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THE ECONOMICS OF HYBRID RICE IN ASIA TECHNOLOGY ADOPTION, PUBLIC EXPENDITURES, AND PRIVATE INCENTIVES Patrick S. Ward Environment and Production Technology Division International Food Policy Research Institute New Delhi, India Slide 2 Based on: Spielman, D.J., D. Kolady, P.S. Ward, H-Ar-Rashid, and K. Gulati (2012). Public Expenditures, Private Incentives, and Technology Adoption: The Economics of Hybrid Rice in South Asia. International Food Policy Research Institute (IFPRI) Discussion Paper 01233. http://www.ifpri.org/publication/public-expenditures-private- incentives-and-technology-adoptionhttp://www.ifpri.org/publication/public-expenditures-private- incentives-and-technology-adoption Slide 3 WHY DO FARMERS ADOPT HYBRIDS (OR ANY TECHNOLOGY)? Expected utility maximization Economists assume that agricultural households maximize the expected pleasure they get from consuming food, non-food, and leisure with the income and food they derive from agricultural production Compare pleasure that would be achieved under different states of the world and the probability of that state of the world actually occurring If farmers expect that adopting a new technology will maximize their total pleasure, then they will adopt How do farmers formulate these expectations? Learning by doing Learning from others Slide 4 THE PROCESS OF TECHNOLOGY DIFFUSION Slide 5 HYBRID MAIZE DIFFUSION IN THE U.S. Source: Griliches, 1957 Slide 6 Limited access to credit Limited access to information Risk aversion Inadequate farm size (important for non-scale neutral technologies) Tenure arrangements Labor constraints preventing timely operations Unreliable supply of complementary inputs Inappropriate transportation infrastructure CONSTRAINTS TO TECHNOLOGY ADOPTION Slide 7 KEY CONSIDERATIONS FOR ADOPTION OF HYBRID RICE 1.Seed costs (inclusive of any subsidied) 2.Quantity of seed required (per unit of land) 3.Quantity of complementary inputs (irrigation, chemical fertilizers, herbicides, pesticides, etc.) required (per unit of land) 4.Labor requirements (e.g., additional weeding) 5.Yields Intended use: Is the harvested grain for home consumption or marketable? Stochastic: realized yields are just one of many possible states of nature 6.Output price 7.Risk preferences and subjective probabilities The interactions of these considerations leads to different patterns of adoption across different contexts! Slide 8 THE BENEFITS OF HYBRID RICE Direct benefits Yield improvement ~15-30% Higher yields production intensification Reallocation of land to other crops Reallocation of land to non-farm uses Lower seed rates Indirect benefits Hybrids confer biological protection of intellectual property Viable basis for investment in the seed industry IP protection makes new technologies remunerative Genetically engineered traits in a hybrid background Stress tolerant traits from conventional breeding Slide 9 CRITICISMS OF HYBRID RICE Recurrent purchases of hybrid seed are too costly for many resource-poor, small-scale farmers in developing countries Purchasing new seed is a fairly common practice among paddy farmers in South Asia Seed-saving by definition limits farmers access to technological improvements embodied in seed Higher costs are at least partially defrayed by lower seed rates Hybridization concentrates the market in the hands of a few large multinational seed companies Some compelling evidence to support market concentration Remains to be seen whether this results in anti-competitive market practices Lowers in-situ biodiversity and greater susceptibility to pests and diseases Slide 10 THE LIMITATIONS OF HYBRID RICE In China Adoption driven by state intervention in farm-level production decisions (Lin, 1991) Beyond China Stable yield gains (heterosis) limited to temperate zones Narrow genetic base of parent lines Grain quality (amylose < 25%) rejected by consumers Difficulties in producing quality seed High cost of seed (10x more than inbred seed) Dependence on state intervention (subsidized inputs) Variable returns, evidence of disadoption Slide 11 INDIAS EXPERIENCE: HOMEGROWN SCIENCE 1989: Public R&D investment funded by Indian Council on Agricultural Research (ICAR) and international donors (FAO, ADB, UNIDO) and partners (IRRI) c. 1989-1999, investment $7.7m 1990s: poorly adapted hybrids introduced in southern India Initial releases in south India: variable yields, low returns Later releases with 50% seed subsidy: variable yields, low returns 2005-12: New hybrids introduced by private sector Releases in eastern/northern India (Bihar, eastern UP, Jharkhand, Chhatisgarh, etc.) where yields are low, gains more visible 2012ff: Improved