Barkley 2012

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International Food and Agribusiness Management Review

Volume 15, Issue 2, 2012
A Doubled Haploid Laboratory for Kansas Wheat Breeding:

An Economic Analysis of Biotechnology Adoption
Andrew Barkleya and Forrest G. Chumleyb
a
Professor, Department of Agricultural Economics, Kansas State University
342 Waters Hall, Manhattan, Kansas, 66506-4011, U.S.A.
b
President and CEO, Heartland Plant Innovations, Inc.. 217 Southwind Place
Manhattan, Kansas, 66503, U.S.A.
Abstract
This research evaluates the use of doubled haploid lines (DHs) to accelerate breeding and gene
discovery in wheat breeding. The DH biotechnology greatly accelerates time to market for new
wheat varieties and speeds genetic gains in wheat yields. An economic model was built based on
previous literature, knowledge of the wheat industry, and information gleaned from wheat breed-
er interviews. Results show that DH methods would provide large economic gains to Kansas
wheat producers and global wheat consumers. The results are robust to a wide variety of scenari-
os.
Keywords: biotechnology adoption, bost-benefit analysis, doubled haploids, time-to-market,
wheat breeding

Corresponding author: Tel: + 1. 785.477.1174
Email: [email protected]
F.G. Chumley: [email protected]
99
 2012 International Food and Agribusiness Management Association (IFAMA). All rights reserved
Barkley and Chumley / International Food and Agribusiness Management Review / Volume 15, Issue 2, 2012
Introduction
In recent years, biotechnology has resulted in large increases in corn and soybean production,
through the development of varieties that are resistant to herbicides, diseases, and drought. In
2010, over 90 percent of the acres planted to corn and soybeans in Kansas were varieties pro-
duced using biotechnology methods (KAS 2010). Adoption of these varieties, together with in-
creased demand for biofuels, has led to a shift of acreage in the United States (US) out of wheat
and into corn and soybeans since 2000 (KAS 2010). Recently, historically high wheat prices re-
sulting from smaller acreages and weather events have resulted in increased interest and invest-
ment in wheat variety development by both private firms and public wheat breeders (USDA/ERS
2011). The creation of a new wheat variety is a lengthy and costly process. Traditional methods
require up to 12 years. Economists have noted that any innovation that reduces the variety de-
velopment time span, or "time to market (TTM)," could have large economic benefits, due to
lower costs and earlier adoption of economically significant wheat varieties.
Doubled haploid (DH) technology is a method of using biotechnology to reduce variety devel-
opment time. Doubled haploids are genetically pure inbred plants, now produced in a single
year. Traditional wheat selection techniques typically require six to eight generations to stabilize
desired traits, or fix the desired characteristics of higher yield, quality characteristics, disease re-
sistance, or agronomic features into "pure lines" of wheat varieties. Doubled haploids allow
wheat breeders to stabilize desired traits in a single year, reducing the time required for new va-
riety development by up to five years. Doubled haploid laboratories are currently used in Europe,
Canada, and Australia (Bonjean and Angus, 2001). Doubled haploid production is a form of bio-
technology, but is not transgenic biotechnology, and is therefore unlikely to be subject to the re-
sistance among some wheat producers and nations.
Recently, Heartland Plant Innovations (HPI), a public/private partnership, has made plans for the
construction of a doubled haploid laboratory in Manhattan, Kansas to be used by public and pri-
vate wheat breeders. This research analyzed the economic impact of the adoption and use of bio-
technology in wheat variety development. A careful study of economic costs and benefits of the
new laboratory was conducted, with several measures of financial return estimated. This analy-
sis of the impact of doubled haploids on wheat markets was estimated to find the economic bene-
fits and costs to wheat producers and consumers in Kansas, the United States, and the rest of the
world. Doubled haploid methods do not replace traditional wheat breeding programs. Rather,
they enhance one component of variety development: propagation of a new variety.
The use of doubled haploids in wheat variety development is timely, interesting, and important
for a number of reasons. First, the potential economic benefits of a shortened variety develop-
ment process are large. Nalley, Barkley, and Chumley (2008) estimated genetic improvement in
Kansas wheat varieties to average 0.206 bushels per acre each year. This corresponds to approx-
imately two to three million U.S. dollars of additional revenues from wheat production in Kansas
attributable to wheat breeding programs. Yield increases are permanent and cumulative, so after
a short number of years, the economic benefits to higher-yielding wheat varieties are large and
significant. Adoption of doubled haploid techniques would boost yields much sooner than con-
ventional methods, resulting in immediate increases in economic benefits and large cumulative
financial gains to wheat producers in Kansas and wheat consumers worldwide. Although the
 2012 International Food and Agribusiness Management Association (IFAMA). All rights reserved. 100
genetic gains from a wheat breeding program are permanent and cumulative, they are subject to
pathogens, diseases, and other challenges that require plant varieties to be constantly improved
through maintenance breeding.
Second, the development and adoption of biotechnology in wheat production is likely to grow
rapidly in the near future, and careful description and estimation of the economic impacts is
needed to better understand the impact of large, rapid technological advance in wheat (Fuglie
and Walker 2001). Third, the economics of the introduction of biotechnology in general, and a
doubled haploid laboratory in particular, are timely and important. As new techniques are dis-
covered and implemented, the application of economic principles to the technological change
allows for a more rapid and efficient transition out of traditional breeding methods to the use of
biotechnology in wheat variety development. It is likely that doubled haploid methods will be-
come more efficient as wheat breeders enhance their use of doubled haploids in wheat breeding
programs in the near future.
One major contribution of this study is a detailed description and model of wheat variety devel-
opment, including careful consideration of the timing and costs of investments in wheat breed-
ing. A standard financial model of discounted future costs and revenues is estimated to accurate-
ly forecast three financial measures: (1) the benefit/cost ratio, (2) net present value, and (3) inter-
nal rate of return for the construction of the double haploid laboratory. Extensive sensitivity
analyses were conducted to gain a better understanding of the impact of model parameter as-
sumptions. Although the proposed DH laboratory is likely to produce pure line wheat seeds for
wheat breeders throughout the United States, the study used Kansas as the baseline geographical
unit of analysis, due to data availability and to provide a conservative estimate of the potential
economic impacts of a DH laboratory.
The use of biotechnology in corn and soybeans has become nearly universal, setting the stage for
biotechnology in wheat to increase rapidly in the next few years. The economic impact will be
large and significant, as it has been in other crops. By quantifying the dollar value of these
changes, the magnitude of rapid technological change is measured and assessed. The details of
doubled haploid technology are particularly interesting. Corn pollen is used to pollinate wheat,
resulting in new wheat seeds that are genetically pure and stable, each retaining a unique combi-
nation of genes carried on their parents' chromosomes. A description of this process is illuminat-
ing, since it represents a major technological breakthrough in crop production. This application
of biotechnology provides economists and social scientists with a broader knowledge of recent
advances in biology and biotechnology and the implications.
Background and Previous Literature

