Humboldt-Universität zu Berlin - Quarterly Journal of International Agriculture

Quarterly Journal of International Agriculture No. 3/05

The cost of biosafety regulations: the Indian experience

Carl E. Pray and Prajakta Bengali
Rutgers, The State University of New Jersey, New Brunswick, NJ, USA, and

Bharat Ramaswami
Indian Statistical Institute, New Delhi, India


This paper presents the costs incurred and estimated by firms and government research institutes in India to obtain regulatory approval of genetically modified (GM) crops, specifically Bt cotton. The direct costs include the costs of research and laboratory trials needed to fulfill information requests by the regulators and also the government’s costs of the bureaucracy for implementing the regulatory rules. The indirect costs or opportunity costs are farmers’ foregone incomes and the biotech industry’s foregone profits if regulation prevented the sale of safe and profitable technology. After describing the Indian regulatory system, we describe its impact on firms’ cost of compliance. We then describe the spread of Bt cotton and its impact on the seed industry and farmers. The Bt cotton experience is used to analyze the impact of regulation on biotech research done by private firms, the structure of the seed industry, and farmers’ welfare. We develop alternative policy scenarios that show that the indirect costs of regulation can be large. Regulatory costs must therefore be taken into account in designing regulation.

Keywords: transgenic crops, regulatory policies, costs of regulation, seed industry, farmers’ welfare

JEL: Q 160

Vol. 44 (2005), No. 3: 267-289