Healthy soil and sustainable growing

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Rising Ag Prices: The New Mother of Invention?
By G. Pascal Zachary The New York Times | 17 May 2008 | 04:30 PM ET
http://www.cnbc.com/id/24683608Wheat Fields

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: gzach@nytimes.com.