Program for Biosafety Systems ndash httppbsifpriinfo

Implications of Biosafety Regulatory Costs and Time Delays on RampD

Joseacute Falck Zepeda Senior Research Fellow

International Food Policy Research Institute - Program for Biosafety Systems (IFPRI - PBS)

Photos BtRR maize Isabela province Northern Luzon Philippines 2012 Philippines had

approximately 500000 hectares of BtRR maize under cultivation

Issue 1 Recuperating a specified return over time

Model 1 A simplified ldquotypicalrdquo biotechnology developer

bull Typical biotech investor Phillips McDougall 2011) ndash Invests US$ 136 million in a new

GM crop ndash Average time for regulatory

approval of 48 months

bull Financial implications of a 20 rate of return ndash Require a total Net Present Value

(NPV) of US$ 272 million ndash Each year of delay represents a

loss in NPV of US$ 227 million

Source Smyth McDonald and Falck-Zepeda 2013

Marginal loss of net cash flow from delays in regulatory approval process (IRR = 20)

00

100

200

300

400

500

1 2 3 4 5 6 7 8 9 10 11 12 13

Marginal Loss ()

Years

Source Smyth McDonald and Falck-Zepeda 2013

Threshold

If IRR is 50 then

threshold closer to 4

years

Issues and Implications

bull Regulatory delays have a negative impact on returns to investments

bull With a 20 rate of return expect year 6 of regulatory delay to be the trigger point for suspending investment in new RampD projects

bull Current regulatory approvals taking 48 months implies that the upper boundary has likely been reached

Source Smyth McDonald and Falck-Zepeda 2013

Issue 2 Recuperating an investment with increases in cost of compliance or delays in the onset of benefits

Case study 1 Model investor case study (continued)

bull 136 million US$ with a recovery time of 10 years

bull 20 rate of return on investment in real terms ndash NPV of the investment is 272 million dollars

ndash Require a stream of nominal payments of 389 million per year

bull Allow same number of payments and value of each payment but increase time to onset of the benefits

NPV with increasing time to onset of benefits

(120000000)

(100000000)

(80000000)

(60000000)

(40000000)

(20000000)

-

20000000

40000000

0 2 4 6 8 10

NP

V (

US$

)

Year after onset of benefits

NPV

bull Keeping same number of payments + rate or return (20)

bull Losses from delays compared to the baseline of no-delay

Year 0 Year 1 Year 2 Sum of cash flows

389269139

389269139 389269139

Present value

163200000

136000000 108967421

NPV 27200000

- (27032579)

Impact of risk and uncertainty on the stream of benefits over time

bull What happens to the riskiness of investments as the onset of benefits is pushed into a later date

bull Repeat NPV calculation for the ldquomodelrdquo investor using RISK to conduct simulation through repeated iterations

Risk impacts and the stream of benefits

-120

-100

-80

-60

-40

-20

0

20

40

1 2 3 4 5 6 7 8

Valu

es

in M

illio

ns

Years of regulatory delay

5 - 95 +- 1 Std Dev Mean

Wider

dispersion

around the

mean hellip

the higher

the risk

Impact of risk and uncertainty in the stream of benefits

bull Investment returns become riskier over time for a well characterized recovery path

bull What happens if developers forced to ldquoforsakerdquo the element of predictability ndash Ambiguity Cannot make a determination due to lack

of knowledge about parameters (eg completion of regulatory process)

ndash Uncertainty Unexpected events

bull Likelihood that an investment will not be made increases with increased uncertainty and ambiguity

Case study 2 Net benefits from the adoption of GM crops in the Philippines

Bt eggplant

MVR tomato Bt rice PRSV resistant papaya

Net Benefits baseline (NPV in US$)

20466196 16748347 220373603 90765793

Effect of increasing

cost or time of

compliance

Source Bayer Norton and Falck Zepeda (2008)

Contrasting baseline net benefit levels from GE crop adoption with higher costs in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Contrasting benefit levels from GE crop adoption with larger regulatory lags in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Issues and implications

bull Regulatory costs are not likely to have a significant impact on the returns to investment

bull Exception are organizations that have budgetfinancial constraints

ndash National research organizations in developing countries

ndash International research systems developing public good products

ndash Small private firms in developing countries

bull Regulatory delays have a significant negative impact on net returns

ndash Number and type of technologies

ndash More ldquohigher returnrdquo products and less public good products

Issue 3 Regulatory and knowledge costbenefit tradeoffs

Cost and benefit tradeoffs

bull Learning process and the avoidance of negative impacts

bull Face the issues of irreversibility ambiguity and uncertainty

ndash Irreversibility is one of foundation blocks of the precautionary principleapproach and regulatory protocols such as the Cartagena Protocol on Biosafety

Case study 3 The case of fungal resistant bananas in Uganda

bull Ex ante study ndash used the real options approach

bull Conclusions

ndash If approval delayed forego potential annual (social) benefits of +- US$200 million

ndash Maximum total development costs cannot exceed US$108 million

Citation Kikulwe E J Wesseler and J Falck-Zepeda 2008 Introducing a Genetically Modified

Banana in Uganda Social Benefits Costs and Consumer Perceptions IFPRI Discussion Paper

767 Environment and Production Technology Division International Food Policy Research

Institute Washington D C USA

Copyright Kikulwe copy 2009

Issue 1 Recuperating a specified return over time

Model 1 A simplified ldquotypicalrdquo biotechnology developer

bull Typical biotech investor Phillips McDougall 2011) ndash Invests US$ 136 million in a new

GM crop ndash Average time for regulatory

approval of 48 months

bull Financial implications of a 20 rate of return ndash Require a total Net Present Value

(NPV) of US$ 272 million ndash Each year of delay represents a

loss in NPV of US$ 227 million

Source Smyth McDonald and Falck-Zepeda 2013

Marginal loss of net cash flow from delays in regulatory approval process (IRR = 20)

00

100

200

300

400

500

1 2 3 4 5 6 7 8 9 10 11 12 13

Marginal Loss ()

Years

Source Smyth McDonald and Falck-Zepeda 2013

Threshold

If IRR is 50 then

threshold closer to 4

years

Issues and Implications

bull Regulatory delays have a negative impact on returns to investments

bull With a 20 rate of return expect year 6 of regulatory delay to be the trigger point for suspending investment in new RampD projects

bull Current regulatory approvals taking 48 months implies that the upper boundary has likely been reached

Source Smyth McDonald and Falck-Zepeda 2013

Issue 2 Recuperating an investment with increases in cost of compliance or delays in the onset of benefits

Case study 1 Model investor case study (continued)

bull 136 million US$ with a recovery time of 10 years

bull 20 rate of return on investment in real terms ndash NPV of the investment is 272 million dollars

ndash Require a stream of nominal payments of 389 million per year

bull Allow same number of payments and value of each payment but increase time to onset of the benefits

NPV with increasing time to onset of benefits

(120000000)

(100000000)

(80000000)

(60000000)

(40000000)

(20000000)

-

20000000

40000000

0 2 4 6 8 10

NP

V (

US$

)

