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.The issue of choice is at the core of economics. A farmer choosing a crop to plant will base the decision on basic budgeting - select the crop with the highest gross margin. This requires calculation of price, yield and operating costs. However, in pra ctice none of these variables is known with any certainty, even for crops with well-established markets.
Hence, expected net returns are calculated, taking into account the probabilities of particular levels of yield, price and cost being incurred. The crop with the highest expected return is therefore selected.
Once returns become uncertain, the farmer's attitude to risk becomes important. Potential losses may be more important than potential gains for a farmer. If so, the crop selected may provide a lower expected income but this would also provide fewer occ asions for losses to be incurred.
While there has been a good deal of work done on how risk can be measured and how it influences decisions, as yet, there is no single measure that allows decisions to be predicted in advance.
One of the great problems is that even a single individual's attitude to risk can change. As well, humans adjust their view of the world, once a particular decision has been made, so that the decision appears to be the "correct" one.
The operating environment of farmers is often unstable, being termed a "turbulent field". In such environments, conventional planning and decision-making tools have no use.
In the process of choosing new crops for research and development, a benefit-cost study would be expected to determine the best performing candidate. The expenditure on research would be considered as an investment and would be compared with the antici pated income from the research. Measuring the costs of research is relatively straight forward, but the measurement of the benefits from research is difficult.
Research into established crops is normally valued in terms of shifts in supply and demand for the crop's product(s). The benefit-cost study normally assumes perfectly elastic demand functions and ignores price effects of research-induced output change s.
Unfortunately, for new crops there are no supply and demand functions available. The supply component of this function can be modelled but predicting demand requires a new and unreliable area of economics - contingent valuation.
Confronted with the need to assign values to non-market public goods, economists, especially in the area of environmental economics, have been working on methods for revealed preference to replace the demand function. In essence, these are surveys that are intended to elicit from potential consumers, indications that are normally only available from markets.
Can revealed preference studies or surveys be used for the assessment of market characteristics of new crops? This may be a possibility, but it is still difficult to obtain reliable survey information from consumers about a product before it actually e xists.
Apart from the demand estimation problems, the assumed rate of diffusion for the new crop product is a key assumption in the assessment of research benefits, especially when the discount rate used is high. For new crops which imply radical change in th e underlying production or marketing methods, previous examples using other technology cannot be used and there is no template available for the diffusion estimate.
Related to the diffusion issue is the issue of the possibility of lock-in (or lock-out) occurring because of the new crop technology. The establishment of a new industry has been shown to be critically sensitive to the nature of the cost curves confron ted by early adopters. If there are increasing returns, the chance aggregation of a few individuals making a decision to produce a particular product can effectively lock out other possibilities.
This is a key issue and means that the establishment of a new industry will not necessarily follow the "best" overall position for the economy or region. If there is a characteristic for increasing returns for the first producers of a new crop, then th ose crops are more likely to be adopted than others. This occurs, irrespective of the eventual social benefit of the establishment of any particular industry.
Increasing returns amongst new crops, if they are reflecting the novelty value of the crop product, will not be sustainable since the demand, based on curiosity, will abate once supplies have increased and the product is no longer rare or unusual.
Broadly, in view of the foregoing, there is little possibility of using conventional economics to select new crops, either in terms of market acceptance or farmer adoption. The approach to new crop selection needs to be made from a different standpoint when compared with established crop research undertakings.
The current concept of research producing new knowledge that is then used by innovators to establish new crop industries is a noble concept. However, this approach does not confront the realities of the unknowable, turbulent field into which the resear ch results will be delivered. For better returns on new crop research, the uncertainties associated with its use need to be reduced. The concept of "anticipatory" research needs to be reconsidered.
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 6 June 1999 by: RF