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OCR for page 436
Pesticide Resistance: Strategies and Tactics for Management.
1986. National Academy Press, Washington, D.C.
Econorn~c Issues in Public
and Pnv ate Approaches to
Preserving Pest Susceptibility
JOHN A. MIRANOWSKI and GERALD A. CARLSON
Because of pest mobility, pesticide resistance is not easily managed
by individualfarmers. Pesticide manufacturer incentives in attempt-
ing to prolong the electiveness of pesticides are influenced by the
level of competition and likely new pesticide discoveries. There is
little evidence in pesticide prices that pesticide companies expect
rapid increases in pesticide scarcity due to resistance. Depending
on market and pest mobility situations, various groups can best
combat resistance development.
INTRODUCTION
Unlike most other resources used in world agriculture, synthetic pesticides
are a relatively new development. Creation of social institutions to protect
public safety, to encourage new pesticide discoveries, and to use effectively
the stock of pesticides now available are critical for the long-term productivity
of pesticides (Carlson, 1977~. The private companies and individuals involved
include pesticide manufacturers, formulators, retail firms, custom applica-
tors, pest-control consultants, and farmers. Public agencies vary from country
to country. The legal institutions include national and local pesticide safety
regulations and pesticide use and patent protection laws.
Many resources in agriculture are allocated by the choices of farmers
purchasing in unfettered markets. Because of the potential off-farm damage
by pesticides, however, there are regulations concerning maximum dosages,
restrictions on location of use, and other safety requirements. Economically
these regulations can sometimes be justified because producers may not
consider off-farm costs (health, wildlife, and environment) in their pesticide
. · .
use decisions.
436
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ECONOMIC ISSUES
437
When one farmer harbors or creates pests or conditions conducive to pest
population growth with adverse effects for surrounding and even distant
farmers, the free choices of farmers become nonoptimal (Regev, 19844. Since
many insects, weed seeds, and pathogens are highly mobile, the pests are
considered "common property." No single farmer owns the pests, and one
farmer's pest-control decisions affect other producers.
A pesticide company may behave as the owner of a mobile pest population
if the company produces the major pesticide used to control this pest pop-
ulation. The company will have an interest in the efficacy of the pesticide
in the future and will price the product and promote its use to maximize
long-term (discounted) net returns. With fewer close pesticide substitutes or
longer patent protection, a pesticide manufacturer is more likely to act as a
long-term manager of pest susceptibility.
Pests that are or might become resistant to one or more pesticides are the
main focus of this conference. When pests lose their susceptibility to pesticide
materials, they depreciate the value of these pesticides. Many types of ag-
ricultural resources depreciate in value over time: equipment wears out, land
is eroded, energy stocks are drawn down, and farmers' skills and knowledge
can decline. Individual farmers have long had the responsibility of deciding
the rate at which they use their resources over time. When mobile pests
develop resistance to currently available pesticides, however, groups of farm-
ers, government agencies, or other social units may need to take action. A
single farmer cannot decide how long the effectiveness of a given pesticide
should be maintained on his farm because the pesticide-use practices of all
farmers with whom he shares the particular pest population determine its
susceptibility to his pesticide applications.
With mobile pests, just as with pesticide movement off the farm, there
"may be" an economically superior way to organize pest control than through
individual farmer decisions. The "may be" refers to the costs and special
problems associated with collective pest-control actions. Actions by pesticide
manufacturers, government agencies, or groups of farmers may not slow
resistance development sufficiently to pay these additional costs, or the added
benefits may not justify the added costs.
We plan to show how the presence of mobile, resistant pests and pesticide
market structure influences pesticide companies and farmers; how one can
gauge current and future scarcity of pesticides; and how to determine what
factors favor various groups in managing pesticide resistance. We conclude
with some implications for policy changes.
PEST SUSCEPTIBILITY: OPTIMAL USE OVER TIME
One primary economic objective in pesticide resistance management is to
achieve the socially optimal amount of pest susceptibility to pesticides over
time. Although the objective is relatively straightforward, the dimensions of
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438
MANAGEMENT OF RESISTANCE TO PESTICIDES
\
,:
\
//
-
,~
A'- 'b
.
