Selecting new crops using Strategic Marketing Management.
Mr Chai McConnell
Former Postgraduate Research Student
Department of Management Studies
The University of Queensland Gatton, Lawes Qld 4343.
Marketing is a crucial factor to be considered in the process of selecting new crops for commercialisation. After critically reviewing four commonly used selection models a Strategic Marketing Management (SMM) approach is considered for its usefulness and applicability in the new crop selection process. The approach is applied to a case study of the tea tree (Melaleuca alternifolia) oil industry. Results indicate that sound management by industry pioneers, location, timing and low technological requirements were critical factors leading to successful commercialisation. It is concluded that SMM has significant potential in assisting the selection of new crops because the method is generic in nature and can identify critical market conditions.
This paper addresses the issue of new crop selection. It begins by examining the general research problem and the objectives of the New Crops research project at the University of Queensland Gatton (UQG). Then, the specific marketing problem and its objectives are considered. Four new crop selection methods, viz. the Delphi technique, political intervention, recreational research and the production-marketing-consumption (PMC) approach are reviewed. The deficiencies of these approaches in fulfilling the objectives of the research project are considered. The SMM approach is then reviewed as a method to select new crops, such as new tree and nut crop species. A case study of the successful development of the tea tree oil industry is included, highlighting critical factors associated with its commercialisation and the usefulness of the SMM approach in selecting new crop species.
The research problem
Lists of new crops with "potential" run into the thousands. Of the 500,000 plant species estimated to exist around the globe, it is possible that all can be utilised to some extent by humans now or in the future. Despite the magnitude of the genetic resource pool, the number of species actually cultivated in managed agroecological systems around the globe is few. Vietmeyer (1988) stated that, of 3000 tropical fruits available, only four viz. banana, mango, pineapple and papaya are produced in significant quantities around the globe. Despite the range of opportunities, new crop researchers are confronted with a serious dilemma. The dilemma concerns the question "which potential new crop species should be selected for research and development that will yield profitable financial pay-offs in the future?" The New Crops research project at UQG, funded by the Rural Industries Research Development Corporation and the Grains Research Development Corporation (RIRDC/GRDC UQ 33-A), is addressing this dilemma.
New crops research is inherently eclectic and draws from a number of disciplines including botany, anthropology, agronomy and food technology. Marketing however, is acknowledged as a key activity in successfully commercialising new crop species. The specific research problem which is being addressed is "can the selection process for new crop species be improved using a SMM approach?" The research problem seeks to identify marketing factors crucial in the new crops selection process and will develop a generic selection framework.
A review of selection methods
Methods of selecting new crops are varied but four general approaches. These are the Delphi technique, political intervention, recreational research and the PMC model.
1. Delphi technique
This method has often been used to select new crops (e.g., Knox and Thiesen, 1981). The method involves asking a group of experts to forecast a new crop species that is most likely to warrant commercialisation. Experts have the opportunity to revise their decisions in light of the opinions of other experts and are required to support and change their initial assessments by interaction with other experts. Decisions as to which new crop to select are made once a consensus is reached.
While the Delphi technique may be effective in overcoming data constraints, a major disadvantage is the ability of experts to influence the decisions of other members. An even greater drawback concerns the inability of the experts to express and formalise the knowledge they possess (Sestito and Dillon, 1994). The technique has limitations in being used in a generic selection framework.
2. Political intervention
Politics has played a major role in the selection and of new crops because of the role of political institutions in developing and setting agricultural policy. Agricultural research and development funding is derived from the broad area of public research expenditure (Wood, Chudleigh and Bond, 1994). In Australia, new crops research is supported by the Rural Industries Research and Development Corporation (RIRDC). Established in 1990 by the Federal Government, this organisation coordinates and funds new crop and animal research with the objective of establishing new and sustainable agricultural industries. Between 1990-1993, RIRDC funded 400 projects totalling $21.6 million (Hyde 1993).
There are many drawbacks to political intervention supporting the new crop selection process. Interest in new crops fluctuates from intense to subdued (Conrad (1993). New crop policy is not always consistent and is heavily influenced by availability of funds and interest levels of politicians. Relatively short government terms, compared with the long lead times required to commercialise new crops, impede the new crop selection procedure.
The dynamic and sometimes erratic feature of political intervention means that it cannot serve as a generic new crops selection framework.
3. Recreational research
Recreational research in new crop selection is not widely documented. Recreational research has been critical to the establishment of a number of new fruit and nut industries in Australia. It can be defined as a systematic investigation procedure that enhances knowledge of new crop species but has as its primary focus the occupation of leisure time. The research receives little or no funding from public institutions. Information on new crops is generated and disseminated by interested individuals and groups. The Rare Fruits Council of Australia and the West Australian Tree and Nut Crop Association for example, play important roles in providing information and supporting the selection of many new tropical crops.
