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 Land and Food
The University of Queensland Gatton College
Queensland 4345
[This presentation was made to the Country Matters Conference held in Canberra on 20-21 May 1999. The presentation itself is also linked.]
Summary
New rural industries are those not previously pursued in an area. Successful commercialisation 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, using the social constructivist model of learning and participants from all components of the relevant value chains. Learning is a shared experience within each industry-based group. A counselling process, a Do Our Own Marketing Research (DOOR Marketing) Course and a Manual have been developed to assist enquirers to evaluate new industry product marketability.
Introduction
New rural industries are defined as those not previously pursued in an area. The impetus for development usually comes from regional development organisations aiming to diversify the agricultural production of an area or from primary producers experiencing diminishing and/or unsatisfactory returns with traditional rural industries.
The transmission model of learning has been the conventional approach for agricultural extension but has not been consistently efficient nor very successful with new rural industries. With the transmission model, an expert relays new information and demonstrates new techniques to primary producers. Unfortunately, experts of the calibre usually available in traditional rural industries are not available in new industries. Commercial failures have resulted from producers too readily accepting advice from "entrepreneurs" without scrutiny.
Hence, an alternative approach is required. The social constructivist model of learning has been adopted. Following this model, learning about the new industry is a shared experience between all members of a new industry development group, representing all components of the relevant value chain, from producer to consumer. Participants need to be curious and willing to communicate, co-operate, co-ordinate and must demonstrate commitment. Projects are abandoned as soon as it becomes apparent that outcomes have not been achieved or benchmarks have not been maintained.
New rural industries
The development of new rural industries extends the options available to primary producers, benefiting both the local economy and Australia's balance of payments. New industries improve the sustainability of farming systems through improved diversity.
Unfortunately, diversification of rural industries is often crisis driven and 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 are many examples of well publicised new rural industry disasters where large investments have been made without consideration of the whole industry value chain and of whether any return is feasible. Most commonly, markets have not been available for the new product.
"Best bets"
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.
Attempts have been made in the past by researchers, developers, funding agencies and government instrumentalities to identify "best bets" so that attention can be directed to the more promising new rural industries, in preference to others. Unfortunately, the numbers of issues which need consideration in such analyses are almost endless and the available information is scant and unreliable.
This alternative approach using social constructivism encourages motivated individuals to form appropriate groups to commence the commercialisation process, within a set of pre-determined guidelines and benchmarks.
Counselling
A counselling process has evolved and is used to respond to those initial enquiries related to the "best bets" for any particular set of circumstances. After indicating that no-one can responsibly advise an enquirer directly as to the "best bet", the following questions have proven useful:
Are you a contented person?
If the enquirer is contented, the counsellor proceeds to the next question. If the enquirer is not contented, this can indicate that a crisis has already occurred. In such circumstances, a new rural industry is probably not the answer to the enquirer's problems. The most serious problem is likely to be severe and immediate cash flow difficulties and the wisest recommendation is that the producer emulates whatever a successful neighbour is doing. New rural industries are long term high risk enterprises that will not produce short term profits.
What type of interest do you have in new rural industries?
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 principles should apply and the counsellor proceeds to the next question. If the new industry is a hobby, then the enquirer should not be surprised if it does not produce a profit.
What do you enjoy doing?
If the enquirer enjoys or is expecting to enjoy producing the new product, then the counsellor proceeds to the next question. If the enquirer has no experience in the type of industry they are contemplating, there is always the risk they 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.
Have you chosen a new industry that you are willing to commit yourself to, financially?
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 them 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 to other industries throughout Australia and is the basis for the DOOR Marketing Course (Fletcher et al. 1998a,b) whereby participants carry out preliminary marketing research, in association with trained facilitators.
If you have decided upon a new industry, do you have easy and free access to genetic material and information about the new industry?
If the enquirer is required to pay large sums of money for access to genetic material or information, and there are limited sources of such material and information without adequate opportunities for verification of its value or accuracy, the new industry is a high risk gamble. Enquirers should be advised to gamble only what they can afford to lose.
Can you describe the new industry's product to be sold?