,.~- Id
.#
.#
MSB, S
O q2 q. q1
MSC
MSB
MUC
MCC
MCC
FIGURE 1 Optimal use of pest susceptibility over time: costs and benefits.
the process are complex, and the optimal solution will vary by pest and
pesticide. To simplify this decision process and to help interpret specific
cases, we present an analytical framework.
The analytical framework is drawn from the natural resource economics
literature that helps to explain the optimal intertemporal use of scarce re-
sources. The natural resource here is pest susceptibility to pesticides. Pest
susceptibility is a renewable resource that can be harvested repeatedly, but
through repeated use of specific chemicals and groups of chemicals, the stock
of susceptibility gradually reduces and eventually is depleted or exhausted.
For simplicity we will consider the depreciation of pest susceptibility as a
function of the number of exposures or applications of pesticides. Pest sus-
ceptibility then becomes a nonrenewable stock resource that is depleted with
repeated applications of a particular pesticide or pesticide group (Hueth and
Regev, 19741.
Susceptibility is a common property resource of varying degree. The pri-
vate versus common nature of the pest will depend on pest mobility between
farms and regions. Like the commons, one individual's harvest of the stock
may reduce the resource stock (susceptibility) available to other potential
users. Thus, a "public" decision may increase society's welfare relative to
that achieved in private optimizing decisions.
Figure 1 is a two-period graphic illustration (McInerney, 1976) of the
economic dimensions of the optimal intertemporal allocation of pest suscep
OCR for page 439
ECONOMIC ISSUES
439
tibility when the stock is limiting. Although a two-period analysis may not
appear appropriate, it illustrates the concept without the complexity of a
mathematical presentation (Hueth and Regev, 1974~. In Figure 1 the fixed
stock of the resource, OS, is given by the length of the horizontal axis. The
curves MSB ~ and MSB2 represent the marginal social benefits from utilizing
the stock of susceptibility in periods to and t2. (Alternatively, the level of
susceptibility is inversely related to the number of pesticide applications.)
MSB2 is reversed to illustrate that future resource use in period t2 is con-
strained by the stock remaining after period to. MCCOY and MCC2 are the
marginal pesticide costs in periods to and t2. Note that MCC2 is lower than
MCCOY. Both MSB2 and MCC2 have been discounted to translate all costs
and benefits into present values for direct comparison.
In a static model, MSB~ = MCCOY; thus, qua would be the optimal level
of pesticide use in period to. But in a dynamic context, the allocation decision
becomes more complex. The static solution, MSB~ = MCCOY, leaves an
insufficient stock of susceptibility to satisfy the optimality conditions in period
t2, that is, MSB2 = MCC2. A reallocation of the existing stock between the
. .
two Perot s Is now necessary.
The cost of utilizing susceptibility in period to in terms of foregone net
benefits in t2 is the marginal user cost, MUC, or the difference between
MSB2 and MCC2. The marginal social cost (MSC) of using pest susceptibility
in period to is the sum of MUC and MCCOY.
The optimal intertemporal allocation of the stock of susceptibility is at the
point where MSB~ = MSC. This allocation uses Oq* of the stock of sus-
ceptibility in period to and q*S in period t2. By allocating susceptibility such
that MSB ~ = MSC, the present value of marginal net benefits at q* are equal
in periods to and t2, or ab = cd.
This presentation does not include the environmental costs associated with
pesticides. With some minor modifications such costs could be included.
Yet even if we concentrate only on the production-related costs and benefits,
private decisions can deviate from the socially desirable outcome if (1) pest
susceptibility is a common property resource, or (2) the supplier of the pes-
ticides exhibits monopolistic behavior.
