers would not be able to fully understand new technology. A Cobb Douglas production function was used to determine the effects of Bt cotton variety (dummy variable) and other factors of production. Results of production function for first year showed that Bt cotton variety increased yield by 33 percent. Pooled data for two seasons also showed positive impact of Bt technology on yield (48 percent increase in yield due to Bt cotton variety). Similarly, Qaim, et al. (2006) studied adoption of Bt cotton and its impact variability in India using a data set of single crop season of 2002-03. Comparative statistics showed that number of sprays on Bt cotton fields were 50 percent less compared to non-Bt cotton fields. However, seed cost of Bt cotton was more than three times of non-Bt cotton seed. Total variable cost for Bt cotton variety was relatively on higher side, however, this higher cost was offset by huge net returns due to significantly high yield. A translog production function was estimated and results showed that all inputs and households characteristics including Bt dummy have positive effects on cotton yield.The same conclusions have been derived by Huang, et al. (2002, 2005), Qaim and Zilberman (2003), Bennett, et al. (2003) and Pray et al. (2002). Wu, et al. (2008) provide evidences thatthe planting Bt cotton not only significant decreases the pest cotton bollworm but it also reduces the pest cotton bollworm on other crops, thereby decreasing insecticide use in general in northern China and majority of the beneficiaries of technology are the resource poor farmers.

In the above mentioned studies, direct effects of Bt cotton have been estimated on cotton growing farmers. Subramanian and Qaim (2009), however, worked out economy wide effects of Bt cotton using a micro-social accounting matrix for a village in India. Results of this study indicate that large landholders get more benefits compared to small farmers and adoption of Bt cotton generates more employment opportunities.

Some other studies show that Bt cotton has no significant impact on yield, and income of cotton growers and bollworms are becoming a problem in most of the developing countries. Examples of such studies include Hayee (2005), Huang, et al. (2002) and Ismael et al. (2002). Less knowledge about Bt technology, prevalence of black market for unimproved Bt cotton varieties, climatic variations and other disasters could be factors responsible for failure of Bt cotton. Qaim and de Janvary (2003) find a strong positive relationship between illegal Bt cotton seed and exorbitant prices of Bt cotton seed in Argentina, since the price was 80 percent higher than the level maximizing monopolistic profit. Thus, there is a need to better understand under what conditions farmers can gain benefits from adoption of Bt cotton.

There is a rising concern that Bt cotton will have negative impact on the earnings of small farmers in the developing countries, because poor farmers might be exploited by foreign monopolies dealing in Bt cottonseed supplies (Qaim and de Janvary, 2003). A study conducted by Hayee (2005) compared Bt cotton variety with local cotton variety of NIAB-78 in two provinces of Punjab and Sindh. Results showed that majority of Bt cotton adopters was small farmers since small farmers were facing problems of increasing cost of production and they were hoping that adoption of Bt cotton would reduce cost of production. However, such farmers experienced higher cost of production compared to that of non-Bt cotton variety, mainly because of high seed cost, more requirement of fertilizer and irrigation. Saving due to reduced spraying was not enough to offset high cost of production resulting from the use of other inputs. Resultantly, negative net returns were estimated for Bt cotton seed. Study showed that farmers stopped growing Bt cotton seeds. However, inverse to this was found by PARC (2007) in the province of Punjab. PARC conducted survey to determine economics of Bt cotton and non-Bt cotton for the single crop season. Total variable cost was relatively less on small farms compared to medium and large farms for Bt cotton varieties, however, this cost was comparatively higher for non-Bt cotton varieties on small farms compared to medium farms. On the returns side, small farmers received low net income per acre compared to medium and large farms. Reason lies in the fact that small farmers would not be able to purchase various inputs due to financial constraints. Overall outcome of adopting Bt cotton favored all farm categories with varied degree. It was also found that illegal Bt cotton seed was being used by cotton growers. Similarly, studies by Qaim and Zilberman (2003) and Thirtle et al. (2003) indicated that GM crops could increase yields in developing countries, since intellectual property rights are not strictly imposed or not effectively enforced and therefore, access to GM seeds was not a problem.