Year after onset of benefits

NPV

bull Keeping same number of payments + rate or return (20)

bull Losses from delays compared to the baseline of no-delay

Year 0 Year 1 Year 2 Sum of cash flows

389269139

389269139 389269139

Present value

163200000

136000000 108967421

NPV 27200000

- (27032579)

Impact of risk and uncertainty on the stream of benefits over time

bull What happens to the riskiness of investments as the onset of benefits is pushed into a later date

bull Repeat NPV calculation for the ldquomodelrdquo investor using RISK to conduct simulation through repeated iterations

Risk impacts and the stream of benefits

-120

-100

-80

-60

-40

-20

0

20

40

1 2 3 4 5 6 7 8

Valu

es

in M

illio

ns

Years of regulatory delay

5 - 95 +- 1 Std Dev Mean

Wider

dispersion

around the

mean hellip

the higher

the risk

Impact of risk and uncertainty in the stream of benefits

bull Investment returns become riskier over time for a well characterized recovery path

bull What happens if developers forced to ldquoforsakerdquo the element of predictability ndash Ambiguity Cannot make a determination due to lack

of knowledge about parameters (eg completion of regulatory process)

ndash Uncertainty Unexpected events

bull Likelihood that an investment will not be made increases with increased uncertainty and ambiguity

Case study 2 Net benefits from the adoption of GM crops in the Philippines

Bt eggplant

MVR tomato Bt rice PRSV resistant papaya

Net Benefits baseline (NPV in US$)

20466196 16748347 220373603 90765793

Effect of increasing

cost or time of

compliance

Source Bayer Norton and Falck Zepeda (2008)

Contrasting baseline net benefit levels from GE crop adoption with higher costs in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Contrasting benefit levels from GE crop adoption with larger regulatory lags in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Issues and implications

bull Regulatory costs are not likely to have a significant impact on the returns to investment

bull Exception are organizations that have budgetfinancial constraints

ndash National research organizations in developing countries

ndash International research systems developing public good products

ndash Small private firms in developing countries

bull Regulatory delays have a significant negative impact on net returns

ndash Number and type of technologies

ndash More ldquohigher returnrdquo products and less public good products

Issue 3 Regulatory and knowledge costbenefit tradeoffs

Cost and benefit tradeoffs

bull Learning process and the avoidance of negative impacts

bull Face the issues of irreversibility ambiguity and uncertainty

ndash Irreversibility is one of foundation blocks of the precautionary principleapproach and regulatory protocols such as the Cartagena Protocol on Biosafety

Case study 3 The case of fungal resistant bananas in Uganda

bull Ex ante study ndash used the real options approach

bull Conclusions

ndash If approval delayed forego potential annual (social) benefits of +- US$200 million

ndash Maximum total development costs cannot exceed US$108 million

Citation Kikulwe E J Wesseler and J Falck-Zepeda 2008 Introducing a Genetically Modified

Banana in Uganda Social Benefits Costs and Consumer Perceptions IFPRI Discussion Paper

767 Environment and Production Technology Division International Food Policy Research

Institute Washington D C USA

Copyright Kikulwe copy 2009

Model 1 A simplified ldquotypicalrdquo biotechnology developer

bull Typical biotech investor Phillips McDougall 2011) ndash Invests US$ 136 million in a new

GM crop ndash Average time for regulatory

approval of 48 months

bull Financial implications of a 20 rate of return ndash Require a total Net Present Value

(NPV) of US$ 272 million ndash Each year of delay represents a

loss in NPV of US$ 227 million

Source Smyth McDonald and Falck-Zepeda 2013

Marginal loss of net cash flow from delays in regulatory approval process (IRR = 20)

00

100

200

300

400

500

1 2 3 4 5 6 7 8 9 10 11 12 13

Marginal Loss ()

Years

Source Smyth McDonald and Falck-Zepeda 2013

Threshold

If IRR is 50 then

threshold closer to 4

years

Issues and Implications

bull Regulatory delays have a negative impact on returns to investments

bull With a 20 rate of return expect year 6 of regulatory delay to be the trigger point for suspending investment in new RampD projects

bull Current regulatory approvals taking 48 months implies that the upper boundary has likely been reached

Source Smyth McDonald and Falck-Zepeda 2013

Issue 2 Recuperating an investment with increases in cost of compliance or delays in the onset of benefits

Case study 1 Model investor case study (continued)

bull 136 million US$ with a recovery time of 10 years

bull 20 rate of return on investment in real terms ndash NPV of the investment is 272 million dollars

ndash Require a stream of nominal payments of 389 million per year

bull Allow same number of payments and value of each payment but increase time to onset of the benefits

NPV with increasing time to onset of benefits

(120000000)

(100000000)

(80000000)

(60000000)

(40000000)

(20000000)

-

20000000

40000000

0 2 4 6 8 10

NP

V (

US$

)

Year after onset of benefits

NPV

bull Keeping same number of payments + rate or return (20)

bull Losses from delays compared to the baseline of no-delay

Year 0 Year 1 Year 2 Sum of cash flows

389269139

389269139 389269139

Present value

163200000

136000000 108967421

NPV 27200000

- (27032579)

Impact of risk and uncertainty on the stream of benefits over time

bull What happens to the riskiness of investments as the onset of benefits is pushed into a later date

bull Repeat NPV calculation for the ldquomodelrdquo investor using RISK to conduct simulation through repeated iterations

Risk impacts and the stream of benefits

-120

-100

-80

-60

-40

-20

0

20

40

1 2 3 4 5 6 7 8

Valu

es

in M

illio

ns

Years of regulatory delay

5 - 95 +- 1 Std Dev Mean

Wider

dispersion

around the

mean hellip

the higher

the risk

Impact of risk and uncertainty in the stream of benefits

bull Investment returns become riskier over time for a well characterized recovery path

bull What happens if developers forced to ldquoforsakerdquo the element of predictability ndash Ambiguity Cannot make a determination due to lack

of knowledge about parameters (eg completion of regulatory process)

ndash Uncertainty Unexpected events

bull Likelihood that an investment will not be made increases with increased uncertainty and ambiguity

Case study 2 Net benefits from the adoption of GM crops in the Philippines

Bt eggplant

MVR tomato Bt rice PRSV resistant papaya

Net Benefits baseline (NPV in US$)

20466196 16748347 220373603 90765793

Effect of increasing

cost or time of

compliance

Source Bayer Norton and Falck Zepeda (2008)

Contrasting baseline net benefit levels from GE crop adoption with higher costs in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Contrasting benefit levels from GE crop adoption with larger regulatory lags in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Issues and implications

bull Regulatory costs are not likely to have a significant impact on the returns to investment

bull Exception are organizations that have budgetfinancial constraints

ndash National research organizations in developing countries

ndash International research systems developing public good products

ndash Small private firms in developing countries

bull Regulatory delays have a significant negative impact on net returns

ndash Number and type of technologies

ndash More ldquohigher returnrdquo products and less public good products

Issue 3 Regulatory and knowledge costbenefit tradeoffs

Cost and benefit tradeoffs

bull Learning process and the avoidance of negative impacts

bull Face the issues of irreversibility ambiguity and uncertainty

ndash Irreversibility is one of foundation blocks of the precautionary principleapproach and regulatory protocols such as the Cartagena Protocol on Biosafety

