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Biotechnology and the Future of Agri-Marketing

What’s on the Horizon?

There’s no question that agriculture has entered a new age. Seed researchers are now spending just as much time working with DNA in the laboratory as plant breeders spend in the fields cross pollinating. This work, both in the laboratory and the field, has resulted in major advancements: Roundup Ready soybeans and corn, Bt hybrids, Liberty Link corn hybrids, just to name a few.

The effects of biotech advances are just beginning to reveal themselves. Our job as agri-marketers is definitely changing. Not only are we marketing a product, but the technology and value-added traits it contains. And in order to properly market these technologies we need to understand what they do, how they work, how they were developed and how well the market will accept them.

This article contains the viewpoints of two professionals, Sano M. Shimoda and Thomas J. Hoban, Ph.D., both involved in some aspect of biotechnology.

Shimoda is founder and president of BioScience Securities, Inc., a boutique brokerage, institutional research and investment banking firm located in Orinda, California. The company’s sole focus is on companies applying new technologies with an emphasis on biotechnology in agriculture and related industries.

Here are some of Shimoda’s viewpoints on the direction and effects of biotechnology on agriculture:

• While the initial focus of biotech traits are largely input traits like insect resistance and herbicide tolerance, the long-term potential of this technology lies in the creation of value-added output traits for food, feed and industrial applications.

• Precision farming technologies will shift farmers’ cultural practices from a philosophy of “maximizing” to one of “optimizing” crop production using an optimal mix of inputs.

• While current products focus on traits characterized by one gene, we expect future products to focus on traits that are controlled by multiple genes and combinations of different stacked genes. An example would be genetically engineered corn, which is insect resistant and herbicide tolerant and has an enhanced oil and amino acid content especially for livestock feed.
• Agribusiness will become a high-tech industry requiring the product development and marketing expertise of consumer product companies combined with technology-driven product cycles similar to the personal computer business.
• Biotechnology is generating increased values in three ways: improving the farmers’ bottom line by lowering costs and increasing yields; increasing the value-added potential of the agribusiness and food infrastructure through lower production costs and enhanced product differentiation to command premium prices; and by broadening the commercial potential of agriculture.
• The long-term potential of biotechnology is tied to the creation of value-added output traits that will generate premium economic value for the end user.
• The growing ability to create differentiated premium-priced products based on proprietary value-added traits will shift crop output decisions from the farmer to the end user. Value creation at the end user level will transform the agricultural production system from today’s production-driven system to tomorrow’s end user demand-driven system.
• Greater customization will lead to site-specific tailoring of both output and input decisions to meet more stringent product specifications and quality standards set by the end user.
• The growing availability of biotech-generated value-added traits is creating a strategic re-engineering of the agricultural production and processing infrastructure, from the farmer to the end user, into a vertically integrated supply and production complex.
• While attention has centered on the corporate transactions by companies focusing on major agronomic crops, it is important to recognize that technology-driven consolidation is also occurring in the fruit and vegetable business.
• The billion-dollar price tags placed on a number of these transactions indicate the high stakes in the long-term strategic game. These strategic corporate alliances have centered on the need for: gaining access to broad-based biotechnology platforms; integrating technology with seed operations; creating complimentary technology and intellectual property positions; creating a downstream value capture mechanism; and developing greater financial resources.
• Food processors and end users, including food, feed and industrial users, will increasingly lock up contract production of value-added crops at the farm level. Customers will be demanding more product specification as well as improved food safety and quality. We will be moving to specification-based farm production. Those farmers who can meet the challenge, like parts suppliers to the auto industry, will be winners, and those who are unable will be uncompetitive. This dramatic shift will redefine the role of the farmer in the agricultural production system and contribute to the reconstruction of the agribusiness infrastructure.
• The formation of ag-biotech/seed/ag chemical company alliances is the first step in the development of vertically integrated agricultural industrial complexes. The next group of players positioning themselves to join these groups will be the large grain and food processors and downstream end users, including food and industrial companies.
• Biotechnology has changed the competitive framework of agriculture. Based on the broad biotechnology platforms that are emerging today, we believe there will be only four, or possibly five, world-scale “agricultural industrial complexes” in the major row crops and two or three complexes in the specialty fruit and vegetable business.
• Biotechnology has the potential to create production factories in major crops, which will have use in neutraceutical, pharmaceutical and industrial applications. For example, in the not-too-distant future, cotton genetically engineered to produce black fiber could be in strong demand from denim and jeans producers because of the cost savings from expensive dyeing and environmental charges.