A product is produced so that it can be exchanged for money at market. If the product cannot be described accurately, its marketability cannot be determined.
What is the marketability of the new product?
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 (Fletcher et al. 1998b).
Can the new product be produced in your area?
If the answer is yes, the counsellor proceeds to the next question; however, it is not advisable to commence accumulating large amounts of genetic material at this stage. If this information is not clear, the enquirer needs to consider where the industry is normally located and whether the target environment is similar. Once again, large scale experiments are not encouraged at such an early stage of the investigations.
Are you contemplating forming a group to produce and market the new product?
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 other persons who are willing to function as facilitators. If the answer is no, the enquirer should consider how production, marketing and financial management expertise will be accessed for the new business to be successful.
Have you formed a group already?
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, marketing and economic issues
Production issues can be analysed with some predictive accuracy, using available software, such as PLANTGRO or CLIMEX.
There are extensive marketing theories available for new manufactured products. However, new agricultural products are different; they:
Hence, marketing analyses require special attention and the Strategic Marketing Management (SMM) approach has been identified as a useful template for new rural industries.
SMM entails assessment of External Factors such as customers, competitors, the market itself and the environment (which usually cannot be influenced by the new industry participants themselves and are often referred to as Opportunities and Threats) and Internal Factors such as performance and strategic options (Strengths and Weaknesses).
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:
Hence, 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 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:
The primary producer or industry representatives choose the new industry of interest to them and commit funds to support the project; an important component for success in new rural industry development is the motivation and interest of the industry partners.
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, the Australian New Crops Web Page, the Listing of Potential New Crops for Australia or the Australian New Crops Workers Directory may assist.
The participants or partners in the new rural industry project acknowledge that the risks of no return are high; the partners also need to acknowledge that windfall profits are rare; such profits are only likely if the original idea for a new industry or the original germplasm is sold in a market where the idea is novel or the germplasm rare.
The participants determine whether the knowledge and/or techniques to be used in the development of the new rural industry are freely available to be used or are protected in some way.
The marketing potential of the new industry product needs to be evaluated; the two-day Do Our Own Marketing (DOOR Marketing) Course and Manual (Fletcher et al. 1998b) have been developed and tested for this purpose;
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 production potential of the new industry is evaluated theoretically.
An integrated development group is formed comprising producers, processors, distribution and marketing teams with research providers as facilitators.
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.
Resource requirements, expected outcomes, action plans to achieve them, and distribution of any profits are agreed to within the group.
A monitoring system is established to identify and resolve problems.
Economic benchmarks are agreed to, with a plan to abandon the project once these have not been met.
A review is put in place to record the project’s success or failure.
Trial production is carried out to produce trial marketing samples.
Trial production is carried out for trial processing and packaging and
Experimental production in the field commences.
Implications and conclusions
Using this approach, producers, rather than market researchers, are made responsible for the initial pre-feasibility marketing analyses. However, once preliminary investigations have been completed, marketing plans and business plans must be prepared for the viable options identified, using professional assistance.
Producers, rather than researchers, have been cast as the motivators behind new industry development. When serious problems arise, producers can more accurately tender for the solution of such problems amongst the research community.
Such an approach will also enable more industry-directed funding of new industry research and development, as has been encouraged by agencies such as the Rural Industries Research and Development Corporation.
In conclusion, the social constructivist model of learning lends itself to more involvement of the industry in new industry development with more efficient outcomes in terms of marketing, research and funding.
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.
References
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), pp. 10-12. Rural Industries Research and Development Corporation, Canberra, ACT.
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 School of Land and Food, The University of Queensland Gatton College, Lawes, Queensland.
Sirolli. E. (1995) Ripples in the Zambezi. Institute for Science and Technology Policy, Murdoch University, Murdoch, WA.
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:
r.fletcher@mailbox.uq.edu.au[
New Crops Home Page] [New Crops Program] [Australian New Crops Newsletter] [New Crops Publications] [Order Form] [People] [Crop Profiles] [Other Resources]originally created by:
GK; latest update 17 October 2001 by: RF