Case study 3 The case of fungal resistant bananas in Uganda

bull Ex ante study ndash used the real options approach

bull Conclusions

ndash If approval delayed forego potential annual (social) benefits of +- US$200 million

ndash Maximum total development costs cannot exceed US$108 million

Citation Kikulwe E J Wesseler and J Falck-Zepeda 2008 Introducing a Genetically Modified

Banana in Uganda Social Benefits Costs and Consumer Perceptions IFPRI Discussion Paper

767 Environment and Production Technology Division International Food Policy Research

Institute Washington D C USA

Copyright Kikulwe copy 2009

Marginal loss of net cash flow from delays in regulatory approval process (IRR = 20)

00

100

200

300

400

500

1 2 3 4 5 6 7 8 9 10 11 12 13

Marginal Loss ()

Years

Source Smyth McDonald and Falck-Zepeda 2013

Threshold

If IRR is 50 then

threshold closer to 4

years

Issues and Implications

bull Regulatory delays have a negative impact on returns to investments

bull With a 20 rate of return expect year 6 of regulatory delay to be the trigger point for suspending investment in new RampD projects

bull Current regulatory approvals taking 48 months implies that the upper boundary has likely been reached

Source Smyth McDonald and Falck-Zepeda 2013

Issue 2 Recuperating an investment with increases in cost of compliance or delays in the onset of benefits

Case study 1 Model investor case study (continued)

bull 136 million US$ with a recovery time of 10 years

bull 20 rate of return on investment in real terms ndash NPV of the investment is 272 million dollars

ndash Require a stream of nominal payments of 389 million per year

bull Allow same number of payments and value of each payment but increase time to onset of the benefits

NPV with increasing time to onset of benefits

(120000000)

(100000000)

(80000000)

(60000000)

(40000000)

(20000000)

-

20000000

40000000

0 2 4 6 8 10

NP

V (

US$

)

Year after onset of benefits

NPV

bull Keeping same number of payments + rate or return (20)

bull Losses from delays compared to the baseline of no-delay

Year 0 Year 1 Year 2 Sum of cash flows

389269139

389269139 389269139

Present value

163200000

136000000 108967421

NPV 27200000

- (27032579)

Impact of risk and uncertainty on the stream of benefits over time

bull What happens to the riskiness of investments as the onset of benefits is pushed into a later date

bull Repeat NPV calculation for the ldquomodelrdquo investor using RISK to conduct simulation through repeated iterations

Risk impacts and the stream of benefits

-120

-100

-80

-60

-40

-20

0

20

40

1 2 3 4 5 6 7 8

Valu

es

in M

illio

ns

Years of regulatory delay

5 - 95 +- 1 Std Dev Mean

Wider

dispersion

around the

mean hellip

the higher

the risk

Impact of risk and uncertainty in the stream of benefits

bull Investment returns become riskier over time for a well characterized recovery path

bull What happens if developers forced to ldquoforsakerdquo the element of predictability ndash Ambiguity Cannot make a determination due to lack

of knowledge about parameters (eg completion of regulatory process)

ndash Uncertainty Unexpected events

bull Likelihood that an investment will not be made increases with increased uncertainty and ambiguity

Case study 2 Net benefits from the adoption of GM crops in the Philippines

Bt eggplant

MVR tomato Bt rice PRSV resistant papaya

Net Benefits baseline (NPV in US$)

20466196 16748347 220373603 90765793

Effect of increasing

cost or time of

compliance

Source Bayer Norton and Falck Zepeda (2008)

Contrasting baseline net benefit levels from GE crop adoption with higher costs in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Contrasting benefit levels from GE crop adoption with larger regulatory lags in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Issues and implications

bull Regulatory costs are not likely to have a significant impact on the returns to investment

bull Exception are organizations that have budgetfinancial constraints

ndash National research organizations in developing countries

ndash International research systems developing public good products

ndash Small private firms in developing countries

bull Regulatory delays have a significant negative impact on net returns

ndash Number and type of technologies

ndash More ldquohigher returnrdquo products and less public good products

Issue 3 Regulatory and knowledge costbenefit tradeoffs

Cost and benefit tradeoffs

bull Learning process and the avoidance of negative impacts

bull Face the issues of irreversibility ambiguity and uncertainty

ndash Irreversibility is one of foundation blocks of the precautionary principleapproach and regulatory protocols such as the Cartagena Protocol on Biosafety

Case study 3 The case of fungal resistant bananas in Uganda

bull Ex ante study ndash used the real options approach

bull Conclusions

ndash If approval delayed forego potential annual (social) benefits of +- US$200 million

ndash Maximum total development costs cannot exceed US$108 million

Citation Kikulwe E J Wesseler and J Falck-Zepeda 2008 Introducing a Genetically Modified

Banana in Uganda Social Benefits Costs and Consumer Perceptions IFPRI Discussion Paper

767 Environment and Production Technology Division International Food Policy Research

Institute Washington D C USA

Copyright Kikulwe copy 2009

Issues and Implications

bull Regulatory delays have a negative impact on returns to investments

bull With a 20 rate of return expect year 6 of regulatory delay to be the trigger point for suspending investment in new RampD projects

bull Current regulatory approvals taking 48 months implies that the upper boundary has likely been reached

Source Smyth McDonald and Falck-Zepeda 2013

Issue 2 Recuperating an investment with increases in cost of compliance or delays in the onset of benefits

Case study 1 Model investor case study (continued)

bull 136 million US$ with a recovery time of 10 years

bull 20 rate of return on investment in real terms ndash NPV of the investment is 272 million dollars

ndash Require a stream of nominal payments of 389 million per year

bull Allow same number of payments and value of each payment but increase time to onset of the benefits

NPV with increasing time to onset of benefits

(120000000)

(100000000)

(80000000)

(60000000)

(40000000)

(20000000)

-

20000000

40000000

0 2 4 6 8 10

NP

V (

US$

)

Year after onset of benefits

NPV

bull Keeping same number of payments + rate or return (20)

bull Losses from delays compared to the baseline of no-delay

Year 0 Year 1 Year 2 Sum of cash flows

389269139

389269139 389269139

Present value

163200000

136000000 108967421

NPV 27200000

- (27032579)

Impact of risk and uncertainty on the stream of benefits over time

bull What happens to the riskiness of investments as the onset of benefits is pushed into a later date

bull Repeat NPV calculation for the ldquomodelrdquo investor using RISK to conduct simulation through repeated iterations

Risk impacts and the stream of benefits

-120

-100

-80

-60

-40

-20

0

20

40

1 2 3 4 5 6 7 8

Valu

es

in M

illio

ns

Years of regulatory delay

5 - 95 +- 1 Std Dev Mean

Wider

dispersion

around the

mean hellip

the higher

the risk

Impact of risk and uncertainty in the stream of benefits

bull Investment returns become riskier over time for a well characterized recovery path

bull What happens if developers forced to ldquoforsakerdquo the element of predictability ndash Ambiguity Cannot make a determination due to lack

of knowledge about parameters (eg completion of regulatory process)

ndash Uncertainty Unexpected events

bull Likelihood that an investment will not be made increases with increased uncertainty and ambiguity

