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arising from this assumption may be an overestimateof the true investment since it incorporated manyactivities not directly related to wheat geneticimprovement. In the lower cost scenario, CIMMYT’stotal budget was allocated to wheat geneticimprovement by the proportion that Wheat Programsenior staff comprised of all senior staff at CIMMYT,including those in other research programs, externalrelations, and administration. This assumption mayrepresent an underestimate of the true investment inwheat genetic improvement, since it ignores theinfrastructural, technical, and administrative supportrequired to ensure the functioning of the program.The integrated nature of enhanced germplasmproduction complicated the separation ofmaintenance research from other objectives andactivities. Wheat genetic improvement at CIMMYTinvolves infrastructure, knowledge, and supportextending across different disciplines and programs.Leaf rust resistance cannot be separated from otherwheat breeding objectives such as yield, adaptation,and resistance to other pests and diseases. Ratherthan attempting to disentangle the expenses onwheat pathology from wheat breeding in total, weapplied the full cost of CIMMYT’s wheat geneticimprovement since 1967. With regard to valuingmaintenance research, this assumption demonstratesthe difficulty in separating various pathology,agronomy, and physiology activities in theproduction of enhanced germplasm.The annual estimates included the costs of shipmentsthrough international nurseries and testing costsborne by CIMMYT. Only the investments by nationalprograms, such as local screening for rusts and othertests, were excluded. As with the other time seriesdata we have employed, costs were projected to 2007.However, the trend in the series was more quadraticthan linear in form. CIMMYT’s real investment inwheat genetic improvement increased steadily from1967 until its peak in 1988, after which it declinedsubstantially (Figure 6). The long-term realinvestment in wheat genetic improvement hastherefore decreased, and the real investment in the1990s has approximately returned to the levelprevailing in the 1970s. The real investment by thelow research cost scenario decreased slightly earlier,because the numbers of non-crop program staffrelative to crop program staff increased since themid-1980s. Costs fluctuated annually, probably dueto variations in budgets and funding cycles. Ratherthan predicting either an upward shift or continueddownward pattern, we chose to hold CIMMYT’sinvestment constant at the 1999 level. The researchcosts (C t) in equations (1) to (3) were subtracted fromthe gross benefits to estimate the net benefits.Discount ratesThe discount factor allows estimation of the presentvalue of an amount to be received or paid at sometime in the future (Gittinger 1982). This requiresmultiplication of the future value with the discountfactor, where i is the interest rate and t the year inequations (1) to (3). The acceptability of the economicreturns on a research program is influenced by theway the investment is viewed. The returns areparticularly sensitive to the level of the interest rate(i), or assumptions about how money is valued overtime. The appropriate rate is the subject of extensivedebate in the applied and theoretical economicsliterature (Gittinger 1982; Ray 1986; Alston et al.1995). The debate centers on which concept of thevalue of capital to use.If i is the “opportunity cost of capital” in an economy,it represents the return on the marginal investmentthat uses the last of the available capital. This i ismeant to reflect “the choice made by the society as awhole between present and future returns, andhence, the amount of total income the society iswilling to save” (Gittinger 1982). Furthermore, Dixitand Pindyck (1994) consider investmentexpenditures as sunk costs and irreversible whenResearch cost (million 1990 US$)20HighLow1510501967 71 75 79 83 87 91 95 99YearFigure 6. Real CIMMYT expenditures on wheat geneticimprovement for the high and low research cost scenariosfrom 1967 to 1999.Source: Heisey et al. (2002)23