To evaluate common property, the interpretation of Figure 1 has to be
modified. The MSB curve becomes the marginal private benefit (i.e., mar-
ginal value product) curve for the individual producer. Likewise, the constant
MCC curve applies to the private producer as well as in the aggregate social
context. If each producer has sole ownership rights in the pest susceptibility
on his farm and pests are immobile, then the producer's profit-maximizing
behavior in allocating susceptibility between periods to and t2 will parallel
the social decision sought by society. No government intervention to slow
the spread of pesticide resistance can be rationalized. If each producer has
open access to the common pest susceptibility, assuming that the pest is
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440
MANAGEMENT OF RESISTANCE TO PESTICIDES
highly mobile among farms, then each producer in period It will equate
MCCl and the average private benefits, APBl, which is above and to the
right of the MSB~ curve. With common property, OqO would be used in
period It and only qOS would remain for t2. The private operator has no
incentive to conserve susceptibility because it will simply be extracted by
other operators who are using the pesticide to control their pest problem.
Thus, the common stock of susceptibility will be overexploited in the early
periods relative to the socially desirable pattern of use. Only public inter-
vention, such as regulations or price incentives (Regev, 1984), can move
the equilibrium from qO toward q*. Achieving q*, the socially optimal al-
location of susceptibility between the two periods, is both complex and
administratively difficult.
The competitive structure of the pesticide industry may have a major impact
on the allocation of the susceptibility stock between the two periods. Mo-
nopolistic control of a resource generally leads to underutilization of the
resource in the early years relative to the later years (Dasgupta and Heal,
19791. The initial price established by the monopolist is higher than the price
that would prevail in a competitive market environment.
To meaningfully analyze the pesticide market structure, often dominated
by a few companies, we must confine our discussion to a single pest and
the pesticides available for its control. Two cases need to be considered:
(1) monopolistic marketing of a pesticide for a particular pest with no close
substitutes available or easily capable of being developed, and (2) monopolistic
marketing of a pesticide with close substitutes for the control of a particular
pest.
In the first case, with no close substitutes, the monopolist can manage
pest susceptibility over time. The pesticide firm would equate its marginal
revenue and marginal cost curves to determine the profit-maximizing price
and quantity combination. Because the marginal revenue curve lies below
the demand curve, the optimal quantity of pesticide marketed would be less
and the price would be higher than for perfect competition. This combination
would tend to retard resistance development to the particular pesticide being
considered. In terms of Figure 1 the optimal use of the stock of susceptibility
will be less than Oq* in period to but the MUC curve will shift to the right,
partly offsetting the incentive to overconserve the stock of pest susceptibility
in period to. Figure 2 more clearly illustrates the monopolistic management
of the stock, with Oqm used in period to and qmS used in period t2. From
society's viewpoint, pest susceptibility would be overconserved and pesti-
cides would be underused in period to, and the stock of susceptibility may
not be fully used. The monopoly situation could develop if patent protection
was afforded the manufacturer and no close substitutes were available to
control a specific pest.
In the second case, with the availability of close substitutes, the monopoly
OCR for page 441
ECONOMIC ISSUES
o
441
MSC
~ \
-
-
~ ,
><
,
.. .
.
.
.
.
...
. ~
.
.
.
. . : .
.
.
. ..
· '
qm
MCC,
i\
q.
-
MR
1
go
S
FIGURE ~ Monopolistic management of pest susceptibility over time: costs and benefits.
faces a more elastic demand and a marginal revenue curve for its particular
pesticide. As the competition from substitutes increases, the monopoly ad-
vantage will disappear. But if some monopoly advantage persists and this
pesticide is marketed at a higher price than would prevail in a more com-
petitive market situation, resistance development for the monopoly product
may be retarded and hastened for the close substitutes, which are competi-
tively marketed.
RESISTANCE MANAGEMENT: INCENTIVES AND CONSTRAINTS
The only economic justification of public resistance management is that
the intertemporal added social benefits outweigh the added social costs. If
proposed resistance management schemes (e.g., regional pest-management
cooperatives, pesticide application restrictions, education programs) cost more
to implement, administer, and enforce than their potential benefits, then these
proposals will reduce overall social welfare even though particular producer
groups may gain.
If new pesticide products become more scarce over time, the practice of
adopting a new pesticide when resistance develops becomes less viable.