Case study 2 Net benefits from the adoption of GM crops in the Philippines

Bt eggplant

MVR tomato Bt rice PRSV resistant papaya

Net Benefits baseline (NPV in US$)

20466196 16748347 220373603 90765793

Effect of increasing

cost or time of

compliance

Source Bayer Norton and Falck Zepeda (2008)

Contrasting baseline net benefit levels from GE crop adoption with higher costs in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Contrasting benefit levels from GE crop adoption with larger regulatory lags in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Issues and implications

bull Regulatory costs are not likely to have a significant impact on the returns to investment

bull Exception are organizations that have budgetfinancial constraints

ndash National research organizations in developing countries

ndash International research systems developing public good products

ndash Small private firms in developing countries

bull Regulatory delays have a significant negative impact on net returns

ndash Number and type of technologies

ndash More ldquohigher returnrdquo products and less public good products

Issue 3 Regulatory and knowledge costbenefit tradeoffs

Cost and benefit tradeoffs

bull Learning process and the avoidance of negative impacts

bull Face the issues of irreversibility ambiguity and uncertainty

ndash Irreversibility is one of foundation blocks of the precautionary principleapproach and regulatory protocols such as the Cartagena Protocol on Biosafety

Case study 3 The case of fungal resistant bananas in Uganda

bull Ex ante study ndash used the real options approach

bull Conclusions

ndash If approval delayed forego potential annual (social) benefits of +- US$200 million

ndash Maximum total development costs cannot exceed US$108 million

Citation Kikulwe E J Wesseler and J Falck-Zepeda 2008 Introducing a Genetically Modified

Banana in Uganda Social Benefits Costs and Consumer Perceptions IFPRI Discussion Paper

767 Environment and Production Technology Division International Food Policy Research

Institute Washington D C USA

Copyright Kikulwe copy 2009

Issue 2 Recuperating an investment with increases in cost of compliance or delays in the onset of benefits

Case study 1 Model investor case study (continued)

bull 136 million US$ with a recovery time of 10 years

bull 20 rate of return on investment in real terms ndash NPV of the investment is 272 million dollars

ndash Require a stream of nominal payments of 389 million per year

bull Allow same number of payments and value of each payment but increase time to onset of the benefits

NPV with increasing time to onset of benefits

(120000000)

(100000000)

(80000000)

(60000000)

(40000000)

(20000000)

-

20000000

40000000

0 2 4 6 8 10

NP

V (

US$

)

Year after onset of benefits

NPV

bull Keeping same number of payments + rate or return (20)

bull Losses from delays compared to the baseline of no-delay

Year 0 Year 1 Year 2 Sum of cash flows

389269139

389269139 389269139

Present value

163200000

136000000 108967421

NPV 27200000

- (27032579)

Impact of risk and uncertainty on the stream of benefits over time

bull What happens to the riskiness of investments as the onset of benefits is pushed into a later date

bull Repeat NPV calculation for the ldquomodelrdquo investor using RISK to conduct simulation through repeated iterations

Risk impacts and the stream of benefits

-120

-100

-80

-60

-40

-20

0

20

40

1 2 3 4 5 6 7 8

Valu

es

in M

illio

ns

Years of regulatory delay

5 - 95 +- 1 Std Dev Mean

Wider

dispersion

around the

mean hellip

the higher

the risk

Impact of risk and uncertainty in the stream of benefits

bull Investment returns become riskier over time for a well characterized recovery path

bull What happens if developers forced to ldquoforsakerdquo the element of predictability ndash Ambiguity Cannot make a determination due to lack

of knowledge about parameters (eg completion of regulatory process)

ndash Uncertainty Unexpected events

bull Likelihood that an investment will not be made increases with increased uncertainty and ambiguity

Case study 2 Net benefits from the adoption of GM crops in the Philippines

Bt eggplant

MVR tomato Bt rice PRSV resistant papaya

Net Benefits baseline (NPV in US$)

20466196 16748347 220373603 90765793

Effect of increasing

cost or time of

compliance

Source Bayer Norton and Falck Zepeda (2008)

Contrasting baseline net benefit levels from GE crop adoption with higher costs in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Contrasting benefit levels from GE crop adoption with larger regulatory lags in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Issues and implications

bull Regulatory costs are not likely to have a significant impact on the returns to investment

bull Exception are organizations that have budgetfinancial constraints

ndash National research organizations in developing countries

ndash International research systems developing public good products

ndash Small private firms in developing countries

bull Regulatory delays have a significant negative impact on net returns

ndash Number and type of technologies

ndash More ldquohigher returnrdquo products and less public good products

Issue 3 Regulatory and knowledge costbenefit tradeoffs

Cost and benefit tradeoffs

bull Learning process and the avoidance of negative impacts

bull Face the issues of irreversibility ambiguity and uncertainty

ndash Irreversibility is one of foundation blocks of the precautionary principleapproach and regulatory protocols such as the Cartagena Protocol on Biosafety

Case study 3 The case of fungal resistant bananas in Uganda

bull Ex ante study ndash used the real options approach

bull Conclusions

ndash If approval delayed forego potential annual (social) benefits of +- US$200 million

ndash Maximum total development costs cannot exceed US$108 million

Citation Kikulwe E J Wesseler and J Falck-Zepeda 2008 Introducing a Genetically Modified

Banana in Uganda Social Benefits Costs and Consumer Perceptions IFPRI Discussion Paper

767 Environment and Production Technology Division International Food Policy Research

Institute Washington D C USA

Copyright Kikulwe copy 2009

Case study 1 Model investor case study (continued)

bull 136 million US$ with a recovery time of 10 years

bull 20 rate of return on investment in real terms ndash NPV of the investment is 272 million dollars

ndash Require a stream of nominal payments of 389 million per year

bull Allow same number of payments and value of each payment but increase time to onset of the benefits

NPV with increasing time to onset of benefits

(120000000)

(100000000)

(80000000)

(60000000)

(40000000)

(20000000)

-

20000000

40000000

0 2 4 6 8 10

NP

V (

US$

)

Year after onset of benefits

NPV

bull Keeping same number of payments + rate or return (20)

bull Losses from delays compared to the baseline of no-delay

Year 0 Year 1 Year 2 Sum of cash flows

389269139

389269139 389269139

Present value

163200000

136000000 108967421

NPV 27200000

- (27032579)

Impact of risk and uncertainty on the stream of benefits over time

bull What happens to the riskiness of investments as the onset of benefits is pushed into a later date

bull Repeat NPV calculation for the ldquomodelrdquo investor using RISK to conduct simulation through repeated iterations

Risk impacts and the stream of benefits

-120

-100

-80

-60

-40

-20

0

20

40

1 2 3 4 5 6 7 8

Valu

es

in M

illio

ns

Years of regulatory delay

5 - 95 +- 1 Std Dev Mean

Wider

dispersion

around the

mean hellip

the higher

the risk

Impact of risk and uncertainty in the stream of benefits

bull Investment returns become riskier over time for a well characterized recovery path

bull What happens if developers forced to ldquoforsakerdquo the element of predictability ndash Ambiguity Cannot make a determination due to lack

of knowledge about parameters (eg completion of regulatory process)

ndash Uncertainty Unexpected events

bull Likelihood that an investment will not be made increases with increased uncertainty and ambiguity

