Biotechnology developments are part of major changes taking place in the agri-industry system. The management implications of the new technologies for those in the production sector are significant.

Areas of impact on farm management include information management, cropping management, risk management, quality assurance, identity preserved storage and handling, and loss of independence.

Some farmers will be winners and some will be losers from biotechnology.

The winners will have the broad managerial and learning capabilities required for all the changes which are occurring in the agri-industry system. They will be flexible in developing new enterprises and strategies and will work closely with researchers to aggressively manage the changes. They will achieve economies of size through innovative business structures and co-operation with others. Winning farmers will be disciplined professional achievers in all that they do.

The key challenge for winning farmers if they are to improve profitability through biotechnology lies in their ability to add value to their products. Those producing commodities may well find that the advantages of biotechnology are eroded through the ‘treadmill effect’- the depressing effect on prices of increased productivity.

As the agri-industry system becomes increasingly integrated in response to global trends, farmers will need to move quickly and decisively to become part of the win-win alliances of the new order.

Revolutionary changes are taking place in our agri-industry system. Agriculture is being redefined from a food and fibre production sector to an integrated life sciences business (Westchester, 1999). The new roles include innovative food and fibre products and potential for production of industrial products such as plastics and oils as well as pharmaceuticals and nutraceuticals.

Biotechnology developments are an important part of the revolution. Ruttan (1999) goes so far as to comment ‘it is not an exaggeration to suggest that biotechnology is poised to become the most important new general purpose technology of the first half of the 21^st Century.’

It is early days in the application of the new biotechnologies. New products of genetic manipulation (GM) have been commercially available for only a few years. Emphasis has been placed on development of the technologies and acquisition by large companies of genetic material, enabling technologies and access to the input supply chain for seed and chemicals (for example, see Monsanto, 1997).

Of late, various consumer groups have voiced their concerns indicating that there is much to do in developing trust and understanding between stakeholders (for example, see Ragg, 1999). Little attention has been given to the management implications for those in the production sector and the likely impact on the evolution of the agri-industry system.

The early indications are that many farmers are adopting GM crops with enthusiasm. Already over 10m Ha of GM corn, 10m Ha of GM soybeans and 4m Ha of GM cotton are grown in the USA (McLaren 1998).

It is expected that by the year 2000 about half of the crop area in North America will be of GM varieties (Watt R, 1999). Roush (1999) quotes findings by Falck-Zepeda et al (cited in James, 1998) that in 1998 the growers of genetically manipulated cotton in the US benefitted by $US128m, Monsanto by $US62m and consumers by $US29-50m.

In Australia, Fitzgerald (1999) reports that GM cotton areas have expanded from 30,000 Ha in 1997 to 60,000 Ha in 1998 and it is expected that 1999 plantings will be 90,000 Ha (about 16% of the national cotton area). She states that ‘overall the modified cotton has needed an average of 50% less chemical insecticide than conventional varieties’.

This supports claims by seed companies that direct costs and environmental damage will be reduced by use of cotton genetically manipulated to limit insect damage. Most GM crops are grown in the USA (72% of world area) with Argentina growing 15% and Canada 8%. Australia, Europe and Asia account for only 5% of the world area (Austin, 1999). In the USA there are now 22 different GM crops under commercial production.

The paper begins with a review of biotechnology developments in the context of other changes occurring in the agri-industry system and then lists the areas where biotechnology is impacting on the production sector. This is followed by a discussion of whether farmers will be winners or losers from the new technologies and conclusions regarding paradigm shifts in farmers’ roles in the emerging agri-industry system.

Emphasis is placed on the impacts of genetically manipulated plants since these will be of greatest significance in the short to medium term. This is not to suggest that biotechnology developments in the animal industries will be any less important. However, the broad management implications are likely to be similar.

Biotechnology Developments In The Context Of Other Changes In Agri-Industry

The major global trends and their impact on farm management are shown in Figure 1.

FIGURE 1:

Much of the agri-industry system is being driven towards an integrated quality assured, ‘control’ system in response to the combined influence of exacting consumer demands, globalisation, the activities of trans-national companies and a wave of new technologies (Napier 1998) (Smith 1999). If the biotechnology revolution was not occurring the broad effects of the global trends would still apply.

Another way of illustrating the evolving agri-industry system for food is shown in the ‘double hour glass’ of Figure 2.

FIGURE 2:

There are two narrow ‘necks’ in the system. The more obvious point of control is between farmers and consumers where a small and reducing number of large food companies especially at retail level are controlling a significant majority of product. For example in Australia over 70% of food retailing is controlled by three companies. A new point of control is emerging at the point of input supply to farmers and is closely associated with biotechnology developments.

