An Economic Assessment of the Global Inoculant Industry

7/28/2019 An Economic Assessment of the Global Inoculant Industry

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2004 Plant Management Network.

Accepted for publication 14 January 2003. Published 1 March 2004.

An Economic Assessment of the Global Inoculant Industry

Peter W. B. Phillips, Professor, NSERC/SSHRC Chair in Managing Knowledge-based Agri-food

Development, University of Saskatchewan, 51 Campus Drive, Saskatoon, Canada S7N 5A8

Corresponding author: Peter W. B. [email protected]

Phillips, P. W. B. 2004. An economic assessment of the global inoculant industry. Online. Crop

Management doi:10.1094/CM-2004-0301-08-RV.

AbstractThe inoculant industry represents a relatively small but potentially important part of the

increasingly competitive global agri-food sector. This paper analyses the nature of the inoculant

industry and its relationship to the global agri-food sector in order to identify the scale of the

economic impacts of the industry and the distribution of those benefits between the innovators,

producers (by location and type of product produced), and consumers.

The inoculant industry represents a relatively small but potentially important part of the

increasingly competitive global agri-food sector. Inoculants -- as either a substitute or complement

to the use of commercial or non-commercial fertilizers -- have the potential to increase the

productivity and profitability of field crops, enhance food production of vital staple foods, support

social progress in many underdeveloped countries, and moderate environmental effects of
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commercial agriculture. Fertilizers, especially nitrogen and phosphates, are one of the most

important inputs used in the global agri-food industry. The FAOSTAT (1) reports that between

1960 and 2000, the annual world use of nitrogen fertilizer increased from 13 to 89 million tons N,

a seven-fold increase in 40 years. Phosphate fertilizer consumption rose less, but still reached 36

million tons in 2000.

The inoculant industry, initially involving nitrogen-fixing rhizobia bacteria, has been around for

about 100 years but has increased in importance as new formulations have been developed and

marketed to growers. Inoculants have the potential to create global economic and welfare gains,

as the technology is highly effective with legumes, which are estimated to contribute about 20% of

worldwide food protein (2). This is especially important for consumers in less well-developed

nations, where legumes comprise a significant share of nutritional requirements. Meanwhile, the

recent development and introduction of phosphate-solubilizing Penicillium fungus inoculants has

broadened the potential market. The new inoculants show significant incremental gains in

efficiency when applied to wheat and canola crops, and may have unique potential especially in

marginal growing areas. They are currently applied on only a small area, but have significant

potential for growth. There have also been efforts to develop inoculants that will bolster the

immunity of plants to various insect pests, but little information is available on how extensively

these products are used.

The Inoculant Industry

The inoculant industry currently involves three discrete types of technologies: nitrogen fixing

rhizobia, phosphate-solubilizing Penicilliumfungi, and insecticidal inoculants (while these

inoculants have been identified as available, there is little available evidence of the extent of their

use) (6). These technologies are either adjuncts to or substitutes for other sources of fertilizers or

pesticides. They are applied most often as part of a fertility and pest management program for

crops.

Nitrogen inoculants were first identified more than 100 years ago and have been increasingly

adopted in recent decades. The inoculants work through application of rhizobia bacteria, which

colonize legume roots, start to multiply, and infect root hairs, causing the root cells to swell and

form nodules. These nodules pull nitrogen from the air and convert it into a form the plant can

use. A well-inoculated pea crop can fix up to 80% of its nitrogen needs from the air (or up to 120 lb


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of nitrogen per acre). Inoculation can achieve better nutrition than with simple application of

nitrogen fertilizers because fixed nitrogen is often the easiest form of nitrogen for plants to use.

Given the many different rhizobia that can work on different plants, their ability to fix nitrogen

without further inputs, and the extensive history and experience with the technology, there has

been widespread adoption and use in many markets around the world. Four commercial

companies produce the bulk of the nitrogen inoculants used in North and South America and

Europe (Becker Underwood, Philom Bios, Nitragen, and Agrobiotics), and numerous public and

community producers operate throughout Asia.

