Agri-Business and Rural Development

School of Agriculture and Food Science.

Innovation in the European

Agrifood Sector

Alan Renwick

Danish Food Cluster

19th March 2015

Background and

Motivation

• Whilst working for SAC in Scotland which is

undertakes Research, Education and Consultancy

became interested in the innovation system and

our role in it.

• Undertook a study in Scotland and linked with

researchers in Netherlands who had undertaken

similar work to compare the two countries

• When moved to Ireland thought it would be

interesting to extend the work to include Ireland

but also to look at it more quantitatively and

compare across Europe

• The basic premise is that for a country to have a

successful Agrifood sector in the future, all parts

of the system have not only to work well

individually but also function collectively as well.

• For example, there is no point having world class

food manufacturers and processors if there is no

raw material supply.

Innovation Systems

• As the World Bank (2006) states “The innovation

systems concept embraces not only the science

suppliers but the totality and interaction of actors

involved in innovation. It extends beyond the

creation of knowledge to encompass the factors

affecting demand for and use of knowledge in

novel and useful ways.”

Direct Demand of Innovation : Agri-food Supply Chains

Indirect Demand of Innovation

Research

Intermediaries

Input suppliers (e.g Goldcrop, Dairymaster etc)

Farmers Cooperatives (e.g. Aurivo, Dairygold etc)

Commodity traders (eg F.C. Stone)

Processors (e.g. ABP, Kepak, Dawn etc)

Haulage Wholesalers/Retailers (e.g. Dunnes, Musgraves etc)

Agri-food consumers Pharmaceutical market Energy market (e.g. renewable energy)

Policy-making agencies & funding bodies Social interest groups

Irish Government (DAFM) SFI/IRC

Enterprise Ireland EPA

Higher Education Funding Council

Universities - UCD, UCC etc Third level Institutes - DIT, ITT etc Research Organisations Teagasc Private companies (e.g Kerry, Glanbia)

Extension & consultancy Teagasc (consultancy & extension services)

Land Agencies: ACA

Industry associations/Lobbies with an active role in innovation

Irish Food & Drink Federation/IDB/ IFJ/IFA/ICSA/ICMSA/ Irish Exporters

Association

Financial Services

Bank of Ireland, Ulster Bank, AIB, Rabobank Grant Thornton, IFAC

TYPICAL INNOVATION

USERS

TYPICAL INNOVATION

CREATORS INNOVATION FACILITATORS

Skills Development

Innovation brokers Bord Bia /ICOS /ICBF/AHI

Education & training services UCD, UCC (education); Teagasc land-based colleges

NGOs & charities / Local councils

INNOVATION ACTORS (indicative, not exhaustive list)

Source: Derived from original concept by Lamprinopoulou

How well are they working?

• Pictures show the extent of the connections but

not the strength/quality of these connections and

what they are doing in terms of boosting the

performance of the agrifood sector

• Through stakeholder interviews and data analysis

we investigated this further

Capturing Innovation

• Interviews/ Workshops (Scotland,

Ireland and Netherlands)

• Series of indicators developed

– Inputs (Expenditure on R&D etc)

–Outputs (Patents, Publications etc)

–Outcomes (Farm and Firm performance)

• Compare across Europe (where

available beyond Europe too

• An initial study undertaken at Wageningen using

secondary data on Food and Drink companies for

8 European countries

• We extended to more European Countries

including Ireland

• Also extended to include agricultural sector rather

than just food and drink manufacturing

Interview process

• Step 1 – Who are the key players in the agri-food

innovation system?

• Step 2 – What roles(functions) do they perform

and how well do they perform them?

• Step 3 – How strongly is the innovation system

performing?

• Step 4 – What are the key barriers or enabling

factors determining the level of performance?

• Step 5 – What could/should be done to improve

the performance?

FINDINGS

Source: Cornell University: Global Innovation Index

Inputs: Public Investment in Research

8th

3rd

0

0.02

0.04

0.06

0.08

0.1

0.12p

ro

po

rti

on

of

GD

P

8th

8th

Industry

Agriculture

Source: Eurostat

Inputs: Business Research Intensity

1st

Source: Own estimates based on Eurostat

Outputs: Innovative Businesses

4th 1st

0

10

20

30

40

50

60

70

80

90

percen

tag

e o

f in

no

vati

ve b

usin

esses

2008 Year 2010 Year

15th

12th

Source: CIS (2008 and 2010)

