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Don't Let the Perfect be the Enemy of the Good

That's how I'd sum up Matt Ridley's excellent piece in the Wall Street Journal​.  He starts by arguing that:

Generally, technologies are judged on their net benefits, not on the claim that they are harmless: The good effects of, say, the automobile and aspirin outweigh their dangers. Today, arguably, adopting certain new technologies is harder not just because of a policy of precaution but because of a bias in much of the media against reporting the benefits.

​He rightly argues that negative articles on topics like biotechnology and shale gas make catchier headlines and drown out all the positive information.  Case in point?

 A recent French study claimed that both pesticides and GM corn fed to cancer-susceptible strains of rats produced an increase in tumors. The study has come in for withering criticism from mainstream scientists for its opaque data, small samples, unsatisfactory experimental design and unconventional statistical analysis, yet it has still gained headlines world-wide. (In published responses, the authors have stood by their results.)
The French study contradicts a Japanese paper that used larger samples, longer trials and accepted experimental designs, yet received virtually no notice because it found no increase in cancer in rats fed on GM crops. This is a problem that’s bedeviled GM technology from the start: Studies that find harm are shouted from the media rooftops, those that do not are ignored.

​He goes on to document the potential environmental benefits from GMOs.   

While ​no one would argue we should ignore the potential dangers of new technologies (particularly biotechnologies), it would be equally crazy to ignore their potential benefits.

Myths about Monsanto Seed

Earlier today, I added ​a post about a lawsuit brought by Monsanto against a farmer who (presumably and unwittingly) planted seed with Monsanto's protected biotechnology.  As I indicated, the key issue is whether farmers can legally replant the progeny of seed originally bought from Monsanto without paying a technology fee.    

In reading various blogs and listening to the ​anti-Monsanto crowd, I hear a number of myths that I think are important to clear up:

  • Since the early to mid 1900s, most corn farmers have annually repurchased hybrid seed from seed-sellers.  This is because hybrid seeds are much more productive than the progeny.  So corn farmers having to repurchase seed every year is nothing new and is not a consequence of biotechnology. 
  • ​The soybeans situation is different in that soybeans are open pollinated.  Thus, before biotechnology soybean farmers could save back some of their crop and replant the progeny without suffering too much in yield loss (at least in the short run).  In the long-run, however, varieties become susceptible to local diseases and pests and seed companies continually develop new varieties that put the old (replanted) varieties at a competitive disadvantage.  So, soybean farmers faced incentives to eventually buy new seed from seed dealers (although it was probably not on an annual basis) even before biotechnology.  
  • My understanding is that when a farmer currently buys soybean from Monsanto, they sign a contract saying they will not to replant the seed.  It is hard for me to see malfeasance when farmers willingly buy seed at prices they are willing to pay while also willingly foregoing the right to replant.  In short, it appears (since more than 90% of the soybean crop is GM) the vast majority of farmers see more benefit in buying Monsanto seed and not replanting than in buying non-biotech (or other non-property-right-protected) seed ​that allow the option of replanting.
  • ​The anti-biotech crowd is often up-in-arms over the so-called "terminator gene", which would prohibit the growth of progeny and, as a consequence, force farmers to repurchase seed.  Although the "terminator gene" is theoretical possibility, no commercial seeds being sold contain the genes.  Moreover, back in 1999, Monsanto pledged not to commercialize seeds with the "terminator genes."

Monsanto, Lawsuits, and Economics

​It appears that a Monsanto lawsuit (Bowman v. Monsanto) will be making its way to the Supreme Court sometime this summer (HT: Tyler Cowen).  At issue is a case brought by Monsanto against a farmer who (presumably and unwittingly) planted seed with Monsanto's protected biotechnology.  The key issue appears to hinge on whether Monsanto owns the progeny (i.e., the "kids")  of the original seed it sells, and whether farmers can replant the progeny of seed originally bought from Monsanto without paying a technology fee.    

Much has been said about the potential impacts of the lawsuit.  I don't know whether the suit has any merit.  I'm not a lawyer.  But I am an economist, and much of what has been said about the impacts if Monsanto loses are just plain wrong.    ​

The Business Week story on the issue quotes a professor at Washington State University’s Center for Sustaining Agriculture and Natural Resources who says.