hybrids introduced by private sector? Higher amylose content (>25%) to meet consumer preferences National target Hybrid rice to cover 25% of all rice cultivated area by 2015 Slide 12 DESPITE HESITATIONS AMONG FARMERS Source: Francis Kanoi, 2009 Slide 13 STRONG EXPECTED MARKET GROWTH Source: Francis Kanoi, 2009 Slide 14 BANGLADESHS EXPERIENCE: TECH TRANSFER 1993: Public R&D investment Marginal investment by BRRI, donors, partners 2000s: poorly adapted Chinese hybrids introduced Private sector enters seed market to supply after 1998/99 floods Initial releases: Older Chinese hybrids: variable yields, low returns, low consumer acceptance Concentrated in winter (boro) season 2005ff: New hybrids introduced by private sector Lal Tir, Supreme, ACI enter market with imports, own hybrids BRAC enters market with own hybrids Decline in 2007-08 due to exogenous shock, seed performance 2012ff: Improved hybrids introduced by private sector? Higher amylose content (>25%) to meet consumer preferences Slide 15 RISKS ASSOCIATED WITH IMPORTING SEEDS AND OTHER TECHNOLOGIES May be poorly adapted to Bangladeshs diverse agroecological conditions, crop management practices, farming systems, and consumer preferences Poor alignment with consumer preferences results in thin output markets and lower prices, which drives down profit margins Reliance upon status quo trade policies If either China or Bangladesh change their policies regarding the transfer of either seed or germplasm from China to Bangladesh, what would happen to the domestic supply of hybrid seeds? Slide 16 DISTRIBUTIONAL ASPECTS: UNANSWERED QUESTIONS ON HYBRID RICE Where is hybrid rice most competitive? High v. low potential agroecologies and marketsheds Who grows hybrid rice? Large v. small farmers What are the major constraints to production? Seed price, input requirements, labor requirements How important are consumer preferences? Rice for own consumption or marketable output? Tentative findings (based on hh data) Scale neutral adoption Seed price zeroed out by lower seeding rate Consumer preferences addressed by 2 nd generation hybrids Slide 17 HYBRID RICE IN AN ST&I FRAMEWORK Discovery DeliveryDevelopment Investment strategies Collaboration strategies Risk management strategies Outputs & impacts Viable technology products Productivity enhancements Poverty reductions Policies & investments Tools & technologies Assets & inputs Knowledge stocks Scientific capital Human capital Slide 18 SCIENTIFIC DISCOVERY Challenges: largely technical Securing stable heterosis in tropical rice hybrids Improving hybridization systems (e.g., two-line) Increasing amylose levels for consumers Broadening the germplasm base for breeding efforts Solutions? Increased investment in international and national research in the public sector IRRI Hybrid Rice Development Consortium (HRDC) CGIAR Global Rice Science Partnership (GRiSP) Improving access to Chinas hybrid lines, hybridization systems Slide 19 TECHNOLOGY DEVELOPMENT Technical challenges Improving seed production systems Policy challenges Streamlined regulatory procedures Legal IP protection: Biological IP is not enough Competitiveness: Market power/anti-trust issues Investment: Appropriate incentives for private R&D Solutions? Indias 2004 PPV&FR Act? Continued reliance solely on biological IP protection? Monitoring of seed industry competitiveness Slide 20 PRODUCT DELIVERY Probably the weakest element in the hybrid rice innovation process Delivery and adoption of hybrid rice will depend on improvements made in the discovery and development stages Feedback mechanisms between the three stages can facilitate these improvements Requires research to understand the factors that motivate or constrain farmers adoption of hybrid rice Slide 21 HYBRIDS AS A PLATFORM FOR DELIVERING PRO-POOR TECHNOLOGIES Hybridization presents a biological protection of IP Incentivizes private sector R&D Can we combine efforts to incentivize private sector innovation with efforts to reach small-scale, resource-poor farmers? Examples: Humanitarian use exemptions Technology subsidies Technology embodiment Market segmentation Slide 22 DEMAND FOR DROUGHT TOLERANT RICE: HYBRID VS. INBRED Source: Ward et al. (2014) Slide 23 CONCLUSIONS Hybrid rice: new technology, great potential Widespread adoption will depend on Advances in scientific discovery Improvements in international R&D cooperation Improvements in private R&D incentives Improvements in farm-level incentives (prices, subsidies) Further understanding of distributional aspects of adoption Policy solutions spanning science, technology, and innovation are necessary conditions for hybrid rices diffusion in Asia Slide 24 Thank you p.ward@cigar.org