Wheat Breeding Techniques
Wheat is a grass that was originally grown in Mesopotamia, and has been cultivated by humans
for 10,000 years. Wheat breeding has been practiced for millennia, as summarized by Baenziger
and DePauw (2009). Acquaah (2007) provided an excellent overview of the history of plant
breeding and genetics. Baenziger and DePauw (2009) and Baenziger et al. (2009) described and
evaluated five methods of wheat breeding: (1) pedigree selection, (2) bulk selection, (3) single-
seed descent, (4) doubled haploid (DH), and (5) the backcross method. Baenziger and DePauw
(2009) concluded, "Each method has its advantages and disadvantages. Wheat breeding is re-
markably flexible, and these methods are often combined in practice to take advantage of their
strengths and the selection environments that occur during cultivar development" (p. 275).
Wheat breeding is both a public and private sector activity, becoming more private over time. It
should be emphasized that wheat breeders are best served by using a variety of breeding meth-
ods. Forster and Thomas (2005) concluded, "We do not expect DH production to replace tradi-
tional breeding methods; rather it will provide greater efficiency and new options" (p. 80). Spe-
cifically, several wheat breeders interviewed for this project indicated that DH techniques are
particularly useful when used together with molecular markers (Fritz 2011; Haley 2011; Mar-
shall 2011; Pumphrey 2011; Sears 2011; Shapiro 2011).
The Doubled Haploid method generates homozygous lines from haploid tissue (Baenziger and
DePauw, 2009, p. 291), by doubling chromosomes, resulting in a plant that is completely homo-
zygous and homogeneous (Guzy-Wrobelska and Szarekjo, 2003). Laurie and Bennett (1988)
described the wheat-by-maize system of doubled haploidy. In this procedure, embryo rescue
methods are used to propagate haploid tissue through chromosome elimination in wide crosses
when the endosperm does not form. Baenziger and DePauw (2009) concluded that, "Doubled
haploidy is an expensive method but requires the least amount of time to develop inbred lines,
especially when breeding winter wheat, where the vernalization requirement slows single-seed
descent breeding" (p. 291). Importantly, the authors go on to state, "If past history repeats itself,
the methods to create doubled haploids will become less expensive and will feature fewer cul-
ture-induced variants" (p. 292).
Henry and de Buyser (1990), Picard et al. (1990), and more recently Kasha and Maluszynski
(2003), provided excellent overviews of doubled haploid production, and Forster et al. (2007)
described recent technological innovations that have brought about a resurgence in haploidy in
higher plants. Bonjean and Angus (2001) contributed extensive evidence for doubled haploid
use in wheat breeding programs throughout the world, including the United Kingdom, Poland,
Denmark, Romania, Brazil, Mexico, New Zealand, Japan, Nepal, and Iran. The authors also
provided a thorough technical description of DH methods.
Baenziger and DePauw (2009) emphasized the efficiency of DH wheat breeding is recovery of
mutants (p. 292). Most importantly, the authors described enhanced efficiency by using DH and
molecular markers in conjunction: "…using molecular markers in selection becomes more effi-
cient because the heterozygous lines have been removed" (p. 292). Baenziger and DePauw
(2009) provided a list of successful DH wheat cultivars that have been released and grown com-
mercially (p. 292). Lastly, Forster and Thomas (2005) noted that, "Doubled haploidy has great
potential in the production of transgenic crops," and “The most important considerations for
[DH] breeders are: investment in good plant production facilities, tissue culture facilities and
skilled technical support, and the availability of cheap, efficient, genotype independent proto-
cols" (p. 80).
Forster and Thomas (2005) provided an excellent review of doubled haploids in plant breeding.
The authors concluded that, "The rapid attainment of homozygosity at any generation is probably
the most valuable feature of doubled haploidy for plant breeding" (p. 72). A second benefit is
the development of large numbers of homozygous lines. Forster and Thomas (2005) summa-
rized the use of doubled haploidy: "Despite proven and theoretical benefits of doubled haploidy,
deployment in breeding programs must be practical, cost efficient, satisfy breeding objective,
and produce marketable cultivars" (p. 72). Two potential downsides of DH were also men-
tioned: (1) "Although doubled haploidy is useful in fixing rare alleles, overuse may reduce genet-
ic variation in breeding germplasm in which generic diversity may be better preserved in hetero-
zygous lines" (p. 72), and (2) "The application of doubled haploidy, even in the most responsive
species, is restricted by gentotype dependency and there is a challenge to develop more genotype
independent methods… care will be needed to prevent erosion of the breeder's gene pool" (For-
ster and Thomas, 2005, p. 80). The authors concluded that, "Doubled haploidy not only offers an
opportunity to speed up traditional breeding methods, but allows greater flexibility in that it can
be applied at any generation, allowing rapid response to changing market demands" (p. 74).
Because doubled haploid production methods are labor-intensive, and thus costly, recent re-
search has focused on the attempt to make doubled haploid methods more efficient. Liu et al.
(2002) aimed to develop a more efficient and effective isolated microspore culture system for
generating double haploid wheat plants, and Ravi and Chan (2010) reported a method of generat-
ing double haploid seeds by manipulating a single centromere protein. The efficiency of the
doubled haploid methods can overcome the potential negative characteristics of single-seed de-
scent include time delays and competitive interactions between plants (Forster and Thomas,
2005, p. 74).
The use of DH techniques is complementary to traditional, or conventional, wheat breeding pro-

