Innovations in the agrifood industry
The term innovation is used in many different technical disciplines. One can find a very wide range of definitions. All of these definitions contain the aspect of something new. The Latin origin of the word innovation is “innovatio”, which means renewal and change (Baer and Wermke, 2000). Schumpeter (1934) defined innovation as “the creation of new combinations”. “These innovations can be new products, new methods of production, new sources of supply, the exploitation of new markets, or new ways to organise business“ (Batterink et al., 2006). A result of the process of introducing new ideas to the firm is to increase its performance2 (Rogers, 1998). It should be noted that an innovative idea, an innovative concept or an invention is no innovation until the idea has been productively incorporated into the enterprise’s activities. Subsequently, it has to be introduced to the market (European Commission, 2004; Hauschildt, 2004; Rogers, 1998). That means that specific organisational, financial and commercial steps (which are intended to lead to the implementation of innovations) are as crucial for the innovation process as is the result of successful R&D. This implies that an innovation can only be finally evaluated after it has been put into action, which is a difficult task. The success of an innovation can be measured by using criteria defined by different interest groups (Gärtner, 2007). It might be easier to measure the return on innovation investment for a single company by comparing the profits due to new products or services with the research, development and other direct expenditure related to the innovation (with a time dimension of three, five or ten years). In contrast, it is more difficult to measure the success of an innovation being for example the result of public funded research projects. A public financing and development fund provider need to compare the profits of a whole sector based on innovations with the research and development (R&D) investments. This is additionally more difficult since a public fund provider has the tasks to support in addition basic research (beside applied research) as the foundation for future long-term innovations. But often basic research is an expensive activity and the return on investment (if any) will take place at an indeterminate future date (see below).
Innovation is a quite diffuse term. For further clarification the term can be classified using several dimensions (Hauschildt, 2004; Gärtner, 2007):
1. Regarding the content and type of innovation (what is new?)
2. Regarding the scope of innovation (new to whom?)
3. Regarding the degree of innovation (where does the new aspect start and how new is it?)
(1): Regarding the type of innovation, the literature distinguishes mainly between process, product / services, business, marketing and organisational innovation3 (Pleschak and Sabisch, 1996; Porter, 1990; Schülin, 1995; Vahs and Burmester, 2005). Some authors mention as well more difficult to define types of innovation such as a shift in corporate culture (Henry and Walker, 1991) or social innovations.
(2): To differentiate between two types of innovation, the dichotomy “new for the firm” versus “new to the market” should be pointed out. An innovation can be implemented in a single enterprise, in a regional market, at the national market or on the global market. Innovativeness can be analysed from the macro- and micro-perspective. The macro-perspective focuses on the market and the resulting competitive environment while the micro-perspective focuses on a particular innovation in a firm (Bröring et al., 2006; Garcia and Calantone, 2002). Due to that, the term “diffusion” can be explained. An innovation is diffused after it is implemented on the market after being implemented by single firms (Bierfelder, 1994).
The management of a company can independently decide to implement an innovation activity (single-actor innovation). Conversely, new implementations within the value chain (such as logistical issues, chain oriented IT-communication systems or chain oriented quality management systems) need to be agreed upon and adopted by several managers from different companies (multi-actor innovation). This is a more complex approach with a wider range of variables (see Figure 4). If the entire system (chain and network perspective) including all its public and private stakeholders needs to be developed further, the innovation has to be based on a multi-actor innovation (for example the development of a new image or a new sustainable production system standard for all companies in a certain region). Figure 4 illustrates the difference between single- and multi-actor innovation. The more complex the institutional system that is working on an innovation (from one enterprise to a whole network of actors), the more organisations and actors need to be involved in the innovation activity. If more than one actor is involved, it can be called a multi-actor innovation.
Figure 4: Scope of innovation regarding the number of involved organisations (modified after NRLO, 1999; Bruns et al., 2008)
Whether a change is new to an individual, an organisation or a sector depends on the respective points of view (Hausschildt, 2004). The evaluation criteria are defined by the individual, the organisation or the sector. This implies that a change can be an innovation for a single enterprise even if it is not an innovation for a specific market (Gärtner, 2007).
(3): The degree of novelty is difficult to capture. An innovation can be radically different to incremental change. “Radical innovations are innovations that cause marketing and technological discontinuities on both a macro and micro level. Incremental innovations occur only at a micro level and cause either a marketing or technological discontinuity but not both” (Garcia and Calantone, 2002). Similar to that an innovation can be revolutionary or evolutionary (Hauschild, 2004). Revolutionary innovations are mostly fundamentally new, thus they are radical (like the steam engine in the 18th century4). After introducing a new core technology on the market a continuous improvement process starts (attempts to increase efficiency, create further applications etc.) by generating evolutionary and mostly incremental innovations.
Freel and Jong (2009) combine internal and external newness with internal competences and external output dimensions of newness (see Figure 5). In this connection the authors illustrate the complexity of innovation activities without reducing it on the measurable output (like commercial success, e.g. the effect on turnover) of the innovation process.
Figure 5: Innovation scheme after Freel and Jong (2009)
Importance of technology adaptation for the agrifood industry
Technological change, development and innovation processes differ from sector to sector. Certain sectors are characterised by fundamental innovation, whereas other sectors generate rather incremental innovation (OECD and Eurostat, 2005). In this context, high- and low-tech industries can be distinguished. In high-technology industries innovations have a higher priority than innovations in low- and medium-technology industries. For reasons of survival it is necessary to have innovation as well in low- and medium-technology industries. This is the situation if the success of a sector depends mainly on low- and medium- technology industries, as it is the case in the agrifood sector.
