Report Shows The IR-4 Project is an Excellent Return On Investment

Read Entire Newsletter Volume 49 Number 1

— by Steven R. Miller, Ph.D. Director: MSU Center for Economic Analysis

The Michigan State University Center for Economic Analysis (MSU/CEA) has updated their estimates of the economic significance of the IR-4 Project. Their findings show that the IR-4 Project supports over 95,000 U.S. jobs and contributes about $9.4 billion to annual gross domestic product – a measure of national income.

MSU/CEA has undertaken multiple economic studies of agricultural pest management programs from a perspective of agricultural producers and from policy perspectives to better understand the roles of pesticides and pest management practices in efficient agricultural practices. These studies, and others, show that access to effective pest management tools is a key source of agricultural productivity growth experienced throughout the 20th century and is vital to cost-effective and sustainable agriculture. However, a lot has changed since the introduction of inorganic pesticides to agriculture in the 1940s. Researchers began to recognize that many early- developed pesticides had unintended consequences to health and environment, leading to regulatory changes designed to mitigate harmful impacts of agricultural pesticide use. These regulations required that pesticide uses be approved by the Environmental Protection Agency (EPA), and validated through extensive laboratory and field-testing. These regulations, while contributing to food safety and improved environmental outcomes, distort economic incentives for bringing pesticides to market.

This distortion falls most heavily on minor uses of pesticides, because these uses do not promise sales sufficient to cover the cost of laboratory and field testing necessary to achieve EPA registration. Since using pesticides on crops or in manners not prescribed on the label is prohibited, specialty crop growers and others seeking minor uses of existing pesticides are often locked out of pest management solutions available to major crop growers.

Through three program areas and associated activities, the IR-4 Project seeks to rectify this asymmetric access to pest management options as well as enhance the pest management solutions for agricultural uses. The programs span Food Crops, Ornamental Horticulture and the Biopesticides & Organic Support. Our study estimated pesticide purchases for these minor uses, pesticides’ share of the value of crop production, and the IR-4 Project’s contribution to making these pesticides available for minor uses for food and horticulture growers. It made similar calculations for estimating the IR-4 Project’s contribution through their work on biopesticides and supporting organic growers. These estimates allows MSU/CEA to evaluate the contribution of the IR-4 Project to agricultural production and pesticide purchases for agricultural uses. Using estimates of the impact of pesticides to yields and output (value of final production), the study also estimated the contribution of the IR-4 Project to agricultural production. The resulting estimates of agricultural and agrichemical production provide the basis for estimating contributions through economic multiplier effects. Multiplier effects are secondary transactions that ripple throughout the economy as initial revenues are re-spent in the economy, giving rise to other rounds of expenditures. These secondary transactions represent a central tenet of economic theory that initial transactions spawn a cycle of secondary transactions as dollars recirculate throughout the economy.

The approach applied to estimate economics of the IR-4 Project was to account for all of the value generated by registered pesticide uses that are available to growers because of the IR-4 Project. Accordingly, the study found that about 50 percent of existing minor use registrations were garnered through research conducted by the IR-4 Project. MSU/CEA does not claim those registrations would not exist in the absence of the IR-4 Project, nor does it conjecture how growers would alter their operations in the absence of such pest management tools. Rather, applied expected yield enhance- ments from pesticide use to the existing level of usage. In this, the resulting estimates show the contribution of the IR-4 Project to current economic activity, but do not suggest this activity would suddenly disappear in the absence of the IR-4 Project. It is too difficult to conjecture 50 some years of evolution in the agro-food and fiber value chains from what is grown and how it is grown to consumers’ choices of the mix of agricultural products consumed. That is, the alternative marketplace, in the absence of the IR-4 Project cannot be established for comparison.

While the IR-4 Project’s core budget in 2016 was $15.5 million, we found that the IR-4 Project contributes over $9.4 billion to annual gross domestic product and supports around 95,000 jobs in agriculture and related industries. The largest component of these impacts is the Food Crops Programs, as this represents the largest market value of agricultural production utilizing pesticides facilitated by the IR-4 Project. In total, the contribution to this sector tops $7.1 billion. However, compared to MSU/CEA’s 2012 estimates, the contribution has decreased because of falling commodity prices. The Biopesticide & Organic Support Program contributions spans well beyond specialty crops and supports an estimated $1.6 billion to annual gross domestic product. This is followed by the Ornamental Horticulture Program’s estimated contributions of just under $600 million. Other sources of contribution are spelled out in the report, which can be found on the IR-4 Project website at www.ir4.rutgers.edu.

The strikingly large effects reported in the MSU study are largely attributed to two effects. First, the grower benefits of minor use registrations continue to be realized for many years. Those past registrations continue to contribute to agricultural productivity as the IR-4 Project turns its attention to address new threats to producers, such that for any given year, growers benefit from all past registrations garnered by the IR-4 Project. Second, while minor uses may not promise agrichemical producers sufficient returns to encourage them to pursue such registrations, such uses are common for high-value, specialty crops. Therefore, the potential grower gains from minor use registrations may greatly exceed the private gains to agrichemical producers. This analysis captures those broader gains in the final estimates. Based on these estimates, the IR-4 Program plays an important role in assuring consumers have access to a wide mix of agricultural and food products at reasonable prices.

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