IP analysis of agri-food business value chain
Researched and written by Chhavi Bhandari
Having recently opened an office in Australia, we’ve become very aware of the economic impact the agri-food industry has on the Australian economy. Collectively, the agri-food industry contributes over $237 billion to the Australian national economy, accounting for 18 % of Australia’s Gross Domestic Product. Looking at the global impact of the agri-food industry, what is the innovation landscape and what should people in the agri-food industry know about IP? Having a strong understanding of the intellectual property that a company is generating and how it fits into the broader industry landscape can help companies in the agri-food industry better capitalize on their IP. Intellectual property has a unique role in this industry and business owners who treat their IP as a strategic element of their long-term business strategy will improve their competitive advantage and increase the value of their business.
Agri-Food Industry Economic Impact
Collectively, the agri-food industry contributes over $237 billion to the Australian national economy, accounting for 18 % of Australia's Gross Domestic Product
This sector is a major contributor to the Australian economy, employing approximately 825,000 Australian workers across 180,000 enterprises.
15% (or one-in-six) of the Australian workforce are employed throughout the food value chain.
Every day Australians spend over $371 million i.e. 17% of their income on food and beverages
Agri-Food industry value chain
The food industry, from production to retail, is a complex web of individuals, communities, businesses, technologies and materials stretching across the value chain
. It includes not only raw and processed food, but the equipment, transport, and packaging needed to get food onto our plates. The aim of the food industry is to transform agricultural raw materials into safe, convenient, tasty and nutritious products for consumers, in a profitable and sustainable manner without depleting earth’s limited available resources.
Having recently entered the Australian market
, and being aware of the impact the agriculture and food industry has on the Australian economy, we thought it would be interesting to explore the role of innovation and IP in the agri-food industry. To put the food industry into perspective, we have simplified the food value chain into three main categories - production, processing, and distribution. Within these three areas, we identified six key categories - Input companies, Farmers, Food processing companies, Packaging companies, Distributors/Logistics, and Food retailers. Within each category, we’ve identified particular products/services that fall into each.
Current innovation in agri-food industry
From the introduction of the first hybrid maize varieties
a century ago to modern biotech seeds, new innovations in the agri-food industry continue to revolutionize how our food is produced. There is a considerable amount of physics, chemistry, biology and technology involved in the production, processing, distribution, and safety of food products that we consume every day. Innovation is a fundamental driver for success and helps these businesses increase productivity and drive efficiency, leading to profitability. It is also how businesses create food products and services that customers value such as fresher, more nutritious, or more convenient foods.
Over the last 150 years, there have been several waves of innovation
related to machinery, chemistry, seed, information management with varied innovations in refrigeration, milk pasteurization, fortification, PET plastic and GM crops. Exciting new technologies and innovations such as 3D printed food, advances in genetic modification, wearable technology, smart packaging, smart shopping tools, the “super egg”, nanotechnology in food et al continue to evolve and shape the food industry’s future
To better understand the innovation landscape of this industry, we identified prominent research and innovation areas currently happening across the agri-food value chain. We have summarized these areas of innovation and compared the degree of innovation and the R&D spends
along the value chain. From our market research, we found that there is new innovation occurring along every step of the chain, and we specifically noticed a concentration of innovation in the agricultural input, food processing, and packaging industries.
Innovations along the Value Chain
Food Production -
Today’s farming uses high-tech machinery that most 20th-century farmers might barely recognize. And as amazing as today’s technologies are, they’re just the beginning. Self-driving machinery and flying robots that automatically survey and treat crops will become commonplace on farms that practice what has come to be called precision agriculture
. Plant phenotyping
is an interesting upcoming precision agriculture technology at the intersection of genetics, sensors, and robotics.
Biotechnology covers both genetic modification (GM) of crops, where new genes are introduced which could not occur naturally, and advanced breeding techniques, which accelerate the development of naturally occurring genes, or ‘native traits’. Whereas GM was the initial focus of the biotechnology revolution, increasing emphasis has recently been accorded to the native traits approach
. Investments in biotechnology are often risky, costly and long-term; therefore, biotechnology is one of the most R&D intensive within the agricultural input industries. Breakthrough innovations
such as drought tolerance, disease resistance, herbicide tolerance, insect resistance and improved nutritional quality have revolutionized agriculture in the last 20 years.
Technological advancement on the farmland is mostly driven by innovations at the input companies. As such, there is not much organized innovation taking place at the farmer level. However, increased use of new management practices and IT tools by farmers has helped them improve their yield. An example is India based Digital Green
, that reaches out to farmers across South Asia and Sub-Saharan Africa using simple YouTube videos featuring fellow farmers sharing best practices.
Food Processing –
The food manufacturing industry is one of the most innovative sectors in the food supply chain. The innovations are determined by the interaction between the ever increasing and changing consumer demands and expectations and the emerging knowledge from food science research. Consumers’ demands range from basic considerations such as food safety, shelf life, and waste reduction, to demands for increasingly sophisticated foods having special characteristics in terms of nutritional value, palatability, and convenience. Future innovations to shape the food manufacturing will include sustainable diets
and 3D printed food
Innovations in the packaging industry can provide functional advantages or may even in some instances function as trademarks/brands. In our next article, we will focus on the IP landscape in the food-packaging sector, specifically taking a closer look at the patents behind functional innovations in packaging. With advancements in modified atmosphere packaging (MAP)
techniques and emerging technologies such as edible food wrappers, bio-degradable materials, and active or intelligent packaging, there have been several interesting innovations in this sector to keep our food safe, fresh and nutritious, and help extend shelf life. The aggregated patent data can help reveal some interesting insights for e.g. the key players and their relative IP position in the market, the degree and pace of innovation across sub-categories, white space for innovation, the consumer demand and therefore trends within packaging innovations.
