Technology Systems in Crop Agriculture: Case of Complementarity - PowerPoint PPT Presentation

Technology Systems in Crop Agriculture: Case of Complementarity between Soybean Seed and Tillage Intensity Ed Perry, Graduate Student Iowa State University, GianCarlo Moschini, CARD & Iowa State University, David Hennessy Work partly funded by NIFA grant Perry’s fellowship funded by NIFA National Needs 11/24/2015

Issue • Row crop agriculture in United States has seen many innovations in recent decades. These include – Capital intensification & mechanical innovation, substituting out labor – Data as inputs & outputs – Rotation simplification & regional specialization – Reduced till & no till cultivation – Genetically modified seeds • Our interest is in the last two and how in one sense they interact • Our viewpoint, not new, is that cropping practices come as systems and not as stand-alone practices 2

GM Seeds of interest • Focus: glyphosate tolerant (GT) soybeans • Can apply herbicide over the crop, killing other plants on contact • Reduce costs in form of – Other pesticides – Spray runs so lower labor, fuel, machinery depreciation – Management time & effort, scouting for weeds, etc. • Yield impact now negligible • Seeds more expensive • Environmental issues: More glyphosate used. Less use of other toxic herbicides. Weed resistance developing. Impacts on conservation tillage 3

From Fernandez-Cornejo et al. Amber Waves, March 2014 4

Cultivation Practice of Interest • Conservation tillage (CT): any soil cultivation method that leaves previous year's crop residue on fields before and after planting next crop. Reduces soil erosion & nutrient runoff, enhances carbon sequestration. Newly planted soybeans in corn residue. No till : plant crops directly into Photo courtesy USDA debris from previous crop NRCS Reduced till : some seedbed preparation. Cultivation, plowing, disking, etc. kills weeds mechanically Conservation tillage is easier with roundup- ready crops 5

Research question • Do glyphosate tolerant (GT) soybean seed and reduced/no till cropping practices complement? • If they do then soybean seed contribute to some environmental benefits that may go away upon – Burdensome regulation on GM seed industry – Impediments to export markets for GM products – Poor management of gene flow and resistance dynamics – Market restructuring such that seed prices rise • Further implication: policies promoting CT would promote GT soybean and vice versa 6

Prior research • Positive correlation between GT crops & CT commonly agreed. Nature of correlation not understood • Cotton: – Roberts et al. (2006), Frisvold et al. (2009), Kalaitzandonakes & Suntornpithug (2003) conclude in favor of complementarity – Banerjee et al. (2009) fail to reject null hypothesis that CT and GT cotton are independent • Soybeans: – Fernandez-Cornejo et al. (2002) + Fernandez-Cornejo et al. (2013) support causal relationship between CT & GT – Fernandez-Cornejo et al. (2003) partially reject the presence of complementarities 7

State of findings: aggregation & temporal variation • The above provides qualified evidence in favor of complementarity between GT crops & CT. However, data limitations and methodological assumptions restrict generality of findings • Because of its nature, complementarity is best studied at individual choice level. Three of papers cited above (Roberts et al., Frisvold et al., Fernandez-Cornejo et al. 2013) use state-level data • The three studies using farm-level data (Fernandez- Cornejo et al. 2003, Kalaitz. & Suntorn., & Banerjee et al. 2009) have single cross-section 8

State of findings: methodology & choice set • Regarding methodology, two important features for identification of complementarity have been neglected by previous studies • appropriate test for complementarity requires a choice- set defined over all possible combinations of the available practices (Gentzkow 2007) • grower facing choice between two binary technologies, should be modelled as choosing between four technology systems. Otherwise, as is with the bivariate probit or logit models, complementarity is either ruled out or inadequately characterized (Miravate and Pernías 2010, Gentzkow 2007) 9

State of findings: methodology & correlation • Also, need to allow for possibility that unobserved returns are correlated across practices • Clustering (or lack thereof) of the observed practices may be due to correlated unobserved tastes or attributes, rather than complementarity • Restricting unobserved returns across practices to be uncorrelated—as done by nearly all existing studies dealing with (GT, CT) complementarity—can lead to accepting complementarity when absent, or rejecting it when present (Athey & Stern 1998; Cassiman & Veuglers 2006) 10

Our contribution Novelties are • data used, considerably more extensive than others, • econometric methodology applied. – Based on a structural model that includes all four decision combinations. Typically a grower is held to make two simultaneous, albeit distinct, adoption decisions. Then complementarity isn’t directly estimated and results can be difficult to interpret – Controls for correlation induced by unobserved heterogeneity by estimating full covariance matrix of individual random effects • auxiliary findings developed during course of econometric identification 11

Data  A representative farm-level dataset from survey company GfK spanning 1998–2011 and containing seed and tillage choices of 29,518 soybean growers (GT soybeans were commercialized in 1996). See http://www.gfk.com/us  Not a balanced panel dataset, but it does contain repeated observations over time for a subset of individuals. About 43% of farmers sampled in a year are re-sampled next year. For many farmers we observe whether tillage choice changed upon switching to GT soybeans, helping to sort complement. from correl. among unobserved returns  Education is one type of unobserved factors. More schooled producers may use both CT and GT soybeans, so unconditional correlation between practices would exceed correlation conditioned on education 12

13

Data, Cont’d • Data are designed to be representative at CRD level. Including multiple fields, sample contains 82,056 farm- field-year observations across 235 CRDs in 31 states, largest soybean states being most heavily represented. • Data coming from GfK surveys include tillage & seed choices, seed & herbicide prices, and farm size variable • Each field is identified as using one of “Intensive Till.,” “Conservation Tillage,” “No-Till.” In baseline specification, we treat intensive till. as distinct, and combine the others into the CT category 14

Figure 1. Conservation Tillage and GT Adoption Rates for U.S. Soybeans (percent of acres) 100 90 80 70 60 50 40 30 20 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Conservation Tillage GT Soybeans No-Till 15

Table 1. Distribution of Tillage and Seed Systems (% of obs.) 1998- 2002-’06 2007-’11 1998-’11 System 2001 (CV,IT) 20.73 6.34 2.26 10.18 (GT,IT) 21.53 30.41 29.38 27 (CV,CT) 20.3 6.63 3.01 10.35 (GT,CT) 37.44 56.61 65.34 52.47 Observations 28,701 29,240 24,115 82,056 16

Variables = year price of CV soybean p t CV t , = year price of GT soybean p t GT t , = year price of herbicide used on CV soybean r t CV t , = year price of herbicide on GT soybean r t GT t , = dummy variable, 1 if growing more than 500 acres Size it = diesel fuel price index Fuel t = avg. January soybean futures price for November contract Futures t = index measuring soil erodability EI i = drought severity index Palmer it = simple time tren d Trend t 17

Variables, cont’d ν = time-invariant, practice-specific normally distributed i unobservables. They represent individual characteristics we do not observe, such as land quality, which may affect the returns to the differen t practices. We allow for these to be correlated acro ss systems. d d , ε =  system-specific IID type I extreme value errors. τ s itf They are residual in that they allow growers with the same characteristics and environment to still choose a different system. 18

Figure 2. U.S. Soybean Seed Prices, 1998-2011 ($/50lb) 45 40 35 30 25 20 15 10 5 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Conventional Seed GT Seed 19

Figure 3. U.S. Soybean Herbicide Prices, 1998-2011 1.2 1 0.8 0.6 0.4 0.2 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Glyphosate Price Index Conventional Price Index 20