Although phosphate inoculants are reported to have been developed and used in the Soviet

Union decades ago, the first commercial phosphate inoculant for use in non-legume crops was

introduced only in 1991. In 1996, the first combination phosphate and nitrogen inoculant was

available for use on legume crops. These inoculants are live micro-organisms which, when added

to the soil or applied to the seed, help growing plants take up phosphate from the soil reservoir

more efficiently. Phosphate inoculants have been approved for use on wheat, canola, pea, lentil,

chickpea, dry bean, alfalfa, sweetclover, mustard, and faba bean. Phosphate inoculants are

especially active in cool soils. They supply an immediately available source of phosphate to

emerging seedlings, which expands the root system, increasing the potential for a high crop yield;

plants with a larger root system have the ability to fight off, or at least compensate for a variety of

stresses like drought, disease, salinity, weeds, and pests and are more likely to experience

increased uniformity of crop emergence, development, and maturity. Currently there is only one

commercial producer of phosphate inoculants in North America (Philom Bios), and there is a

possibility of some continuing production in Russia.

Given the nature of the industry -- with extensive use of nitrogen inoculants but only limited

use of phosphate inoculants and an unknown level of use of insecticidal inoculants -- the rest of

this article focuses on the nitrogen inoculant market. Table 1 presents data that suggest there

were approximately 400 million acres of legume crops that are suitable for the use of nitrogen and

phosphate inoculants; approximately 20% is in North America, 20% in South America, and most of

the rest in Asia.

Table 1. World wide legume crop acreage suitable for inoculant use, averages for 1996-2002

(millions acres).


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Legume crop

North

America

European

Union

South

America

Rest of

world Total

Pea, lentil, broad

bean, and vetch

4 3 1 25 33

Chickpea, cowpea,

pidgeon pea, and

Barbara bean

1 0 0 58 59

Dry bean 6 0 12 42 60

Soybeans 73 1 55 45 173

Groundnuts 2 0 12 45 58

Pulses, nes 0 1 8 8 17

Total 86 5 86 223 400

Source: Authors calculations using data from (1).

There are no definitive estimates of the extent of adoption of nitrogen inoculants. The author

interviewed a number of current and past market participants in Saskatoon in March 2003 to

gather estimates of the extent of adoption. The prevailing view was that there are two discrete

markets. The Americas and Europe tend to be viewed as the primary commercial market, supplied

by the four largest commercial firms, while the Asian market tends to be served by community,

university, or state-owned enterprises. Adoption rates (Table 2) range from approximately 95% for

peas, lentils, and chickpeas in North America and Europe, to 10 to 40% in Asia. Adoption tends to

be highest for peas, lentils, and chickpeas and lowest for dry beans and other pulses.

Table 2. Estimated adoption rates for nitrogen inoculants, 2002 (% market share).

Legume crop

North

America

European

Union

South

America

Rest of

world

Pea, lentil, broad 95% 75% 10% 35%


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bean, and vetch

chickpea, cowpea, pigeon

pea, and Barbara bean

95% 95% -- 35%

Dry bean 20% 20% 25% 25%

Soybeans 15% 15% 25% 20%

Groundnuts 50% -- 25% 40%

Pulses, nes 10% 10% 10% 10%

Source: Author interviews with multiple industry sources in Saskatoon,

Canada, January-March 2003.

Applying the adoption rates in Table 2 to the average acreage of pulses in Table 1 gives us the

estimated total acreage of inoculant use in various regions in Table 3. Given the highly competitive

nature of the nitrogen inoculant industry, none of the firms were keen to divulge their market

shares. As such, this data should be viewed as a notional estimate of the current scale of the

industry. The data suggests that while the soybean market does not have the highest adoption

rates, it contributes the single largest share of the market. Regionally, the four leading firms share

approximately one third of the market -- in the Americas and Europe -- while the non-commercial

market in Asia accounts for approximately two thirds of applications.

Table 3. Estimated total current inoculant acreage (millions acres by region).