grams. The DH production methods could substitute for, or replace, the propagation component
of a wheat breeding program, while other major features of a traditional wheat breeding program
would remain the same. The economic analysis presented below is for the inclusion of a DH
program into the longstanding wheat breeding program; the DH laboratory does not replace the
entire program. In particular, a DH program will need to use new germplasm introduced from
conventional selection methods to maintain genetic diversity of the wheat industry. The eco-
nomic benefits of the DH program will remain with the wheat breeders, wheat producers and
consumers and the distribution of the benefits between these groups is beyond the scope of the
current research.
Over the past 25 years, it has become increasingly common for retail seed prices to include roy-
alties or other license fees payable to the owners of proprietary traits or other genetic technolo-
gies that have been incorporated into the seeds' heredity Such payments have become standard
for corn and soybeans, although they are just beginning to appear in wheat. Licensed, proprie-
tary traits are just becoming available for wheat. For wheat seeds, royalties are currently being
paid in many regions to public sector breeding programs in connection with the use of varieties
released from those programs. Generally, these royalties are being charged for use of the base
genetics of the variety, not for the proprietary traits. For the program described in this paper, no
royalties are due simply for using doubled haploids in breeding a new variety, it is simply a fee-
for-service technology. However, using DH lines can greatly accelerate the incorporation of
proprietary traits in a new variety, which may result in a variety for which royalties are due and
payable. Farmer acceptance of such royalty payments will continue to depend on the value
proposition linked to the technology in question. Where farmers have seen a net financial bene-
fit, royalty payments have gladly been made. It remains to be seen how common royalty-bearing
proprietary traits will become in wheat.
An Economic Model of Wheat Breeding
The measurement of the economic impact of agricultural research has a large literature, as sum-
marized by Huffman and Evenson (1993) and Alston, Norton, and Pardey (1995). Blakeslee and
Sargent (1982) and Feyerharm et al. (1984) developed an economic framework for the quantifi-
cation of the economic impact of public research and extension in wheat production. Brennan
(1984, 1989a) summarized and measured the impact of the Australian wheat breeding program,
providing the foundation for a large literature that has continued this work, using his original re-
search as a template. Brennan's (1989b) work in developing a schematic approach to wheat
breeding is particularly important to the model developed here. Byerlee and Traxler (1995) ex-
tended Brennan's work by consideration of international wheat breeding improvements since the
Green Revolution.
The Kansas wheat breeding program has been evaluated by Barkley (1997) and Nalley, Barkley,
and Chumley (2006, 2008). This previous literature demonstrated a large and statistically signif-
icant positive impact of the Kansas Agricultural Experiment Station (KAES) wheat breeding
program on wheat yields, and thus producer revenues, for producers who purchase and grow va-
rieties developed by the KAES. This research uses the quantitative estimates from Nalley, Bar-
kley, and Chumley (2008) to derive the economic implications of the proposed DH laboratory on
the Kansas wheat industry. "During the ‘new age’ of wheat breeding (1977-2006), wheat breed-
ing alone is found to have increased yields by 6.182 bushels per acre, or an average increase of
0.206 bushels per year" (Nalley, Barkley, and Chumley, 2008, p. 913).
One of the most important considerations in this analysis is the "time to market," (TTM) of a
wheat variety, developed under two possible methods: (1) conventional, and (2) doubled haploid.
Interviews with wheat breeders in both private and public programs were conducted to gain a
better estimate of the development times for wheat varieties. Wheat breeder interviews (Fritz
2011; Haley 2011; Marshall 2011; Pumphrey 2011; Sears 2011; Shapiro 2011) provided an aver-
age number of years for development for both conventional (11 years) and doubled haploid (7
years) wheat breeding programs (Table 1).
The baseline, "Scenario One" is a representative, or "average," length of time for winter wheat
variety development, from initial cross of a new variety to public release. To account for varia-
tion in wheat breeding programs, we will also consider a "long" wheat varietal development time
(Scenario Two, Table 1), and a "short" development time (Scenario Three, Table 1). The devel-
opment time of a new wheat variety using conventional methods requires 11 years (tcon = 11). It
is assumed that there are costs for 11 years, followed by a stream of revenues earned by wheat
producers after the release of the wheat variety in year 11 (Figure 1). The illustration is simpli-
fied by assuming constant costs for 11 years, followed by constant revenues for all years after the
release of the wheat variety in year 11. This simple schematic diagram captures the main fea-
tures of the wheat breeding program, although the real world is much more complicated, with
several new varieties being developed simultaneously, and fluctuations in cost and revenue
streams based on changing economic conditions.
Figure 1. Economic Benefits and Costs of Conventional Wheat Breeding
One Variety, Eleven Year Development Time (tcon=11)
Costs and Benefits (USD)
...
1 2 3 4 5 6 7 8 9 10 11
12 13 14 15 16 17 18 19 20 . . .
Time (years)
tcon
Figure 1. Economic Benefits and Costs of Conventional Wheat Breeding

