Testing for Complementarity: Glyphosate Tolerant Soybeans and Conservation Tillage

Edward Perry, GianCarlo Moschini, David A. Hennessy
April 2015  [15-WP 555]

Many decisions in agriculture are made over combinations of inputs and/or practices that may be complements. The presence of complementarity among producer decisions can have deep implications for market outcomes and for the effectiveness of policies intended to influence them. Identifying complementarity relations, however, is a challenging pursuit. Drawing on recent methodological advances, in this paper we propose a new test for complementarity between glyphosate tolerant soybeans and conservation tillage that overcomes limitations of previous studies. Specifically, we develop a structural discrete choice framework of joint soybean-tillage adoption that explicitly models both complementarity and unobserved heterogeneity. The model is estimated with a large dataset of farm-level choices that spans the 1998–2011 period and contains repeated observations for many of the sampled individuals. We find that glyphosate tolerant soybeans and conservation tillage are indeed complementary practices, a conclusion supported by several robustness checks. In addition, our estimation shows that farm operation scale promotes the adoption of both conservation tillage and glyphosate tolerant seed, and that all of higher fuel prices, more droughty conditions, and soil erodibility increase use of conservation tillage. We also apply our results to simulate annual adoption rates for conservation tillage in a scenario without glyphosate tolerant soybeans available as a choice. We find that the adoption of conservation tillage has been about ten percent higher due to the advent of glyphosate tolerant soybeans.

Key Words: complementarity, conservation tillage, discrete choice models, genetically engineered crops, mixed multinomial logit, supermodularity, technology adoption, unobserved heterogeneity.

JEL codes: C35, D22, Q12, Q55

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