Alternatively, if new discoveries are adding compounds fast enough, farmers
may have little or no incentive to spend time and resources in slowing
resistance development. Chemical firms have economic incentives to search
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442
MANAGEMENT OF RESISTANCE TO PESTICIDES
TABLE 1 Indices of Prices Paid by Farmers, U.S. Average
Production
Year Items Pesticidesa Fuel Fertilizer Tractors Labor
1977= 100
1968 50 64 50 52 44 48
1972 61 65 54 52 54 63
1976 97 111 93 102 91 93
1980 138 102 188 134 136 126
1981 148 111 213 144 152 137
1982 150 119 210 144 165 143
1983 153 125 202 137 174 147
aComposite index of agricultural chemicals.
SOURCE: U.S. Department of Agriculture (1984a).
for compounds in areas where resistance to currently used compounds is
developing, since a new chemical will become more valuable as pests become
resistant to old compounds.
Over the past 40 years commercial agriculture, with minor exceptions,
has had moderately priced replacement pesticides available when resistance
has developed. Therefore, why should farmers expect that the pesticide in-
dustry will fail to develop new economic alternatives in the future? If new
pesticides are not expected to be readily available in the future, we should
see higher relative pesticide prices to reflect the increasing scarcity. Although
agricultural chemical prices were increasing between the years 1968 to 1983,
the rate of increase was substantially behind all other production input prices
(Table 1~. A more detailed breakdown of price increases paid by major
pesticide categories is provided in Table 2. The statistical series may be
shorter, and variation in the number of chemicals included over time may
reduce comparability, but the implications are very similar to those contained
in Table 1. Additionally, the price increases that did occur for pesticides
may have been more related to current market features, such as higher energy
prices, more stringent environmental regulations, and general inflation as
opposed to the increasing future pesticide scarcity. Thus, based on expec-
tations of future pesticide scarcity, the aggregate market evidence does not
indicate the need for overwhelming concern over future pesticide availability
and pest susceptibility.
Pesticide companies have incentives to monitor resistance and deploy prod-
ucts to maintain product life (Delp, 1984~. Although higher pesticide prices,
especially by firms with large market shares, may encourage lower pesticide-
use rates and lower resistance development rates, most chemical companies
are striving to maintain and expand market shares. Thus, conflicts with
business objectives are not uncommon when pursuing joint actions to prolong
the effectiveness of pesticides (Delp, 19841.
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ECONOMIC ISSUES
443
Decisions to develop new chemical-control alternatives and to price ex-
isting products are influenced by patents, the ability to maintain trade secrets,
and safety test requirements. The first two influences encourage the devel-
opment of new compounds; the last factor decreases effective patent lives
and reduces incentives to invest in additional pesticide research. These factors
should lead to higher pesticide prices, thus discouraging use and reducing
resistance buildup.
Pesticide firms may also use marketing practices to reduce resistance buildup.
For example, resistance has not developed with pesticide mixtures as opposed
to a single compound formulation. Selling mixtures is not without costs,
especially to the firm and the environment.
Integrated pest management (IPM) activities, community pest-control or-
ganizations, and other attempts to regulate entire pest populations could have
major impacts on pesticide resistance development. Yet such actions have
problems. These actions are usually costly to organize, administer, and en-
force (Rook and Carlson, in press). Enforcement may be difficult to ensure.
Such actions may be difficult to expand to many crop-pest situations, and
they may be unnecessary if the pest species has limited mobility. For example,
resistance in corn rootworm control may be largely endogenized into the
individual farmer's decision-making process with few external impacts.
National, state, and local laws may restrict the frequency of pesticide use
and the actual chemicals selected. Australia has initiated a program to vol-
untarily limit pyrethroid use on cotton to a particular period of cotton growth.
Although this cooperative program between farmers and industry has been
successful, it is difficult to agree on such restrictions until resistance problems
become quite serious. Unless the rates and consequences of resistance de
TABLE 2 Estimated Increases in Average Prices Paid by Farmers for
Selected Pesticides
Year Herbicides Insecticides Fungicides
(Percent)
19754331 40
1976- 14 11
1977- 9- 4 5
1978- 64 6
197935 7
1980710 22
1981158 7
198226 4
1983- 48 3
1984- 61 NA
1985* 0 - 3 - 1
*Projected.
SOURCE: U.S. Department of Agriculture, 1975, 1977, 1979, 1980, 1982, 1983, 1984b.
