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32 CHAPTER 1


generated by the introduction of this new technology (Gouse, Pray, and Schimmelpfennig 2004). Basing their calculations on the abovementioned studies, Brookes and Barfoot (2010) estimated that in the 11 years from 1998 to 2008, the use of Bt cotton contributed an additional $21 million to farm income in South Africa. The Makhathini Flats smallholder experience with Bt cotton has been


hailed internationally as the first example of how modern biotechnology can benefit resource-poor farmers in Africa. There can be no doubt that the major- ity of Makhathini Flats farmers did indeed benefit from the introduction of Bt cotton. They were able to adopt and benefit from this new technology because all the institutional structures that facilitate a functioning market were in place at the time. These structures include functioning input markets (credit, seeds, and chemicals) and output markets (seed cotton buyer) that operate at market clearing prices. An important factor was that Vunisa was the only buyer and, because of this monopsony power, could supply production credit to farmers who did not own their land, using the forthcoming crop as collateral (Gouse, Shankar, and Thirtle 2008). This system is not uncommon to Africa, where widespread failure of credit and input markets (partly due to lack of land ownership that could serve as collateral) has led to interlocked transactions, in which a firm wishing to purchase the farm output—typically a ginner in the case of cotton—provides inputs to farmers on credit and attempts to recover the credit upon purchase of the product (Tschirley, Poulton, and Boughton 2006). However, when the credit system collapsed in 2002—because of farm- ers defaulting on their loans as a consequence of a combination of droughts, low prices (linked to the low and stagnated world cotton price), marginal prof- its, adverse selection, and market competition—the whole system collapsed, and cotton production dropped. The Makhathini smallholder experience is indeed a good example for


the rest of Africa, as countries considering adoption of Bt cotton need to take note that although technical solutions can help address problems (such as lack of knowledge regarding insects and pest control, limited access to inputs, or evolution in pest pressure), no technology (GM or otherwise) can resolve the fundamental institutional challenges of smallholders and agri- culture in Africa. The particular case of the Makhathini Flats and the wider story of cotton in South Africa emphasize that although all agricultural systems require adequate investment and appropriate technologies, their viability is determined by the policies and institutions that facilitate sustain- able and profitable production. Bt cotton and more recently stacked (Bt/ HT) varieties are still the varieties of choice for smallholder producers, but


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