Increasing social welfare by taxing pesticide externalities in the Indian cotton sector

BACKGROUNDPesticide use in the Indian cotton industry has decreased with the introduction of Bt cotton, but rates are still high in comparison with other countries. The adoption of alternative strategies, such as integrated pest management, has been slow, even though benefits are potentially high, more so if the full costs of the external effects of the technologies are taken into account. In order to estimate true societal benefits of different strategies, we compare their external costs and economic performance under external cost taxation, using a state-of-the-art partial equilibrium model of the Indian agricultural sector. RESULTSPesticide externalities lower social welfare in the Indian cotton sector by $US 400-2200 million, depending on the technologies employed. A full internalisation reduces producer revenues by $US 100 ha(-1) if only Bt cotton is used, and by $US 30 ha(-1) if IPM is another option. Consumers do not start to lose surplus until 20-70% are internalised, and losses are smaller if all technologies are available. CONCLUSIONExternal pesticide costs can be internalised partially without substantially affecting consumer surplus while still increasing social welfare, but producers need to have access to and the knowledge to employ all available cotton production technologies to minimise losses. (c) 2016 Society of Chemical Industry