Outputs: Firms involved in any form of

co-operation

12th

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

4th

Source: CIS (2010)

Outcomes: New Product Development

4th

Source: CIS (2010)

Outcomes: GVA per Employee Food and

Drink Firms

5th

Source: Eurostat

0 0.2 0.4 0.6 0.8 1

Business Research

Research into Industry

Intensity

R&D Personnel

Tertiary Education

Research into Agriculture

GERD

Denmark vs Europe

Inputs

0 0.2 0.4 0.6 0.8 1

Citations

Cooperation

Co-opetition

Innovative Businesses

Patents

Bio Patents

Marketing/Org Innovation

Denmark vs Europe

Outputs

0 0.2 0.4 0.6 0.8 1

TFP

Gross operating Surplus

GVA Food and Drink

GVA Agriculture

GVA growth

Share of Exports

New Products

Denmark vs Europe

Outcomes

0.55 - 0.62

0.51 - 0.55

0.41 – 0.50

0.29 – 0.40

0.20 – 0.28

0.15 – 0.19

2

1

3 4 5

7

6

0 0.2 0.4 0.6 0.8 1

Business Research

Research into Industry

Intensity

R&D Personnel

Tertiary Education

Research into Agriculture

GERD

Citations

Co-operation

Co-opetition

Innovative Businesses

Patents

Patents Biotech

Marketing/Org Innovation

TFP

Gross operating Surplus

GVA Food and Drink

GVA Agriculture

GVA growth

Share of Exports

New Products

IUS Score

Doing Business

Ireland

Denmark

Denmark vs Ireland

• The comparison appears to show a relatively clear picture -

Denmark is investing more in business research (both by the

government and by industry), this is leading to more patents

and new products being introduced. In general firms appear

more collaborative, agriculture is more productive and the

overall environment is more conducive to innovation.

• Ireland does have a greater proportion of innovative

businesses, but this seems to be more around

marketing/organizational innovation than new product

development. In addition Ireland does have a higher level

of value added and operating surplus in the food and drink

industry, but again this is likely to be skewed by the relative

importance of the alcoholic drinks industry in Ireland.

SOME REFLECTIONS

The world isn’t waiting….

Publications in Agriculture and Food

Science

0

5000

10000

15000

20000

25000

30000

35000

40000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Ireland United Kingdom New Zealand United States Brazil China

US

China

Brazil

UK

NZ

Ireland

Huge

Growth

Source: Scimago

Growth in Agricultural Productivity (TFP)

Source:USDA

China

US view

• “To maintain this leadership moving forward, we

need to recalibrate our federal agencies to

support innovation, develop a globally

competitive workforce, and engage frontier

markets. There are numerous gains to be made

by tackling trade and regulatory challenges and

leveraging the strengths of universities,

businesses, and other players ….And if history is

any indication, America is up to the challenge.”

• Dan Glickman

Barriers and Facilitators to Innovation:

Examples from Ireland

Score

Category Factors

< -2 Strong

Barrier Land Mobility, Age Structure, Farm Business Structure

-1 to -2 Medium

Barrier

Power of Supermarkets, Availability of Finance, CAP Support,

Chain co-ordination

0 to -1 Weak

Barrier

Structure of supply chain, Attitude to risk, Level of leadership

within sector

0 to +1

Weak

Facilitator

Finance Skills, ICT (rural broadband), University engagement with

industry, Employment Legislation, Private consultants

+ 1 to +

2 Medium

Facilitator

Government Support, Regulation, Advisory services, Training in

agrifood skills

>+2

Strong

Facilitator

Research capacity, Education levels, Physical infrastructure, Tax

regimes

Supply Chain Co-ordination

‘We all talk of "Brand Ireland", but

it's all around price, cost and

commodity, not a premium brand.

Race to the bottom on price,

especially in beef.

Cattle Chain:Reality

29 activeexport approved slaughter plants

Slaughterings at Export Plants1.4 m head

Local Authority Abattoirs

70,000 head

~195 LA Abattoirs

20% retail

40% foodservice

40% manufacturing

75% retail

25% foodservice

47% retail

25% foodservice

28% manufacturing

% of Volume:(Bord Bia Estimates)

Live Exports160,000 head

Beef Imports46,700 t

68,000 specialist

20,000 mixed

~42 export points

~87 Auction Marts

30 markets531,000 tonnes

Lack of

innovation

Genetics

Health

Welfare

35% missed weight

specification

33% failed to meet

the carcase

conformation and

fat specification

Inefficiency

Transport and

logistics

Termination

of contracts

Poor flow of

information

back

Horsemeat

Scandal

Power

40% of farms

unviable

Production

driven

systems:

Bull Beef

Blockades

Overcapacity

Systemic Strengths and Weaknesses:

University Challenge?

