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GENETICALLY MODIFIED PEST-PROTECTED PLANTS: SCIENCE AND REGULATION
expected lifetime in the market. Then the breakeven level of expected annual sales needed to justify development of a variety is . As an example, suppose that the varieties of each of the crops mentioned above lasted 5 years in the market (varieties of soybean, oats, and wheat have had average market lifetimes of 3-5 years recently.) At a real interest rate of 4%, breakeven annual sales would be about $45,000 for small fruits, $47,000-120,000 for soybean, $70,000-140,000 for tomatoes, $94,000 for celery, $465,000 for oats, and $620,000-660,000 for wheat.
The model indicates that developing new varieties will be more attractive economically when the development time T is shorter, the success rate is greater (N is smaller), and the variety is expected to last longer on the market (D is greater).
Use of genetic engineering will increase the size of the market needed to break even. The following procedure was used to estimate the increment in breakeven annual sales. If K denotes the per-variety cost of transgene insertion, transgene insertion increases breakeven annual sales needed to justify development of a new variety by . The model indicates that this increment in breakeven sales is greater when the transgene-insertion cost, K, is higher and the expected lifetime of the variety on the market D is shorter. If a transgene is used for only a single variety, it will increase breakeven annual sales by $8,000-152,000. A gene will probably be used for more than one new variety, so the actual increment in breakeven annual sales will generally be considerably smaller, as noted above.
The same procedure can be used to estimate the impact of regulatory compliance costs on breakeven sales. In this case, K represents regulatory testing costs, which are assumed to be incurred in a lump sum at the time of product introduction. As before, I assume a product lifetime of 5 years and a real interest rate of 4%. Baseline data likely to be required under any form of regulation would probably increase the breakeven expected annual sales needed to justify R&D investment by only $4,400 (table A.7). EPA's estimates based on viral coat proteins and Bt crops indicate increments in breakeven sales of around $14,000-236,000. Regulation of transgenic pest-protected plant products with novel, unfamiliar genes as pesticides could increase breakeven sales by $620,000 or more (table A.7).
Regulating pesticidal substances in transgenic pest-protected plants as pesticides could create substantial barriers to R&D related to minor-use crops and to entry by small entities. Baseline regulatory testing requirements appear to impose relatively low additional fixed costs on the commercialization of new crop varieties. The fixed costs of complying