NOTICE: Hard copies of the Australian New Crops Newsletter are available from the publisher, Dr Rob Fletcher. Details of availability are included in the
Advice on Publications Available.Dr Rob Fletcher
School of Agriculture and Horticulture
The University of Queensland Gatton College
Queensland 4345
Telephone: 07 5460 1311; 07 5460 1301
Facsimile: 07 5460 1112
Email: r.fletcher@mailbox.uq.edu.au
Web page: http://www.newcrops.uq.edu.au
[This invited presentation was made to the 10th National Berryfruit Conference held at Twin Waters Resort on the Sunshine Coast, Queensland from 24-28 May 1999. The presentation itself is linked also.]
Summary
Diversification seeks to increase the variety of enterprises pursued in an area with a view to increasing the sustainability of primary production in that area. Some of these enterprises may be new industries for that area. Successful commercialisation of new industries depends on the identification of a marketable product and a functional value chain from producer to consumer. A special Thirteen Step New Industry Commercialisation Process has been developed and will be described. A counselling process to introduce the process and the Do Our Own Marketing Research (DOOR Marketing) Course for evaluating new industry product marketability within the process will also be described.
Diversification - WHY?
Diversification seeks to increase the variety of enterprises pursued in an area (or on an individual property) with a view to increasing the sustainability of primary production. Some of these enterprises may be new industries for that area.
New rural industries have often been targeted by regional development organisations aiming to diversify the agricultural production of an area or by primary producers experiencing diminishing and/or unsatisfactory returns with traditional rural industries.
New rural industries are defined as those not normally pursued in an area.
Unfortunately, diversification of rural industries is often crisis driven. New industries are pursued in desperation, without considering the reliability of the available information, the length of time required for adequate returns to be achieved or the risks involved.
There have been many examples of well publicised new rural industry disasters where large investments have been made without due attention to the consideration of whether any return is feasible. In such cases, markets have often not been available for the new product.
New crops are an obvious way to diversify the agriculture in an area. Commercially successful new crops in Australia (Figure 1) have contributed to both the local economy and Australia's balance of payments, to the extent that 67% of the increase in Australia's crop production between 1949 and 1992 were the result of new crops (Wood and Fletcher, 1998).
The major difficulty faced by any researcher or developer of new rural industries, any public agency distributing funds to support new industry research or development or any government instrumentality responsible for new industries research and development lies in determining which new industry has the most potential; that is, what are the "best bets"?
Figure 1. The annual value of production (in $ million) for the fifteen most successful new crop industries developed in Australia since 1950 (Wood et al., 1994).
Counselling
The following process has evolved in response to enquiries seeking to know what the "best bets" for particular sets of circumstances are.
If you are a contented person, proceed to the next question.
If you do not consider yourself a contented person, new industries are probably not for you. If you are already suffering a crisis as a result of cash flow difficulties, the wisest recommendation is for you to emulate whatever a successful neighbour is currently doing. New rural industries are long term high risk enterprises that will not produce short term profits.
If the new industry is to be a business, it should be approached as such. If the new product is to be sold for a profit, then commercial business principles should apply.
If the new industry is to be a hobby, then do not be surprised if it does not produce a profit.
If you enjoy or are expecting you will enjoy producing the new product, then proceed to the next question.
If you have not had any experience with the type of industry being contemplated, there is always the risk you will not enjoy working with the new industry and its product.
Changing from one type of rural industry to another can mean massive changes in the skills required and in the type of work to be carried out.
A motivated enquirer should be prepared to make financial commitments to the new rural industry. A dependence on funding and advice from government agencies has arisen amongst many primary producers. This condition often discourages those producers from experimenting with new industries.
The Do Our Own Research (DOOR) concept, initiated by Dr Mal Hunter, from the Redlands Research Station, Queensland Department of Primary Industries, Cleveland has encouraged individual nursery operators to carry out their own research, in association with trained facilitators. This concept has now spread through other industries throughout Australia and is the basis for the DOOR Marketing Course described below, whereby participants carry out preliminary marketing research, in association with trained facilitators (Fletcher et al., 1998b).
If you are required to pay large sums of money for access to genetic material or information, and there are limited sources for such material and information without adequate opportunities for verification of its value or accuracy, the new industry is a high risk gamble. You should only gamble what you can afford to lose.
Why produce a product that cannot be sold? If the product cannot be described accurately, its marketability cannot be determined.
Marketability depends upon how the new product can be presented to the market, whether it can be sold, how the difficulties in getting the product to the market can be overcome and how such information can be sourced and improved. These matters are the core of the DOOR Marketing Course.
If the answer is yes, proceed to the next question.
