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Sampson, R.L. 1990. New crops research and development: An industry perspective. p. 21-24. In: J. Janick and J.E. Simon (eds.), Advances in new crops. Timber Press, Portland, OR.

New Crops Research and Development: An Industry Perspective

Ronald L. Sampson


  1. INTRODUCTION
  2. THE OPPORTUNITIES
  3. THE CHALLENGES
  4. THE RESPONSES TO THE CHALLENGES
  5. REFERENCES

INTRODUCTION

American agriculture has enormous capacities to produce both large volume, relatively low cost commodities, as well as a myriad of higher valued specially crops. Indeed, on a historical basis the productive capacity of our nation's agriculture has been largely underutilized, notwithstanding the temporary disruptions to supply which can be caused by climatic and ecological disturbances. In specific terms, it was recently estimated that as much as 150 million acres of land are excess of production needs to meet both domestic and export market demand.

Admittedly, 1988 is not a year in which one can easily maintain perspective on this issue; however, the underutilization of American agriculture has been a matter of much concern for decades. In general, the nation has been faced with the overproduction and oversupply of a few major food and feed crops. Enormous stockpiles of commodities, such as maize and wheat, have been maintained at great national cost, and incentive programs have even been used to take productive land out of production. Although this year we are thankful for the existence of such stockpiles, the current situation is by far a historical exception.

Agriculture is America's largest industry and, for a variety of reasons, a strategically critical one. Consequently, agriculture receives much government intervention. Quota systems limit the production of certain crops, while federal commodity programs place price floors under certain crops and restrain their production.

Nonetheless, as a nation, we are moving progressively toward a more market-driven agricultural industry, while concurrently edging the rest of the world down the same path. This means agriculture will increasingly need to focus on producing crops to meet the current market demands which provide the best opportunity, for profit. Consequently, in the face of a changing and increasingly competitive world environment, it seems tha t agriculture will necessarily become more like other large industries.

Generally speaking, industries which have an overconcentration or overdependency upon a narrow line of unchanging products are quite vulnerable. Changes in market demand or competitive activities can lead to reduced sales and unprofitability. In a truly free market situation, such scenarios can lead to the virtual demise of an industry.

In order to maintain long term growth and profitability, any large industry must necessarily diversify, through the development of new products. This is accomplished through the process of innovation—a process by which new product ideas or concepts are developed and commercialized.

Conceptually, agriculture needs increased product options-alternative crops which address different market needs and can be produced on an annual basis. Such increased options can enable American farmers to maintain production and maximize profits by responding to changing market conditions. Although this sounds relatively straightforward, we all know that agriculture is a massive and enormously complex industry, and the development of new crop options, on a scale which would make a difference, would be a formidable task.

A national task force recently addressed this issue' and concluded that diversification of American agriculture and forestry must become a national priority. Specifically, the New Farm and Forest Products Task Force concluded that "significant opportunities exist for new farm and forest products to meet real market needs—particularly in industrial, non-food application areas."

Such a conclusion invites questions.

If such opportunities exist to meet industrial needs for raw materials through new crops and other new agricultural products, why hasn't it already happened? More specifically, why doesn't industry make it happen?
Unfortunately, there are no single or simple answers to such queries. However, in this paper, an attempt will be made to provide perspective on some of the reasons past progress has been so constrained and, in that fight, what might be done differently in the future.

THE OPPORTUNITIES

Several task forces have addressed the opportunities available for new crops to meet industrial market needs. Among these were:

Although the focus of each task force was somewhat different, each concluded that many opportunities existed for the development and commercialization of new crops to meet industrial raw material needs. The report of each task force cited many specific new crop candidates which appeared to present significant commercial opportunities. These included a variety of crops as sources of fiber, oils, chemicals and pharmaceuticals.

Although they each generally agreed on needs and opportunities for new crops, each task force proposed somewhat different approaches to develop such opportunities into real agricultural options. Nonetheless, it is notable that each of the recent groups emphasized the importance of cooperation between the private and public sectors.