One Variety, Eleven Year Development Time (tcon = 11)
tcon = development time (time to market, TTM), of new wheat variety using
conventional breeding assumed to equal 11 years (Table 1)
Costs include all of the costs of maintaining the wheat breeding program, including labor, build-
ings, tools, and equipment, as reported for the period 1977-2006 by Nalley, Barkley, and Chum-
ley (2008). These costs averaged approximately 5 million USD, in constant 2006 dollars. The
economic gains, or revenues, that are attributable to the wheat breeding program are calculated
(equation 1), following Nalley, Barkley, and Chumley (2008).
(1) REVt = At * Pt * KAESt * GENt (mil USD) = (mil acres)*(USD/bu)*(%)*(bu/acre)
Table 1. Wheat Variety Development Time for Conventional and Doubled Haploid Methods.
Doubled
Conventional Haploid
Organization Breeder (years) (years)
Pioneer Hi-Bred Greg Marshall 12 8
Westbred/Monsanto Joseph Shapiro 12 9
Agripro/Syngenta Rollin Sears 11 6
Kansas State University Allan Fritz 10.5 6.5
Colorado State University Scott Haley 9.5 7
Washington State University Michael Pumphrey 8 6
-------------------------------------------------------------------
Scenario One: Baseline 11 7
Scenario Two: "Long" 12 9
Scenario Three: "Short" 8 6
Source. Telephone interviews and e-mail correspondence with wheat development experts, January 25 through Feb-
ruary 7, 2011 (Fritz 2011; Haley 2011; Marshall 2011; Pumphrey 2011; Sears 2011; Shapiro 2011).
Units for each variable in the equation are reported in parentheses following the equation. The
variable REVt is defined as revenues in year t, and At is acres planted in the geographical area
under investigation (Kansas). The variable Pt is the average market price of wheat in United
States Dollars per bushel (USD/bu). The variable KAESt is the percent of Kansas wheat acres
planted to varieties produced by the KAES, and GENt is the annual rate of genetic gain due to
the wheat breeding program, holding constant all other factors such as weather, input use, soil
quality, etc. Several features of the revenue calculations deserve emphasis.
First, implicit in the model are the simplifying assumptions that the rate of genetic gain and the
rate of varietal adoption are constant over time. The rate of genetic gain represents a constant
average for the period 1977-2005. This rate is likely to change in the future, due to diminishing
returns to wheat variety selection, unforeseen developments in wheat breeding, and the variable
rate of varietal discovery and release. However, given that the future is uncertain, the approach
taken here is to assume that the best forecast of the future rates of genetic gain and varietal adop-
tion are the same as the past, with numerous sensitivity analyses conducted to account for un-
foreseen changes.
The prices are constant, adjusted for inflation, to eliminate the impact of rising general price lev-
els on the dollar value of the program. All prices in the analysis below are presented in constant
2010 USD. Next, the revenues attributable to the KAES estimated using this equation are a con-
servative estimate, since KAES varieties are planted outside of the state of Kansas. These acres
are ignored, not because they are not important, but because of data availability. Wheat varieties
developed by KAES are widely grown throughout the Southern Great Plains region. Thus, the
dollar values of revenues reported here are underestimates of the actual value of the KAES pro-
gram. The measure of genetic gain (GENt) is taken from Nalley, Barkley, and Chumley (2008),
and is equal to 0.206 bu/acre, representing the annual increase in yields due to the KAES wheat
breeding program, holding all other wheat yield determinants constant.
Summary statistics were calculated for the economic variables of the Kansas wheat industry
(Table 2), reported for three time periods; (1) 1977-2006, (2) 2001-2010, and (3) 2006-2010.
This analysis uses the average values for the five-year time period of 2006-2010 to reflect the
most current data available. These data also reflect smaller numbers for Kansas harvested acres
(column one), percent Kansas acres in KAES varieties (column two), and percent Kansas acres
in all public varieties (column three). The price of wheat is higher in the selected period, due to
the unprecedented high commodity prices that have occurred since 2008 due to biofuels, income
growth in low-income nations such as China and India, and poor weather in agricultural regions.
The wheat breeding program data (Table 2) are used to estimate the value of the KAES wheat
breeding program on an annual basis. This research aims to estimate the economic value of the
proposed doubled haploid laboratory to be located in Manhattan, Kansas. To do this, we extend
the simple model of a wheat breeding program (Figure 1) with a model of the impact to include a
DH lab on such a program (Figure 2). There are two impacts of the adoption and use of DH
methods on a wheat breeding program. First, the wheat variety development time, or time to
market (TTM), can be reduced significantly (Table 1). Second, the annual rate of genetic gain
(GENt) can be enhanced due to efficiency gains of the DH method, through molecular markers
and other techniques that allow DH to enhance the rate of growth in wheat yields. We will con-
sider both potential impacts of DH methods of a wheat breeding program. The first impact is
reduced development time (Figure 2). The variable tcon is defined as the development time (time
to market, TTM), of new wheat variety using conventional breeding methods, assumed to equal
11 years. The variable tdh is defined to be the development time (time to market, TTM), of new
wheat variety using doubled haploid (DH) breeding methods, assumed to equal 7 years. These
two times are the baseline scenario, based on the interviews results (Table 1).
Table 2. Summary Statistics of Kansas Wheat Breeding Program Variables, 1977–2010.

KAES
% Kansas % Kansas Wheat
Kansas acres in acres in Kansas Annual Value of Breeding
Harvested KAES Public Wheat Genetic Kansas Annual
1 2 2 1,3 4 1,3
Acres Varieties Varieties Price Gain Wheat Costs1,3
Period (acres) (%) (%) ($/bu) (bu/acre) (mil USD) (mil USD)
1977-2006 10,373,333 53.1 69.9 5.93 0.206 2,029 5.41
2001-2010 8,780,000 50.3 61.4 4.73 0.206 1,610 8.34
2006-2010 8,680,000 38.4 50.0 5.77 0.206 1,916 8.34