If this information is not clear, consider where the industry is normally located and whether the target environment is similar. Large scale experiments are not encouraged at such an early stage of the investigations.
If the answer is yes, the group should include plenty of inspired producers, interested processors if the product is to be processed in any way, distribution agents and marketing experts, along with any researchers or others, who are willing to function as facilitators.
If the answer is no, consider how production, marketing and financial management expertise will be accessed for the new business to be successful.
If a group has already been formed, has it reached agreement about resource requirements, expected outcomes, action plans to achieve them, and distribution of any profits; established a process for project monitoring to identify and resolve problems quickly and efficiently; established economic benchmarks and an agreement to abandon the project once these have not been met; and established a system of review to place on record the circumstances under which the project is successful or has failed?
It is recommended that trials only be commenced once all the production, marketing and economic issues have been addressed.
Production issues
Production issues can be analysed with some predictive accuracy, using available software, such as PLANTGRO or CLIMEX.
Marketing issues
There are extensive marketing theories available for new manufactured products. However, new agricultural products are different, because they:
Marketing analyses for new rural industries require special attention and the Strategic Marketing Management (SMM) approach is a useful template for this purpose. In the DOOR Marketing Course, the following questions are addressed:
1. External Factors (Factors that can not be influenced in any way, often referred to as Opportunities and Threats)
2.1 Performance
Economic issues
Several special economic considerations relate to the development of new rural industries and the identification of "best bets".
Economic analyses of new rural industries have often been based on the perceived demand for the product from its first appearance on the market. Such demand is usually not sustainable. When a product is new and probably unique, it will have some commercial value so long as it remains so. Demand will increase for the product whilst supply is very low. Once the supply increases, this uniqueness no longer applies, so the product needs to have some useful purpose, apart from its uniqueness, to maintain demand.
If a market accepts one form of a new product, it can often lock out other forms of the product, even if the latter forms are superior. Hence, the first version of a new product can often benefit by locking out the opposition. This can explain why some new products are placed on the market prematurely, in order to lock out other products.
Conventional gross margins analysis has no relevance for new rural products since the accuracy of predicted returns is poor. However, one useful first step is to compare the costs of production between a range of new rural industries, relative to established crop enterprises. Rather than choosing the industry likely to produce the highest returns if successful, the best choice would be the industry which costs the least if the enterprises fail.
Economic predictions of new rural industries are often not accurate because new rural industries demonstrate many of the features of a chaotic system:
Economic outcomes from analyses of ‘best bets’ can easily be prejudiced by issues unrelated to the long-term viability of a particular industry. Such issues in the past have included the minimisation of income tax liabilities, the popularisation or politicisation of regional and/or community development and the curiosity of the public.
As a result, relatively unimportant issues have attracted the attention of entrepreneurs, members of the media, politicians, funding agencies and the public. At the same time, crucial matters, such as the marketability of a new industry product or the existence of a threatening disease which can render a new crop unprofitable are paid little or no attention as the publicity around a new industry builds.
Even if an otherwise comprehensive analysis of a new industry’s potential were able to be carried out, the results can be rendered invalid by seemingly innocuous events, such as:
New rural industry development is a long term, high risk gamble and funding agencies have often taken the view that an attempt to improve the efficiency of existing traditional rural industries is likely to be more profitable than investment in new rural industries.
Thirteen Step Commercialisation Process
This process is based upon the premise that the economic analysis of new rural industries cannot be predicted. Instead, the approach has been to monitor progress as new industries are commercialised. Such a process uses a carefully monitored and benchmarked process with a stringent set of guidelines and responsibilities:
This does not preclude others from promoting particular potential industries; the decision of the industry itself can be assisted by such initiatives as the Emerging Opportunities in Agriculture/New Crops Options events. These events are managed by groups of interested local primary producers, who identify a number of new rural industries of interest to them. Speakers with knowledge of each of these industries are identified and are invited to speak at the function. Each speaker is allocated to a "side-show"; each side-show has four speakers and there can be 10 or 12 side-shows operating concurrently. Each speaker has 10 minutes to address the main features of their new industry, with 5 minutes for questions, then retires to their designated display area nearby for 45 minutes of individual consultation with primary producers. The process is then repeated several times throughout the day. The advantage of the "side-show alley" model is that a primary producer can receive an introduction to many new industries by listening to those talks of interest and can follow up those of particular interest by individual consultation. Each speaker repeats his/her talk every hour throughout the day, thus overcoming the difficulties of speakers clashing.
