Establishing New Crop Industries : Alternative approaches
This invited paper was originally prepared for the International Food and Agribusiness Management Association Conference in Jakarta, Indonesia in June 1997 by Greg Ferguson and Rob Fletcher. There were no proceedings issued from the conference. This is an edited version of the original.
Diversifying the agricultural sector by introducing new crop (and animal) industries is a policy objective often acknowledged as desirable by governments, but often not pursued actively.
The motives for diversifying the agricultural sector would include:-
The benefits of diversification are hard to measure; for example, if trees are left (or planted) around fencelines, or in designated corridors, how many trees are needed? As many as the supplier has at the discount price? A truck-full of seedlings? Is the benefit produced from a planting of 3000 trees any different from that from a planting of 5000?
Diversification benefits are normally taken on faith and are seldom quantitatively assessed.
What are the units for the character diversity?
It is difficult to achieve a diversified agricultural base in practice.
This is particularly the case if the diversification strategy involves the introduction of new crops; that is crops which are new to an area. In the Australian experience, it is difficult to move primary producers away from traditional crops and products. Introducing new products and processes into agriculture has not been readily achieved and some major programs have been unsuccessful.
Currently, at least 200 new crops are currently being researched in Australia and over 4500 potential new crops have been identified (Fletcher, 1997).
However, a change of emphasis is required in the approach by which crop diversification policies are achieved.
Research 'Supply-led' change
The most frequent approach in the past towards crop diversification has been the research supply-led change. Researchers or their institutions supply solutions for the diversification problem.
Supply-led change relies on researchers selecting suitable crops, developing them, introducing them to producers and assisting producers to make the crops a commercial reality. With this approach, there tends to be an emphasis on production. Unfortunately, there has often been insufficient attention paid to industry management and marketing.
This approach fails to recognise the complexity of the establishment of new industries based on new crops and products.
Governments often institute supply-led change.
Proactive researchers identify suitable alternative crops on the basis of environmental characteristics and institute a development and improvement program. Once suitable varieties and production technologies are available and appropriate yields consistently obtained, a process of extension of the new knowledge to farmers commences.
This process comprises a number of steps, with one having to be completed before the next commences. These steps are useful because they can be readily accommodated by the evaluation programs of the research funding authorities. Research costs are viewed as investments and the subsequent profile of innovation and activity provides a relatively easily measured pay-off for the research activity.
Research projects can therefore be ranked and selected on the basis of their anticipated investment return. There does not need to be any commercially successful product for the research outcomes to be considered worthy.
Producers are introduced to newly discovered crops and products through the appropriate extension tools but success with commercialisation usually rests on the skill of the producer and the nature of the extension mechanism. It is not the fault of the extension medium if the new crop is not commercially successful.
Although many supply-led programs for new crop development have not achieved their objectives of diversifying Australian agriculture directly, 67% of the increase in crop production in Australia over the 35 year period since 1950 has been due to new crop developments that have been successful (such as cotton, lupin, mushroom, sunflower, broccoli, soybean, melon, canola, triticale, avocado, macadamia, chickpea, mango, kiwifruit and almond; Wood et a/., 1994; Bond et al., 1997).
The cotton industry, with a current production value in excess of $1 billion, has developed as a consequence of the release of a new resource. Large scale irrigated lands became available as a result of new dams constructed on western river systems. The modern cotton industry was initiated by American immigrants searching for lower cost land than was available in the US.
A similar incentive led to the establishment in Australia of the pecan industry. American technology was also important in the domestication of macadamia nuts in Hawaii.
These new industries relied on imported technologies. They were not initially researched and developed in Australia. Domestic research and development followed establishment, to solve the locally occurring problems and has been important in the continuing success of these industries (Wood et al., 1994).
None of these industries was established by the mechanisms of the supply-led model.
A similar conclusion can be reached for the development of canola, triticale, kiwifruit and broccoli where key elements of the technology were imported when the industry was first launched. Domestic research followed rather than led the industry's establishment.
Perhaps the only successful industries where a 'supply-led' model has been successfully invoked are lupins and soybeans.
