Decreased yields or prices for transgenic rice, ceteris paribus, would reduce the gross rents from the technology. Furthermore, the seller of the transgenic seed is likely to charge a premium of up to 60 percent of total per-acre seed costs, depending on the pricing structure of the technology. Roundup Ready® and Bt seed for commercially produced transgenic crops has historically been priced from 30 to 60 percent higher than non-transgenic varieties, and price premia for LibertyLink® corn seed range from 0 to 30 percent, although average chemical costs per acre are typically greater . Furthermore, growers will likely pay at least part of the burden of the fees assessed by the CRCA. Assuming that these effects are constant per cwt of output, they can all be represented as a unit increase in costs in terms of net returns. Increased unit costs of this form, ceteris paribus, would alter the distribution of the rents between stakeholders but not dissipate gross rents. As points of reference, base assumptions on price and yields are $6.50 per cwt and 80 cwt per acre, so gross revenues from sales of rice output are assumed to be $520. A price premium of $0.25 per cwt for conventional rice as compared to transgenic rice with no associated change in yields would thus have the equivalent effect on net returns to the grower of a fee of about $20 per acre. Note that changing output prices does not affect the cost structure of the average farm operation and, thus, there is a direct, linear relationship between net returns and price. To calculate the impact of these effects, weed curing simple subtraction of the product of the price change and yield from the baseline scenario is appropriate. On the other hand, both a technology fee and the CRCA assessments directly enter the cost structure and, as such, affect interest costs as well.

Tables 4 and 5 lay out these effects. A 30 to 60 percent technology fee, assuming a seeding rate of 1.5 cwt per acre and price of conventional seed of $14 per cwt, is equivalent to $6.30 to $12.60 per acre. Total fees assessed as a result of the CRCA would currently be $8.50 per acre at identical seeding rates and yields of 80 cwt per acre, although it is unlikely that 100 percent of these assessments would be passed to the grower. Table 4 assumes no pass-through to growers of the legislated fees while Table 5 assumes the maximum pass-through, thus bounding the estimates. Both conservatively assume two applications of glufosinate per growing season. Without the CRCA legislation, adoption of LibertyLink® rice is profitable for a technology fee of $6.30 regardless of any realistic yield assumptions and profitable at a technology fee of $12.60 per acre so long as yield drag is no greater than 8.9 percent . With zero yield gains, net returns per acre in this range of seed price premium increase by between 21 and 25 percent over conventional rice returns with even greater benefits for those experiencing positive yield gains. If we assume a small price premium of, say, $0.25 per cwt, the technology is profitable for either yield losses of 7 percent with no technology fee or no yield change with an unrealistic $25.89 technology fee. This highlights the importance of yield and price assumptions on the calculation of net benefits. However, it is clear that, even with a small output price premium and a seed price premium at the upper end of the observed range, the most likely adopters will benefit from increased returns over costs. Allocation of maximum CRCA assessments to the grower slightly changes the per-acre benefits but does not affect the qualitative conclusions . Net returns over the baseline scenario with a $6.30 technology fee are no longer positive with an 8.6 percent yield drag nor for a $12.60 technology fee and a 6.7 percent yield drag. However, identical yields still result in net benefits of between $24.50 and $30.80 per acre, more than enough to cover a $0.25 price premium for conventional rice.

To bound the per-acre benefits, we assume a lower bound of $0.25 per cwt price premium and an upper bound of no price premium with no CRCA pass-through. Under these assumptions, we conclude that the per-acre benefits of the transgenic HT technology are between –$7.22 and $58.10 for any given California rice grower with a midpoint estimate of $21.90. However, if we restrict attention to those producers most likely to adopt, as defined by at least zero difference in net returns, yield drag at the lower end of the range can be as high as 1.2 percent and they will still adopt.The preceding deterministic sensitivity analysis accounts for heterogeneity in land, weed infestation, and management ability as well as for the distribution of the rents generated by the technology. However, the magnitude of these rents is determined primarily through assumptions regarding yield and the price of rice as well as base assumptions on the price of alternative herbicide systems. While these point estimates are based on the best information available, another approach is to parameterize the distributions of those variables, which can be perceived as stochastic, and use Monte Carlo simulations to estimate the distribution of the surplus benefits of the transgenic rice technology. We take the specification in the equation and estimate distributions for a transgenic yield premium, the transgenic-rice price, and a conventional-rice price premium. Yields for the HT cultivar are assumed to vary according to a symmetric triangular distribution centered around 80 cwt per acre with a minimum value of 72 cwt and a maximum value of 88 cwt . This distribution allows for the possibility of yield gains and losses and, with symmetry, tends to be very conservative given the state of weed infestation and resistance across the state. Prices for California rice are essentially determined on the world market and thus are not influenced by the individual producer.