Recreational research greatly contributed to the selection of lychees as a profitable new crop for northern Queensland. Since lychee plants were first introduced in the mid 1800's, it has developed into an industry valued in 1989-90 at three million dollars (Greer and Smith 1990). Despite being in Australia for nearly two centuries, commercial production began in the late 1970's, largely as a result of recreational research efforts of Mr Herb Bosworth of Innisfail.
While the role of recreational researchers can be important, its ad hoc nature, coupled with limitations on financial and technical assistance, severely constrains its applicability to the development of a generic selection framework.
4. The PMC approach
The PMC model for selecting and introducing new crop species is well illustrated in the work of Knox and Thiesen (1981). Case studies of six potential new crops (kenaf, jojoba, guayule, crambe, pigeon pea and grain amaranth) were conducted and data collected to design decision matrixes for each new crop (Knox and Thiesen 1981).
The first subsystem of the PMC decision matrix was production. It consisted of 16 criteria deemed to be critical to new crop production and included land and water resources, production financing, farmers' risk taking, machinery needs, government services and regulation and market information for farmers.
The second subsystem was marketing. It consisted of six procurement criteria (including dependable supply, market intelligence and transport and storage), eight processing criteria (including processing resources, equipment, energy and managerial ability) and six distribution criteria (including resource and finance distribution, product market information and market research and development).
The third subsystem was consumption and it comprised of market penetration, size, consumer awareness and product versatility criteria.
New crops were selected by determining whether it was physically possible and institutionally permissible for them to be produced. An important consideration was whether they could be produced economically. Tests of the six new crop species revealed that kenaf had a promising PMC system if it was based near existing pulp and paper mills. Natural harvesting of jojoba was feasible but large scale planting threatened to saturate the small market for jojoba. The potential for using jojoba oil as a feedstock was limited by high costs of production and processing. The PMC analysis of guayule showed that high investment costs in processing technology were major limitations to its introduction. Pigeon pea was constrained by production technology but potential existed for this to be overcome by "borrowing" from established legume systems. The grain amaranth PMC analysis revealed major problems with production and processing technologies while the analysis of crambe highlighted the requirement for coordination between farmers and industrial processors.
The PMC decision matrix provided a significant breakthrough in formalising the new crop selection process. While it was generic and recognised the importance of production, marketing and consumption relationships it was not without its limitations.
Of the six new crops selected for assessment none to date has been commercialised. A possible reason for this was the failure of the system to include management as a critical factor in the decision matrix. Managers have the responsibility of coordinating resources and monitoring their allocation to achieve desired objectives. While identification of resource requirements is important, the role of managers in orienting the resources is also crucial. This inability to account for management may have contributed to the failure of the PMC system subsystem.
Another possibility was that the decision matrix may have underestimated the importance of the consumption subsystem. Even though the marketing subsystem included 20 criteria, the approach failed to determine the real or perceived attributes of new crop products and their demand. Despite its structure and generic applicability, the inability of the PMC system to effectively select new crop species implicitly suggested that an alternative approach needed to be considered.
New crops selection using SMM
SMM is defined as the process of planning, implementing and controlling marketing activities associated with new crops. The approach assumes that all new crop species have the potential to be commercialised, providing marketing opportunities exist, and have been correctly identified and used as the basis for planning and resource management. It emphases the identification of product consumers and their competitors.
The SMM approach categorises the new crop environment into an external component that identifies opportunities and threats, and an internal component that determines strengths and weaknesses. As the performance of a new crop product has a direct causal relationship with the achievements of its industry, the opportunities, threats, strengths and weaknesses of a product can be considered as synonymous with those of industry. A general model of the SMM approach is shown in table 1.
Customer analysis identifies the consumer. It considers social and cultural changes to determine potential market opportunities for the new crop product.
The SMM approach enables competitors to be identified. The majority of new crop products must compete against goods already established in the marketplace. At the industry level, competition for resources and factor inputs may also threaten new crop selection and commercialisation.
Table 1. A generalised model of the SMM approach.
Customer analysis (e.g. demographics)
Performance (e.g.real and expected profits)
Competition (e.g. established products)
Strategies (e.g. short term profits, sustainability)
Industry (e.g. trends)
Exogenous factors (e.g. government R&D)
Opportunities and Threats
Product or industry positions relative to their life cycle need to be determined. Opportunities will be reduced as the product or industry approaches maturity.
Exogenous elements presenting opportunities or threats to crop selection need to be identified. Opportunities such as government grants to fund research should be investigated. Factors that impede commercialisation such as technological requirements should also be determined.