Legume cropNorth

America

European

Union

South

America

Rest of

worldTotal

Pea, lentil, broad

bean and vetch

4 3 0 9 15

chickpea, cowpea, pigeon

pea and Barbara bean

1 0 0 20 21

Dry bean 1 0 3 10 15


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Soybeans 11 0 14 9 34

Groundnuts 1 0 3 18 22

Pulses, nes 0 0 1 1 2

Total 18 3 21 67 108

Source: Authors calculations using Tables 1 and 2.

This baseline data can now be combined with some other market factors to estimate the

aggregate and relative impacts of the technology on innovators, producers, and consumers.

Theoretical Approaches to Valuing Technologies

Economists estimate the returns to an activity in a somewhat different way than many others

(5). In the simplest case, where there are competitive supply and demand markets, the gains to

any activity are the resulting increased consumer or producer surplus (Fig. 1). Consumer surplus is

the amount consumers might pay if every unit of the product was auctioned separately, but dont

have to pay because everyone pays the single, market clearing price (this is the triangle on Fig. 1

bounded by the downward sloping demand curve, the y-axis, and the horizontal line through the

market-clearing price, Po). Producer surplus measures the returns (profits) to producers that can

deliver the product at a lower cost than the market clearing price (equal to the triangle on a graph

bounded by the upwardly sloping supply curve, the y-axis, and the horizontal line through the

market clearing price, Po). Industry accounting efforts would totally ignore consumer surplus and,

depending on their assumptions, might also ignore part of the producer surplus. Hence, economic

analyses tend to estimate larger impacts with more widespread distribution of effects than

accounting analyses.


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Fig. 1. Estimating the economic impact of inoculant

use.

Innovations to production technologies within existing product markets, such as inoculants, can

be assumed to increase productivity (output per unit of input) and therefore to shift the supply

curve out, such that higher quantities will be offered at each potential price level. Inoculants are

assumed to reduce costs in proportion to the volume produced, which tends to rotate the supply

curve down and to the right by a proportionate amount, with the old and new supply curves

intersecting at the y-axis (Fig. 1). Without any shift in the demand conditions (i.e., inoculants do

not affect consumers valuation of the legume crops), the shift in the supply curve will both

increase the equilibrium supply and lower the equilibrium price (Po to P1). The aggregate gains to

inoculant use are the triangle bounded by the two supply curves and the demand curve, which will

always be positive (although some value in the fertilizer market could be lost due to inoculant

use). Both consumers and producers have the potential to gain. Consumers could gain because

they consume more at a lower average price; their consumer surplus rises by the area bounded

by the y-axis between the original and new equilibrium prices (Poand P1) and the demand curve

(area a+b+c in Fig. 1). Producers can either gain or lose from an innovation. Producers gain the

surplus represented by the area between the two supply curves and the new equilibrium price

(P1) but lose the area bounded by the y axis, the old supply curve, and the old and new market

clearing prices (Po and P1) -- equal to area d-a in Fig. 1. Thus, it is a matter of estimation whether

producers gain more from the technology than they lose from the lower prices. Unambiguously,
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one could argue that producers who do not adopt the technology would inevitably lose due to

lower prices.

Ultimately the share of the returns producers and consumers receive depends on the relative

slopes (elasticities) of demand and supply. Three discrete outcomes are possible. First, if the

supply curve is flat, with constant returns to scale in the production of the product, all of the

benefits of innovation will go to consumers. Second, if the demand were perfectly flat or elastic

(e.g., producers are price takers as in commodity markets) then all of the returns to innovation

would go to producers. If, as is more normal, there are decreasing returns to scale and a negatively

sloped demand curve (as in Fig. 1), then the benefits will be shared between producers and

consumers.

Thus, theory suggests that the aggregate impact will be a function of the level of adoption and

the impact on yield, while the distribution of benefits will be divided between owners of the

technology, farmers using the technology, and consumers of the resulting legumes, while non-

adopting producers will lose.

