The Economic Impact of bGH on the New York State Dairy Sector: Comparative Static Results William B. Magrath and Loren W. Tauer The price and quantity effects of a forthcoming biotechnology product, bovine growth hormone (bGH), are explored in a simple partial equilibrium model. The model is based on previous theoretical work on technological change but is developed in terms of a sector output. A particular output curve is estimated using data from a random sample of New York State dairy farms, Information on the farm level production effects of bGH is used to shift the output curve and to solve for equilibrium levels of price and output. The model projects the bGH may lead to the exit of 5,400 New York dairy farms and a 20 percent reduction in herd size. Consumers will benefit from an approximately 30 percent drop in milk price. The effect on gradurd diffusion of bGH on farm numbers is considered. To accommodate this technology policies encouraging an orderly transfer of resources out of the dairy sector should be examined. Introduction In this paper we explore the economic conse- quences of a forthcoming biotechnology prod- uct, bovine growth hormone (bGH), on the New York State dairy sector. In the first sec- tion we develop a simple partial equilibrium model of the sector that can be used to study the impact of yield increasing technology. In the.second section the estimation of the model is discussed. Then the comparative static re- sults of the model under different policy and technology scenarios are presented, along with estimates of the impact of the technology on the New York State dairy sector. We next tentatively consider the time path of farm numbers with gradual adoption of bGH. Fi- nally, we summarize our results and consider the policy issues raised by this new tech- nology. We focus on bGH because it is widely ex- pected to be among the first commercial appli- cation of biotechnology to agriculture (Office of Technology Assessment) and because of the significance of the dairy industry to New York agriculture. Bovine growth hormone is a naturally occurring substance that serves to channel energy in the animal’s system. When injected in lactating dairy cows, bGH has been found to be capable of increasing output by forty percent during the period of injection (Bauman, et al.). Recent developments in re- combinant DNA technology have made com- mercial production and application of bGH feasible (Miller et al.), A study by Kalter et al, found that bGH use is profitable and that it will be rapidly adopted by dairy farmers. At the same time, however, there is great concern over the financial viability of many dairy farms, and over the future of federal dairy policy. It is widely expected that sig- nificant declines in employment in the dairy sector, national herd size, output and price will accompany the introduction of more mar- ket oriented policies. The effect of the in- troduction of yield increasing technology in this environment is the subject of this paper. William B. Magrath is a Senior Research Support Specialist and Loren W. Tauer is an Associate Professor, Department of Ag. Econ., Cornell University. The authors acknowledge the corn. ments of Rlchsrd N. Boisvert, This work was supported by the New York State Science and Technology Foundation through the Cornell Biotechnology Program. The Model Binswanger provides a graphic presentation of partial equilibrium approaches to technical