The lupin industry, with a gross output up to $200 million per year, was developed in Western Australia by Dr John Gladstones. Deficiencies in existing cultivars were identified and addressed by a research program, a process which culminated in commercial success.
Soybeans were selected as a likely new industry by researchers in the 1950's and were extensively researched before the industry was commercially established. The scale and scope of the industry now, however, is very much smaller than originally envisaged by the research programs.
Most of the boutique new industries (with small outputs and few producers) have been established by entrepreneurial action of farmers, groups of farmers acting together or by the action of agribusiness firms. Examples of these include safflower, tea, coffee, ginger, persimmon and aloe vera.
Processing/marketing firms have played a key role in the establishment of the opium poppy and pyrethrum industries in Tasmania.
The traditional model of a period of research leading to industry establishment is not apparent in the establishment histories of any of these industries. Research played an important role, but the choice of new industry was made by entrepreneurs not researchers. Research followed rather than led industry establishment.
Not only has the supply-led model been relatively unsuccessful in practice, there are some serious problems encountered in its application.
Four problems can be readily identified.
Firstly, choosing the potential new crop to be included in a research program is difficult.
Selection can be based on sets of multiple criteria with appropriate scoring, combination rules and weighting.
For large areas or regions which have a diversity of environments there may be hundreds or even thousands of competing possible crops.
Some criteria may be useful to winnow the choices to more likely contenders but inevitably personal preferences of the researcher or research fashion intrude on the decision making process.
The motivations of researchers choosing alternative crops are unlikely to coincide with the motivations of producers in selecting alternative enterprises. The search for alternatives by producers is normally triggered by some disturbance to the existing production regime. Such disturbances can be due to sudden declines in market price, the outbreak of disease or dramatic changes in input prices. The availability of a better crop does not necessarily guarantee that producers will include that new crop in their production regimes.
The second problem is 'lock-in'. This problem was recently formally identified by Arthur (1989). Whereas economic models suggest that optimum technologies are eventually found by market processes, Arthur demonstrated in situations of increasing returns, that once a dominant technology begins to emerge, it becomes progressively more locked in as the producer's preference. Historical events are not averaged away and forgotten by the dynamics of such systems; but instead they determine outcomes.
The trialling of new crops can be described as an increasing returns situation because once producers have had some experience with a hither-to unknown crop, they know more than they did before. Experience teaches how to act in the future and the 'devil we know is preferable to the devil we don't know'. As we learn, we modify what we do so that it's more effective next time.
Optimum solutions for new crops may not necessarily be established. Where there are several new crops or new crop technologies competing together, producers can readily easily become 'locked in' to one crop, ahead of another. The preference for this crop may be the result of unusual circumstances initially but subsequently may be maintained through sheer inertia or fear of the unknown.
Even if another new crop appears which may be superior, there is no guarantee that it will adopted, ahead of those new crops already being trialled.
In these situations there is little a new crop researcher can do to ensure his particular new crop is the one adopted. Even though it may offer the best long term prospects, small, unpredictable events can cause producers to follow a different path. Once that path becomes established there is little that can be done to lure producers along an alternative course.
A third problem which confronts the use of the research supply led model for new crop industries is the fact that research takes time.
By the time the various agronomic and other technical problems of a new crop have been sorted-out, conditions will have inevitably changed. This is well illustrated by the research which has been induced by changes in market prices for traditional crops. While a market price change can initiate a research program for alternatives, by the time the research is completed, market prices may be such that the alternative is no longer required.
This position can be illustrated by the level of research into guayule. The level of research as measured by the counts of published papers on the crop shows a strong correlation between the level of published research and international oil prices. Guayule research was promoted by high world oil prices but waned as prices declined. Despite the past research, large scale commercial production of guayule has not been established to provide a substitute for mineral oil.
A fourth problem of the supply-led model is the set of underlying assumptions of the nature of innovation.
The process of innovation where it relates to the establishment of a new crop industry is much more complex than is provided for in this step-wise model.
Rather than solve the overall difficulties of an evolving new crop industry by reducing them to a number of questions to be solved separately, the entire system needs to be evaluated simultaneously. This is because of the numbers of interrelationships between all the components of new crop industries.