Food Distribution -
Imports and exports are only expected to continue growing as more and more perishable food is moving throughout the world. This growth is being supported by advancements in the storage and logistics sectors along with the packaging innovations already described in the section above. As controlled temperature and atmosphere technology or cold-chain technology
becomes more sophisticated, greater opportunities are emerging for shippers, especially those who can now transport their perishable foods via ocean instead of air cargo thanks to more precise temperature, humidity and oxygen levels inside shipping containers.
Telematics and the Internet of Things (IoT) are increasingly becoming an essential component of transport fleets all over the world, creating better visibility of assets and cargo throughout the food supply chain. This has resulted in improved freshness as well as better monitoring and management, which has ultimately lead to more responsive and efficient logistics with reduced operating costs
Mobile and e-commerce are both making a significant impact on the way retailers operate. Consumers want to order groceries online and it has not only prompted many existing players to respond but has also created disruptive business models. These include Hello Fresh
and Home Chef
, services which deliver all the ingredients needed to create your own meal at home.
Furthermore, the vast amounts of transactional and customer data coming from e-commerce and even traditional in-store operations have the potential to provide customer insights, support brand & product management and inform pricing decisions to improve operating margins. Data analytics is driving this trend.
Importance of IP in agri-food business
In the agri-food industry, an innovative production process, manufacturing process, product formulation or new packaging marketed under a brand name (trademark) will usually constitute valuable IP.
In the next 40 years, agriculture innovation will be vital to increasing productivity and expanding food production to meet the needs of 9 billion people. But agricultural research and development (R&D) are a risky and costly business. In this context, IP rights will play a key role in enabling companies to attract investors and generate the returns necessary to recoup development costs and invest in further R&D as public spending has reduced over the years
Ogura, which is a non-biotech method for producing high-yielding hybrids of oilseed rape is a good example
. After the proof of concept work, the French National Institute for Agricultural Research (INRA)
recognized it was still five to ten years away from producing commercially viable seeds. They decided to patent the Ogura technology and license it out to seed companies through non-exclusive patent licenses for further development. Up to 2011, INRA generated EUR50 million in royalties from its Ogura technology, making it possible to recoup development costs and also reduce its reliance on government subsidies. Also as licensees, the seed companies were able to avoid the costs associated with developing the technology from scratch by taking a license from INRA
Forward-thinking business owners have realized that IP will help protect the commercial rewards for those that innovate by not only protecting inventions from being imitated, but also provide additional potential revenue streams in an often low-margin sector, and provide valuable intangible assets that can be used to secure external investment. IP protection for agricultural innovations has also helped to increase circulation of knowledge through technology (and know-how) transfers
It is well known that New Zealanders were the first to commercialize the kiwifruit globally
. Less known is the role of innovation and IP in maintaining New Zealand's $NZ1 billion kiwi market against competition. In the 1990s, when sales started getting affected by competition from growers in Italy, Spain, Chile, South Africa and France, New Zealanders went back to the drawing board and a new kiwi was released to the market in 1998 under the brand name Zespri Gold
. From the outset in the early stages of research and development, a clear IP strategy was put in place. Patents and trademarks were wrapped like fortress walls around Zespri Gold all well in advance of, and in preparation for future licensing contracts. Zespri Gold's sales have grown since and the Zespri group ships 2 billion kiwifruits worldwide to about 70 countries. The Zespri Gold story illustrates
many things at the heart of what is needed for successful commercialisation.
The elements of success for an agri-food company includes a deep understanding of the consumer market landscape they operate in, together with innovation that provides a competitive advantage. Businesses need to consider intellectual property as a tool to understand the market landscape as well as to capitalize on their competitive advantage. IP can be used as a tool to benchmark competitors, such as tracking a new product’s entry into the marketplace, monitoring innovation in manufacturing or food technology and assessing consumer acceptance.
As a smart business owner, you need to ask yourself some strategic IP questions, the answers to which will lead the business on a path of success. Some of the questions agri-food business owners must ask to include:
- Where do I fit in the agri-food value chain and am I innovating?
- How should I protect my IP – branding, patentable technology, trademark, design of packaging or keep a trade secret?
- Do I have freedom to operate?
- How do I capture my innovations and gain a competitive advantage by turning it into IP?
- How does the IP landscape of my industry look? How can I improve my position within the market and increase the value I get from my IP portfolio?
- What is the degree and pace of innovation in my field?
- Who are the key players and innovators in your field? What are the strengths and weaknesses of competitors’ IP position?
- How does my IP position compare with that of my competitors?
- How does my IP translate into a value proposition for my end customers?
- Are there other industries/applications that can benefit from using my IP?
- Can I monetize my IP through out-licensing or sale for an additional revenue stream?
- Can my business benefit from the in-licensing or strategic acquisition of IP instead of developing from scratch?
- Are other’s infringing my IP?
- What is the value of my IP?
Maximizing the competitive advantage offered by innovation requires an effective intellectual property protection and management strategy that is aligned with the business strategy. Leading players have understood the necessity of this strategic alignment to survive and prosper in this highly competitive industry.
Agri_food industry article