Potential international markets for GM reproductive frost management technologies for wheat: cost-benefit analysis - final technical report

Potential international markets for GM reproductive frost management technologies for wheat: cost-benefit analysis - final technical report

Executive Summary:

Crop damage during post head-emergence frost (PHEF) can result in catastrophic yield loss for wheat
producers. Improved PHEF tolerance in wheat would be beneficial in many parts of the world.
Sources of PHEF tolerance suitable for incorporation into wheat cultivars via conventional breeding
programs have proved difficult to identify (Frederiks et al. 2012). Genetic modification (GM) has been
suggested as an alternative potential approach to achieve improved PHEF tolerance. This report
provides an analysis of the economic feasibility of investment for a wheat variety developer in a
PHEF-tolerant GM development program, considering estimated potential international demand for
PHEF tolerant wheat seed and cost of GM crop de-regulation.

The total international seed demand was estimated for countries harvesting more than ten million
hectares (10 year average 2004 to 2013) and experiencing PHEF. The average area for which seed
is purchased annually is given as a percentage of the total cropping area. Potential seed demand is
then estimated for each country using a sowing rate of 155 kg/ha. The estimated total annual demand
for commercial seed by affected countries is around 5.4 million tonnes. The present study has
assumed that within each country where PHEF has been reported, that 10% of the wheat growing
area is affected to an extent and frequency to be considered a potential market for frost tolerant
varieties. The present study has considered a situation where a developer of GM frost tolerant wheat
captures 20% of this potential PHEF tolerant wheat seed market i.e. 0.108 million tonnes annually.

Based on an assessment of international PHEF-tolerant wheat seed demand, the economic analysis
considers two GM frost tolerant wheat seed demand scenarios: (1) GM frost tolerant wheat seed is
used mainly to replace seed of current commercial wheat varieties supplied by the GM developer and
(2) the seed is used to meet new additional demand for GM frost tolerant wheat seed, for example,
where the developer gains additional market share from a competitor because of PHEF-tolerance, or
for areas not previously considered suitable for wheat because of severe frost risk. The key results
from the economic modelling indicate that:

-Investment in a frost tolerant GM wheat variety development program for international markets is an economically viable option, under scenarios both with and without replacement of current commercial seed demand.

-The Net Present Value (NPV), when replacing current commercial wheat seed demand with GM frost tolerant seed demand, suggests a frost tolerant GM wheat program would generate $81.7 million profit over the life of the GM variety if it had a market life of 20 years.

-Similarly, under replacement of current commercial wheat seed demand, Internal Rate of Return (20%) and Benefit Cost Ratio (4.16) also suggest strong economic returns. For
example, the Benefit Cost Ratio (BCR) indicated that every dollar spent on the improved frost tolerant GM breeding program will lead to a $4.16 increase in income over the 20 year life of the GM frost tolerant variety program.

-Similarly, the NPV value, for additional GM frost tolerant wheat seed demand that does not replace existing demand, shows considerably higher economic returns, when compared with NPV for seed replacing current commercial wheat seed demand. When considering new GM frost tolerant wheat seed demand, the program is expected to generate $392.9 million over the 20 year life of the GM variety.

Sensitivity analysis was conducted to test the robustness of the economic analysis by systematically
changing the values of key cost and benefit parameters. The result of the sensitivity analysis indicates
that NPV returns are sensitive to changes in seed demand, fixed costs, price and interest rate.
However with changes in these parameters, the investments are still economically viable, under
scenarios both with and without replacement of commercial seed demand.

Additional sensitivity analysis was conducted to include demand only from a selection of countries which currently do not have a ban on GM crops and are most likely to take up the technology, and facilitate payment for GM frost-tolerant wheat seed (USA, Australia, Canada, Argentina, Brazil and Spain). The results indicated that investment is profitable when considering demand greater than 30%
of the potential GM PHEF tolerant seed demand for the selected countries, and for a 20 year variety
life, under scenarios both with and without replacement of commercial seed markets. However, the investment is not economic viable for seed demand 20% or below when considering a shorter varietal market life (i.e., 10 or 15 years) when only replacement of commercial seed is considered.

Based on potential international demand for GM frost tolerant wheat seed, if the breeders were able
to develop GM frost-tolerant varieties for international markets, the return on investment in a GM frost-tolerant
breeding program would be highly attractive.

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