Using historical data from USDA for 1986 through 2002, we assume a log normal distribution for output price with a mean of $6.50 per cwt and a standard deviation of 1.67. Finally, the price premium for conventional rice is assumed to be distributed as a skewed triangular with a most-likely value of $0.25 , a minimum value of zero, and a maximum value of $0.52 or about 8 percent. These values are consistent with experience with corn, soybeans, and canola cited previously . To run the simulations, the technology fee and all CRCA assessments are set equal to zero and 10,000 draws from the distributions are made for each of four scenarios, depending on which parameters are assumed random. This gives an estimate of the gross surplus generated by the technology before pricing and assessment policies determine the distribution of those benefits. The first and second simulations assume no price premium with yields only and with both yields and price random; the third assumes that yields and the price premium are stochastic with the output price fixed at $6.50 per cwt, and the fourth assumes that all three parameters are random. As peracre benefits do not vary with output price alone, this scenario is excluded. In addition, each simulation is run for two groups—one that exhibits yields across the entire range of the distribution, labeled “all producers,” and one in which attention is restricted to those growers who are expected to increase their yields with adoption of the transgenic crop. This group is labeled “yield gainers” and yields are distributed as a non-symmetric triangular distribution with a most-likely and minimum value of 80 cwt per acre and a maximum value of 88 cwt . The yield gainers are most likely to adopt the new technology, and results from these simulations may more accurately represent the distribution of benefits among those who actually grow transgenic rice. Results from the Monte Carlo analyses are reported in Table 6. Under these assumptions, gross benefits from the technology are generally positive except on the lower end of the distributions. Yield gainers, on average, see a return of between $9.84 and $11.60 per acre more than the overall average producer with a slightly smaller variance due to the smaller yield variance assumed for this group. For both groups, indoor cannabis grow system introduction of the price premium increases the variability of the benefits by more than the introduction of output price variability. The price premium also reduces the magnitude of the surplus gains by approximately $20 at the median. Table 6 does not account for CRCA assessments or technology fees, generally bounded between $6.30 per acre and $21.10 per acre . Although not exact, a “back of the envelope” calculation suggests that median farm-level benefits, after accounting for these fees, are expected to be positive; however, not all farmers will see increased returns. The same is true for yield gainers in that median benefits are greater than $21.10 for each scenario but the lower end of the distribution may experience negative returns from adoption. The majority in each group, however, will benefit. More specifically, the exact probabilities of net returns greater than zero can be calculated. Assuming all three parameters are stochastic and bounding the fees according to the preceding assumptions, the probability that net returns are greater than zero for all producers is between 60.14 and 85.8 percent. For yield gainers, this range increases to between 89.4 and 100 percent, once again highlighting the importance of yield assumptions on net returns and hence on adoption.To further test the potential adoption impacts of the LibertyLink® transgenic rice variety, we apply the preceding methodology to the results of a three-year field study conducted by Fischer . The study covered growing seasons between 1999 and 2001 and was funded by DPR. The exercise uses the weed-management regimes and corresponding yield measures of the Fischer study, together with the pricing assumptions previously maintained, to estimate net returns for a hypothetical farm using identical herbicide rotations. To elaborate, Table 7 describes the rice-variety and herbicide-treatment regime used in each year of the Fischer study. The project was implemented on a rice field in Glenn County, California, on which watergrass was found to be resistant to molinate, thiobencarb, and fenoxaprop—three of the four chemicals registered in the state to control grass weeds at the time of the study . Four treatment regimes were analyzed: continuous molinate each year, an intensive combination of several chemicals each year, a rotate-mode-of-action regime in which chemicals with differing properties were rotated from year to year, and a continuous transgenic regime resistant to glufosinate. Each regime was applied to four plots of 0.57 acres each, and indicator measures such as yields were averaged for each treatment group . It is important to note that the choice of treatment regime was not related to economic considerations but, rather, to evaluation of the effi- cacy of differing treatment regimes under resistance conditions .To estimate potential returns over operating costs, the yield and herbicide regime data are used in conjunction with the structure presented in Table 2 to estimate per-acre costs and revenues on a hypothetical farm unit. Herbicides, custom operations, contract operations, interest on operating capital, assessments, and yields vary according to the experimental data while the remainder of the cost components are held constant at the levels presented in the first table. Again, to provide a basis for comparison, we set output prices for the transgenic variety equal to the conventional product and the CRCA assessments and technology fee equal to zero. Table 8 reports the results of the exercise. The first year of the trial included eight plots planted with LibertyLink® M-202 seed treated once with varying levels of glufosinate mixed with ammonium sulfate and eight plots planted with conventional M-202 seed, four of which were treated once with molinate and the remainder of which were treated once with propanil. The continuous-molinate treatment served as a baseline for the entire experiment as the field had demonstrated watergrass resistance to this particular chemical . From an economic standpoint, the intensive-combination regime was slightly superior to the two transgenic regimes with net returns per acre approximately 4 to 10 percent greater but less than the yield advantages of 8 to 13 percent. As operating costs for this treatment were higher than those for the transgenic rice, the difference in returns is explained primarily through yield advantages.