1
USDA/NASS, Kansas Farm Facts.
2
Author calculation, based on USDA/NASS, Wheat Varieties.
3
Dollar
Figurevalues are in realBenefits
2. Economic 2010 USD, deflated
and Costs by
of the Personal Consumption
Conventional and DoubleExpenditure (PCE) ofBreeding
Haploid Wheat Department of
Commerce, Bureau of Economic Analysis (USDC/BEA).
One Variety, Seven Year Development Time (tdh=7)
4
Nalley, Barkley, and Chumley (2008).
Costs and Benefits (USD)
B1
...
1 2 3 4 5 6
7 8 9 10 11 12 13 14 15 16 17 18 19 20 . . .
Time (years)
B2
C2
C1
tdh tcon
Figure 2. Economic Benefits and Costs of Coventional and Double Haploid Wheat Breeding.
One Vareity, Seven Year Development Time (t dh =7)
B1 = Increased revenues from sale of wheat variety four years sooner than conventional
(tcon-tdh = 4)
B2 = Decreased wheat variety development costs from earlier release date (tcon-tdh = 4)
C1 = Initial costs of building doubled haploid laboratory, estimated to be equal to 6 m USD
C2 = Annual operating costs of doubled haploid laboratory, estimated to be equal to 1 m USD
tcon = development time (time to market, TTM), of new wheat variety using conventional
breeding assumed to equal 11 years (Table 1)
tdh = development time (time to market, TTM), of new wheat variety using doubled haploid
breeding assumed to equal 7 years (Table 1)
The reduction in varietal development time (tcon-tdh = 4) has significant economic impacts on the
wheat breeding program, by reducing costs and increasing revenues. Area B1 (Figure 2) repre-
sents increased revenues from the sale of a new wheat variety four years sooner than convention-
al methods would allow, and area B2 represents decreased costs of wheat variety development
resulting from an earlier release date. Much of the analysis reported here is the measurement and
evaluation of areas B1 and B2 using the best estimates available. The costs of the DH laboratory
are disaggregated into two types: (1) building costs (BUILDCt, C1), and (2) annual operating
costs (ANNUALCt, C2, equation 2).
(2) Ct = BUILDCt + ANNUALCt (mil USD) = (mil USD) + (mil USD)
Area C1 (Figure 2) represents the initial, one-time, costs of building a doubled haploid laborato-
ry. These costs are estimated to be equal to 6 million USD. The area C2 represents the recurring
annual operating costs of the proposed doubled haploid laboratory, estimated to be equal to one
million USD per year. Recall that the DH laboratory does not replace the traditional wheat
breeding program, but enhances the variety propagation component of the program. The eco-
nomic model of the adoption and use of a DH laboratory (Figure 2) emphasizes the large gains in
both (1) cost savings in reduced development time, and (2) increased revenues resulting from the
earlier release of a new, higher-yielding, wheat variety. The models developed above are for a
single variety. In a real-world wheat breeding program, these models must be expanded to ac-
commodate continuous advances in wheat varieties, resulting in cumulative gains over time.
This more realistic scenario is incorporated into the model (Figure 3).
This more realistic model (Figure 3) demonstrates the forecasted future agronomic impact of the
KAES wheat breeding program, for both the conventional breeding program and the possibility
of the program with a DH laboratory, for the next 15 years. The current conventional breeding
program provides genetic gains equal to 0.206 bu/year (Nalley, Barkley, and Chumley 2008).
This rate isolates the impact of genetic advances on yield, holding all other factors constant in a
multiple regression framework. If the DH laboratory were to be built in 2011, a new variety
could be released seven years later (in 2018), with increased yield potential. One way to think of
this discrete jump in future yields is that the new DH variety released in 2018 would have the
same genetic potential as varieties released by the conventional wheat breeding program four
years later, in 2022, assuming no increase in genetic gain efficiency. However, the illustrated
gain is likely to be larger, since it includes the possibility of enhanced efficiency of wheat variety
development.
The large discrete change in 2017 reflects the first benefit of the use of Doubled Haploids in
wheat breeding. The second benefit is enhanced rate of genetic gain, which is captured by the
steeper slope of the yield trend for the DH laboratory case. The graph is drawn assuming that the
rate of change in yield potential is 150 percent greater with the use of Doubled Haploids, relative
to the baseline scenario of the conventional breeding program. This rate of change is based on
wheat breeder interviews
Figure 3.(Fritz 2011; Haley
Comparison 2011; Marshall
of Conventional and2011; Pumphrey
Double 2011; Sears 2011;
Haploid
Shapiro 2011), further discussed below. The analysis proceeds in the next section with the care-
Wheat Variety Development: Agronomic Benefits
ful measurement of costs and benefits, and quantification of several summary financial measures.
Seven Year Development Time, Increase in Genetic Gain
46
45
44
Wheat Yield (bu/acre)
43
42
yield-base
41 yield-DH
40
39
38
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Year
Figure 3. Comparison of Conventional and Double Haploid Wheat Variety Development: Agro-
nomic Benefits. Seven Year Development Time, Increase in Genetic Gain
Research Methodology: Cost-Benefit Analysis

The purpose of this analysis is to estimate the economic impact of the proposed doubled haploid
laboratory in monetary terms. The major financial performance indicators that are estimated be-
low include: (1) Net Present Value (NPV), (2) Benefit-Cost Ratio (BCR), and (3) Internal Rate
of Return (IRR). The Net Present Value (NPV) is defined as the sum of the present values (PVs)
of individual cash flows from a project or business. The NPV summarizes the total discounted
economic value of a project (equation 3). Net Present Value is a preferred method of evaluation
because it considers the time value of money (Kay et al. 2012), where B represents dollar bene-
fits, C represents costs, i is the "discount rate," assumed to equal ten percent, t is the time period
(year), and T is the ending year of the analysis.
(3) NPV = B/(1+i)t - C/(1+i)t, t = 0, … ,T
The Benefit-Cost Ratio (BCR) is a financial indicator that attempts to summarize the overall
monetary value of a project or proposal (Kay et al. 2012). A BCR is the ratio of the benefits of a
project or proposal, expressed in monetary terms, relative to its costs, also expressed in monetary
terms. All benefits and costs are expressed in discounted present values (equation 4). The varia-
bles are as defined above for NPV.
(4) BCR = [B/(1+i)t] / [C/(1+i)t], t = 0, … ,T
The Internal Rate of Return (IRR) is a measure of the financial rate of return of a project or pro-
posal, where given the (period, cash flow) pairs (n, Cn) where n is a positive integer, the total
number of periods N, and the net present value NPV, the internal rate of return (IRR) is given by
r in:
(5) IRR: NPV = B/(1+r)t - C/(1+r)t = 0, t = 0, … ,T
The IRR provides information that is not available from either BCR or NPV, since it estimates
an actual rate of return comparable to other financial investments (Kay et al. 2012, p. 319).
The financial performance measures described above are used together with the economic model
of a proposed doubled haploid laboratory (Figure 2) to estimate the economic impacts of the
proposed laboratory. The overall benefits and costs of the proposed doubled haploid laboratory
are captured in the areas C1, C2, B1, and B2 (Figure 2), and are estimated using the formulae for
benefits (equation 1) and costs (equation 2).
Variables Used in the Cost-Benefit Analysis