However, in terms of competitiveness, the general conclusion should not be made that high-tech industries are more competitive than low-tech ones, since a technological change is based both on the production of technologies (as core competences) as well as on the application of technologies for the production of other goods. In this context Porter (1985) differentiates between technologies “embodied in primary activities” and in “supportive activities”. In both cases technologies can generate a competitive edge. In the agrifood industry, technologies that are foreign to the sector are often adapted to meet the demand of the sector (Tunzelmann and Acha, 2005). This can be observed, for example, in the field of information and communication technologies (ICT). The adaptation of sector-specific information and communication technologies is necessary in order to exchange technical production data and accompanying data between actors up and down the production chain. The exchange of information is simplified through the application of ICT or, made possible in part (Petersen et al., 2002; Schulze Althoff, 2006; Ellebrecht, 2008). If, for example, information is needed within the framework of consumer protection on whether polluted intermediate products may have been integrated, the traceability system based on ICT provides transparency in the production chain. Based on this, certain batches can be excluded from the market and / or taken off the market. Besides this example, adapted technologies are used along the entire value chain.
In the field of agricultural engineering, stable construction, air conditioning, ventilation systems and feed manufacturing plants can be named for example. Industrial slaughter and cutting is automated as much as possible by technological input from the engineering field. The same applies for the meat processing step in the value chain. Here, for example, the use of cooling technologies is legally required. Furthermore, test and inspection technologies for the control of critical quality relevant measuring points along the entire production chain are needed. The case of the agrifood industry mainly follows the description of Porter (1985): “Technologies come from outside […] and such technologies can be a source of discontinuous change and competitive disruption”.
Hereby the adaptation of existing technologies to the needs of the sector, from the point of view of innovation character, is not to be underestimated. Specific skills are necessary for this in order to generate new knowledge in additional research work. In accordance with this it can certainly be said that the agrifood industry itself brings forth innovations. It depends on the innovation capabilities, particularly through the adaptation or modification of innovations primarily developed by others through a process of diffusion. In general, the diffusion of an innovation can be described as a decision-making process. Rogers (1983) categorises several steps in this process: knowledge, persuasion, decision, implementation and confirmation. However, at the beginning of a possible innovation diffusion is the concept. The process from the concept to the innovation through to the innovation diffusion was viewed as a linear sequence of the phases of basic research, concept, innovation, adaptation and diffusion in the 1960s and 1970s. In the 1980s this linear process was furthered around inter-weavings and feedback between the individual phases (Raueiser, 2005).
Generation of innovation processes in the agrifood industry
Among other things, the agrifood industry has gone through different generations of innovation processes because of technology diffusions. Rothwell (1994) describes this as a cross-sectoral general validity which can also be used on the agrifood market: through the technology push which took place after World War II, the productivity of the agricultural industry could be increased considerably. Here the transition from self-sufficiency to industrial agriculture began. However, at the time it was still called a supply market, whereas in later years the influence of consumer demands on innovation processes increased (market driven). A more consumer-oriented food sector (shift from raw materials to more processed food) was already recognised in the USA before World War II in terms of self-service stores filled with prepared and packaged foods. In pre-war Europe most of the foods were sold in loose weight (Beckeman and Skjöldebrand, 2007).
With the economic crisis in the 1970s, companies had to economise more efficiently. In accordance with this, the focus of many innovation processes was put on the optimisation of production processes. Rothwell (1994) describes the increasing significance of opening company boundaries in order to be able to withstand the competitive pressure as the fourth and fifth generation of innovation processes. This also applies to the agrifood sector (read more about this issue here >>).
Innovation performance of the food industry
After presenting a rough outline of the impact of technology adaptation within the agrifood industry and the generation of innovation processes during the last few decades, the innovation performance of the agrifood industry will be briefly examined. Data bases measuring innovation performance within food value chains focus mainly on the manufacturing level of the value chain. The agricultural level is often not integrated in these measurements. Therefore, the following descriptions are focused on the manufacture of food products and beverages (short: food industry). The Innovation Sector Index (ISI) measures sector innovation performance. The analysis of innovation performance in the frame of the ISI uses CIS5 data from Eurostat and sectoral level innovation data from the ANBERD6 and STAN7 dataset of the OECD. The ISI is a composite indicator that is calculated as an average of 12 innovation indicators (Hollanders and Arundel, 2005):
1. Proportion of employees with higher education
2. Proportion of firms using training for personnel directly aimed at the development and / or introduction of innovation
3. R&D expenditures as a percentage of value-added
4. Proportion of firms that receive public subsidies to innovate
5. Proportion of firms innovating in-house
6. Proportion of SMEs (small and medium sized enterprises) cooperating with each other
7. Innovation expenditure as a percentage of total turnover
8. Proportion of total sector sales from new-to-market products
9. Proportion of total sector sales from new-to-firm but not new-to-market products
10. Proportion of firms that patent to protect innovation
11. Proportion of firms that use trademarks to protect innovation and
12. Proportion of enterprises that use registration of design patterns.
The food industry is performing below the average in 9 out of 12 indicators compared to the other sectors (CIAA, 2007) (see Table 1).
Table 1: Innovation indicators of the European food industry (based on Hollanders and Arundel, 2005; CIAA, 2007).
The indicators where the food industry shows relatively good performance are the proportion of firms that receive public subsidies to innovate, the proportion of firms innovating in-house and the proportion of firms that use trademarks to protect their innovations. The food industry is one of the leaders in using trademarks. To give a European sector perspective, the top three most innovative Member States as regards food products are Belgium, Sweden and France (CIAA, 2007).