Rising Ag Prices: The New Mother of Invention?
Corn prices are at record high levels. Costs for other agricultural essentials, from wheat to coffee to rice, have surged, too. And many people are stunned, even frightened, by all the increases.
But some entrepreneurs and analysts — recognizing that relative price increases in specific goods always encourage innovators to find ways around the problem — say they see an opportunity for creative solutions.
“When something becomes dear, you invent around it as much as you can,” says David Warsh, editor of Economicprincipals.com, a newsletter on trends in economic thinking.
Joel Mokyr, an economic historian at Northwestern University, adds, “All of a sudden, some things that didn’t look profitable now do.”
Smart people won’t shift their efforts to agricultural problems, however, if they think that price increases are only temporary, says Henry Kressel, a managing director at the private equity firm Warburg Pincus and a pioneer in laser research. “When you have a sudden blip in prices,” Mr. Kressel says, “it doesn’t give rise to entrepreneurial activity.”
Consider the periodic surges in prices for computer memory hardware. Because its price is declining over the long run — a result of new technologies and automation — innovators tend to stay away from the field, leaving it to a few large, established companies.
For decades, declining prices for food had the same chilling effect. In the United States and Europe — the world’s two biggest consumers of new technologies — food was plentiful and relatively inexpensive. Innovators turned their attention elsewhere.
With higher food prices possibly here to stay, clever people can now try things that simply weren’t cost-effective before.
“I don’t pay attention to inflation, but I do pay attention to big problems,” says Bill Gross, chairman of Idealab, the business incubator based in Pasadena, Calif. “If you can beat the price of the big gorilla in the marketplace, there’s big opportunity.”
One clearly “big opportunity” lies in changing the relationship between food and energy. Fertilizer lets farmers raise production but is energy-intensive to make. Transporting food great distances also requires much energy. So does processing. Finally, some foods are now being valued in relation to oil because of their potential use in fuel.
For some years now, innovators have trained their attention on alternative energy; they are now likely to concentrate on food production as well.
For Americans, that would be going back to the future. Seventy years ago, farming was the technological high frontier.
In the 1930s, after the Depression wiped out so many small farmers, the federal government introduced “price supports,” which lifted the return to farmers on basic crops. Higher prices got the attention of innovators in farm equipment, seeds and other so-called inputs.
Sally Clarke, a historian at the University of Texas, has found in a study that higher prices enabled Midwest farmers, then reliant chiefly on animal-drawn plows, to justify investment in tractors, raising efficiency. A study in the 1950s by the economist Zvi Griliches of American farmers’ adoption of more productive varieties of corn showed how higher prices reduced the cost of adopting new technologies.
For the new agricultural innovators, these are early days. It will take time for the pipeline to fill with ambitious projects. Monsanto and BASF are among the relatively few big companies that remain active in agricultural innovation. And the most creative researchers can’t immediately drop their other projects in response to price signals.
Given time, priorities change. Tomorrow’s most intense technological battles will involve a range of agricultural topics, including these:
Using water and fertilizer more efficiently, so farmers can grow more with less.
Finding new ways to suppress weeds, whose growing resistance to traditional herbicides is raising the cost of farming.
Designing better seeds, either through conventional means or genetic modification.
Finding ways to meet the needs of the eat-local movement, promoted by the food writer Michael Pollan, among others, which requires innovative “small batch” processing techniques as well as a shift in values.
“We need to pull out all the stops and do everything we can to improve farm productivity,” says William Dyer, a plant biologist at Montana State University in Bozeman.
To be sure, engineering a new “green revolution” that will yield, say, cheaper wheat and rice — all while meeting the concerns of various special interest groups — will be much harder than designing a better music player. After all, we don’t eat iPods. The food fabricator of the 1960s television show “Star Trek” remains an elusive dream, but not merely because of limits on human ingenuity. In agriculture, safety requirements can trump the need for productivity gains.
A new herbicide can cost $100 million to commercialize — less than the amount needed for a new drug, but more than for many a new cellphone. Government regulations, however, need only raise the cost of innovation, not halt it.
Ultimately, higher food prices give innovators room to cover the cost of protecting human health. But prices are a democratic signal: when all innovators see them, their ability to sneak up on an opportunity, while others nap, vanishes.
“The bigger the prize people are chasing, the more people go after it,” says Paul Romer, a theorist on sources of economic growth. “As people pile into an area, the expected return to any one innovator goes down.”
Yet, fortunately, the return to society goes up.
G. Pascal Zachary teaches journalism at Stanford and writes about technology and economic development. E-mail: firstname.lastname@example.org.