Building costs (BUILDCt) are assumed to be six million constant 2010 US dollars, an upper es-
timate of costs at the time of this study (Table 3). Annual costs of operating the laboratory
(ANNUALCt) are assumed to be one million constant 2010 US dollars, also considered to be an
upper estimate (Table 3). Since the cost estimates are likely to be higher than actual costs, the
resulting financial measures are conservative estimates, erring on the side of higher costs and
lower revenues, to provide conservative estimates of the financial performance measures.
Following Barkley (1997) and Nalley, Barkley and Chumley (2006, 2008), revenue estimates
were made for Kansas only, due to data availability, and to provide a conservative estimate of the
economic gains resulting from the proposed doubled haploid laboratory. The revenue estimates
were calculated (equation 1), with assumed parameter values (Table 3). The data for harvested
wheat acres in Kansas, percent acres planted with KAES varieties, and wheat prices are for the
2006-2010 period. The trend is toward lower use of public wheat varieties, including KAES va-
rieties (Table 2). Therefore, the “baseline” and “low” scenarios for percent Kansas acres in
KAES varieties is likely to be appropriate in the future. The values used in the analysis are mean
(average) values for this most recent five-year period. This method incorporates the most up-to-
date data, but eliminates extreme values by averaging, or "data smoothing."
Table 3. Assumed Parameter Values of Model Variables.

- - - - - - - Assumed Parameter Values- - - - - - - - -
Low Baseline High
2006-2010 Kansas Wheat Averages
Kansas Harvested Acres (million)1 8.00 8.68 10.00
2
% Kansas acres in KAES varieties 25.00 38.40 50.00
Wheat Price (2010 USD)3 3.27 5.77 7.07
Annual Genetic Gain 4

Conventional 0.206 0.206 0.206
Doubled Haploid 0.206 0.309 0.412
Time and Discount Parameters

Discount rate 0.075 0.100 0.125
Time Horizon (years) 25 50 100
Doubled Haploid Laboratory Expenditures

Building costs, one year (m 2010 USD) 5 6 10
Annual Operating Costs (m 2010 USD) 0.5 1.0 2.0
Variety Development Time

Conventional 8 11 12
Doubled Haploid 6 7 9
1
The high value occurred in 2003, the lowest recent value was 8.4 million acres in 2010.
2
The high value is the percentage of Kansas acres in all public varieties (Kansas, Oklahoma, Texas, Nebraska, and
Colorado) over the five-year period 2006-2010, the low value is one-half of the high value.
3
Marketing year average price; low value from 2001, high value from 2008.
4
The low value represents a constant rate of annual genetic gain for both conventional wheat breeding and doubled
haploid (DH) wheat breeding, taken from Nalley, Barkley, and Chumley (2008). The baseline value represents
150% faster annual genetic gain for DH methods, and the high value represents 200% faster annual genetic gain for
DH methods.
The baseline scenario represents the most accurate estimate of each of the parameters used in the
analysis. To gain a deeper understanding of how financial measures change when agronomic and
economic conditions change, two additional scenarios were estimated, in which all model pa-
rameters are assumed to take on "low" and "high" values, allowing for analysis of how robust our
financial estimates are to unexpected changes in parameter values. The values of each of the
three scenarios were calculated (Table 3), given the selected "high" and "low" scenario values
(Table 3).
The assumed value for annual genetic gain is taken from Nalley, Barkley, and Chumley (2008).
For conventional wheat breeding methods, the value is assumed to remain the same as was esti-
mated for the period 1977-2006 (0.206 bushel per acre per year). As described in the descrip-
tion of the doubled haploid method of wheat breeding above, wheat breeders believe that the an-
nual rate of genetic gain will increase when doubled haploid methods are available and adopted,
particularly when used with molecular markers. This enhanced rate of gain in Kansas wheat
yields is assumed to be equal to 150 percent in the baseline rate, and 200 percent in the "high"
scenario. The "low" scenario uses the conventional wheat breeding rate of genetic gain (0.206
bushels per acre per year, Table 3). This represents the case where there are no changes in the
rate of genetic gain between conventional and doubled haploid wheat breeding methods, an ex-
treme and unlikely case. However, if the rate of genetic advance slows due to diminishing re-
turns in wheat variety selection, the “low” scenario could reflect that possibility. These rates of
change are based on correspondence with wheat breeders (Fritz 2011; Haley 2011; Marshall
2011; Pumphrey 2011; Sears 2011; Shapiro 2011), and do not reflect any actual measurement.
However, the range between zero and 200 percent increase in the rate of annual genetic gain cer-
tainly captures the true range that will occur when the doubled laboratory becomes operational.
The financial analysis assumes values of a 50-year time horizon and a discount rate of ten per-
cent. Both parameters are altered in the "high" and "low" scenarios to provide a range of possi-
ble financial performance measures, representing the likely economic impact of a doubled hap-
loid laboratory under a wide variety of economic conditions. Note that all genetic contributions
in wheat breeding are permanent and cumulative. Thus, even if the DH technology is replaced or
becomes obsolete in the future time period under considerations, the benefits will continue to
accumulate. The varietal development times (Table 3) were provided by the interviewed wheat
breeders (Fritz 2011; Haley 2011; Marshall 2011; Pumphrey 2011; Sears 2011; Shapiro 2011).
Baseline Results
The baseline results represent the most likely outcome of the proposed doubled haploid laborato-
ry. The financial results are strong: the Net Present Value (NPV) equals 173 million 2010 USD,
and the benefit-cost ratio (BCR) is over 11 (Table 4). Restated, the overall financial value of the
proposed double haploid laboratory is approximately 173 million constant 2010 US dollars, and
for every dollar invested in the laboratory, over 11 dollars are returned to the Kansas wheat
economy.
Table 4. Model Results: Variety Development Time.

