Applied research in the economics of agribusiness, agricultural marketing and firm-level finance continues to be the thrust of the Farm Income Enhancement Program. Applied research is conducted in value-added commodity marketing, agricultural finance and producer cooperatives. A portion of the research focuses on the economics of innovation and technological change in distribution and marketing. This research emphasizes: 1) the economic influence of intellectual property on firm and supply chain behavior and 2) the economic factors underlying process and product innovation by value added processors in the global food system. In addition, the utility of real options in the evaluation of various types of investment and strategy formulation is a cornerstone of the applied research program.
This is a summary statement of some examples illustrating the applied research areas sponsored by the Farm Income Enhancement Program:
- Assessing the contribution of food and agriculture to the state and national economies. This research helps to define the economic importance of food and agriculture.
- From the beginning of this applied research in the early 1990’s, the conceptual foundation has been to define a “food and agriculture” cluster that includes all elements of the food supply chain.[i] This helps distinguish the economic contribution of the entire cluster or supply chain, as opposed to the more traditional contribution of only production agriculture, to the state’s economy. The economic importance of the food and agriculture cluster for both the state and the nation are estimated. In addition, the contribution of the food and agriculture cluster to the economies of each county in Ohio is available from the OSUE Data Center website.
- Various economic development professionals, farm organizations, OSU, OSUE, state legislators, and numerous local economic development organizations use these results. This research and the economic measures it generates, such as employment, output, and value added, is now recognized officially by the Ohio Department of Development (ODOD). ODOD incorporates the definition of the food cluster, an original contribution of the Farm Income Enhancement Program, into their publications and statistics.
- Value-added opportunities at the farm gate have been a core research area for the program. Applied research centered on feasibility studies key component for this area. A recent example is assisting livestock farmers in Southern Ohio and Northern Kentucky with a detailed feasibility study on a small multi-species processing plant in Adams County, Ohio. This study was motivated by the belief among some livestock producers in this area that they were underserved by existing livestock processing facilities. Results from this area of research have been presented at national professional meetings and to various commodity organizations in the state.
New Business Modle for Innovation Adoption: A Fusion of Future Farmers?
- Agricultural cooperatives as a business structure for farmers to engage in value added activities have always been a key focus of the Farm Income Enhancement Program. Novel approaches to equity capital access and the potential of new and novel business models for agricultural cooperatives is being addressed. The need for equity capital to facilitate growth has become a major issue among the cooperatives constituting the membership of the National Council of Farmer Cooperatives (NCFC). The topic is an applied research effort that corresponds to the dynamic nature of the research program supported by the cooperative endowment within AED Economics. A unique focus of this area has been to do cutting edge research using real options to evaluate investment in agricultural cooperatives and other value added ventures. In addition, research has focused on important differences between New Generation Cooperatives and traditional agricultural marketing cooperatives. One area of current applied research concentrates on social capital within agricultural cooperatives compared to similar-sized investor-owned firms. A paper was presented at an international conference in early 2007 that analyses this important, yet often overlooked, aspect of agricultural cooperatives.
- Alternatives for producers to jointly market agricultural commodities is an on-going focus of the Farm Income Enhancement Program. The potential for starting a new business centered on innovation and adding value to agricultural commodities is a continuing objective. Recent examples of value added feasibility included tomato paste and straw board.
Ohio farmers examine soybean crushing facilities as a potential value added investment
- Innovation and technological change in global agrifood supply chains is a cornerstone of applied research. This area is dedicated to better understanding the economic drivers that influence product or process innovation, and is especially concentrated on processed food products that represent value added products for many farm commodities. Examples of economic drivers examined include sustainability and the real option value of innovation. Adopting an innovation to build an effective sustainable competitive advantage over rivals can also be seen as an irreversible and an uncertain investment.
- Thus the option of waiting to see if a product innovation is a commercial success has some value to a potential adopter, much like the opportunity afforded to purchasers of financial call options. A call option gives its buyer (the adopter) the non-obligated right to buy (to invest) a financial stock (a set of production assets used to make a particular innovation), at a particular price (irreversible investment cost) at a particular future time. Therefore, the managerial choice to invest in the marketing of a product innovation can be seen as a right, but not obligation, that allows the innovator to make a future investment decision depending on circumstances conveyed through new information. This option gives the buyer the ability to postpone the decision until more pertinent information is obtained. The concept of real options applied to this particular problem promise better understanding of the underlying forces that determine how food products are introduced and the market segments that they may serve (see graphs for types of food product innovation and for further detail on evolving food product market segments)
Illustrative Examples of Applied Economic Enhancement Program
- Alternatives for producers to jointly market agricultural commodities
- Economic feasibility of specific value added potentials (e.g. TKS Dandelion as new domestic crop for farmers and a renewable source of natural rubber)
- Contribution of food and agriculture to the state and national economies
- Importance of brand equity and other intangibles in the global agrifood system
- Innovation and technological change in global agrifood supply chains
- Economic assessment of specific renewable feedstocks and value added chemicals and polymers
Additional areas of focus for this applied innovation research include:
- Types of agrifood supply chains, identifying the chain types and assessing the consequences for producers of each type chain has been a recent applied research thrust. Various supply chains have direct consequences for the share of the consumers’ food dollar that makes its way back to the farm gate.
- The importance of brand equity and other intangible assets, in the global agrifood system. Food for home consumption is sold at retail to consumers using brand names as an important means of signaling quality. Brands are important in the global food system. This research helps supply chain participants understand the scope of intangible assets, the role they play in strategy development, and some consequences of these types of assets. A major article was published in Choices magazine in December 2005 indicating the changes that are rapidly growing occurring in global agrifood supply chains.
- Costs of production and budgets for novel or alternative farm enterprises in Ohio.
- Natural rubber supplied from TKS dandelion prouction and processing. Global natural rubber (NR) markets have renewed interest in alternative feedstocks to the traditional rubber tree (Hevea brasiliensis). While many plants produce latex suitable for processing into rubber, the vast majority of the world’s NR comes from the rubber tree. Extensive research has been conducted on the guayule (Parthenium argentatum) plant; however, this crop is suitable only for the climate of the southwest United States, not the Midwest. Our research focuses on the TKS Russian Dandelion (Taraxueum kok-saghyz) as a renewable source of natural rubber and both a new crop enterprise and value added opportunity for farmers in the Eastern Corn Belt and Western Regions of the United States (especially Idaho, Oregon, and Washington).
- New Generation Cooperatives (NGC’s) as an option for organizing to engage in value added activities by Ohio Farmers continues to be a priority research area for the Farm Income Enhancement Program. An analysis for Ohio producers of a multi-species processing plant in Adams County, Ohio is just one recent example of this area.
- Economics of new industrial uses of agricultural commodities. Plant-derived renewables are targeted to supply 50 percent of "chemical building blocks" by 2050. The global bio-economy is accelerating so the bio-based materials and renewable products are becoming cost-effective alternatives feedstocks to replace petroleum-based counterparts. Technology has improved performance characteristics. Biotechnology and plant breeding will develop crops with higher yields and desirable plant composition for bio-products' applications (e.g., soybean seed with desired fatty acid composition).
Dynamic Food market Segments