Economic Impact

This section discusses the absolute and relative benefits and costs of the use of nitrogen

inoculants in the legumes market. It is important to note that given the competitive nature of the

industry there is no available summary data to use as inputs to the analysis. As such, the following

results should be treated as representing orders of magnitude rather than absolute, definitive

point estimates.

Aggregate and relative impact on farmers. Farmers are a vital part of the analysis, as they are

the key to adoption of the technology. A number of factors influence the average producers

decision about whether to adopt the technology or not. In the first instance, farmers look at the

comparative costs and direct returns expected from alternative production systems. Given that

inoculants are non-drastic innovations (i.e., they are not unambiguously better than all alternative

systems), the inoculant industry has to share some of the returns from the technology with

producers to get them to adopt inoculants.

Farmers ultimately gain or lose depending on the extent to which they adopt the technology

and the returns from adopting and using inoculants. Industry reports suggest that sustained

adopters have the potential to gain about twice their input costs, much in the form of higher yields


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or replacement of inoculant for commercial nitrogen. Inoculants appear to fix between 44 lb/acre

and 290 lb/acre, depending on the crop (2). Assuming that the average crop fixes approximately

100 lb/acre, the 108 million acres would replace or equal about 12 million tons of nitrogen, equal

to about 13% of current nitrogen used globally each year. Assuming inoculants raise yields for

users (or lower costs and thereby divert acreage from other crops) by an average 7%, and given

the relatively high adoption rates in peas, lentils, dry beans, and soybeans in some markets, one

would expect to see modest and variable increases in world production in related products,

ranging up to 3% in recent years in some crops (Table 4).

Table 4. Estimated change in production resulting from inoculant use (assuming 7% yield gain).

Legume crop

Inoculantacreage

(million

acres)

Base Yield

(tons/acre)

Gross change

in output

(million tons)

% change

in global

output

Pea, lentil, broad

bean and vetch

15 0.66 1.2 3.2%

chickpea, cowpea,

pigeon pea and

Barbara bean

21 0.44 1.6 2.5%

Dry bean 15 0.44 1.1 1.7%

Soybeans 34 1.10 2.6 1.3%

Groundnuts 22 0.44 1.7 2.6%

Pulses, nes 2 0.44 0.1 0.7%

Source: Authors calculation using (1).

These higher levels of production work to depress world prices. Extending work done in related

markets, one could conservatively assume that every 1% increase in supply would lower prices in


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the range of 1 to 3%. Thus, there are two offsetting effects: higher yields for adopters and lower

prices for all producers.

Table 5 shows how this affects both adopting and non-adopting farmers. Assuming yields rise

on average 7% from inoculant use, farmers could expect gross returns of between US$4 and

US$13 per acre. Two different costs would have to be deducted from this for adopters. First,

farmers have to pay directly between US$1 and US$2 per acre to access the technology. Second,

the cumulative impact of all those producers using inoculants would add to global supply, which

would work to lower market prices. Assuming a 1% increase in production lowers prices by 1% on

average -- a relatively conservative assumption, given that a 1% increase in soybean production

lowers prices by 2.9% (4) -- one could expect lower global prices to translate into price declines of

between US$0.42 and US$4.06 per acre, depending on the crop. Thus adopters could expect net

returns from inoculant use of production of between US$1.41 and US$8.60 per acre.

Table 5. Adopter and non-adopter returns to inoculant use (assuming 7% yield and 1% decline in

prices for each 1% increase in output).

Adopter

returns/acre

Value of

yield gain

(US$/acre)

Payment

for tech

(US$/acre)

Lower

price/acre

(US$/acre)

Adopter

net/acre

Non-

adopter

net/acre

A B C A-B-C -C

Pea, lentil,

broad

bean, and vetch

8.77 1.45 4.06 $3.26 -$4.06

Chickpea,

cowpea,

pigeon pea, and

Barbara bean

6.38 1.16 2.30 $2.93 -$2.30

Dry bean 8.51 1.34 2.08 $5.09 -$2.08

Soybeans 12.75 1.67 2.48 $8.60 -$2.48

Groundnuts 4.25 1.25 1.58 $1.41 -$1.58


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Pulses, nes 4.25 1.50 0.42 $2.34 -$0.42

Source: Authors calculations using data in Tables 1 through 4.

