The International Consortium on Agricultural Biotechnology Research (ICABR)


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Do Public Universities Have a Role in Modifying Agricultural Supply Channels?
Michael A. Boland

The author is an Assistant Professor of Agricultural Economics at Kansas State University.,

Coordination of supply chains have become an important component of a successful competitive strategy by food and agribusiness firms in recent years. One major policy issue is the publicly funded university s role in determining the structure of the supply chain for various products. U.S. land grant universities have traditionally aided producer organizations in the supply channel. For example, many universities employed scientists and economists who provided research and education on producer-owned marketing cooperatives in the 1920's and 1930's (and still do today). More recently, in an effort to assist producers in obtaining the benefits from the introduction of new varieties, the University of Idaho and Kansas State University have provided restricted release of white wheat varieties to producer cooperatives. However, many of the new biotechnological products are being developed by private firms which limits the involvement of universities and producer organizations.

The objective of this research is to determine the potential acceptance of biotechnological products by food processors. The results will provide information to producers and agribusinesses interested in supply chain coordination.

Personal interviews are currently underway with 120 large processing plant managers (soybean, corn, canola, and wheat) in the midwestern U.S. in an effort to learn more about how economic incentives will be used to coordinate supply chains. Two types of firms were chosen for this analysis. First, processing firms who are hypothesized to face a more elastic demand curve (relative to the commodity product) for biotechnology products which are used in great volumes (i.e., corn wet milling, soybean processing, etc.). These firms are more likely to pursue a competitive strategy of high volume production at the lowest possible average cost. These processing firms are not likely to provide economic incentives for biotechnological crops unless they buy 100% of that product at which point they can begin to lower their average costs if the product has properties that enable them to do so. Many of these plants are owned by international food and agribusiness conglomerates. These firms also typically provide industrial products which are used as inputs such as beverages sweetened with high fructose corn syrup. Opportunities for producer-owned cooperatives or other firms may exist for these products due to the amount of coordination needed to obtain the required volumes.

A second type of firm is more likely to be pursuing a differentiation strategy. These firms are likely to produce outputs directly for retail markets (i.e., cooking oils, pet foods, etc.). These firms may provide economic incentives to purchase biotechnological crops due to their ability to gain a competitive advantage by marketing a differentiated product. Thus, these firms are hypothesized to face a less elastic demand curve which may allow them to increase revenues or market share through differentiation. Many of these firms will likely use these products as an ingredient (rather than as the sole input as in the previous case) which will mean smaller volumes. These products may likely be contracted due to their small volumes.