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444
MANAGEMENT OF RESISTANCE TO PESTICIDES
velopment are known, opposition from farmers and pesticide firms may be
strong, especially if the pest is not highly mobile between farms.
ORGANIZATIONS TO MANAGE RESISTANCE
It is in the self-interest of various economic agents to manage pests and
protect the future productivity of pesticides. Because of the differences in
pest mobility, detection of pests, farm sizes, and arrays of chemical and
nonchemical controls, there may be several social institutions for managing
resistance. The simple scheme outlined below considers six different man-
agement configurations: none, farmers, groups of farmers, chemical com-
pany, groups of chemical companies, and government units and laws.
These units range from small to large spatial areas of influence. The
importance of resistance management for a particular pesticide will increase
when few substitute chemical or nonchemical controls are available. The
extra resources expended for maintaining susceptible pest populations may
be considerable. Monitoring resistance development, switching compounds,
rotating compounds, changing sales efforts, and other actions call for high
levels of scientific and managerial manpower. Coordination costs between
groups of farmers or several chemical firms will increase as the spatial area
increases. As benefits from resistance management diverge, the ability to
reach agreements will decline. Thus, government agencies may need to
expand their role or governments may need to enforce mandatory laws or
regulations. The effectiveness of such laws and regulations will be limited
by their ability to be enforced.
Conditions Favoring No-Resistance Management
· Little evidence of or very slow resistance development.
· Substitute pesticide and nonpesticide controls are available and com-
petitive with current pesticide control.
· New substitute compounds are readily developed.
Conditions Favoring Resistance Management by Farmers
· Very low pest mobility, with the farmer "raising" and "owning" his
pests.
· Substitute pesticide and cultural controls are far more costly, and com-
petitive replacement pesticides are not forthcoming, that is, specialized crop
with limited pesticide market; unique pest lacking susceptibility to other
compounds.
· High-value crop subject to large pest damage in absence of control.
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ECONOMIC ISSUES
Conditions Favoring Voluntary, Multifarm Resistance Management
(Cooperative, Community, Consultants' Clients)
445
· Pests are sufficiently mobile within a confined region so that multiform
coordination of resistance management is beneficial.
· Economics of size can be realized in resistance management while
maintaining low coordination costs.
· Benefits and costs are proportional to level of participation.
· Minor benefits accrue to free-riders; these individuals impose minor
costs on the coordinated effort.
Conditions Favoring Resistance Management
by a Single Chemical Company
· Possession of a highly profitable compound with no potential or actual
close substitutes.
· Monitoring of resistance is not costly.
· Strong monopoly position permits the company to market the compound
so as to manage resistance.
· Pest is sufficiently mobile so that incentives for voluntary management
by growers are uneconomic.
Conditions Favoring Resistance Management
by Multiple Chemical Firms (Contracts, informal Agreements)
· Resistance can be easily managed by mixtures of compounds owned by
several firms.
· Resistance monitoring information is valuable for several products sold
by several firms, either from potential cross-resistance or by multiple pro-
ducers of the same compound.
· Coordination of selective pressure on a pest population can be achieved
by joint action such as rotation of compounds over time and space.
1
Conditions Favoring Use of Government Pest Control,
Regulatory Agency, or Laws for Resistance Management
· Free-ridership by one chemical firm or a few farmers can jeopardize a
regional coordination effort, typically characterized by a highly competitive
pesticide market and a highly mobile pest.
· Coordination between firms is costly, such as might occur when many
companies or farmers with widely different interests manage resistance for
a given pest population.
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446
MANAGEMENT OF RESISTANCE TO PESTICIDES
· Governmental unit that is responsible for pest control in an area (e.g.,
public health, Forest Service) can be responsible for resistance management.
· Government agencies can use existing regulations to respond to resis-
tance by quickly making new compounds available. Section 18 of the Federal
Insecticide, Fungicide and Rodenticide Act (FIFRA) allows the U.S. En-
vironmental Protection Agency (EPA) to speed the clearance process for new
pesticides when resistance is a serious problem.
These approaches are not mutually exclusive, and it may be helpful to
have several groups attempting resistance management. The main limitation
of having several approaches is that each approach will require scarce re-
sources to preserve susceptible pests. The overlapping efforts may require
more total resources to accomplish a given end relative to a coordinated
effort.