THE CHALLENGES

The development of new crops is fundamentally the practice of innovation in agriculture. In its essence, innovation may be thought of as a process of adding value to ideas. It is, by any measure in any industry or product category, a complex, risky and lengthy process.

Although the actual process of innovation is quite complicated and difficult, it is useful to think of it as a linear, three-step one. Under this simplistic definition, we can think of the first step as that of invention, or discovery.

Applying this step to new crop innovation, the discovery would likely occur in a governmental or university laboratory, or an agricultural experiment station. A scientist or researcher might identify a prospective new crop candidate by discovering properties in a wild plant which might be of commercial value. Illustrations of such discoveries might include kenaf, guayule, meadowfoam, or even cuphea.

Alternatively, the researcher may have conceived of a way to modify an existing crop, perhaps by genetically changing the rapeseed to produce a different oil with new chemical market potential.

In this first stage, the challenge is to establish plausibility for the new crop. Is it plausible that: if certain things happen; if certain changes can be made; and if certain properties can be delivered, the crop would be commercially viable? Obviously, there are far more unknowns than knowns at this time; however, to successfully progress beyond this stage, a credible basis must be defined to secure the support needed to continue down the path of innovation.

Those crops which offer sufficient promise may progress to the next stage, that of translation of the conceptual crop into a real one. In this stage, the feasibility of growing the crop and delivering the right product must be demonstrated. This is a lengthy and far more expensive part of the process—wherein the true commercial potential must be determined. The economics and technology must be right, and the market must be ready.

It should seem obvious that in this stage, there must be a close working partnership between the original researchers, the industrial users of the prospective crop product, and everyone in between. In other words, there must be close cooperation between the technologists and the marketers. Producers must also be involved to demonstrate the feasibility of crop production in practical terms. Generally, the need is defined for a public and private sector, cooperative partnership in some form. The needed levels of cooperation are, of course, difficult to obtain in this stage because of the uncertainties, the risks, and the costs involved.

Obviously, the third stage in this process is that of full scale commercialization. This is the moment of truth when large scale production is attempted, and the new crop is integrated into the whole production, distribution, and usage system.

To commercially succeed, everything must work right. The producer must be able to grow the crop and sell it for a profit. Industry must be able to buy the crop, add value to it through processing, and sell the resulting products at a profit. Finally, the consumer or final user must accept the finished product as one which meets a need and has sufficient value to justify its cost. All along the chain, additional handlers, shippers and distributors must also recover the costs of their service plus an appropriate profit.

As the complexity of the process suggests—even under this simple model, there are many more ways to fail than there are to succeed. Unfortunately, we do not have a sufficient base of data in agricultural developments to meaningfully estimate the probability of any new crop concept successfully progressing to market. However, based upon a considerable base of data in other industries throughout the world, an average of only one to five per cent of formally evaluated ideas, concepts or inventions ever make it to the marketplace.

This does not mean the ones which become commercial realities are big winners. Indeed, the data suggest that only one in one thousand become truly big winners. The odds might seem better than in a state lottery, but the costs of buying a ticket are decidedly much higher. It is important to keep in mind that, in a private sector context, the successes must be big enough to pay back not only the cost of that specific development, but the costs of all the preceding failures as well.

On top of such sobering odds against success, innovators in any field are facing long timetables. On average, it takes seven to ten years to move an idea successfully into the marketplace, with agricultural innovations generally taking much longer than that. Such long timescales mean that it is quite difficult for the private sector to generate the financial rates of return needed to justify the investments involved, particularly in the early stages of development.

Although it restates the obvious, it is useful to reflect on the fact that the level of financial returns needed by the private sector are largely determined by the cost of money. Like any other commodity, money has a cost, and a time-value. Even when interest rates are low, the cost of money is high if it will be a long time before it is paid back.