- - - - - - - - - -- - - - - - - Scenario- - - - - - - - - - - - - - - - -
Short Baseline Long
Conventional 8 11 12
Doubled Haploid 6 7 9
--- ---------------------------------------------------------------
Net Present Value (NPV)1 155.091 173.286 125.234
Benefit Cost Ratio 10.169 11.245 8.404
Internal Rate of Return 0.341 0.334 0.267
1
Values are in million 2010 USD, and the assumed discount rate is ten percent.
The baseline internal rate of return (IRR) equals 0.334, indicating a high return on the doubled
haploid laboratory investment. The wheat breeding industry is highly competitive, with both
public and private breeders using similar techniques, methods, and genetic stock. Therefore, the-
se high returns are unlikely to result in large financial gain to wheat breeding programs. Rather,
the wheat seed industry and wheat producers are likely to gain from wheat varieties with higher
yields. Wheat consumers are also likely to gain from reduced costs of wheat products. One ma-
jor result of applying economic analysis to technological change is that the public wheat seed
industry will be able to remain viable and compete with private wheat breeders if they build and
adopt the doubled haploid laboratory. In contrast, the public wheat breeding industry is likely to
be at a major disadvantage if it does not build and use a DH laboratory (Figure 3). Since the per-
unit costs of using the DH lab are not significant, the use of DH will allow public and private
wheat breeders to use the technology equally.
One interviewed private wheat breeder said, "We will get further, faster using DH in wheat va-
riety development" (Shapiro). Given the significant decrease in wheat variety development times
associated with DH methods, any wheat breeding program that does not use DH techniques is
likely to be unable to compete with programs that use the new technology.
Financial performance measures were also estimated for "short" and "long" scenarios (Table 4).
These results indicate that the overall economic gains of the doubled haploid laboratory are ro-
bust to differences in projected wheat development times. Therefore, under the most likely la-
boratory conditions, the internal rate of return (IRR) varies between 26 and 34 percent, and the
benefit-cost ratio (BCR) varies between 8.4 and 11.2. The proposed doubled haploid laboratory
would provide significant economic benefits for all of the wheat breeding programs that use it,
even if their specific use, breeding methods, and variety development times vary (Table 4).
Sensitivity Analysis
The results demonstrate that the proposed laboratory is likely to be a financial success under a
very wide range of possible situations and events.
Kansas Wheat Acres and Price
Sensitivity analyses were conducted for possible fluctuations in economic variables. Results in-
dicate that the financial performance indicators remain positive under a wide range of three vari-
ables: (1) Kansas wheat acres planted, (2) percentage of Kansas wheat acres planted to KAES
varieties, and (3) wheat prices (Table 5). The internal rate of return varies between 0.266 and
0.367 under a wide variety of assumed parameter values. Under virtually any foreseeable cir-
cumstances, the doubled haploid laboratory is highly likely to provide economic rates of return
much higher than could be obtained in alternative investments.
Annual Genetic Gain
One of the important assumptions of the model developed and estimated here is the potential rate
of increase of the rate of genetic gain in wheat varieties due to the discovery, introduction, and
adoption of doubled haploid methods for the wheat seed industry. Wheat breeders indicated in
interviews that the use of double haploid techniques is highly likely to increase the upward trend
in yields of newly released wheat varieties. To capture a wide range of possible rate increases in
wheat yields, three scenarios were considered: (1) a "low" scenario, where the rate of change in
genetic gain remains constant when doubled haploid methods are used, (2) a "baseline" scenario,
where the rate change increases by 50 percent, from 0.206 bushels per acre per year to 0.309
bushels per acre per year, and (3) a "high" rate of genetic gain, assumed to be equal to 200 per-
cent, increasing the rate of genetic gain from 0.206 to 0.412 bushels per acre per year (Table 6).
Table 5. Model Sensitivity Results: Kansas Wheat Acres and Price.

- - - - - - - - - - - - - - - Scenario- - - - - - - - - - - - - - - - - - -
Low Baseline High
Kansas Harvested Acres (mil) 8.000 8.680 10.000
-------------------------------------------------------------------
% Kansas acres in KAES varieties 25.00 38.40 50.00
-------------------------------------------------------------------
Wheat Price (2010 USD) 3.27 5.77 7.07
1
Net Present Value (NPV) 90.959 173.286 216.316
1
Table 6. Model Sensitivity Results: Annual Genetic Gain.

- - - - - - - - - - - Scenario- - - - - - - - - - - - - - -
Low Baseline High
Annual Genetic Gain
Conventional 0.206 0.206 0.206
Doubled Haploid 0.206 0.309 0.412
-------------------------------------------------------------------
1
The results for the "low" scenario (Table 6) are important to consider. Even if the rate of genetic
gain were to remain unchanged, the economic impact of the proposed doubled haploid (DH) la-
boratory remains positive and large. In this case, the use of DH methods provides large, positive
economic returns, including a new present value (NPV) equal to nearly 60 million constant 2010
US dollars, a benefit-cost ratio (BCR) of 4.5, and an internal rate of return (IRR) equal to over 26
percent. We can conclude that any positive increase in the value of genetic gain forthcoming
from the adoption of doubled haploid methods will contribute large economic gains to the Kan-
sas wheat industry. If the rate of genetic gain were to double ("high" scenario, Table 6), then the
financial indicators are truly impressive, reflecting a large technological shift in the ability of
land, labor, and other inputs to produce grain.
Time and Discount Parameters
Cost-benefit analysis requires that future dollars be appropriately discounted to account for the
"time value of money." Two assumptions that need to be made are: (1) the appropriate "discount
rate," or rate that future dollars are valued relative to current dollars, and (2) the length of the
"time horizon," or how many future years are to be incorporated into the project. The results
demonstrate that the financial outcomes of the estimated model are robust to a wide range of as-
sumed parameter values of the discount rate and the time horizon (Table 7). The net present val-
ue (NPV) varies from a low of 105 million constant US dollars (high scenario) to a high of over
300 million constant 2010 USD (low scenario, Table 7) under changes in the discount rate, and
the benefit-cost ratio varies between 8 (baseline scenario) to 16 (low scenario). However, the
large, positive levels of each of the three financial indicators under the range of assumed values
provides some evidence that the proposed doubled haploid laboratory is a solid investment op-
portunity.
Table 7. Model Sensitivity Results: Time and Discount Parameters.

