Value-enhanced genetically modified crops: Research incentives and implications for developing countries

In this paper, we present an economic model of the supply and demand for a second wave of genetically modified (GM) crops, referred to as output quality or value-enhanced crops. These include plant varieties that have one or more modified output characteristics adding end-user value to the commodity, such as higher quality oils and increased protein or vitamin levels. Implications for potential future growth of GM value-enhanced crops (GM-VECs) are examined. A significant amount of resources is being invested in GM-VEC research, yet their economic potential remains uncertain. Because no GM-VEC has yet attained a significant market presence, the model is illustrated using parameters from the market for high oil corn in the US. Particular attention is given to characterization of the incentives that exist for farmers to adopt and for industry to invest in research for GM-VECs. A Muth type model is used to simulate benefit distribution under varying market structure and technological parameter assumptions. After presenting results of this general case, some of the challenges facing the use of GM-VECs in developing countries are discussed.