they are firm or industry-specific. In our case, itcould be argued that the decision to invest in leaf rustresistance breeding might have eliminated otheroptions. Private investors such as the World Bankusually incorporate risks or irreversibility in theopportunity cost of capital used to evaluate projectinvestments. A range of 8 to 15% in real terms is oftenassumed for developing countries.However, the investment could also be consideredfrom the viewpoint of a public investor with alonger-term “social time preference rate.” Thisreflects the idea that society has a longer timehorizon than individuals. It implies the use of a loweri for publicly funded projects, or those oriented to theproduction of public goods to generate benefits forsociety in general.The nature of the benefits produced by theinvestment thus influences the choice of interest rate.In our case, we argued that genetic disease resistanceis in part a private and in part a public good (Heiseyet al. 1997). That is, sowing genetically resistantcultivars can provide benefits to individual farmersand to society by reducing the costs of controllingepidemics. Applying a discount rate focusing onprivate goods only would therefore underestimatethe total benefits of leaf rust resistance breeding. Itmay also be reasonable to assume a publicinvestment perspective for the public sector fundsinvested in wheat breeding at CIMMYT.Given this debate on choosing appropriate discountrates, we assumed interest rates of 1%, 5%, and 15%to represent different perspectives on the investmentdecision. These included a public investmentviewpoint with a longer term “social time preferencerate” (1%); an intermediate rate corresponding to thecurrent real interest rate, such as the average interestrate charged by the United States Federal ReserveBank over the past 15 years (5%); and the perspectiveof a private investor such as the World Bank, withrisks or irreversibility incorporated in the interestrate (15%). The payback period was viewed from thebeginning of the research investment. This wasassumed to start in 1967 (year t 0) to allow a six-yearresearch lag for varieties released in 1973. Thebenefits were assumed to start in 1973 (year t 6), andto continue to 2007 (year t 40), the year the lastadoption ceiling was reached in our predicteddiffusion curves. An intermediate 5% discount ratewas first assumed in the base scenario. This was thenvaried by discount rates of 1 and 15%.ResultsThe economic impact of the CIMMYT-related springbread wheat varieties with various leaf rust resistancecategories, grown in the developing world since 1973,is discussed in the subsequent sections. First, thepresent value of real gross benefits by geneticresistance category and wheat-producingenvironment is discussed, because research costscould not be separated on the same basis. Anintermediate discount rate of 5% was assumed.Research costs were then included, and theinvestment returns are presented in terms of the netpresent value, internal rate of return, and benefit-costratio. All resistance categories and MEs wereincluded, and the results are reported for the highand low research cost scenarios. A 5% discount ratewas first assumed in estimating the net present valueand benefit-cost ratio. The sensitivity of the analysisto alternative assumptions on the discount rates andyield losses avoided through leaf rust resistantvarieties was subsequently assessed.Discounted gross benefits by resistancecategory and mega-environmentWhen including all resistance categories and MEs,the discounted gross benefits from 1973 to 2007amounted to 7.46 billion 1990 US$ (Tables 5 and 6).Varieties with race-nonspecific resistance (categories2 to 5) accounted for 91% of the benefits. Varietieswith race-specific resistance accounted for 7%,whereas those classified as almost fully susceptiblerepresented only 2% of the benefits. Thoughcomparatively smaller, the benefits generated byrace-specific and almost susceptible categories werestill of considerable magnitude.Table 5. Discounted gross benefits of genetic leaf rustresistance in CIMMYT-related spring bread wheat from 1973to 2007, by resistance category.Geneticresistance Gross benefits † Category ascategory (million 1990 US$) percentage1 138 1.92 324 4.33 2,648 35.54 3,418 45.85 403 5.46 530 7.1All categories 7,461 100.0†Estimates include CIMMYT mega-environments 1 to 5 in each resistance category. Thegross benefits were discounted by 5%.24
Page 1 and 2: E c o n o m i c s P r o g r a m P a
Page 3 and 4: CIMMYT® (www.cimmyt.org) is an int
Page 5 and 6: TablesTable 1. Summary of parameter
Page 8 and 9: The Economic Impact in DevelopingCo
Page 10 and 11: origins or pedigrees are selected f
Page 12 and 13: Most assessments of the returns on
Page 14 and 15: MethodologyIn the capital investmen
Page 16 and 17: likely behavior was predicted based
Page 18 and 19: Table 3. Estimated yield losses fro
Page 20 and 21: esults showed that the annual progr
Page 22 and 23: decreasing percentage of the bread
Page 26 and 27: Table 6. Discounted gross benefits
Page 28 and 29: our base scenario was minimal (Tabl
Page 30 and 31: esistance. It is conceptually and p
Page 32 and 33: ReferencesAdusei, E.O. 1988. Evalua
Page 34 and 35: Nagarajan, S., and L.M. Joshi. 1985
Page 36 and 37: Appendix ADefinition of CIMMYT mega
Page 38: ISSN: 1405-7735International Maize

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