Non-adopters, in contrast, will suffer modest declines in revenues as higher production volumes

lower producer prices. Thus, the use of inoculants lowers their net revenues between US$0.42

andUS$4.06 per acre.

Table 6 shows that, in aggregate, the gains to adopting farmers, while significant for them, are

not cumulatively large enough to offset the aggregate loses to all producers from the lower

market prices. Assuming adopters yields rise 7% and prices decline in direct proportion to supply

rising (e.g., 1:1), then the above analysis suggests adopters in aggregate would gain US$506 million

and non-adopters would share loses of US$656 million. On net, producers would lose US$150

million. If the price responsiveness remains at 1:1, then changing the expected yield impact from

inoculants would redistribute the benefits as noted in Table 6, but would not change the

aggregate net loss.

Table 6. Aggregate farmer returns from inoculant use (assuming

prices decline 1% for every 1% increase in aggregate output).

Average yield gain 5% 7% 10%

Net aggregate gain to all adopting

farmers (US$ millions)

$319 $506 $788

Net aggregate loss to all non-adopting


-$469 -$656 -$937

Total aggregate impact to all


-$150 -$150 -$150

Source: Authors calculations.

The assumption about the price responsiveness is critical. As noted in Table 7, as price impacts

are muted, the absolute losses faced by non-adopters decline and the adopters absolute gains


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rise. Similarly, as prices become more responsive (i.e., decline more as output rises), absolute

loses rise and non-adopters losses mount.

Table 7. Impact of price sensitivity on farmer returns (assuming 7% yield gain).

% price change versus

% output change 0 -0.5 -1 -1.5 -2

Net aggregate gains to adopting


+769 +638 +506 +375 +325

Net aggregate loses to non-

adopting farmers (US$ millions)

0 -338 -656 -994 -1331

Total aggregate impact to

farmers

(US$ millions)

+769 +300 -150 -619 -1088


Finally, based on the distribution of inoculant use (Table 8), one can estimate that

approximately 16% of the net aggregate gains to adopting producers would go to North America,

19% to South America, and 62% to Asia. The rest of the worlds producers would share the net

aggregate losses realized by non-adopting producers.

Table 8. Distribution of inoculant use by region.

North America 16%

Europe 3%

South America 19%

Rest of World 62%

Source: Authors calculations from Tables 3.


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Impact on innovators. Given that innovating companies are both the major investors in the

technology and potential major beneficiaries of the returns, it is important to calculate and include

innovators monopolistic or oligopolistic profits in the total calculation of the returns on the

technology (3). Their returns depend crucially on the industrial structure and the presence or

absence of barriers to entry (such as patented technologies or dominant brand names). Fully

competitive markets, with no barriers to entry or exit, would leave no returns in the hands of

producers above what is necessary to sustain their long-term use of land, labor, and capital. As

competition decreases, abnormal profits can occur. Another study estimated that innovators

captured between 37% and 50% of the gross benefits generated by Roundup Ready soybeans (4).

The inoculant industry likely lies somewhere in between the two results.

In the first instance, the manufacturers and distributors of the inoculants are generating gross

revenues of between US$1.50 and US$2.25 per acre of inoculant use, which generates gross

revenues for the four leading firms in the Americas and Europe between US$60-75 million per

year. There is some evidence that the not-for-profit nature of the market in Asia, combined with

the potentially lower quality or greater variability of quality of the rhizobium on offer, result in

somewhat lower gross returns per acre there. As a result, gross revenues in the rest of the world

are estimated to be in the range of US$75 million. Given the highly competitive nature of the

nitrogen inoculant business, and the apparent limited barriers to entry, one would expect that the

returns on capital invested will not be excessive. The returns to the much smaller phosphate

inoculant trade may be somewhat better, as there is only a single company offering that product

in North America. Finally, given that the four competing private companies which dominate the

commercial inoculant trade are headquartered in North America (and most of their production is

located in Canada or the USA), it is likely that most of the profits from the commercial trade accrue

to North America.

