Impacts of Biotechnology of Finanical Survival of Cotton Farms in the Texas High Plains

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2010-05-05T18:29:45Z

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Johnson, Phillip
Haynes, Aubrey P.

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Abstract

The objective of this study was to evaluate the short-run economic impacts of biotechnological advances relating to plant stress reduction on the profitability and financial viability of cotton farms in the Texas High Plains Region (THPR). The study area was divided into two distinct sub-regions: Transition Area and Southern High Plains. To evaluate the potential impacts of plant stress and biotechnology on the profitability and financial viability of THPR cotton farms, two representative model farms (one for each sub-region) were constructed and implemented in FLIPSIM (Farm Level Income and Policy Simulation Model). Two sets of models were run: (1) baseline models and (2) biotech models. The baseline models used historical crop yields and prices, while the biotech models used estimates of crop yields which accounted for expected effects of biotechnology. These models were run at various levels of intermediate and long-term debt (IT/LT). The baseline models show that the representative farms were profitable and viable over the ten-year horizon (January 1,1995 to December 31, 2004) only at lower levels of debt. The biotech models show that the implementation of biotechnology increases the profitability and financial viability of all THPR farms in the short-run. However, the representative farms still suffer from profitability and financial viability problems at high debt levels with the implementation of biotechnology. Farm incomes do not keep up with the expected rate of inflation as indicated by negative changes in real net worth over the ten-year time horizon. Additionally, return on equity is less than return on assets for the baseline and biotech models for all debt levels, therefore indicating that the cost of debt is higher than the return on assets.

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