The Distribution of the Economic and Health Benefits from Canola Research

Abstract

Research and development have influenced the development of the canola industry in Canada. This study uses a three region equilibrium displacement model to examine the effects of two kinds of research and development on canola seed producers, canola processors, canola meal consumers and canola oil consumers. Given health information changes taste the conventional estimate of consumer surplus can not be applied. We modify the Dixit and Norman (1978) methodology to define an ex post measure of consumer surplus. Two hypotheses are examined. The first is that canola producers, processors and consumers have benefited from the health and nutrition research, that increased the demand for canola oil. The second hypothesis is that producer, processor and consumer groups experienced a net gain from the canola's industry decision to focus on the agronomic research that reduced the potential yield of the canola seed in exchange for better quality characteristics. The empirical findings of the study lead to a rejection of the first hypothesis. Although the industry as a whole has gained from health research, Canadian consumers, surprisingly, were worse off with improved health information because they were already enjoying the health benefit at a lower price. Furthermore, the increased consumption of canola oil is shown to generate a positive externality due to a reduction in coronary heart disease costs. These external benefits exceeded the total internal/private benefits within the industry. We fail to reject the second hypothesis. There is not enough empirical evidence to determine whether or not the canola industry or other social groups are worse off from focusing research on the quality characteristics of canola products at the expense of potential yield. It is interesting to note that, according to the mathematical model presented, there are some instances, or parameter ranges, which show that the entire canola industry and/or other social groups were made worse off by pursuing quality based research goals. While this result seems negative at the outset, one should keep in mind the opportunity cost of not pursuing the quality based research goals. In other words, had quality based research not been pursued one might expect the growth of the industry to be either inhibited or ceased altogether.