The mergers between chemical and seed companies (eg Monsanto and Dekalb Genetics Corporation/Delta & Pine Land, DuPont and Pioneer HiBred) are creating patented input supply systems controlled by a small number of companies. This has the potential to hasten the development of tightly co-ordinated supply chains. The traditional commodity system may diminish at the expense of identity preserved value added supply chains (Kalaitzandonakes et al 1998).

There is also potential for an increased rate of structural change in agriculture as patent prices are likely to be set at levels where efficient low cost producers have benefits while others are unable to participate in the new technologies. Boehlje and Sonka (1999, p2) describe the most critical dimensions of structural change in the agri-industry system as the industrialization of agriculture and the formation of more tightly aligned supply and value chains. They comment that ‘smaller operations not associated with an industrialized system will have increasing difficulty gaining the economies of size and the access to technology required to be competitive, except perhaps in niche markets’.

It can be seen that the adoption of the products of biotechnology will have significant effects on farm management across a range of management areas. More precision will be required in cropping management, cost/benefit analysis, quality assurance and identity preservation. Information management systems will need to be capable of handling the increased demand for accurate records and the on-going learning requirements as new products become available.

Risk management strategies will have new dimensions as farmers are required to accept some liabilities associated with GM crops. Farm managers will be less independent and will require high levels of communication, negotiation and marketing skills to develop rewarding relationships with others in the input and supply chains. Above all, farm managers will need to project a professional image to foster trust and win-win relationships.

The components of successful farm businesses for the 21^st Century are illustrated in Figure 3.

FIGURE 3:

Farmers are not a homogeneous group. The financial performance of Australian farm businesses varies considerably with the top 25% of businesses achieving significantly better performances than the average (O’Donnell et al, 1998, p15). Larger farm businesses tend to out perform smaller ones and also are better able to utilize new technologies (O’Donnell et al, 1998). As a consequence there are winners and losers with most new technologies and biotechnology will be no exception.

The early indications are that many leading farmers in the USA, Canada, Argentina and Australia are ‘voting with their feet’ and strongly supporting GM crops. Other successful farmers are seeking gain by producing conventional or organic crops for alternative markets.

The introduction of the products of biotechnology has potential to increase the rate of structural change in agriculture as patent prices are likely to be set at levels where only low cost efficient producers will be able to afford to purchase the GM products.

If GM products are shown to have significant cost or market advantages then those unable to access them will be increasingly at a competitive disadvantage. It has already been forecast (Peacock, 1998) (Jones, 1999) that public varieties of plants will disappear so that all farmers will be obliged to purchase patented seed. This does not necessarily mean that those able to adopt GM crops will have more profitable businesses than at present especially if the crops are commodities. It is well known that new technologies often lead to increased production which depresses prices so that farmers are constantly on a ‘treadmill’.

The potential for biotechnology to generate improved profitability in the production sector lies in the ability of farm businesses to effectively participate in integrated value added supply chains as specific pharmaceutical, nutraceutical and industrial products become available (Freiberg, 1998).

The characteristics of the winning farmers are summarized in Table 2. These farmers are determined to work out how to benefit from biotechnology or alternatively exploit niche markets for conventional and organic products. They are the farmers who will also position their businesses to benefit from other new technologies and new approaches to value adding and supply chain management.

TABLE 2:

The key characteristics include positive self confident attitudes to the management of change, high levels of managerial and learning capabilities and flexibility in enterprise choice and location. Winning farmers will work closely with researchers, achieve business structures which enable economies of size and will seek cooperative arrangements with others to improve business performance. They will be active and respected participants in integrated supply chains and will be rewarded for their professionalism.

Biotechnology developments in agri-industry are only part of major structural changes which are revolutionising the operation of all parts of the system.

The new agri-industry system is analogous to a maxi yacht which has already been launched on a voyage and can’t turn back. The crew are all the participants and stakeholders in the agri-industry system.

The destination is described by four S’s

• Safe products
• Satisfied customers
• Sufficient value in the chain to meet participants’ goals
• Sustainability

The maxi-yacht is heading into turbulent seas and has to be prepared to modify its course repeatedly according to new developments and the demands of stakeholders. It is a case of clear goals and flexible strategies.

A new paradigm has formed for the way in which the crew work together. Supply chain team work is essential. New alliances need to be formed in win-win frameworks. There is no room for a half hearted attitude to the task. Leaders in all parts of the input and supply chain are needed to sail the yacht to its destination.

There will be waves of technology and other changes to manage. In biotechnology alone a new wave of renewable bio-products and multi-gene manipulation is already forming on the horizon (Renewable Vision Steering Group, 1999).

The production sector of agri-industry will need to come on board the maxi yacht very quickly and decisively regardless of the pace of development of biotechnology

(McMillan cited in Smith 1999). A new era of professionalism will ensure that those lacking broad management capabilities will not be able to participate.

There will be rewards for those companies which form alliances with professional farmers and vice versa.

There will be winners and losers in the production sector according to their abilities to capitalise on the changes.

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