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O'Connell, P.F. 1990. Commercializing promising technologies, p. 25-28. In: J. Janick and J.E. Simon (eds.), Advances in new crops. Timber Press, Portland, OR.

Commercializing Promising Technologies

Paul F. O'Connell


  1. INTRODUCTION
  2. LOSS OF MARKETS
  3. EXPLORING OUR OWN MARKET
  4. ACTIVE DEMONSTRATION PROJECTS
    1. Kenaf Project
    2. Guayule Project
    3. Hybrid Striped Bass (HSB) Project
    4. Other Potential Demonstration Projects
  5. CONCLUSION
  6. Fig. 1
  7. Fig. 2

INTRODUCTION

Many people think that new ideas flow easily from the research bench to the marketplace. Nothing could be further from the truth. Scientific laboratories and libraries are overflowing with alternative techniques for producing, processing and marketing agricultural products. Some of these techniques are ready for adoption and others are not. Sorting out the most promising ones is difficult and time consuming.

An estimated 90% of the cost of research and development is development. Development—demonstrating the usefulness of a promising technology-includes growing and harvesting technology, raw materials handling systems, processing and extraction technology, market identification and promotion, business planning, and formation of grower cooperatives and associations. The purpose of development is two-fold: to prepare the farm sector to grow and sell a material for new use and to prepare industry to buy, process, and market the product. The weakest link in the U.S. economy is transferring promising technologies from "Idea Generation" to "Interim Manufacturing" stages. There is little strategic planning or investment in phasing out obsolete technologies and developing new ones that satisfy changing markets (Fig. 1).

LOSS OF MARKETS

Public supported agriculture research and education have always had a close working relationship with producers of food, fiber, and forest products. Most of the effort has been on production-increasing yield per acre, animal unit, or hours of labor. That was fine when the United States fed, clothed, and sheltered its own citizens and exports were continually expanding. We now must compete in a global marketplace. We import $20.1 billion of agricultural products (which has doubled the last 10 years); $13.3 billion for forestry products; $4.8 billion for edible fish and shellfish; and more for imported industrial feedstocks that could be obtained from U.S. farms and forests. For 1987, the value of agricultural, fish, and forest product exports was $36.3 billion, down 31% from 1981 (Fig. 2).

For 1988, the outlook looks better. The value of agriculture exports is forecast to climb $4.1 billion from 1987 (USDA projections). Increased sales are expected in grains, soybeans, and horticulture products. This is good news for farmers, but it is unlikely that the 1981 record levels can be attained in the near future. Primary reasons include: the relative value of the U.S. Dollar has fallen significantly as compared to the Japanese yen and many Western European currencies, but has changed little in comparison to major agriculture exporting nations like Canada, Brazil, and Australia; expanded food producing capacity in countries like China and India; import restrictions in Asian and West European markets; aggressive targeting of U.S. markets by many countries; and lack of foreign exchange in less developed countries-where the largest growth in population is occurring.

On April 4, 1987 Congressman Larry Hopkins told his constituents in central Kentucky, "Farmers must diversify into alternative enterprises." Gross income from tobacco sales in Kentucky was cut in half between 1984 and 1986, and maize income was down 40.5%. Hopkins continued,

Similar questions are being asked by sugarcane farmers in Hawaii (world price of sugar is now one-third the domestic price), maize producers in Nebraska, wheat farmers in Kansas, and many others. Given uncertain market situations, especially in the international arena, what can the United States do to expand the market base for its farmers?

EXPLORING OUR OWN MARKET

One possible solution is to put promising technologies for farm products in the hands of private investors to provide these markets. We need to explore domestic opportunities-especially where we depend heavily on imports. Every other country is anxious to target U.S. markets. Why shouldn't U.S. scientists, technical specialists, processors, material handlers, venture capitalists, and marketers put their heads together and find a way to tap one of the best markets in the world. This doesn't mean that export markets shouldn't be aggressively pursued, but let's also explore opportunities within our own borders.

In the United States, private and public institutions have often mistrusted each other. An entrepreneur sees public institutions as tax collectors or regulators, unaccountable for the bottom line. A civil servant sees business as having a short-time horizon, focusing primarily on making money, and having inadequate concern for broad public interests such as environmental and social issues. These stereotype images are common enough to prevent needed bridge building.