Farm and farmer specific characteristics, availability of Bt seed and its price, climatic and geographical conditions affect Bt cotton yield and also its adoption. A study conducted in Pakistan (Hayee, 2005) revealed that small farmers were more willing to adopt Bt cotton in Pakistan, whereas results of the study carried out by PARC (2007) concluded that young farmers coupled with education and having more than 25 acres of land were found adopting Bt cotton on their farms. Tenancy status showed that around 64 percent owners cultivated Bt cotton seed. Area under Bt cotton seed increased from 3.27 acres in 2005 to 28 acres in 2006 on the sampled farms. This is the indication that Bt cotton has performed well on the farms. Cotton growers adopted Bt cotton seed due to the fact that Bt cotton seed has resistance against bollworms resulting in fewer sprays and it is, therefore, rational for farmers and the government to adopt Bt cotton if Bt cotton results in declining cost of production due to less pesticide use.

As far as impacts of pesticide use on human health are concerned, although it is much more difficult to identify and measure the effects of pesticide use on the health of workers, studies available indicate adverse impacts of pesticide use on human health (Antle and Pingali, 1995; Antle, Cole and Crissman, 1998; Ajayi, 2000). Two kinds of cost result from pesticide impact on health. These impacts include loss of productivity due to illness and medical expenditure. Mostly people suffering from pesticide are poor and small farmers and such impacts have adverse consequences on their financial conditions. One of the common applications of pesticide is in cotton production. Workers spraying, performing various intercultural practices and cotton picking suffer from the negative effects of pesticide use. Now the question arises what is the possible solution to reduce pesticide use if it is not possible to completely eliminate its use? Breeders say that Bt cotton substantially reduces pesticide application. Studies conducted to investigate possible outcomes of adoption of Bt cotton in various countries indicate that adoption of Bt cotton can reduce pesticide use, thereby reducing health hazards. e.g. Pray et al (2002) compared pesticide use among Bt cotton growers, non-Bt cotton growers and growers of both types of seeds. Results suggested that around 22 percent of farmers growing only non-Bt cotton suffered from various health problems related to pesticide use compared to other farmers. Similarly, Huang et al. (2002, 2002a, 2005) estimated benefits of genetically modified seed to farmers in terms of reduced pesticide use resulting in less cost of production thereby increasing income and improved health conditions.

Most of the above studies reviewed reveal that Bt cotton performed well compared to non-Bt cotton in terms of pesticide use, total cost of production and net returns. However, two studies in the context of Pakistan scenario have findings, nullifying each other results. The possible reason for this would be taking single year cross sectional data. The growing seasons considered in these two studies would not be typical due to conditions that were abnormal. Success of Bt cotton depends greatly on agro-climatic conditions and therefore, success of Bt cotton could vary from year-to-year. Taking single year cross sectional data is, therefore, criticized on this ground. Thus there is a need to conduct a detailed study taking into account all these aspects and results of such type of study will be useful relating to determination of adoption of Bt cotton and its impacts on yield, income and pesticide use. The present project intends to bridge this information gap in the context of Pakistan taking a sample of farmers growing Bt cotton and non-Bt cotton. A data set comprising two cotton growing seasons will be considered for this study.

STUDY AREA

The Punjab province of Pakistan is usually divided into two areas, such as irrigated and non-irrigated areas. Irrigated area has been chosen for this study because cotton is commonly concentrated in this area, especially in Southern Punjab. In Southern Punjab, adoption of Bt cotton seed is not commonly practiced, however, partial adoption can be observed. Moreover, Bt cotton has not been allowed to be practiced during previous years. The reasons are that no genetically modified seed has been released or introduced in the market except a few ones by the government agency (however, laboratory work and experimental trials on Bt cotton seed are in process), thus no research organization has got patent right of Bt cotton seed, and Bt cotton grown on farmers’ fields is illegal. Since, some Bt cotton seed was smuggled by some private company and growers. That smuggled seed was multiplied and distributed among cotton growers (Hayee, 2005). Therefore, farmers are reluctant to disclose about the presence of Bt cotton on their fields. On the other hands, there are some districts in west of Punjab province along the Indus where full adoption of Bt cotton can be found. These districts include Mianwali, Bhakkar, Sargodha, etc. The most important fact is that these districts are not famous for cotton production, instead grams are commonly grown. The rising prices of raw cotton in the country and availability of Bt cotton seed, although illegal have induced farmers of these districts to grow Bt cotton. The present study comprises the Southern Punjab where partial and complete adoption of Bt cotton along with traditional cotton is commonly practiced along with districts along the Indus.