The Implications of Refuge Requirements for Bt Cotton In India on World Cotton Markets

The study evaluates the implications of efficient Bt cotton refuge policies in India on world cotton markets. It is hypothesized that increased refuge requirements for Bt cotton varieties in India could decrease the world supply of cotton because of the lower yield potential of non-Bt cotton varieties planted in refuges. A decrease in world cotton supply could potentially raise world cotton prices, ceteris paribus.

The study analyzes the impact of efficient refuges in India on world cotton markets by using a partial equilibrium model. The hypothesized cotton trade scenario includes India, U.S., China, and rest of the world; where India and the U.S. are assumed to be net cotton-exporting countries and China is assumed to be a net cotton-importing country. The Chinese Tariff Rate Quota (TRQ) and the U.S. marketing loan program are explicitly included in the model. Impacts of increased adoption of Bt cotton varieties and increased domestic demand for textiles in India are also considered in the model. It can be hypothesized that if Indian cotton farmers comply with efficient refuge requirements, the supply of cotton would be expected to decrease. So, the impact of refuge compliance could be to alter cotton trade flows and increase world prices of cotton. The net change in world price and the trade of cotton is, however, determined by the elasticities of demand and supply for the various countries.

The world fiber model (a partial equilibrium structural econometric model) developed and maintained by the Cotton Economics Research Institute, Texas Tech University was used to measure the impact of changes in refuge requirements in India on world price and trade of cotton. The results revealed that the change in refuge requirements has the potential to impact world cotton markets because India is a large cotton producing country having 25% of world cotton area.