For completeness, one should ideally examine the impact on the broader fertilizer and

insecticide business, as some inoculants substitute for commercial chemicals while some

complement them. While it is beyond the scope of this paper to quantify those impacts, they

should be kept in mind because the inoculant profits may simply be a substitute for fertilizer

profits and not net additions to social welfare. Perhaps more importantly, the presence of a


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competitive inoculants industry could make the chemical sector more competitive, which could

generate new and larger benefits to both producers and consumers.

Impact on consumers and the marketplace. The largest beneficiaries have been and are likely

to continue to be consumers. As production rises, prices fall, generating savings for those who buy

the resulting foods. Studies of other yield-enhancing innovations have shown that consumers

could anticipate capturing at least half of the benefits and could gain up to 80% or more under

certain conditions. As legumes make up a larger share of the diet of people in lesser-developed

countries, much of the consumer benefits will be exported from the core growing areas: North

America and the Southern Cone of South America (e.g., Argentina, Chile, Uruguay, and Paraguay)-

to the main consuming areas. Given the nutritional value of crops supported by inoculants, the

technology offers potentially large social gains that, while hard to quantify, may be significant for

developing economies.

The aggregate benefits to consumers will vary depending on both the average yield gain that

can be expected and by the sensitivity of prices (Table 9). The consumer gains would range

between US$656 million and US$1.31 billion, depending on yield gains. Similarly, if prices become

more sensitive and responsive to production gains, consumer benefits would rise. Assuming a 7%

yield gain, relatively inelastic prices would generate only $0.9 billion while highly elastic prices

could double that gain. Although the numbers seem large, when divided by those who consume

pulses, the average gains are small. If the gains were distributed among the entire world

population, the benefits would range between US$0.15 and US$0.38 per year per person. As per

capita consumption rises, so would those net consumer gains (up to a range of US$1 - 2 per year in

many developing countries).

Table 9. Gross consumer returns from inoculant use.

Variability based on average yield gain


Consumers gain (US$ million) $656 $919 $1313

Variability based on different price sensitivities

% price change versus % output change -1 -1.5 -2


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Consumers gain (US$ M) $919 $1388 $1838

Source: Authors calculations. Variability based on different price sensitivities (assuming 7%

average yield gain).

Finally, given that about 89% of the consumption of pulses is in developing countries (Table 10),

the consumer benefits would flow there. While the average gains of US$1 to 2 per person per year

appear minor, they could be significant in countries with low annual average per capita incomes.

The World Bank estimates that almost 900 million people in 2000 earned less than US$1.08/day

(7); many of those consumers are relatively large consumers of pulses.

Table 10. Distribution of pulse consumption, 2000.

Developed Countries 11%

Developing Countries 89%

Source: FAOSTAT, 2003.

Overall distribution of benefits. Table 11 puts together the analysis to show the relative gains

and losses of inoculants. The most striking result is that consumers gain the equivalent of all of the

net benefit if one assumes modest price sensitivity. As a result, the net gains realized by the

inoculant producers (equal to between 12 and 23% of the total benefit) and adopting producers

(ranging from half to 60% of the generated welfare) are entirely offset by the losses by non-

adopters.

Table 11. Relative distribution of benefits and costs of inoculant use (assuming prices decline 1%

for every 1% increase in aggregate output).


Innovators 23% 17% 12%


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Consumers 100% 100% 100%

Adopters 49% 55% 60%

Non-adopters -71% -71% -71%


As one would expect, this distribution is highly dependent on the assumptions about price

sensitivity (Table 12). As prices become more responsive to supply gains (e.g., drop more relative

to production gains), the consumers relative share rises while theadopters relative share

declines and the non-adopters relative losses mount. Hence, price sensitivity simply transfers

resources between producers and consumers, without changing the absolute net welfare gain.

Similarly, non-adopters lose more as prices become more responsive.