- - - - - - - - - - - - Scenario- - - - - - - - - - - - - - -
Low Baseline High
Discount rate 0.075 0.100 0.125
-------------------------------------------------------------------
Time Horizon (years) 25 50 100
1
Net Present Value (NPV) 115.324 173.286 183.662
1
Values are in million 2010 USD, and the assumed discount rate is ten percent
Doubled Haploid Laboratory Expenditure
Additional important and interesting results of the sensitivity analysis include how the costs of
the doubled haploid laboratory affect the financial outcomes of the Kansas wheat breeding indus-
try (Table 8). The simple economic model presented above disaggregated total costs facing the
doubled haploid laboratory into two cost categories: (1) one-time building costs, and (2) recur-
ring annual operating costs. Both categories are altered in three scenarios (low, baseline, and
high, Table 8) to quantify the economic impact of cost changes on the wheat breeding program.
The results demonstrate that given a reasonable range of cost assumptions for both building costs
and annual operating costs, the financial outcomes of the proposed doubled haploid laboratory
remain solidly favorable relative to other opportunities (Table 8).
Under a wide range of potential levels of both building and/or annual operating costs, the
financial indicators of the doubled haploid laboratory remain robust. Restated, under virtually
any reasonable cost situation or eventuality, the doubled haploid laboratory remains financially
viable and a solid investment, with returns much higher than alternative investment
opportunities.
Table 8. Model Sensitivity Results: Doubled Haploid Laboratory Expenditures.

- - - - - - - - - - - - - Scenario- - - - - - - - - - - - - - -
Low Baseline High
Building costs, one year 5 6 10
(m 2010 USD)
-------------------------------------------------------------------
Annual Operating Costs
(m 2010 USD) 0.5 1.0 2.0
1
Implications and Conclusions
This research set out to measure and analyze the economic impacts of a proposed doubled hap-
loid laboratory in Manhattan, Kansas. Interviews with wheat breeders provided quantitative cal-
ibration of the major effects of a doubled haploid laboratory. The interviewed wheat breeders
identified two major advantages to doubled haploid (DH) technology: (1) greatly accelerated
time to market for new wheat varieties, and (2) faster genetic gains in wheat yields. An econom-
ic model was built based on previous literature, knowledge of the wheat industry, and infor-
mation gleaned from the wheat breeder interviews. A baseline scenario was estimated for the
most likely set of conditions facing the future of the introduction of a doubled haploid laboratory
into the wheat breeding industry of the Great Plains.
The estimated results of the baseline case provided some evidence that both of the advantages of
DH methods would provide truly large economic gains to the wheat industry, and to wheat con-
sumers in Kansas, in the United States (US), and throughout the globe. For every dollar spent on
a doubled haploid laboratory, over 11 dollars are generated in the wheat market. The economic
value of the doubled haploid laboratory is conservatively estimated at over 173 million dollars
over the next 50 years, and the rate of return for the doubled haploid laboratory is conservatively
estimated at over 33 percent. This is a significant investment, with both a high rate of return and
a large gain in the well-being of wheat producers, wheat consumers, and wheat industry partici-
pants. Given these large, positive economic gains, we conclude that the sooner the doubled hap-
loid laboratory is built and operational, the sooner wheat producers and consumers will take ad-
vantage of the large technological advance that brings with it large economic gains.
While it can be challenging to forecast the future, the economic evaluation of the doubled hap-
loid laboratory indicates that the large and socially significant returns are robust to a wide range
of possible future economic changes, including price and quantity movements in wheat markets.
The economic analysis presented here suggests that the doubled haploid laboratory is highly like-
ly to be a successful financial investment, with large positive rates of return to Kansas wheat
producers and consumers.
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authors’ intro video

International Food and Agribusiness Management Review

A Doubled Haploid Laboratory for Kansas Wheat Breeding:

Background and Previous Literature

The use of DH techniques is complementary to traditional, or conventional, wheat breeding pro-

An Economic Model of Wheat Breeding

Costs and Benefits (USD)

Figure 1. Economic Benefits and Costs of Conventional Wheat Breeding

(1) REVt = At * Pt * KAESt * GENt (mil USD) = (mil acres)*(USD/bu)*(%)*(bu/acre)

Table 2. Summary Statistics of Kansas Wheat Breeding Program Variables, 1977–2010.

2001-2010 8,780,000 50.3 61.4 4.73 0.206 1,610 8.34

2006-2010 8,680,000 38.4 50.0 5.77 0.206 1,916 8.34

(2) Ct = BUILDCt + ANNUALCt (mil USD) = (mil USD) + (mil USD)

Research Methodology: Cost-Benefit Analysis

(3) NPV = B/(1+i)t - C/(1+i)t, t = 0, … ,T

(4) BCR = [B/(1+i)t] / [C/(1+i)t], t = 0, … ,T

(5) IRR: NPV = B/(1+r)t - C/(1+r)t = 0, t = 0, … ,T

Variables Used in the Cost-Benefit Analysis

Table 3. Assumed Parameter Values of Model Variables.

Annual Genetic Gain 4

Time and Discount Parameters

Doubled Haploid Laboratory Expenditures

Variety Development Time

Table 4. Model Results: Variety Development Time.

Kansas Wheat Acres and Price

Annual Genetic Gain

Table 5. Model Sensitivity Results: Kansas Wheat Acres and Price.

Table 6. Model Sensitivity Results: Annual Genetic Gain.

Time and Discount Parameters

Table 7. Model Sensitivity Results: Time and Discount Parameters.

Doubled Haploid Laboratory Expenditure

Table 8. Model Sensitivity Results: Doubled Haploid Laboratory Expenditures.

Implications and Conclusions

Kansas Agricultural Statistics. 2010. Crops 10(7).

United States Department of Agriculture. National Agricultural Statistics Service

United States Department of Agriculture. National Agricultural Statistics Service

United States Department of Agriculture. Economic Research Service (USDA/ERS). 2011.

United States Department of Commerce. Bureau of Economic Analysis (USDC/BEA). 2011.

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(1) REVt = At * Pt * KAESt * GENt (mil USD) = (mil acres)(USD/bu)(%)*(bu/acre)