In agricultural developments, the situation is even more complicated, with the financial returns from new crops dispersed between producers, processors and consumers. As the New Farm and Forest Products Task Force reported:

Such a dispersion of returns and benefits dilutes normal market forces. Although industry's participation is essential to ensure products are developed to meet market needs, industry is inhibited from assuming a leadership role on its own. This is, in large measure, because industry cannot readily project its needed rates of return on investment due to both the dispersion of benefits and also the inordinately long time scales of agricultural developments.
The volatility of agricultural markets also make it difficult for private industry to undertake very long term research and development focused on new crops. The unexpected drought in 1988 illustrates the difficulty of predicting future supply, demand and pricing variables upon which one can project the economic viability of a new crop as an alternative to existing ones. The bottom line here is that uncertainty breeds inaction.

THE RESPONSES TO THE CHALLENGES

In spite of the difficulties new crop developments face, there are real bases for optimism and definable responses to the challenges involved.

As indicated above, there is a virtual consensus that development of new crops requires close partnerships between government, academia, and industry. This conclusion has been reached by virtually every group who have probed the issues of agricultural innovation or diversification.

Effective collaboration between the private and public sectors to facilitate agricultural innovation is not easy to achieve. In Drucker's recent book on Innovation and Entrepreneurship, he outlined some of the cultural differences between public service institutions and private enterprises which inhibit public sector innovation. He pointed out that the operation of public service institutions was based upon budgets and open-ended missions, rather than results and measurable, finite objectives. Such differences lead to significant cultural differences which in turn make it difficult to achieve common objectives and effective communications and coordination.

Nonetheless, effectively structured collaboration promises to maximize the chances for success and also minimize the timescales of new crop development. This is particularly true today in our emerging era of biotechnology. Biotechnology promises to provide the tools and means to make radical transformations and developments in agriculture which can shrink developmental timescales for new or modified crops in the future.

There are different models which illustrate somewhat different approaches to structuring the needed private/public sector collaboration. A current notable example involves the establishment of a large scale demonstration project for kenaf. This involved a cooperative public/private sector effort between the U.S. Department of Agriculture, via its Cooperative State Research Service, a private company, and industry, groups.

The kenaf project appears headed for a notable success with a $300 million planned for construction in South Texas to produce newsprint. Over 10,000 ha of kenaf are expected to be placed in production upon startup of the mill in 1990-91.

Another model for the development of cooperative private/public sector support for an early stage new crop development may be found in cuphea. Cuphea is a wild plant which produces oilseeds containing midchain triglycerides, oils of commercial value and interest. Under this model, an industry group formed within the Soap and Detergent Association provided multi-year research funding on a matching basis with each the U.S. Department of Agriculture, and Oregon State University. In spite of the very early, speculative phase of development for the project, this was possible because there was a clearly defined market need for the project which would result if the project was successful.

Although there is a consensus that private/public sector partnerships are essential for successful new crop development, there is no consensus on the most appropriate approaches to foster such collaboration. The CAST report outlined several options for stimulating new crop development, including establishment of new organizational entities specifically focused on such activities. Given its success with the kenaf project, the USDA understandably favors existing organizations and mechanisms directly flowing through the Department.

However, the New Farm and Forest Products Task Force concluded a focused, goal-oriented national effort was needed to adequately diversify American agriculture. Accordingly, they recommended the establishment of the New Farm and Forest Products Foundation, similar in some respects to the National Science Foundation. However, the new Foundation would be more focused on the achievement of a specific national goal:

To develop and commercialize within 25 years, an array of new farm and forest products, utilizing at least 150 million acres of productive capacity, to meet market needs representing net new demand for agricultural and forestry production.
The magnitude of that challenge is great; however, it is of the order needed to fully use the productive capacity of American agriculture and realize the job creation and economic benefits that such diversification would generate for the nation. Although interest in new crop development may temporarily wane in the aftermath of the drought of 1988, the need for providing increased crop and product options for American agriculture will assuredly once again become very apparent. A continuing dialogue now will surely help foster the levels of technological and institutional innovation needed to unleash the great economic potential of American agriculture.

REFERENCES


Last update February 12, 1997 by aw