Many research programs are funded by universities and the Federal Government because payoff is too long term and uncertain for the private sector. Commercialization of promising technologies has similar incentive problems, but is not quite as elusive. Therefore a partnership is the answer. Joint private/public ventures are needed because very little happens without a combined effort. A joint partnership helps share the risk, especially in the early stages. We must recognize the significant costs and market uncertainties associated with technology adoption.

The private sector has a key role to play in the process because people experienced in buying and selling goods are best able to identify the market. The private sector also should provide a product champion, that is, a firm or individual that believes in the ultimate commercial success of a particular product. A project should be based on solid analysis, but the success of any given venture most often depends on someone who strongly believes in the final outcome. Industry members of a commercialization team have the knowledge and experience to identify the best market opportunities and the most useful knowledge about technologies to meet changing competitive conditions. They also understand why private sector initiative provides the most flexible and efficient mechanism for producing, processing, and marketing agricultural products.

Government/academic partnerships can provide well-trained researchers and technology transfer specialists with a long-term view; a network of State and Federal Government contacts who can reduce regulatory red tape; and provide needed seed money. They also can bring production, processing, and marketing sectors together. Often, not enough incentive is present in any one sector to adopt promising technologies, but together the incentives can often be sufficient.

A commercially successful and profitable enterprise does not always require a joint effort. Private sector initiatives frequently create new markets for farmers. In many instances, however, the barrier to commercialization is management and availability of resources with which to link agriculture production to the processing and marketing sector. When appropriate, a catalyst organization can provide that linkage by actively organizing and promoting the final stage of product development with relatively small public involvement. Time is of the essence for developing promising ideas. If the appropriate moment is not seized, the advantage of early adoption will occur elsewhere, most often by a foreign competitor.

ACTIVE DEMONSTRATION PROJECTS

In recent years the Special Projects Unit in the Cooperative State Research Service has been bridging the gap between research results and commercialization with demonstration projects. These projects are short term, usually 3 to 5 years, with public/private partnerships established through USDA cooperative agreements. Capitalizing on decades of public research-generally by the Agricultural Research Service or State Agricultural Experiment Stations—the demonstration projects are designed to build, within the private sector, a base in which to sustain new agricultural industries. The kenaf, guayule, and hybrid striped bass projects demonstrate the success of this approach.

Kenaf Project

Kenaf (Hibiscus cannabinus) is an annual, nonwood fiber crop that grows from seedling to 10 feet in less than 5 months and can be transformed from seedling to newsprint in less than 7 months. It grows across the southern tier of the United States. Newsprint is normally made from wood such as northern spruce and southern pine. The United States imports about 60 percent of its newsprint supply from Canada at an annual cost of $3 to $4 billion.

The Kenaf Demonstration Project began in March 1986 with a cooperative agreement between USDA and Kenaf International—a venture capital firm and the product champion for kenaf. This agreement marked the reopening of research and development for kenaf in USDA after an 8-year hiatus. The project's principle objective was to gain acceptance for kenaf as a source fiber for the manufacture of newsprint. To accomplish this objective, a Kenaf Task Force was established involving participation of a venture-capital company, private laboratories, processing and pulping plants, equipment manufactures, and the American Newspaper Publisher's Association-a prime mover in the search for a substitute newsprint fiber.

Initial results showed that kenaf has distinct price and quality advantages. For example, it uses less ink, is stronger, results in whiter paper, and requires less energy for processing. Kenaf International and CIP Forest Products have announced plans to build a $300 million kenaf newsprint mill in South Texas for operation in 1990/91. The anticipated acreage needed to fill the mill's annual needs is 40,000 acres of unsubsidized kenaf.

And this is just the beginning. The newsprint industry estimates that it will need 19 new mills arket for about 400,000 acres of kenaf.

Guayule Project

The United States is totally dependent on imported natural rubber—a commodity of critical importance to the Nation's defense position and the economy. Approximately 750,000 metric tons are imported at an annual cost of $1 billion. Natural rubber has performance specifications not available in its synthetic alternative, and is preferred in specifications that require elasticity, resilience, tackiness, and low heat buildup. Natural rubber constitutes 30 percent of the total domestic rubber market.