The internal component of SMM refers to factors within the control of the potential industry. The internal analysis identifies the potential new industry's inherent strengths and weaknesses. Appropriate measures to determine performance, such as profitability, need to be determined. The objectives of the industry and the means by which these objectives are to be fulfilled will also be identified.
Strategic marketing management is useful because it identifies market factors critical to the selection process. The approach determines what resources are required and how they can be organised. A major benefit is the fact that a review system can be established to analyse the achievements of the industry. The applicability of the SMM approach to selecting new crops will be illustrated with a case study of the tea tree oil industry in Australia.
Case study: the development of the tea tree oil industry in Australia
Tea tree (Melaleuca alternifolia) is produced and harvested as a source of essential oil. Initially sourced by harvesting wild plants in the bush, the majority of oil produced today is derived from commercial tea tree enterprises. Several attempts were made to commercialise tea tree in the past but it has only been in the last fifteen years that these attempts have been successful. In that time, tea tree farming has rapidly developed into an established and successful industry.
1. External analysis of the tea tree industry
1.1 Customer analysis
The development of the tea tree industry coincided with growing community awareness of environmental issues. This provided opportunities for tea tree oil. Its natural image was a critical factor in appealing to consumers with environmental concerns and generating product demand.
Tea tree oil has a diverse number of applications. They include pharmaceutical therapeutic, popular therapeutic, cosmetic, toiletry, medical germicide, industrial disinfectant, veterinary and pesticide uses. This multiplicity of uses has meant that the product had wide appeal to a large number of consumers.
While other essential oils, such as eucalyptus oil existed in the marketplace before tea tree, the medicinal properties of tea tree oil were critical in differentiating it from competing products. The characteristic that determines the marketability of tea tree oil was the relative proportions of cineole to terpinene-4-ol fractions. Tea tree oil, with high proportions of terpinene-4-ol, was considered good quality, because terpinene-4-ol was thought to be responsible for the oil's medicinal properties.
Low opportunity costs of factor inputs such as land were also crucial to industry establishment. The absence of profitable land-use alternatives meant that factor input costs were relatively low. Planting, harvesting and processing technologies were also not challenging. Machinery used in the production of sugar cane and maize could be directly transferred and utilised in establishing and maintaining a tea tree oil enterprise. This enabled establishment costs to be minimised.
As mentioned, tea tree oil was an essential oil that was marketed for its natural medicinal properties. The ability to use the oil in cosmetic and toiletry products assisted in its commercialisation because of the strong industry growth trends for those products which used natural, environmentally-friendly products during the 1980's and 1990's.
1.4 Exogenous factors
There were many exogenous elements that assisted tea tree oil industry development. Scientific research contributed greatly in the understanding of the qualities of tea tree oil and assisted product development.
2. Internal analysis
One of the strengths of the industry and a critical factor leading to its success was its profitability. While oil yields and prices varied from season to season, average returns ranged between $3000-$7000/ha (based on a $35-50/kg price range and average yields of 90-150 kg/ha).
The long term outlook taken by industry members was crucial to the successful commercialisation of tea tree. Marketing was identified at the beginning of industry development as being critically important. Producers realised the potential of tea tree oil and made a concerted effort to fully develop the industry to ensure that the comparative advantage it possessed was not lost to foreign concerns.
The SMM case study of the tea tree oil industry reveals that a multitude of factors operating in different space and time continuums were crucial to the commercialisation of the species and successful development of the industry. SMM has merit in the new crop selection process because of its ability to identify these factors.
New crop researchers are confronted by an enormous variety of plants species from which to choose. Previous approaches in selecting these crops are limited as they either have been ineffective in selecting crops or are not generic in nature. SMM has potential in assisting the new crop selection process because of its ability to identify critical marketing factors that can impede or accelerate commercialisation.
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Greer, G.N. and Smith, K.L.C. (1990) Lychee Marketing in Australia. Queensland Department of Primary Industries Project Report QO90031. Queensland Government, Australia.
Hyde, K. (1993) The Rural Industries Research and Development Corporation. Research Report 1990-1993: A Compendium of Completed Research Projects. RIRDC Research Compendium No1. The Rural Industries Research and Development Corporation, Canberra.
Knox, E.G., and Thiesen, A.A. (ed.) (1981) Feasibility of Introducing New Crops Production-Marketing-Consumption (PMC) Systems. National Science Foundation, Washington D.C. USA.
Sestito, S. and Dillon, T.S., (1994) Automated Knowledge Aquisition. Prentice Hall, Sydney.
Vietmeyer, N. (1988) The New Crops Era. In Janick J. and Simon J.E. (ed.) (1988) Advances in New Crops: Research, Development, Economics. Timberland Press Oregon, USA.
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., 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., 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:firstname.lastname@example.org
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Latest update 30 October 2000 by:RF