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Things Are Hopping Down on the ‘Pharm’

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Michael Schrage is a writer, consultant and research associate at the Massachusetts Institute of Technology. He writes this column independently for The Times

Few city dwellers and suburbanites are probably aware of this simple fact: American agriculture is larger than either the country’s massive defense establishment or health care system. Even in our so-called “post-industrial economy,” more than 16% of America’s GNP comes from the soil.

By virtue of both technology and global markets, agriculture now has the opportunity to become one of the fastest-growing, value-added segments of the American economy--faster than health care, faster than manufacturing and faster than financial services. While it is naive to think of the nation’s economic future as “neo-agrarian,” it would be just as foolish to treat agriculture as a shrinking relic of our past.

“The upside potential is spectacular,” asserts William Brock, a former U.S. special trade representative. “Agriculture is more competitive than other sectors of our economy . . . . In fact, if we had been as consistently productive in manufacturing and services as we have been in agriculture, we’d now be worrying about being too economically dominant . . . .

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“In commodity agriculture, however, free trade is still a problem . . . . If we had as open a trading opportunity in farming as we do in manufacturing, then our global market share would substantially increase.”

By contrast, adds Brock, “On the value-added side, we have a great advantage and a tremendous opportunity. It is more difficult for (trading partners) to control the sale of, say, Nabisco wafers . . . .”

Two new organizing principles are struggling for the economic soul of U.S. agriculture. It’s still unclear whether these principles will inherently conflict or might coexist. What’s certain is that agribusiness will be shaped by the tension between them for the next 20 years.

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On the one hand, some experts are thrilled by technology’s potential--particularly the biotechnology of genetic engineering--to transform agriculture from providing “food and fiber” to rich harvests of “new materials.” Words like “pharming” have now crept into the agricultural lexicon. On “pharms,” growers would harvest plants that have been genetically manipulated to have pharmaceutical properties. Perhaps sometime in the next decade, a Merck or Glaxo will be leasing thousands of acres of “pharmland” to grow a drug that cannot yet be cost-effectively synthesized by chemical engineers.

Similarly, a variety of crops are being explored as precursors to cheap, biodegradable plastics. The DuPonts and Dow Chemicals may increasingly draw upon bio-materials as the raw material for their next-generation plastics. Of course, companies like Archer-Daniels-Midland are still looking for ways to make crops a part of America’s energy infrastructure.

Can biotechnology make ethanol or other plant-based bio-fuels so attractive that the Exxons and Arcos will have to pay as careful attention to crop yields in Illinois and Ohio as they do to the geological formations in Kuwait?

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“It will depend strictly on the economics,” asserts Mary E. Carter, special assistant to the Department of Agriculture’s assistant secretary for science and education.

“But I do think that many of these new technologies will encourage more vertical integration of agribusiness.”

The promise of “new materials” crops has haunted agricultural policy and practice since the Great Depression, but neither the promise nor the product ever materialized.

Today’s technologies, however, change the economic equations. Indeed, precisely because technology can redefine the traditional value of croplands, the definition of agribusiness will inevitably blur into pharmaceuticals, energy and materials.

The historical fact that agriculture-based innovations have enjoyed tremendous economies of scale should mean that the costs of creating soil-based innovations will consistently drop. Of course, these new harvests should create opportunities for export.

But at precisely the same moment that technological opportunity has appeared, agriculture is now considering its other organizing principle of “sustainability.” It’s no secret that agribusiness and many modern agricultural practices result in tremendous environmental damage to farmland.

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“Just to keep the (agricultural) machine going at its current rate, we have to do maintenance research to see how we can keep productivity with less negative impact,” observes Charles Hess, director of international programs at UC Davis’ College of Agricultural and Environmental Sciences. Hess argues that the challenge of maintaining agricultural sustainability may rival the economic potential of exploiting innovation opportunity. Is that tension the seed for conflict--or the dynamic for creative new products?

This decade should reveal whether profitable new agri-niches can be grown outside of environmental concerns, or whether “sustainable agriculture” will dictate the future of innovation. Will the likely collision of the Mercks and DuPonts and Exxons in the markets of America’s farmlands change the rules? Or are market forces simply an excuse to avoid confronting critical environmental questions?

No matter how those questions are answered, the fact remains that U.S. agriculture will have as big an impact on American competitiveness as any industry dreamed up by entrepreneurs and venture capitalists. Indeed, agribusiness is likely to become a new focus for their investments.

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