Case study 2 Net benefits from the adoption of GM crops in the Philippines

Bt eggplant

MVR tomato Bt rice PRSV resistant papaya

Net Benefits baseline (NPV in US$)

20466196 16748347 220373603 90765793

Effect of increasing

cost or time of

compliance

Source Bayer Norton and Falck Zepeda (2008)

Contrasting baseline net benefit levels from GE crop adoption with higher costs in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Contrasting benefit levels from GE crop adoption with larger regulatory lags in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Issues and implications

bull Regulatory costs are not likely to have a significant impact on the returns to investment

bull Exception are organizations that have budgetfinancial constraints

ndash National research organizations in developing countries

ndash International research systems developing public good products

ndash Small private firms in developing countries

bull Regulatory delays have a significant negative impact on net returns

ndash Number and type of technologies

ndash More ldquohigher returnrdquo products and less public good products

Issue 3 Regulatory and knowledge costbenefit tradeoffs

Cost and benefit tradeoffs

bull Learning process and the avoidance of negative impacts

bull Face the issues of irreversibility ambiguity and uncertainty

ndash Irreversibility is one of foundation blocks of the precautionary principleapproach and regulatory protocols such as the Cartagena Protocol on Biosafety

Case study 3 The case of fungal resistant bananas in Uganda

bull Ex ante study ndash used the real options approach

bull Conclusions

ndash If approval delayed forego potential annual (social) benefits of +- US$200 million

ndash Maximum total development costs cannot exceed US$108 million

Citation Kikulwe E J Wesseler and J Falck-Zepeda 2008 Introducing a Genetically Modified

Banana in Uganda Social Benefits Costs and Consumer Perceptions IFPRI Discussion Paper

767 Environment and Production Technology Division International Food Policy Research

Institute Washington D C USA

Copyright Kikulwe copy 2009

NPV with increasing time to onset of benefits

(120000000)

(100000000)

(80000000)

(60000000)

(40000000)

(20000000)

-

20000000

40000000

0 2 4 6 8 10

NP

V (

US$

)

Year after onset of benefits

NPV

bull Keeping same number of payments + rate or return (20)

bull Losses from delays compared to the baseline of no-delay

Year 0 Year 1 Year 2 Sum of cash flows

389269139

389269139 389269139

Present value

163200000

136000000 108967421

NPV 27200000

- (27032579)

Impact of risk and uncertainty on the stream of benefits over time

bull What happens to the riskiness of investments as the onset of benefits is pushed into a later date

bull Repeat NPV calculation for the ldquomodelrdquo investor using RISK to conduct simulation through repeated iterations

Risk impacts and the stream of benefits

-120

-100

-80

-60

-40

-20

0

20

40

1 2 3 4 5 6 7 8

Valu

es

in M

illio

ns

Years of regulatory delay

5 - 95 +- 1 Std Dev Mean

Wider

dispersion

around the

mean hellip

the higher

the risk

Impact of risk and uncertainty in the stream of benefits

bull Investment returns become riskier over time for a well characterized recovery path

bull What happens if developers forced to ldquoforsakerdquo the element of predictability ndash Ambiguity Cannot make a determination due to lack

of knowledge about parameters (eg completion of regulatory process)

ndash Uncertainty Unexpected events

bull Likelihood that an investment will not be made increases with increased uncertainty and ambiguity

Case study 2 Net benefits from the adoption of GM crops in the Philippines

Bt eggplant

MVR tomato Bt rice PRSV resistant papaya

Net Benefits baseline (NPV in US$)

20466196 16748347 220373603 90765793

Effect of increasing

cost or time of

compliance

Source Bayer Norton and Falck Zepeda (2008)

Contrasting baseline net benefit levels from GE crop adoption with higher costs in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Contrasting benefit levels from GE crop adoption with larger regulatory lags in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Issues and implications

bull Regulatory costs are not likely to have a significant impact on the returns to investment

bull Exception are organizations that have budgetfinancial constraints

ndash National research organizations in developing countries

ndash International research systems developing public good products

ndash Small private firms in developing countries

bull Regulatory delays have a significant negative impact on net returns

ndash Number and type of technologies

ndash More ldquohigher returnrdquo products and less public good products

Issue 3 Regulatory and knowledge costbenefit tradeoffs

Cost and benefit tradeoffs

bull Learning process and the avoidance of negative impacts

bull Face the issues of irreversibility ambiguity and uncertainty

ndash Irreversibility is one of foundation blocks of the precautionary principleapproach and regulatory protocols such as the Cartagena Protocol on Biosafety

Case study 3 The case of fungal resistant bananas in Uganda

bull Ex ante study ndash used the real options approach

bull Conclusions

ndash If approval delayed forego potential annual (social) benefits of +- US$200 million

ndash Maximum total development costs cannot exceed US$108 million

Citation Kikulwe E J Wesseler and J Falck-Zepeda 2008 Introducing a Genetically Modified

Banana in Uganda Social Benefits Costs and Consumer Perceptions IFPRI Discussion Paper

767 Environment and Production Technology Division International Food Policy Research

Institute Washington D C USA

Copyright Kikulwe copy 2009

Impact of risk and uncertainty on the stream of benefits over time

bull What happens to the riskiness of investments as the onset of benefits is pushed into a later date

bull Repeat NPV calculation for the ldquomodelrdquo investor using RISK to conduct simulation through repeated iterations

Risk impacts and the stream of benefits

-120

-100

-80

-60

-40

-20

0

20

40

1 2 3 4 5 6 7 8

Valu

es

in M

illio

ns

Years of regulatory delay

5 - 95 +- 1 Std Dev Mean

Wider

dispersion

around the

mean hellip

the higher

the risk

Impact of risk and uncertainty in the stream of benefits

bull Investment returns become riskier over time for a well characterized recovery path

bull What happens if developers forced to ldquoforsakerdquo the element of predictability ndash Ambiguity Cannot make a determination due to lack

of knowledge about parameters (eg completion of regulatory process)

ndash Uncertainty Unexpected events

bull Likelihood that an investment will not be made increases with increased uncertainty and ambiguity

Case study 2 Net benefits from the adoption of GM crops in the Philippines

Bt eggplant

MVR tomato Bt rice PRSV resistant papaya

Net Benefits baseline (NPV in US$)

20466196 16748347 220373603 90765793

Effect of increasing

cost or time of

compliance

Source Bayer Norton and Falck Zepeda (2008)

