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Measuring Research Benefits With Import Ban Restrictions, Quality Changes, Non-Market Influences On Adoption And Food Security Incentives

  • Kim, Yun-Shik
  • Sumner, Daniel A.

Hundreds of studies have been conducted since Griliches (1958) suggested a method for measuring the benefits to agricultural research. Alston et al. (2000) reviewed 292 studies that reported 1,886 observations of returns to agricultural R&D. While some studies consider complicated cases, most studies have focused solely on R&D policy. However, it is common that agricultural R&D policy is combined with other policies, such as a price support, subsidy policy, non-market inducement, and import restrictions. Naturally, when the benefits of agricultural research are measured without taking the related policies into account, biased estimates are likely. The South Korean rice industry provides a good example where several factors affected the adoption of new technology, causing the complications in the measurement of the research benefits. The agricultural R&D policy in Korea for rice was combined with factors such as an import ban, a price support and government purchase program, yield-quality tradeoffs, and arguments that there are external benefits, like a public good, associated with self-sufficiency. It is therefore important to evaluate the benefits of agricultural research appropriately and carefully given these conditions. The revolution in rice production in Asia was triggered in 1966 with the development of IR8 by the International Rice Research Institute (IRRI). As soon as the potential of IR8 was recognized, IR8 was released to Asian rice-producing countries (IRRI). Korea also received small sets of breeding materials from the IRRI (Chandler, 1992). In 1972, Korea introduced the first high-yielding variety developed through agricultural research in Korea. However, the high yielding “Tong-il” rice was inferior in taste to conventional rice. The argument that prevailed in the 1970s (and continues to the present day) is that self-sufficiency in rice is a public good in Korea. This attitude affected the adoption of Tong-il. The Korean government strongly encouraged farmers to adopt the new varieties through a government purchase policy as well as non-market government inducements. The government purchase policy that had been in place since 1950s was expanded in the 1970s. Most of the Tong-il rice produced was purchased and used by the government or released back on the market at discounted prices. Local officials and extension workers were provides incentives to achieve high local adoption rates. In some extreme cases, officials and extension workers physically removed other rice from fields that had already been planted. An import ban was also imposed to maintain high domestic prices. The economic evaluation of high yielding rice involves innovations to deal with several elements: • The basic economics of agricultural research and development (productivity-enhancing technology): measuring agricultural research benefits without considering the complicating factors. A new method to measure a supply shift caused by agricultural R&D will be presented, considering spillovers. • The trade policy that affected returns to higher yields: world price is considered as an opportunity cost. The research benefit in open economy will be smaller than the benefit in closed economy. • The price support and government purchase program for a fixed amount of rice from each farm: considering that the remaining amounts were sold in the market, this policy acts like a decoupled income transfer that does not affect the payoff of agricultural research. • The yield-quality tradeoffs of the technology: this tradeoff should be evaluated as a loss because the gross benefits of research would increase if there had not been a quality change. • Non-market incentives for the adoption of Tong-il rice: the effect of non-market adoption is similar to that of regulation in that it generally prevents profit-maximizers from making adjustments. • The public good argument related to “food security” and self-sufficiency. This paper measures the net research benefits derived from the development of Tong-il performed in Korea given this complex setting. Despite the importance of this case, no studies have measure the payoff to investments to development and adoption of high yielding varieties under the multitude of policies and other complications outlined above. Conceptual studies and a few examples from other countries have dealt with some of these issues, but no study has evaluated the issues fully in a real and important setting. For example, Lokollo (2002) explored the effects of modern technology on its adoption and productivity in Indonesia. The Philippines have also implemented a government purchase policy like Korea during the green revolution period (Martinez, Shively and Masters, 1998). Both of the cases are very similar to the Korean case, in that the green revolution was attained through several government policies. However, neither of them sought to analyze the agricultural R&D effects in the complicating setting, like the Korean case. One difficulty of the R&D-related studies lies in measuring a supply shift caused by agricultural research. To measure research-induced supply shifts, many R&D-related studies introduced complicating methods, such as production functions, supply-response functions, and productivity functions. One innovation of this paper is to present a new formula for measuring a research-induced supply shift. A horizontal supply shift (J) evaluated at the current price can be measured as follows, J=h/(1-δ+δh), where h indicate yield gains of new varieties over old varieties and adoption rate of high-yielding varieties, respectively. In the above formula, only two parameters are used and they are usually available in most cases. No specific forms of supply-and demand functions or elasticities are assumed. The net returns to research on Tong-il is quite large when all the complicating factors listed above were ignored, but substantially smaller once those factors are accounted for. A tentative conclusion is that the effect of the innovation is likely to be much smaller if the development and dissemination of new technology evaluated along with the applicable market-distorting policies. This research is important in order to properly account for this episode in the economic history of agricultural development of Korea. This paper also provides lessons for other developing countries, which take a similar path with the Korean case to their agricultural development. We expect the presentation to generate considerable interest. It deals with a major event that involves important current issues in the development of agriculture and food security in developing countries. The paper applies innovations in the economics of agricultural R&D, which has long been a major topic for agricultural economists.

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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2005 Annual meeting, July 24-27, Providence, RI with number 19148.

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Date of creation: 2005
Date of revision:
Handle: RePEc:ags:aaea05:19148
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