Effects of the GM controversy on Iowa corn-soybean farmers' acreage allocation decisions
2003
Alexander, C. | Fernandez-Cornejo, J. | Goodhue, R.E.
This paper analyses the determinants of planting decisions, and evaluates the importance of demand uncertainty for genetically modified (GM) crops as a decision factor. It uses data obtained from a survey of 389 farmers in Iowa, USA, in 9 February and 1 March 2000. The demand uncertainty as an uncertain price penalty for GM crops is modelled. A theoretical model of the acreage allocation decision for a risk-averse producer is paired with producers assessments of relative production risks and returns of GM and conventional crops. Prior to the 2000 planting season, some industry observers predicted acreage of genetically modified crops would decline dramatically. However, it is indicated that farmers reduced their acreage of genetically modified maize, but concurrently increased their acreage of genetically modified soyabeans. We demonstrate that it may be theoretically optimal for risk-averse farmers to reduce their maize acreage but not their soyabean acreage. However, past experience, attitudes, and farm size explained planting decisions to a larger degree than did risk preferences.
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