Recent theoretical developments suggest that the process of new industry establishment is a process best captured by biological principles. In particular, new industry establishment follows the principles of island bio-geography and the process of new industry growth and development is essentially of an evolutionary nature.
Establishment of a new industry, like the establishment of a new species on an island, depends on a suitable niche being available. Establishment is a tenuous process with great potential for failure. Once established, new industries undergo progressive change.
The size of firms tends to increase and the number of firms engaged in a new industry tends to peak early. A decline in the number of firms engaged in the production is normally experienced after the industry reaches adolescence. Studies of the nature of technical change in new industries suggests that product characteristics also tend to change over time. In the early life of an industry there are many forms of product available, but this gradually stabilises as standards emerge. These characteristics are typical of new agricultural industries.
Supply-led new industry development is not only a feature of government action, but parts of the private sector capitalise by selling the 'blue -sky' associated with new industries. They trade on the uncertain value of new information about the potential industry and on the opportunity that early successful entrants have to earn monopoly profits.
In a number of rural crises in Australia, farmers have fallen victim to entrepreneurs selling promises associated with new wonder crops. In some circumstances the technology of the new crop was marketed to desperate farmers under conditions particularly favourable to the entrepreneur.
In certain circumstances, aloe-vera, blackberries, olives, tea-tree and industrial hemp seem to have been subjected to these influences. Ostriches were widely promoted as a get rich quick new rural industry. There may well be industries based on these new crops one day but they will not necessarily be returning windfall profits to the participants.
Producer 'demand-led' change
The alternative to a supply-led approach is to institute a producer demand-led approach. In this model the role of the researcher is reactive. Choice of research targets arises from the demands of farmers and entrepreneurs initiating changes designed to diversify enterprises.
This process of new industry establishment recognises the evolutionary (and unpredictable) nature of new industry establishment and abandons the practice of attempting to 'pick winners'. In the demand-led model, it is farmers or groups of farmers who make initial choices of alternative crops and products. Their search through alternative crops can be guided and assisted but it is their choice which ultimately prevails.
Research input occurs later in the process and the delay improves research productivity and pay-offs. Research tends to be participatory, broadly following the 'action-research' model, whereby everyone is participating in the solution finding/learning process. Such an approach is relevant in new crops because there are no experts of the type recognised in conventional crop industries.
Agronomic trial design of the classical type may be less appropriate than was the case in the past. In this model there is greater attention to the 'soft systems'- the human issues. The process is still amenable to management to achieve broad objectives but the management style and the tools of management are different from those employed in the traditional supply- led model.
The new role of the researcher in this approach is to facilitate the search process for the producers and to do problem-solving (solution-finding) research, perhaps in response to a tendering process. Such would occur after establishment of the new industry but never-the-less, very early in the industry's life cycle.
This approach does not restrain anyone from promoting any new industry but places the onus on the new crops industry to educate its members in discernment and gently in the art of being a cynic.
One means of enhancing the search process of producers seeking new enterprises is the 'side- show alley' model for a new crops information day. In this format, producers are exposed to a large number of possible new crops. This requires 'experts' in each particular crop to be available to provide short (10 to 15 minute) talks about their particular crop at regular intervals throughout the day. The real value of such a model derives from the availability of the speakers for individual consultation between the times allocated for their talks. Sessions run concurrently with common starting and finishing times and producers choose from the smorgasbord of information available, following up any particularly interesting topics with the speakers concerned.
A field day on this format was successfully run at Pittsworth, Queensland in 1996 and others have followed. The four hundred growers attending the Pittsworth day were first introduced to the risks and difficulties they confronted in seeking to establish new industries, by a number of plenary speakers.
The concurrent sessions on individual crops were then run and repeated every 60 minutes. This format exposes producers to a wide variety of alternative crops and allows small group contact. The group sizes for each crop presentation were usually about 20 persons.
Pulses, herbs, essential oil sources, medicinals, flowers, fibre crops, nuts and vegetables were included in the program, being previously identified by producers themselves as crops they were interested in. A key aspect of the field day was that the published program included contact names and addresses of the speakers and producers were encouraged to deal directly with them after their presentations. The speakers moved to a static display area after their presentations for these private consultations.