Contrasting baseline net benefit levels from GE crop adoption with higher costs in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Contrasting benefit levels from GE crop adoption with larger regulatory lags in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Issues and implications

bull Regulatory costs are not likely to have a significant impact on the returns to investment

bull Exception are organizations that have budgetfinancial constraints

ndash National research organizations in developing countries

ndash International research systems developing public good products

ndash Small private firms in developing countries

bull Regulatory delays have a significant negative impact on net returns

ndash Number and type of technologies

ndash More ldquohigher returnrdquo products and less public good products

Issue 3 Regulatory and knowledge costbenefit tradeoffs

Cost and benefit tradeoffs

bull Learning process and the avoidance of negative impacts

bull Face the issues of irreversibility ambiguity and uncertainty

ndash Irreversibility is one of foundation blocks of the precautionary principleapproach and regulatory protocols such as the Cartagena Protocol on Biosafety

Case study 3 The case of fungal resistant bananas in Uganda

bull Ex ante study ndash used the real options approach

bull Conclusions

ndash If approval delayed forego potential annual (social) benefits of +- US$200 million

ndash Maximum total development costs cannot exceed US$108 million

Citation Kikulwe E J Wesseler and J Falck-Zepeda 2008 Introducing a Genetically Modified

Banana in Uganda Social Benefits Costs and Consumer Perceptions IFPRI Discussion Paper

767 Environment and Production Technology Division International Food Policy Research

Institute Washington D C USA

Copyright Kikulwe copy 2009

Risk impacts and the stream of benefits

-120

-100

-80

-60

-40

-20

0

20

40

1 2 3 4 5 6 7 8

Valu

es

in M

illio

ns

Years of regulatory delay

5 - 95 +- 1 Std Dev Mean

Wider

dispersion

around the

mean hellip

the higher

the risk

Impact of risk and uncertainty in the stream of benefits

bull Investment returns become riskier over time for a well characterized recovery path

bull What happens if developers forced to ldquoforsakerdquo the element of predictability ndash Ambiguity Cannot make a determination due to lack

of knowledge about parameters (eg completion of regulatory process)

ndash Uncertainty Unexpected events

bull Likelihood that an investment will not be made increases with increased uncertainty and ambiguity

Case study 2 Net benefits from the adoption of GM crops in the Philippines

Bt eggplant

MVR tomato Bt rice PRSV resistant papaya

Net Benefits baseline (NPV in US$)

20466196 16748347 220373603 90765793

Effect of increasing

cost or time of

compliance

Source Bayer Norton and Falck Zepeda (2008)

Contrasting baseline net benefit levels from GE crop adoption with higher costs in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Contrasting benefit levels from GE crop adoption with larger regulatory lags in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Issues and implications

bull Regulatory costs are not likely to have a significant impact on the returns to investment

bull Exception are organizations that have budgetfinancial constraints

ndash National research organizations in developing countries

ndash International research systems developing public good products

ndash Small private firms in developing countries

bull Regulatory delays have a significant negative impact on net returns

ndash Number and type of technologies

ndash More ldquohigher returnrdquo products and less public good products

Issue 3 Regulatory and knowledge costbenefit tradeoffs

Cost and benefit tradeoffs

bull Learning process and the avoidance of negative impacts

bull Face the issues of irreversibility ambiguity and uncertainty

ndash Irreversibility is one of foundation blocks of the precautionary principleapproach and regulatory protocols such as the Cartagena Protocol on Biosafety

Case study 3 The case of fungal resistant bananas in Uganda

bull Ex ante study ndash used the real options approach

bull Conclusions

ndash If approval delayed forego potential annual (social) benefits of +- US$200 million

ndash Maximum total development costs cannot exceed US$108 million

Citation Kikulwe E J Wesseler and J Falck-Zepeda 2008 Introducing a Genetically Modified

Banana in Uganda Social Benefits Costs and Consumer Perceptions IFPRI Discussion Paper

767 Environment and Production Technology Division International Food Policy Research

Institute Washington D C USA

Copyright Kikulwe copy 2009

Impact of risk and uncertainty in the stream of benefits

bull Investment returns become riskier over time for a well characterized recovery path

bull What happens if developers forced to ldquoforsakerdquo the element of predictability ndash Ambiguity Cannot make a determination due to lack

of knowledge about parameters (eg completion of regulatory process)

ndash Uncertainty Unexpected events

bull Likelihood that an investment will not be made increases with increased uncertainty and ambiguity

Case study 2 Net benefits from the adoption of GM crops in the Philippines

Bt eggplant

MVR tomato Bt rice PRSV resistant papaya

Net Benefits baseline (NPV in US$)

20466196 16748347 220373603 90765793

Effect of increasing

cost or time of

compliance

Source Bayer Norton and Falck Zepeda (2008)

Contrasting baseline net benefit levels from GE crop adoption with higher costs in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Contrasting benefit levels from GE crop adoption with larger regulatory lags in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Issues and implications

bull Regulatory costs are not likely to have a significant impact on the returns to investment

bull Exception are organizations that have budgetfinancial constraints

ndash National research organizations in developing countries

ndash International research systems developing public good products

ndash Small private firms in developing countries

bull Regulatory delays have a significant negative impact on net returns

ndash Number and type of technologies

ndash More ldquohigher returnrdquo products and less public good products

Issue 3 Regulatory and knowledge costbenefit tradeoffs

Cost and benefit tradeoffs

bull Learning process and the avoidance of negative impacts

bull Face the issues of irreversibility ambiguity and uncertainty

ndash Irreversibility is one of foundation blocks of the precautionary principleapproach and regulatory protocols such as the Cartagena Protocol on Biosafety

Case study 3 The case of fungal resistant bananas in Uganda

bull Ex ante study ndash used the real options approach

bull Conclusions

ndash If approval delayed forego potential annual (social) benefits of +- US$200 million

ndash Maximum total development costs cannot exceed US$108 million

Citation Kikulwe E J Wesseler and J Falck-Zepeda 2008 Introducing a Genetically Modified

Banana in Uganda Social Benefits Costs and Consumer Perceptions IFPRI Discussion Paper

767 Environment and Production Technology Division International Food Policy Research

Institute Washington D C USA

Copyright Kikulwe copy 2009

Case study 2 Net benefits from the adoption of GM crops in the Philippines

Bt eggplant

MVR tomato Bt rice PRSV resistant papaya

Net Benefits baseline (NPV in US$)

20466196 16748347 220373603 90765793

Effect of increasing

cost or time of

compliance

Source Bayer Norton and Falck Zepeda (2008)

Contrasting baseline net benefit levels from GE crop adoption with higher costs in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Contrasting benefit levels from GE crop adoption with larger regulatory lags in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Issues and implications

bull Regulatory costs are not likely to have a significant impact on the returns to investment

bull Exception are organizations that have budgetfinancial constraints

ndash National research organizations in developing countries

ndash International research systems developing public good products

ndash Small private firms in developing countries

bull Regulatory delays have a significant negative impact on net returns

ndash Number and type of technologies

ndash More ldquohigher returnrdquo products and less public good products

Issue 3 Regulatory and knowledge costbenefit tradeoffs

Cost and benefit tradeoffs

bull Learning process and the avoidance of negative impacts

bull Face the issues of irreversibility ambiguity and uncertainty

ndash Irreversibility is one of foundation blocks of the precautionary principleapproach and regulatory protocols such as the Cartagena Protocol on Biosafety