Table 12. Relative distribution of impacts (depending on price sensitivity).

% price change

versus

% output change 0 -0.5 -1 -1.5 -2

Innovators 17% 17% 17% 17% 17%

Consumers 0% 50% 100% 151% 200%

Adopters 83% 69% 55% 41% 27%

Non-adopters 0% -36% -71% -108% -145%


Other Considerations About Inoculants

Economic analyses offer considerable insight into the impact of technologies, but they can at

times be narrow and constricting. There are two considerations that are worth further exploration.

There is evidence that, while inoculant technology has the potential to contribute to the

commercial success of producers around the world, it also could contribute directly to stabilizing


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and extending production of vital protein crops in marginal areas. This would improve the welfare

of many who are not normally beneficiaries of new technology. These potential gains may require

a change in policies and incentives in many countries; developing countries in particular have had

variable experiences with inoculants, which could hinder more extensive adoption of the

technology. The inoculants industry, national governments, and international aid agencies may

need to work together in three areas. In the first instance, there are undoubtedly a number of

formal or informal barriers both to international trade in inoculants and to foreign direct

investment by the inoculants firms in many developed countries. More could be done to liberalize

international markets. Second, given the nature of the product -- with highly specific applications

to crops and limited vitality of the bacterium or fungi -- there is a critical need to develop

international standards for the global inoculant business. Ineffective or inappropriate inoculants

have the potential to dampen growth in the market. Industry, with some support from

government, may find some value in developing more uniform rules for the trade. Finally, most

developing markets, where the potential is perhaps greatest, are missing key structures for

commercial success. In particular, developing nations often have limited or constricted input

markets due to anti-market rules or weak transportation or financial systems. Furthermore, many

countries have inefficient output markets (sometimes due to taxation), which stifle innovation and

technology adaptation and adoption. While these problems are not unique to the inoculants

business, resolving them would unleash some of the technologys potential in developing markets.

Equally important, the technology has the potential to lessen global agricultures dependence

on commercial nitrogen and phosphate fertilizers, which require significant quantities of energy to

produce (2). Approximately 99% of the global nitrogen supply is produced from ammonia and the

cost of feedstock accounts for two thirds to three-quarters of the total cash cost of producing

ammonia. In some developing countries, the use of natural gas for ammonia production accounts

for a large proportion of national gas consumption. In India, for example, this proportion is roughly

40% compared with the global average of 5 to 6% of the total gas demand. In the present

economic climate, preferential treatment for fertilizer producers is often hard to acquire or

maintain, which often constrains the optimal use of fertilizers. Keep in mind that inoculants fix

between 44 lb/acre and 290 lb/acre, depending on the crop (2). If crops inoculated fix

approximately 100 lb/acre, the 108 million acres using inoculants would replace 12 million tons of

nitrogen, equal to about 13% of current nitrogen used globally each year, thereby significantly

reducing energy consumption. Phosphate inoculants are also easy on the environment, as they


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enhance the efficiency of phosphate fertilizer (a non-renewable resource) while requiring little

energy to produce, store, or transport. In short, inoculants, which either replace or enhance the

efficiency of commercial fertilizers, could be an important contribution to optimal food

production. This could both contribute to a lessening of pressure on global energy markets and

minimize production of environmentally damaging greenhouse gases. In this context, there would

be value in considering whether the sector would be eligible for a benefit from greenhouse gas

credits. No one entity would likely have any incentive to undertake negotiations and to manage

credits, but collectively the industry could have some benefit. Any resulting benefits could be used

for pre-commercial or non-competitive research or market development.

Literature Cited

1.FAO Statistical Databases (FAOSTAT). 2003. Online. Food Agric. Organiz. UN.

2.Montanez, A. 2000. Case study B2 -- Overview and case studies on biological nitrogen fixation:

Perspectives and limitations. Online. Case Studies, Soil Biodivers. Portal, Land Water Devel.

Div., Food Agric. Organiz. UN.

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An Economic Assessment of the Global Inoculant Industry