The focus of the demand led change is that the researcher is no longer presented as being the person who has all the answers. The role of the researcher in this format is as a facilitator of the search process undertaken by the farmer or the prospective producer. The researcher assists the farmer by pointing to the information sources and assisting producers assimilate the issues.
A second essential element in the demand-led change model is to encourage farmers into networks where the level of inter-farmer co-operation is high. New crop industries require expertise in marketing, business administration and production, thus requiring input from a number of co-operating producers.
Most new crop industries have a commercial minimum output. This commonly applies both to exported products and where local processing requires a minimum scale of plant. These minima, and the additional requirement for a steady flow of product is often beyond the capacity of a single individual. Failures of new crop industries have commonly occurred where insufficient product of a satisfactory standard is available to allow efficient processing and marketing.
Producers are traditionally independent types, but there are a number of successful models of co-operation available. In some of these models there is a role for the independent external consultant, employed by the group, to facilitate the networking between them.
Sirolli ( 1995) has specifically addressed the role of the facilitator of new industries.
His recommendations include:
·Facilitators should never initiate anything. If the facilitator starts doing things, the community identifies the facilitator as an expert, and the producers become spectators only
·Facilitators motivate nobody, preferring to work with those who are committed to new crop development rather than simply onlookers
·If people don't ask for help, leave them alone
·Individual commitment (passion) needs to be combined with physical ability/skill.
Sirolli dismisses the idea, inherent in the supply-led model, of attempting to pick winners. He strongly recommends building teams of co-operating individuals.
Marketing information is a critical issue in the successful establishment of any new crop industry. In the supply-led model the attention to marketing was often overlooked as agronomic and technical production factors took precedence.
The argument was that it was necessary to establish whether a product could be successfully produced before issues of marketing were addressed. There was also the reality that if there was no product available, marketing information would be theoretical and was thus considered of little use.
Production came first, marketing followed. In addition, marketing research has traditionally been relatively inaccessible and expensive for individual producers. As a result, the production aspects were pursued and marketing disregarded.
Lack of early attention to marketing is a common characteristic for many new crop disasters in Australia.
The need for marketing intelligence is recognised within the demand-led model. As with other elements, the emphasis is on the prospective producer.
The DOOR Marketing course has been launched to train producers to do their own marketing research. This 'do-it-yourselves' approach has the strength that the difficulty with communication of marketing information to producers is largely overcome and the proprietary components of this type of information, which has previously constrained its distribution, are better accommodated.
DOOR Marketing builds on the DOOR (Do Our Own Research) program which has been successful in the horticultural industries in training nursery-men to do their own research, through instruction in simple scientific methods. (Hunter and Hughes, 1996) DOOR also applies to new crop industries directly, once production research is required.
Marketing is a continuing need for enterprise success, not simply a once off exercise undertaken before production commences.
It is too early to know whether the alternative, demand-led model, will be more successful at new industry establishment than the earlier employed supply-led model. Demand-led change is finding support, not so much because of some deliberate large scale effort to change past practice, but rather in response to the realities of reduced funds for agricultural research generally and the improved availability of information for the better informed producer.
The scarcity of research funds restricts researchers from selecting their own pet projects for new crops. With access to wider information and the capacity to make broad searches for alternatives, producers are able to make better choices. Governments are generally still keen to see new industries established but are now less willing to support emerging enterprises and the research that discovers them.
Finally, although the demand led model represents an improved approach to new crop industry establishment, the fundamental uncertainty and inherent riskiness of new ventures are unavoidable. New crop and new industry establishment will remain a high risk undertaking.
Unlike other forms of investment where risk protection by way of options or futures contracts is available, new industries is an area of investment where costs are high and payoffs very uncertain. Like most attempts to launch new industrial and consumer products, most attempts to launch new agricultural industries will fail.
Risks are often overlooked. A classification of innovations first developed by Abernathy and Clark (1985) for the US auto industry is a simple but useful guide to the relative risk a new crops venture will confront. This approach locates new crops projects within the axes of required production and marketing change and therefore can facilitate a broad comparison of possibilities and indicates the potential relative risks involved.
