High Prices Can Attract Innovators
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 Warsch, editor of Economicprincipals.com, a newsletter on trends in economic thinking.
Joel Mokyr, an economic historian at Northwestern University outside Chicago, 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.”
For decades, 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, a business incubator based in Pasadena, California. “If you can beat the price of the big gorilla in the marketplace, there’s big opportunity.”
For the new agricultural innovators, these are early days. Monsanto and BASF are among the relatively few big companies that remain active in agricultural innovation.
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, which requires innovative “small batch” processing techniques as well as a shift in values.
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 better consumer products. In agriculture, safety requirements can trump the need for productivity gains, and a new herbicide, for example, can cost $100 million to commercialize.
But higher prices are a democratic signal: when all innovators see them, their ability to capitalize on an opportunity 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.