If a new industry is a crop, then the Australian New Crops Newsletter (Fletcher and Kregor, 1999), the Australian New Crops Web Page (Kregor, 1998), the Listing of Potential New Crops for Australia (Fletcher, 1997) or the Directory of New Crops Workers in Australia (Fletcher, 1998) may assist. There are at least 220 new crops being considered for development or currently being developed in Australia (Table 1).
DOOR-Marketing is not intended to replace the need for a full marketing or business plan for new industries. However, it is intended to assist new industry developers in determining whether their selected new product warrants the investment in such plans. To date, approximately 10% of those new products targeted in DOOR Marketing Courses have remained viable after completion of the course. Such analyses must be improving the efficiency of new industry commercialisation.
The encouragement of researchers to be facilitators is a new role for those who would normally be expected to function as experts and leaders in the new industry research and development process.
Sirolli (1995) has described the function of a new industry facilitator as follows:
Sirolli believes that facilitators need to "give up the idea of picking winning ideas" and they need to "work with those people who are team builders" instead.
Acknowledgements
Rob acknowledges the cooperation and contribution of Gerry Kregor, Greg Ferguson, Chai McConnell, Peter Twyford-Jones, Tony Sadler, Peter Blessing, Nicholas Walker, Alan Davidson, Sibylla Hess-Buschmann, the late Ian Wood, the late Dr Lennox Davidson and many new crop entrepreneurs, farmers and students in these new crops developments, along with the participation of officers from the Queensland Department of Primary Industries, New South Wales Agriculture, Queensland Graingrowers Association, Queensland Fruit and Vegetable Growers, CSIRO and TAFE. Financial support is gratefully acknowledged from the Rural Industries Research and Development Corporation, Grains Research and Development Corporation, Horticultural Research and Development Corporation and the Queensland Department of Primary Industries.
Further Reading and References
Fletcher, R.J. (1997) Listing of Potential New Crops for Australia including Numbers of Publications Worldwide. Second Edition. ISBN 0 86776 734 0. The University of Queensland Gatton College, Lawes. 554pp.
Fletcher, R.J. (1998) Directory of New Crops Workers in Australia. Second Edition ISBN 186 499 0929. The School of Land and Food, The University of Queensland Gatton College, Lawes. 284pp.
Fletcher, R.J. and Kregor, G. (1999) Australian New Crops Newsletter. Issue #11 ISSN 1328-2026. The School of Land and Food, The University of Queensland Gatton College, Lawes. 172pp.
Fletcher, R., Twyford-Jones, P. and Blessing, P. (1998a) Marketing research for new industries. In The New Rural Industries, A Handbook for Farmers and Investors (Ed. K.W. Hyde). RIRDC, Canberra. 10-12.
Fletcher, R.J., Twyford-Jones, P., Blessing, P., Sadler, T., Kregor, G., Ferguson, G., McConnell, C., Davidson, A. and Walker, N. (1998b) New Crops DOOR Marketing: Do Our Own Marketing Research Information Booklet [The DOOR Marketing Manual]. ISBN 0 909816 35 2. The School of Land and Food, The University of Queensland Gatton College, Lawes. 254pp.
Imrie, B.C., Bray, R.A., Wood, I.M. and Fletcher, R.J., eds. (1996) New Crops, New Products. New Opportunities for Australian agriculture. Proceedings, First Australian New Crops Conference, The University of Queensland Gatton College, July, 1996. RIRDC Research paper 97/21. Volume 1: 290pp. Volume 2: 338pp.
Sirolli. E. (1995) Ripples in the Zambezi. Institute for Science and Technology Policy, Murdoch University, Murdoch, WA.
Wood, I.M., Chudleigh, P. and Bond, K. (1994) Developing New Agricultural Industries. Lessons from the past. RIRDC Research Paper Series 94/1. Rural Industries Research and Development Corporation, Canberra. 90+246pp.
Wood, I.M. and Fletcher, R.J. (1998) Allocating resources for research and development between and within new rural industries. Proceedings New Rural Industries 1998 Conference, Perth, October 1998.
Any claims made by authors in the Australian New Crops Newsletter are presented by the Editors in good faith. Readers would be wise to critically examine the circumstances associated with any claims to determine the applicability of such claims to their specific set of circumstances. This material can be reproduced, with the provision that the source and the author (or editors, if applicable) are acknowledged and the use is for information or educational purposes. Contact with the original author is probably wise since the material may require updating or amendment if used in other publications. Material sourced from the Australian New Crops Newsletter cannot be used out of context or for commercial purposes not related to its original purpose in the newsletter
Contact: Dr Rob Fletcher, School of Land and Food, The University of Queensland Gatton College, 4345; Telephone: 07 5460 1311 or 07 5460 1301; Facsimile: 07 5460 1112; International facsimile: 61 7 5460 1112; Email:
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