A better understanding of the processes leading to new industry establishment is unlikely to improve the capability of planning research for their establishment. However, better understanding of the processes can improve the policy responses and the management of new crop industries as they emerge.
Employing a demand-led model of new industry selection relieves the researcher from the task of crop choice, for which she or he is ill-equipped. It allows them to work within better defined parameters on the immediate problems confronting industries which have been selected by producers to meet their diversification needs.
Whether a supply-led or the demand-led model of new crop industry is employed, Piet Heim's poem will continue to apply to all those who work in new crop industries and new product development:
The road to wisdom?
It is clear and simple to express.
To err, to err and err again
But less and less and less.
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Bond, K.A., Chudleigh, P.D. and Wood, I.M. (1997) Assessment of Commercial Prospects and Research Priorities for New Industries; Methodological Review and Development. Rural Industries Research and Development Corporation. Research Paper 1997/52. RIRDC, Canberra.
Fletcher, R.J. (1997) Listing of Potential New Crops for Australia including Numbers of Publications World-wide. The University of Queensland Gatton. 553pp.
Hunter, M. L. and Hayes, G.W. (1997) The DOOR Manual for Plant Nurseries. Queensland Department of Primary Industries. Brisbane.
Jolliff , G. D. (1989) Strategic Planning for New Crop Development Journal of Production Agriculture, 2: 6-13
Sirolli, E. (1995) Ripples in the Zambezi. Institute for Science and Technology Policy. Murdoch University, Western Australia.
Wood, I.M., Chudleigh, P. and Bond, K. (1994) Developing New Agricultural Industries. Lessons from the past. Rural Industries Research and Development Corporation. Research Paper 1994/1. RIRDC, Canberra.
Ferguson, G. and Fletcher, R.J. (1995) The Trials of New Crop R&D: Getting the Germplasm. In Wood, I.M. and Fletcher, R.J. eds. The Australian New Crops Newsletter, 3: 7.
Ferguson, G. and Fletcher, R.J. (1996) Life cycles in Australian agriculture. Proceedings, Fourth Annual Research Conference, The University of Queensland Gatton, October, 1996, 68.
Ferguson, G. and Fletcher, R.J. (1996) The Trials of New Crop R&D: Black death in new crops. In Wood, I.M. and Fletcher, R.J. eds. The Australian New Crops Newsletter, 5: 8-9.
Ferguson, G. and Fletcher, R.J. (1999) Establishing new industries: alternative approaches. In Fletcher, R.J. and Kregor, G.M. eds. The Australian New Crops Newsletter 11: 13-18.
Fletcher, R.J. and Ferguson, G. (1997) Monitoring research activity in specific new crops. In Fletcher, R.J. and Kregor, G.M. eds. The Australian New Crops Newsletter 8: 12-17.
Fletcher, R.J., Ferguson, G.E.A., Kregor, G.M. and McConnell, C.H. (1995) Choosing New Crops. In 'Successful Horticulture for the Future: Marketing, Innovation, Integration, Sustainability.' Proceedings, ACOTANC 95, Lismore, September, 1995. 59pp.
Fletcher, R.J., Ferguson, G.E.A., Kregor, G.M. and McConnell, C.H. (1996) Development and application of improved selection methods to produce new crops. Proceedings, 8th Australian Agronomy Conference, Toowoomba, February, 1996, 650.
Fletcher, R.J., McConnell, C.H., Ferguson, G.E.A., and Kregor, G.M. (1995) Opportunities in New Industries: The Process of Choosing New Crops. In 'Opportunities and Challenges for Rural Industries.' Proceedings, Queensland Rural Outlook 95, Mudjimba, October, 1995, 3: 1-10.
Contact: Dr Rob Fletcher, School of Agriculture and Horticulture, The University of Queensland Gatton, 4343; Telephone: 07 5460 1311 or 07 5460 1301; Facsimile: 07 5460 1112; International facsimile: 61 7 5460 1112; Email:email@example.com
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Latest update 30 October 2000 by:RF