Hoban, an associate professor and extension sociology specialist with North Carolina State University, has been surveying the public about biotechnology for several years. Here are some key insights from the four national telephone surveys he’s completed.

• Between two-thirds and three-quarters of respondents are positive about agriculture biotechnology. They will accept the products if they see a benefit to themselves or society—and if the price is right.
• The response to foods developed with biotechnology is the same as for any other food; taste, price, nutrition, safety and convenience are the major issues.
• Consumers will accept foods produced through biotechnology that have better flavor or are protected from insect damage with reduced use of pesticides. People will also welcome foods that are more nutritious, especially those lower in fat.
• Public awareness of biotechnology remains low despite extensive media coverage. Most people do not even understand traditional agriculture technology such as breeding techniques.
• People want to know why it is used as well as its safety, benefits and other issues.
• One of the most challenging issues about biotech food involves labeling. People claim to pay a lot of attention to food labels and generally want information about everything.
• Most people don’t know that different varieties of vegetables or fruits are blended during processing. In addition, most consumers are unwilling to pay extra for labeled food.
• People who are male, better educated, younger and less religious tend to be more positive about biotechnology. The major influences on acceptance are knowledge level, awareness of benefits, confidence and trust.
• Providing factual information increases consumer acceptance. People have the most trust in independent health and scientific experts as sources of information.
• Instead of trying to educate the public, we should focus our attention on the media, health professionals and other opinion leaders.
• It is also vital that we put biotechnology within a historical context, helping people realize that technology has always been used to develop new food products and improve existing ones.

Biotech Glossary

Agrobacterium:
Original genetic engineer. Bacteria that is able to put some of its own DNA into the plant through invasion resulting in a tumor. Now harnessed and used as a tool to transgenically alter cells.

Bacillus thuringiensis (Bt):
A naturally occurring bacterium present in soil. For more than 30 years applied by farmers, home gardeners and organic farmers to control insects. Available as a transgenetic Bt crop in corn, cotton and potatoes since 1996. When ingested by a target insect, the protein crystal produced by Bt controls the insect by disturbing the digestive system. Thousands of unique Bt exist, and control has been identified for most major ag insects. The protein is harmless to other insects, people and animals.

Bar gene:
The gene used in Roundup Ready soybeans to provide herbicide resistance. Also used as a marker gene to insure a trait has been successfully transformed into a plant.

Constitutive promoters:
A promoter continually switched on so that the following gene is constantly transcribed into the cell throughout the plant.

Enhancers:
Proteins that regulate the chemical reactions inside every living cell and organism. For example, saliva contains an enzyme called amylase that helps us to digest starch in our food.

Gene construct:
A sequence of DNA artificially constructed by genetic engineering to add a value-added trait.

Genetic marker:
A sequence of DNA that can be easily identified and which therefore can be used as a reference point for mapping other genes or traits.

Input trait:
Traits which aid plants in increasing production efficiency such as through insect resistance and herbicide resistance. These traits increase the quantity (harvested bushels) of the crop whereas output traits which increase the quality and ultimate derived value (economic value of each bushel) of the crop.

Marker assisted selection:
The use of markers associated with genes for desired traits, which can be easily identified in a simple test to confirm the presence or absence of the desired gene. By observing phenotype, in combination with markers, it is possible to identify the types of a gene that an individual carries.

Marker gene:
A gene which is used to identify and select organisms in which genetic modification has been successful.

Phenotype:
The expression of characteristics of an organism. Not all genes of the genotype affect the phenotype. In a pig, we could translate this into a characteristic or trait which is described or measured on the pig carcass or meat.

Transgenic:
A cell or organism that has been genetically modified.

Swanson Russell is ready to help agri-marketers with their marketing communications needs. For more information regarding Swanson Russell’s services, send e-mail to agribusiness@swansonrussell.com