Case study 3 The case of fungal resistant bananas in Uganda

bull Ex ante study ndash used the real options approach

bull Conclusions

ndash If approval delayed forego potential annual (social) benefits of +- US$200 million

ndash Maximum total development costs cannot exceed US$108 million

Citation Kikulwe E J Wesseler and J Falck-Zepeda 2008 Introducing a Genetically Modified

Banana in Uganda Social Benefits Costs and Consumer Perceptions IFPRI Discussion Paper

767 Environment and Production Technology Division International Food Policy Research

Institute Washington D C USA

Copyright Kikulwe copy 2009

Contrasting baseline net benefit levels from GE crop adoption with higher costs in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Contrasting benefit levels from GE crop adoption with larger regulatory lags in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Issues and implications

bull Regulatory costs are not likely to have a significant impact on the returns to investment

bull Exception are organizations that have budgetfinancial constraints

ndash National research organizations in developing countries

ndash International research systems developing public good products

ndash Small private firms in developing countries

bull Regulatory delays have a significant negative impact on net returns

ndash Number and type of technologies

ndash More ldquohigher returnrdquo products and less public good products

Issue 3 Regulatory and knowledge costbenefit tradeoffs

Cost and benefit tradeoffs

bull Learning process and the avoidance of negative impacts

bull Face the issues of irreversibility ambiguity and uncertainty

ndash Irreversibility is one of foundation blocks of the precautionary principleapproach and regulatory protocols such as the Cartagena Protocol on Biosafety

Case study 3 The case of fungal resistant bananas in Uganda

bull Ex ante study ndash used the real options approach

bull Conclusions

ndash If approval delayed forego potential annual (social) benefits of +- US$200 million

ndash Maximum total development costs cannot exceed US$108 million

Citation Kikulwe E J Wesseler and J Falck-Zepeda 2008 Introducing a Genetically Modified

Banana in Uganda Social Benefits Costs and Consumer Perceptions IFPRI Discussion Paper

767 Environment and Production Technology Division International Food Policy Research

Institute Washington D C USA

Copyright Kikulwe copy 2009

Contrasting benefit levels from GE crop adoption with larger regulatory lags in the Philippines

Notes 1) Source Bayer Norton and Falck Zepeda (2008) 2) Baseline values for each technology expressed in millions US$ using a

discount rate for the estimation of Net Present Value = 5 3) Change in Net benefits defined as the total benefits estimated using the

economic surplus minus total regulatory costs

Issues and implications

bull Regulatory costs are not likely to have a significant impact on the returns to investment

bull Exception are organizations that have budgetfinancial constraints

ndash National research organizations in developing countries

ndash International research systems developing public good products

ndash Small private firms in developing countries

bull Regulatory delays have a significant negative impact on net returns

ndash Number and type of technologies

ndash More ldquohigher returnrdquo products and less public good products

Issue 3 Regulatory and knowledge costbenefit tradeoffs

Cost and benefit tradeoffs

bull Learning process and the avoidance of negative impacts

bull Face the issues of irreversibility ambiguity and uncertainty

ndash Irreversibility is one of foundation blocks of the precautionary principleapproach and regulatory protocols such as the Cartagena Protocol on Biosafety

Case study 3 The case of fungal resistant bananas in Uganda

bull Ex ante study ndash used the real options approach

bull Conclusions

ndash If approval delayed forego potential annual (social) benefits of +- US$200 million

ndash Maximum total development costs cannot exceed US$108 million

Citation Kikulwe E J Wesseler and J Falck-Zepeda 2008 Introducing a Genetically Modified

Banana in Uganda Social Benefits Costs and Consumer Perceptions IFPRI Discussion Paper

767 Environment and Production Technology Division International Food Policy Research

Institute Washington D C USA

Copyright Kikulwe copy 2009

Issues and implications

bull Regulatory costs are not likely to have a significant impact on the returns to investment

bull Exception are organizations that have budgetfinancial constraints

ndash National research organizations in developing countries

ndash International research systems developing public good products

ndash Small private firms in developing countries

bull Regulatory delays have a significant negative impact on net returns

ndash Number and type of technologies

ndash More ldquohigher returnrdquo products and less public good products

Issue 3 Regulatory and knowledge costbenefit tradeoffs

Cost and benefit tradeoffs

bull Learning process and the avoidance of negative impacts

bull Face the issues of irreversibility ambiguity and uncertainty

ndash Irreversibility is one of foundation blocks of the precautionary principleapproach and regulatory protocols such as the Cartagena Protocol on Biosafety

Case study 3 The case of fungal resistant bananas in Uganda

bull Ex ante study ndash used the real options approach

bull Conclusions

ndash If approval delayed forego potential annual (social) benefits of +- US$200 million

ndash Maximum total development costs cannot exceed US$108 million

Citation Kikulwe E J Wesseler and J Falck-Zepeda 2008 Introducing a Genetically Modified

Banana in Uganda Social Benefits Costs and Consumer Perceptions IFPRI Discussion Paper

767 Environment and Production Technology Division International Food Policy Research

Institute Washington D C USA

Copyright Kikulwe copy 2009

Issue 3 Regulatory and knowledge costbenefit tradeoffs

Cost and benefit tradeoffs

bull Learning process and the avoidance of negative impacts

bull Face the issues of irreversibility ambiguity and uncertainty

ndash Irreversibility is one of foundation blocks of the precautionary principleapproach and regulatory protocols such as the Cartagena Protocol on Biosafety

Case study 3 The case of fungal resistant bananas in Uganda

bull Ex ante study ndash used the real options approach

bull Conclusions

ndash If approval delayed forego potential annual (social) benefits of +- US$200 million

ndash Maximum total development costs cannot exceed US$108 million

Citation Kikulwe E J Wesseler and J Falck-Zepeda 2008 Introducing a Genetically Modified

Banana in Uganda Social Benefits Costs and Consumer Perceptions IFPRI Discussion Paper

767 Environment and Production Technology Division International Food Policy Research

Institute Washington D C USA

Copyright Kikulwe copy 2009

Cost and benefit tradeoffs

bull Learning process and the avoidance of negative impacts

bull Face the issues of irreversibility ambiguity and uncertainty

ndash Irreversibility is one of foundation blocks of the precautionary principleapproach and regulatory protocols such as the Cartagena Protocol on Biosafety

Case study 3 The case of fungal resistant bananas in Uganda

bull Ex ante study ndash used the real options approach

bull Conclusions

ndash If approval delayed forego potential annual (social) benefits of +- US$200 million

ndash Maximum total development costs cannot exceed US$108 million

Citation Kikulwe E J Wesseler and J Falck-Zepeda 2008 Introducing a Genetically Modified

Banana in Uganda Social Benefits Costs and Consumer Perceptions IFPRI Discussion Paper

767 Environment and Production Technology Division International Food Policy Research

Institute Washington D C USA

Copyright Kikulwe copy 2009

Case study 3 The case of fungal resistant bananas in Uganda

bull Ex ante study ndash used the real options approach

bull Conclusions

ndash If approval delayed forego potential annual (social) benefits of +- US$200 million

ndash Maximum total development costs cannot exceed US$108 million

Citation Kikulwe E J Wesseler and J Falck-Zepeda 2008 Introducing a Genetically Modified

