New Plant Engineering Techniques, R&D Investment, and International Trade
Stéphan Marette, Anne-Célia Disdier, Anastasia Bodnar, John C. Beghin
September 2021 [21-WP 623]
Marette, S., A.C. Disdier, A. Bodnar, and J.C. Beghin. 2021. "New Plant Engineering Techniques, R&D Investment, and International Trade." Working paper 21-WP 623. Center for Agricultural and Rural Development, Iowa State University.
New Plant Engineering Techniques (NPETs) may significantly improve both production and quality of foods. Consumers and regulators around the world might be reluctant to accept such products, which may cripple adoption and global market penetration of these products. We develop a parsimonious economic model for R&D investment in food innovations to identify conditions under which NPET technology emerges in a context of international trade. The framework integrates consumers’ willingness to pay (WTP) for the new food, the uncertainty of R&D processes, the associated regulatory cost of approval, and the competition between domestic and foreign products. With generic applicability, the model enables the quantitative analysis of new foods that could be introduced in markets and then traded across borders. We apply the framework to a hypothetical case of apples improved with NPETs. Simulation results suggest that import bans and high values of sunk costs can reduce R&D investment in NPETs to suboptimal levels.