• Scottish universities and research providers strong links

externally but weaker links with indigenous SMEs

• Only partial success in Scotland to overcome interactions–

very strong links Policy-Research but less so into industry

• Relatively few innovation brokers and intermediaries in

Scotland

34

Challenges for Universities: Scotland and

Ireland Findings

• Researchers and consultants – ‘intellectual

arrogance’ (Sc)

• Researchers low priority on communicating

findings

• Researchers need to learn a new language!

• "Doing the research is only one part of it, getting

it implemented is the more important.

Universities are doing the research, but is it

getting out into the market?”

• ‘All very interesting but I want

to know what are going to be

the products on the shelves

in two years time’

Companies Challenged

• Lack of ‘Absorptive Capacity’

• ‘Companies with a turnover of over €150 m have

no R&D Department’

• ‘Businesses are employing people with just an

undergraduate degree and making them head of

research’

• ‘At the farm level there is a weak demand for

innovation’

Barriers to Innovation: Finance

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

Percen

tag

e o

f co

mp

an

ies

Source: Derived from CIS (2010)

• "Banks are not in the innovation game. [They're

in the] lending money game and getting that

money back game.“

• Enterprise Ireland identify that the key

challenges for High Potential Start Ups

(HPSU) in Food and Drink at the early stage

include:

– high up front capital costs coupled to difficulties in raising finance

– the need to validate the product in an approved facility

– a lack of experience in scaling food production

– getting the logistics right

– long timelines in closing a listing with retailers particularly overseas retailers

• Source personal communication with Enterprise Ireland

Characteristics of Successful Start-Ups

• On the other hand successful food HPSUs,

that have managed to scale and export

quickly, display common characteristics such

as:

– A promoter/team with expert technical knowledge in the product sector.

– There is an innovative business model, innovative product or Intellectual Property (IP) that provides a competitive advantage in the market place.

– Expert market knowledge, ideally with access to key customers and distribution and an understanding of the real costs in the market place.

– Adequate finance and margins to fund and sustain an export dimension.

Systemic Strengths and Weaknesses

• Hard Institutions

– Regulation; Regulation; Regulation

– Application procedures for innovation too complex

– Tax breaks and R&D credits innovation vouchers enabling but GM ban detrimental

– CAP funding a barrier to innovation?

– Levy funding more directed at research in NL

41

Conclusions

• From the analysis undertaken a series of

conclusions are drawn concerning the state of the

Irish Agrifood Innovation System.

• Presenting them here as may have some

resonance with your situation in Denmark

Ireland has a number of truly world class innovative

companies, however the problem is there are simply not

enough of them and there are too few new innovative

companies emerging from which world leading companies

could emerge.

Conclusions

• Within Ireland there is a high

level of government support for

the agrifood sector and for

Science and Technology within

agriculture and food sectors in

particular.

• However, much of the science

and the efforts at encouraging

innovation are supply pushed

rather than demand pulled.

• In addition, Ireland lags behind

other countries in terms of

business investment in research

and development.

Conclusions continued

• Companies are finding it difficult to access the

knowledge they require. Much of the engagement that

occurs is ad hoc in nature.

• Ireland is relatively strong at innovation that removes

cost from the supply chain (Lean principles), however

it is weaker in terms of the development of new

products

• Evidence points to access to finance being a key

constraint in the innovation process.

Conclusions continued

• As a small country it can co-ordinate activity more

easily than other larger countries. However, more

generally there is a lack of a culture of collaboration

across and between all components of the Agrifood

Innovation System.

• The structural issues in agriculture that are well known

as more general are also a significant barrier to

innovation at the farm level.

• Through the discussions undertaken for the study,

there is a perception that a conservative mindset

dominates organisations with power and influence and

that leaders in the agrifood sector need to be more

open to the benefits of co-operation, collaboration and

partnerships for innovation.

Recommendations

• Incentives for more R&D within Firms

• Incentives for more KTE within

Universities

• Focus on New Products – Adding Value

• Novel funding arrangements for

companies

• Education and Advisory – Redirection?

• Greater Collaboration – Industry Forums

• Structural Change

• Fit for Purpose Structures

• Is it just about people?

‘Summer is a state of mind’