Of some 2,000 plant species known to contain rubber, only a few have ever produced sufficient quantities for commercial use. The two most common sources are the rubber tree (Hevea brasiliensis) grown principally in Southeast Asia (where 90% of the world's supply of natural rubber originates) and guayule, (Parthenium argentatum) native to semi-arid regions of North America. In contrast to the rubber tree, guayule is a small desert shrub averaging 3 feet tall.

Under a 27-month guayule domestic rubber project signed in 1986 with USDA, the Defense Department (DoD) is providing $11 million to build and operate a prototype processing plant in Arizona that will process 275 acres of guayule shrub into 50 tons of natural rubber, 100 tons of resin and low molecular weight rubber, and 1,600 tons of plant residue. Also cooperating on this project are the Firestone Tire and Rubber Company, Gila River Indian Community, and four southwestern land-grant universities-located in Arizona, California, Texas, and New Mexico. Over this same period, USDA plans to invest about $4.5 million in guyaule research and development.

With today's technology and current prices for national rubber, a domestic industry is not economically viable. An economic model indicates a farmer growing guayule would have positive cash flow in 1995, if the following technological improvements could be realized: increasing yields of rubber and byproducts 21/2 times, developing direct seeding capability, establishing markets for byproducts, and reducing production, harvesting and processing costs by one-third.

Scientists and specialists involved in this program state that these improvements can be attained by the mid 1990s with $3 to $4 million in annual R&D support.

Hybrid Striped Bass (HSB) Project

A field trial demonstration project for raising HSB in farm ponds began operation in the fall of 1986 at Walnut Point Farm near Chestertown on Maryland's Eastern Shore.

HSB is a cross between the female striped bass, or rockfish, (Monroe saxatilis) and the male white bass (M. chrysops). It has the same flavor and general appearance as a striped bass but is more disease-resistant and faster growing than either of its parents.

The 3-year development phase includes construction of 8.5 acre fingerling (young fish) production ponds, four 2.5 acre growout ponds; six water supply wells, and a combination hatchery, storage, and Extension education building the first year; it will include two additional 5-acre growout ponds the second year; at maturity 24 surface acres of water, 4 dedicated to fingering production and 20 dedicated to the production of market-size fish.

The increasing demand and decreasing supply of fish and fish products have resulted in a dramatic jump in domestic product cost and foreign imports. The U.S. seafood consumer now pays 64 cents of every seafood dollar to foreign suppliers. These imports amounted to over $5.0 billion in 1986, an historic record, and contribute to the Nation's balance of payments deficit. Since the harvest from our wild fisheries is not growing appreciably, the increasing consumer demand for fish can only be met by foreign suppliers or by a strong domestic agriculture industry. Through joint ventures, U.S. aquaculture can develop to offset these escalating imports.

The market potential for HSB is promising. Because of the moratorium on striped bass fishing in the Cheaspeake Bay, there is an immediate market shortfall of 14 million lbs. Private and government marketing experts estimate a beginning market of 54 million lbs-equal to that for trout. At that production level, producers' gross income would be about $182 million.

The margin between $1.00-$1.50 estimated per pound costs and current New York price of $4.50-$5.00 per pound appears adequate to attract private investment, but there are technical and market uncertainties. Will the fish overwinter in commercial size ponds. What is the best feed mixture? What regulatory approvals are needed? Who will process and market the fish? These are some of the questions to be answered by the demonstration project.

Other Potential Demonstration Projects

Several other potential opportunities for expanding the market base for farmers include expanded uses for traditional new farm crops such as industrial oils from soybeans, meadowfoam, crambe, and winter rapeseed; absorbents, deicers, and biodegradable plastics from corn; carbon char from hardwoods; and reddrum fish and shrimp farming.

CONCLUSION

A renewed push in commercializing promising technologies for the American farmer will not solve the immediate supply/demand imbalance. However, it represents a positive market-oriented response and a more effective long-term solution than subsidies for agricultural production in surplus.

Fig. 1. Estimated time for technology commercialization.


Fig. 2. Changing U.S. trade balance for agricultural, fish, and forestry products.


Last update August 25, 1997 by aw