The Economics of Pharmaceutical Crops

Potential Benefits and Risks for Farmers and Rural Communities

Published Dec 9, 2009


The current debate over genetically engineered pharmaceutical and industrial crops (or "pharma" crops) is replete with assertions by the pharma crops industry that these crops will generate enormous economic benefits for rural America—especially for farmers suffering economic hardships and eager for new opportunities. One state, Missouri, has even subsidized a new research center in pursuit of those benefits.

Though often repeated, these expansive claims remain just that, claims—assertions not backed by economic analyses. This lack of analysis represents a big gap in an important debate.

To fill that gap, the Union of Concerned Scientists (UCS) commissioned Dr. Robert Wisner, university professor in the department of economics at Iowa State University, to examine the purported economic benefits of pharma crops. His report provides a thoughtful assessment of the issue—identifying the sources of potential benefits, qualitatively estimating the magnitude of these benefits (it is too early for quantitative analysis), and identifying those who may or may not benefit from pharma crops and under what circumstances. 

While the pharma crop industry is in its early stages and its course is uncertain, the report leads UCS to the inescapable conclusion that pharma crop proponents' claims are inflated and, importantly, whatever benefits do materialize, most farmers will not be major beneficiaries.

The key findings that contributed to this conclusion are summarized below.

  • The potential benefits envisioned for consumers, farmers, and rural communities are highly tentative projections that fail to adequately address risks to the food supply when the same crops are used for both food and pharmaceutical production.
  • Reduced drug-production costs, which are expected to be the primary source of potential benefits, will depend on the level of containment needed to protect the food system from pharma crop contamination. Containment-related costs may be high enough to at least partially outweigh potential savings in other areas of drug production.
  • Pharma crops have other potential economic downsides including the liability that must be assumed by food manufacturers, farmers, and pharma crop companies for potential contamination of the food supply.
  • Farmers are unlikely to be major beneficiaries because:
    • They will be unable to negotiate with pharma crop companies from a position of strength. Market forces, including foreign competition, will drive farmer compensation down to the lowest levels that pharma crop companies can achieve.
    • The acreage likely required for a successful pharma crop industry is so small compared with commodity crop acreage that only a small number of growers will be needed.
  • Rural communities are unlikely to be major beneficiaries unless:
    • the local pharma crop industry brings in substantial research contracts for universities and private research firms; and
    • pharmaceutical processing companies locate in the area.

Overall, the report suggests that the potential benefits from pharma crops may have been overstated when all costs and potential risks are included.

Of particular interest to us is the report's finding that most pharma crop benefits are far more likely to go to pharmaceutical companies than farmers. Farmers and rural communities (and those who want to help them) should therefore carefully examine the pharmaceutical industry's rosily optimistic, but unsubstantiated, portrayal of this new technology's economic rewards. 

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