Genetically Modified Pest-Protected Plants Science and Regulation (2000) / Chapter Skim
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Appendix A: Costs of Regulating Transgenic Pest-Protected Plants
Appendix A: Costs of Regulating Transgenic Pest-Protected Plants
Pages 209-237
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Appendixes
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This appendix considers potential costs of regulating transgenic pest protected plants and provides evidence regarding the potential magnitudes of some of those costs. Two forms of regulation are considered.
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Regulation of transgenic pest-protected plant products will affect the crop-protection and seed industries. It may also affect crop breeding more broadly with implications for future agricultural productivity growth and for the structure of US agriculture.
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I then consider the potential costs of pre-market regulatory review, with special attention to likely testing requirements for pesticides under FIFRA and FFDCA relative to data and information typically submitted to USDA under the Federal Plant Pest Act and to FDA under FFDCA. I compare those costs to the fixed costs of breeding and estimate the effect of testing requirements on the market size needed to justify investment.
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Broadly speaking, the new agricultural technologies underlying productivity growth have featured the substitution of agricultural chemicals (such as fertilizers and pesticides) , energy, seed, and other purchased inputs for labor (farmers' own and hired)
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A.3 PLANT BREEDING RESEARCH AND DEVELOPMENT IN THE UNITED STATES R&D in both the public and private sectors have contributed to the new agricultural technologies that have made productivity growth possible. In 1992, US agricultural R&D expenditures were approximately $6 billion, of which $3.3 billion (56%)
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Broadly speaking, the private sector has concentrated on technologies for which markets provide means of recouping R&D costs, as when patent protection allows private firms to appropriate a share of the benefits generated by new technologies (Huffman and Evenson 1993~. In 1992, agricultural chemicals accounted for about one-third of private agricultural R&D, and plant breeding accounted for about 10% (Fuglie et al.
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Corn 27.1 8.2 509.75 545.05 100 Wheat 64.5 11.95 53.95 130.4 20-32 Rice 13.8 6.3 21.9 42 85 Barley 16.4 2.1 13.9 32.4 50 Oats 10.1 2.7 4.9 17.7 40 Sorghum 11.8 2.5 40.8 55.1 95 Other Grains 11.65 0.5 57.75 69.9 Cotton 19.15 11.65 103.45 134.25 66 Alfalfa 15.2 11.85 41 68.05 97 Other legume forage 9.1 7 2.15 18.25 95 Forage grasses 13.5 14 35.95 63.45 95 Soybean 45 9.6 101.35 155.95 76 Peanut 14 2.5 3.15 19.65 70 Sunflower 0.6 2.56 31.45 34.61 95 Flax 1.3 0 0 1.3 90 Canola 5.7 1 28 34.7 Other Oilseeds 2.6 0 10.95 13.55 Potatoes 31 10 9 50 73 Other vegetables 91 16.4 283.65 391.05 85 Sugar 4 15 25 44 Ornamentals 18 5 64 87 100 Lawn and Turf 15 0 41 56 95 Totals 529 177 1,499 2,205 aState Agricultural Experiment Station bUSDA Agricultural Research Service Source: Breeding effort from Frey (1996~. Market shares of corn, soybean, cotton, potatoes, and wheat from Economic Research Service (1997~.
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In nominal terms, private-sector spending on plant breeding rose from $6 million in 1960 to $400 million in 1992 (Economic Research Service 1995~. In real terms, private-sector spending increased by a factor of about 13 over this period (an average annual growth rate of 8.3%~.
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beans, cotton, and wheat comprise the largest farm sector markets for pesticides, accounting for approximately 60% of total pesticide expenditures (table Aid. A recent wave of mergers and acquisitions in the seed and agrichemical industries has engendered concern about increasing concentration and its potential impacts on the seed industry and on agricultural R&D more broadly.
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. Second, genetic engineering may also allow agrichemical firms to 2Information for estimating the costs of breeding new varieties was obtained from conversations with the following people and their cooperation is greatly appreciated.
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Third, agrichemical companies' interest in transgenic crops might have been spurred by deceleration in the introduction of new chemical pesticides. The number of new chemical pesticide products registered provides a rough measure of R&D productivity in the years preceding registration.
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Agricultural biotechnology and the prospect of expanding markets for US farm exports were principal motivations. The fall in farm exports and the ensuing farm financial crisis of the 1980s led petrochemical and specialty-chemical firms to leave this industry and to sell their biotechnology and seed subsidiaries to agrichemical companies.
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Published US data are available on four major seed markets corn, soybeans, cotton, and vegetables. Published estimates of corn seed market shares of the 6-10 leading firms are available for about half the years since 1973 before the first merger wave that affected the US seed industry (table Add.
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Data on 1997 from Hayenga (1998~. suited in a significant increase in concentration in major seed marketssuch as those for corn, soybean, and cotton in the United States or the overall world seed market.
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1999~. A.5 COSTS OF REGULATING TRANSGENIC PEST-PROTECTED PLANTS All transgenic pest-protected plant products will be subject to some level of regulatory oversight prior to commercialization, regardless of whether EPA's proposed rule regulating them as "plant pesticides" is implemented.
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EPA's estimates of testing costs also underestimate the costs of regulatory compliance because they ignore the cash costs and implicit costs of management time needed for overseeing the regulatory process and interacting with EPA staff. Those costs are likely to be higher for smaller entities, such as biotechnology startup companies, small to medium seed companies, and public-sector breeders.
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, Tier I biological fate, acute oral toxicity, and digestibility for a total of about $20,000. Additional costs of regulating pesticidal substances in transgenic pestprotected plants as pesticides beyond that required for Bt and viral coat proteins would include the following: · Testing for effects on nontarget organisms.
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"tests for avian reproduction cafe that the costs of providing data to meet regulatory requirements for Bt corn amounted to nearly $3.8 million in addition to 21.5 person-years of staff time. If pesticidal substances in transgenic plants were not considered pesticides for purposes of FIFRA and the FFDCA, it is possible that the costs associated with the FDA process would increase.
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It is thus appropriate to compare regulatory compliance costs with the fixed costs of breeding a new variety. The costs of crop breeding depend on the costs of running a breeding operation, the time required to develop a new variety sufficiently for market introduction, and the success rate of new varieties.
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The preceding analysis ignores the cost of developing germplasm and considers only the cost of developing a new variety from existing germplasm. It was not possible to estimate the cost of developing new germplasm for use in breeding programs via traditional breeding methods or genetic engineering.
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Let S denote expected annual sales of the variety, assumed constant (in real terms) for simplicity, and D denote the
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Regulation of transgenic pest-protected plant products with novel, unfamiliar genes as pesticides could increase breakeven sales by $620,000 or more (table Aid. A.6 SUMMARY Regulating pesticidal substances in transgenic pest-protected plants as pesticides could create substantial barriers to R&D related to minoruse crops and to entry by small entities.
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As a result, regulating transgenic pest-protected plant products as "plantpesticides" is likely to increase the expected annual sales needed to justify R&D investment substantially, making R&D related to crops with small seed markets less attractive and making it more difficult for smaller, less well-capitalized entities to enter the market.
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