If it’s overturned, it will have cataclysmic repercussions for the business model in the seed biotech industry,” Benbrook said by telephone. “It would basically end the agricultural biotech industry as we know it, certainly for soybeans.

Hardly.  ​As my colleague Bailey Norwood rightly pointed out to me after reading the story: What do you think will happen to the price of the first generation seed if farmers are able to freely replant the progeny?  

As Steven Landsburg points out in his wonderful (and recently re-released) book The Arm Chair Economist the indifference principle must always be at work.  The principle suggests that at current prices, (the marginal) farmers must be indifferent to buying Monsanto seed given that he cannot replant the progeny and must buy seed again next year.  However, if the Supreme Court rules that Monsanto does NOT own the progeny, then the value of the seed to farmers rises since they can re-use the seed.  The marginal farmer is no longer indifferent.   For the indifference principle to hold (i.e., for equilibrium to be restored), the price must rise.  Monsanto will charge more for it's initial offerings if farmers can freely replant.      

As an analogy, consider the market for textbooks.  Bailey and I wrote an undergrad textbook on Agricultural Marketing and Price Analysis a few years ago (in which we somewhat ironically discuss the indifference principle).  Buying a new copy of the book is pricey (Amazon.com has the current price of a new copy at $97.41).  What do you think would happen to the price of the initial offering of the textbook (i.e., the price of a new copy) if Bailey and I (and the publishers who actually sets the price) could receive royalties when the used textbook is resold in bookstores after the semester?  The initial price for a new book would almost certainly fall.  

The Monsanto case is simply this example working in reverse.  

​

Agricultural Marketing and Price Analysis
$97.41
By Bailey Norwood, Jayson Lusk
Buy on Amazon

Gestation Crates and Unfunded Mandates

The New York Times had a nice piece ​on the challenges faced by hog farmers converting from gestation crate systems to open pen systems.  For background, the Human Society of the United States (HSUS) has won successful ballot initiatives in states such as California, Florida, and elsewhere banning gestation crates, and in recent months several large restaurant chains have said they will (at some future date) no longer source pork from farms that use gestation crates.

I strongly disagree with the ​farmer in the piece who says,

What I don’t like is some big restaurant chain in Chicago that knows nothing about raising animals is telling us how to raise pigs.

It is the consumer, after all, who wins the day.  Nobody who makes a living selling what they produce to others has the final say so (at least as long as they want to stay in business).

Despite that quibble, the article does a nice job characterizing the trade-offs ​entailed in phasing out gestation crates and documenting the reasons why farmers adopted these systems in the first place (something we also tried to do in our book on the subject).

The end of the piece has a quote from my friend and collaborator, Glynn Tonsor at Kansas State University, ​who gets at the crux of the problem faced by many pork and egg producers.  The issue is that when consumers show up in the voting booth, they enthusiastically vote to ban practices such as gestation crates in pork production and battery cages in egg production.  Yet, when those same people visit the grocery store, they aren't willing to pay the extra amount for meat and eggs produced in alternative systems.  

In essence, we have consumers requiring farmers to adopt practices, which the consumers (according to their own behavior) aren't fully willing to pay for.  Farmers, then, face something very much like an unfunded mandate (a phrase I believe I heard Glynn first use in this context).  Unfunded mandates normally come about when the government requires the adoption of a costly practice or service without providing the funding to accomplish the outcome.  In a similar manner, consumers and restaurant chains are requiring farmers to adopt practices without being willing to pay for what they say they want.

​The ultimate result will be lower profits for hog farmers (well, at least US hog farmers).  It should be noted that hog farmers are already predicted to suffer record losses over the next year because of rising feed costs.  

While we may have to live with a less profitable hog sector, I at least implore voters to count the costs in the voting booth in the same way they do in the grocery store.​  Some hog farmers, who have transitioned away from gestation crates, have found niche markets of consumers who are willing to pay the higher prices.  Here's hoping the niche grows mainstream so that funding will follow the mandate.