Banana in Uganda Social Benefits Costs and Consumer Perceptions IFPRI Discussion Paper

767 Environment and Production Technology Division International Food Policy Research

Institute Washington D C USA

Copyright Kikulwe copy 2009

Potential implications for decision making (1)

bull Gain more andor better information about technology impacts for decision making - may support valuable technologies

bull Need to balance gains in information additional costs amp effort and impacts on innovation

bull Potential for introducing uncertainty that can lead to an unworkable system especially with ill defined process

Potential implications for decision making (2)

bull Additional requirements will increase the cost of regulatory compliance

bull Potentially regulatory delays will likely cause a

ndash reduction in the number of technologies especially those released by the public sector and cropstraits of a public good nature

ndash some public sector institutions may not be able to deploy technologies due to fixed costs necessary to enter market

Socioeconomics regulatory delays and decision making

bull Policy option for parties to the Cartagena Protocol on Biosafety in Article 26

bull Multiple approaches possible for implementation bull Prudent to carefully evaluate tradeoffs including

implementation issues ndash Clearly defining scope and issues ndash Methods and assessment approaches ndash Integration with environmentalfoodfeed safety

assessment ndash Compliance with other international treaties ndash Consistency with national laws and regulations ndash Proportionality

Time to change and develop functional biosafety and decision making systems

in an era of absolute transparency

ldquoTo continue making things as we have done until now is not an option we must develop a shared vision between agriculture and environment agendas and move towards a paradigm shiftrdquo ldquoWe must face the challenges with technology not ideologyhellipincluding developing proper governance and regulatory processes that workrdquo From a declaration of scientists and regulators at the 2012 Central American Conference on Agriculture and Environment (CIAA) at Zamorano University in Honduras

Joseacute Benjamin Falck-Zepeda Senior Research Fellow Leader Policy Team Program for Biosafety Systems

IFPRI 2033 K Street NW

Washington DC 20006-1002 USA

jfalck-zepedacgiarorg

Brief biopubs httpwwwifpriorgstaffprofilejose-falck-zepeda Blog httpsocioeconomicbiosafetywordpresscom

Follow me on Twitter josefalck

Obrigado Gracias

Potential implications for decision making (2)

bull Additional requirements will increase the cost of regulatory compliance

bull Potentially regulatory delays will likely cause a

ndash reduction in the number of technologies especially those released by the public sector and cropstraits of a public good nature

ndash some public sector institutions may not be able to deploy technologies due to fixed costs necessary to enter market

Socioeconomics regulatory delays and decision making

bull Policy option for parties to the Cartagena Protocol on Biosafety in Article 26

bull Multiple approaches possible for implementation bull Prudent to carefully evaluate tradeoffs including

implementation issues ndash Clearly defining scope and issues ndash Methods and assessment approaches ndash Integration with environmentalfoodfeed safety

assessment ndash Compliance with other international treaties ndash Consistency with national laws and regulations ndash Proportionality

Time to change and develop functional biosafety and decision making systems

in an era of absolute transparency

ldquoTo continue making things as we have done until now is not an option we must develop a shared vision between agriculture and environment agendas and move towards a paradigm shiftrdquo ldquoWe must face the challenges with technology not ideologyhellipincluding developing proper governance and regulatory processes that workrdquo From a declaration of scientists and regulators at the 2012 Central American Conference on Agriculture and Environment (CIAA) at Zamorano University in Honduras

Joseacute Benjamin Falck-Zepeda Senior Research Fellow Leader Policy Team Program for Biosafety Systems

IFPRI 2033 K Street NW

Washington DC 20006-1002 USA

jfalck-zepedacgiarorg

Brief biopubs httpwwwifpriorgstaffprofilejose-falck-zepeda Blog httpsocioeconomicbiosafetywordpresscom

Follow me on Twitter josefalck

Obrigado Gracias

Socioeconomics regulatory delays and decision making

bull Policy option for parties to the Cartagena Protocol on Biosafety in Article 26

bull Multiple approaches possible for implementation bull Prudent to carefully evaluate tradeoffs including

implementation issues ndash Clearly defining scope and issues ndash Methods and assessment approaches ndash Integration with environmentalfoodfeed safety

assessment ndash Compliance with other international treaties ndash Consistency with national laws and regulations ndash Proportionality

Time to change and develop functional biosafety and decision making systems

in an era of absolute transparency

ldquoTo continue making things as we have done until now is not an option we must develop a shared vision between agriculture and environment agendas and move towards a paradigm shiftrdquo ldquoWe must face the challenges with technology not ideologyhellipincluding developing proper governance and regulatory processes that workrdquo From a declaration of scientists and regulators at the 2012 Central American Conference on Agriculture and Environment (CIAA) at Zamorano University in Honduras

Joseacute Benjamin Falck-Zepeda Senior Research Fellow Leader Policy Team Program for Biosafety Systems

IFPRI 2033 K Street NW

Washington DC 20006-1002 USA

jfalck-zepedacgiarorg

Brief biopubs httpwwwifpriorgstaffprofilejose-falck-zepeda Blog httpsocioeconomicbiosafetywordpresscom

Follow me on Twitter josefalck

Obrigado Gracias

Time to change and develop functional biosafety and decision making systems

in an era of absolute transparency

ldquoTo continue making things as we have done until now is not an option we must develop a shared vision between agriculture and environment agendas and move towards a paradigm shiftrdquo ldquoWe must face the challenges with technology not ideologyhellipincluding developing proper governance and regulatory processes that workrdquo From a declaration of scientists and regulators at the 2012 Central American Conference on Agriculture and Environment (CIAA) at Zamorano University in Honduras

Joseacute Benjamin Falck-Zepeda Senior Research Fellow Leader Policy Team Program for Biosafety Systems

IFPRI 2033 K Street NW

Washington DC 20006-1002 USA

jfalck-zepedacgiarorg

Brief biopubs httpwwwifpriorgstaffprofilejose-falck-zepeda Blog httpsocioeconomicbiosafetywordpresscom

Follow me on Twitter josefalck

Obrigado Gracias

Joseacute Benjamin Falck-Zepeda Senior Research Fellow Leader Policy Team Program for Biosafety Systems

IFPRI 2033 K Street NW

Washington DC 20006-1002 USA

jfalck-zepedacgiarorg

Brief biopubs httpwwwifpriorgstaffprofilejose-falck-zepeda Blog httpsocioeconomicbiosafetywordpresscom

Follow me on Twitter josefalck

Obrigado Gracias

1 The Parties in reaching a decision on import under this Protocol or under

its domestic measures implementing the Protocol

may take into account

consistent with their international obligations

socio-economic considerations arising from the impact of living modified organisms on the

conservation and sustainable use of biological diversity

especially with regard to the value of biological diversity to indigenous and

local communities

bull Applies to decision on import only or

bull National measures

bull Voluntary ndash NOT mandatory

bull Especially WTO

bull Strictly a specific focus and target group

bull Explicit impact indicator

Article 261 of the Cartagena Protocol on Biosafety