POLICY IMPLICATIONS
What policy implications can be drawn from the above analytical frame-
work with respect to resistance management?
· If the pest being considered is rather immobile and if farmers are in-
formed on pesticide resistance development, then the optimal allocation of
pest susceptibility over time can be achieved through farmers maximizing
their long-run returns. Public information (education) programs may be needed
to create an awareness among farmers of pesticide resistance development.
· If the pest being considered is mobile, optimal management of pest
susceptibility may require some form of organization or regulation, given
the "common property" nature of pest susceptibility. Yet some form of
intervention can be justified only if the added benefits outweigh the added
costs. Lazarus and Dixon (1984) evaluated a regional program for control
of corn rootworm pesticide resistance and concluded that the potential gains
were very small relative to farm incomes. Such a result can be expected
when the pest exhibits limited mobility and when viable substitute controls
such as crop rotations are available. Additionally, the magnitude of control
program costs should be an important factor in the decision to organize or
regulate.
· The attractiveness of resistance management to the pesticide industry
will depend on market structure. In a relatively competitive pest-control
situation with many close substitutes, there would be little incentive for
resistance management. If there were few substitutes and few firms competing
in the marketplace to control a particular pest, industry pesticide resistance
management would be more viable given the lower transaction costs involved.
But oligopoly theory would imply that an equilibrium management strategy
may be difficult to achieve in a dynamic market situation. Government
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ECONOMIC ISSUES
447
intervention, including a tax solution, to allocate susceptibility is possible,
but it would be extremely difficult to achieve an optimal allocation even if
pesticide resistance could be retarded.
· A monopolistic market situation can lead to an industry solution to
resistance management if no close substitutes are available. Where the mo-
nopolist provides the only efficacious control alternative, pest susceptibility
will only be allocated optimally by coincidence. More likely, susceptibility
will be overconserved. Yet the costs of public intervention may easily out-
weigh the benefits in this situation, especially if external environmental costs
are considered. If close substitutes are available the monopoly-controlled
compound will incur slower rates of resistance development, but resistance
development may be hastened for the close substitutes produced more com-
petitively. DDT resistance development in the 1960s and early 1970s may
be a good illustration of such competitive market consequences.
CONCLUSION
In summary the development of pesticide resistance is not an argument
for resistance management in and of itself. The best group to implement
resistance will depend on market and pest mobility conditions.
REFERENCES
Carlson, G. A. 1977. Long run productivity of insecticides. Am. J. Agric. Econ. 59:543-548.
Dasgupta, P. S., and G. M. Heal. 1979. Economic Theory and Exhaustible Resources. Welwyn,
England: Nisbet/Cambridge.
Delp, C. J. 1984. Industry's response to fungicide resistance. Crop Prot. 3:3-8.
Hueth, D., and U. Regev. 1974. Optimal agricultural pest management with increasing pest resis-
tance. Am. J. Agric. Econ. 56:543-552.
Lazarus, W. F., and B. L. Dixon. 1984. Agricultural pests as common property: Control of the
corn rootworm. Am. J. Agric. Econ. 66:456-465.
McInerney, J. 1976. Natural resource economics: The basic analytical principles. J. Agric. Econ.
27:31-53.
Regev, U. 1984. An economic analysis of man's addiction to pesticides. Pp. 444-453 in Pest and
Pathogen Control: Strategy, Tactical, and Policy Models, Gordon R. Conway, ed. New York:
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Rook, S. P., and G. A. Carlson. In press. Farmer participation in pest management groups. Am.
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U.S. Department of Agriculture. 1975. Evaluation of Pesticide Supplies and Demand for 1974,
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Agric. Econ. Rep. No. 366.
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448 MANAGEMENT OF RESISTANCE TO PESTICIDES
U.S. Department of Agriculture. 1982. Farm Pesticide Supply and Demand Trends, 1982. Agric.
Econ. Rep. No. 485.
U.S. Department of Agriculture, Economic Research Service. 1983. Inputs Outlook and Situation.
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August.
Representative terms from entire chapter:
resistance management
