Economic impacts of GM crops in Australia

Since the first commercialisation of genetically modified (GM) crops in 1996, plantings of GM crops have expanded rapidly and now constitute a significant proportion of the world’s broadacre crop output. By 2007, global plantings of GM crops 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 the cost of pesticide, herbicide and farm labour, and more efficient farm management.

Globally, GM varieties of cotton, soybean, maize and canola are the principal GM crops grown. In 2007, the main producing countries, by volume, were the United States (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). Australian farmers have many years of experience growing GM cotton and GM carnations. From the 2008 season, GM canola is being commercially grown in New South Wales and Victoria. Over the longer term, other broadacre GM crops may also be available for adoption by Australian farmers.

Before farmers decide to grow GM varieties, they consider the costs and benefits of GM crop adoption. Agricultural industries have many linkages with other sectors of the economy. Beyond the farm gate, crops require storage, processing, transportation and handling. When new technologies such as GM crops are adopted and total production rises, demand for those services also rises.

On-farm benefits and costs of GM crop adoption

Yield effects:  In comparison to non-GM production systems, the adoption of GM crops could reduce yield losses through better protection against insect pests and weeds. The resulting yield benefit will be determined by agronomic growing conditions and the level of pest or 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 weed specific herbicides. It also increases flexibility in crop rotations as the broad spectrum herbicides used in GM crop production do not persist in the soil and therefore crops will no longer be 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. 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:  Environmental costs associated with spraying could decrease if fewer chemical sprays were used. Reduced  contamination of soils and groundwater could also be expected. In addition, pesticide and herbicide resistant GM crops provide occupational health and safety benefits by reducing the need for farmers to handle harmful chemicals.

Off-farm income:  GM crop adoption may enable 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 imposition of technology fees to users—largely based on the area of land planted to GM crops—increase 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 buffer zones.

Segregation costs:  On-farm segregation arrangements, if required, 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.

Benefits and costs of GM crop adoption:  Beyond the farm gate

Adoption of GM crops can have a number of indirect impacts on interrelated upstream industries such as seed, fertiliser and pesticide industries and downstream industries such as transport, storage, feed processing, livestock, food processing and textile industries.

Technology providers:  When a new technology enters the market, the total benefit of that technology is usually shared amongst the technology provider, technology users and consumers. The degree of competition in the market will determine how the total benefits of GM technologies are shared among the three groups. In some instances, GM seed supply companies hold a patent over their technology and have therefore been successful in retaining a share of the total benefits from their innovation.

Herbicide and pesticide industries:  Adoption of GM crops reduces the use of some chemicals (for instance, insecticides) and as a consequence, the demand for these products decreases. The decrease in demand may put downward pressure on prices of conventional herbicides and pesticides. In the case of a price fall, farmers who continue to produce non-GM crops will benefit. On the other hand, increased demand for the particular herbicides used on herbicide tolerant GM crops could lead to price increases for these chemicals.

Grain handling system:  Additional costs in the central receival system could include extra grain testing requirements, if segregation arrangements are required. Labour costs would also rise in the case that separate delivery times are instituted for GM and non-GM crops at those handling sites accepting both crops. 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.

Downstream industry impacts:  As a cost reducing technology, GM crop adoption is likely to lead to falls in crop prices. Assuming no change in the demand structure, downstream industries and consumers will benefit from lower prices arising from the technology.

Modelling economic impacts of GM crops in Australia

The Australian Bureau of Agricultural and Resource Economics (ABARE) has used its Ausregion model to analyse the economic impacts of changes in yield and production costs in selected agricultural industries from the adoption of GM crops.

The ABARE analyses, compared against a reference case where only GM cotton continued to be grown, found that incomes in agriculture intensive states and regions would increase with the adoption of other GM crops. It also found that delaying further adoption reduces the benefit.

Crops considered include canola, soybean, maize, wheat and rice.

More information on this topic is available in the report:

Acworth, W, Yainshet, A and Curtotti, R, 2008, Economic impacts of GM crops in Australia, ABARE research report 08.4. Prepared for the Australian Government Department of Agriculture, Fisheries and Forestry, Canberra, May 2008.

How do I find out more?

This brochure is one of a series of Biotechnology briefs on biotechnology and Australian agriculture.

Other titles in this series of Biotechnology briefs:

• GM canola: potential impacts on organic farming
• GM grains in Australia: identity preservation
• Market acceptance of GM canola
• GM crops: tools for insect pest and weed control
• GM canola: an information package
• GM crops in emerging economies
• Value of biotechnology applications to Australian agriculture
• GM oilseed crops and the Australian oilseed industry
• Genetically modified crops
• Australia’s crops and pastures in a changing climate
• GM stockfeed in Australia.

The Australian Government’s National Biotechnology Strategy funded the production of these brochures and reports.

How can I get copies?

For a free copy of these and other DAFF publications please email: Biotechnolgy

Visit the Australian Government Department of Agriculture, Fisheries and Forestry website for regular updates and information on agricultural biotechnology: www.daff.gov.au/agbiotech.

We want to ensure that developments in biotechnology are captured for the benefit of the Australian community, industry and the environment, while safeguarding human health and ensuring environmental protection.

The Australian Bureau of Agricultural and Resource Economics (ABARE) is an independent economic research agency of the Australian Government.