3 The importance of local capabilities in AgTech specialization

Introduction

Every economy has an agricultural sector. ⁽¹⁾This chapter is based on Hamdan-Livramento, I., G.D. Graff and A. Daly (2024). Innovation Complexity in AgTech: The Case of Brazil, Kenya and the United States. WIPO Economics Working Paper Series No. 82. World Intellectual Property Organization. It is vital to ensuring food security and nutrition for a growing population.

Today’s agricultural landscape has evolved significantly from the traditional farming methods dating back millennia. Advances in scientific foundations and technological progress have led to higher agricultural yields achieved by using better agricultural inputs such as improved crop breeds, fertilizers and pesticides. They have also lessened the need for the hard manual labor traditionally associated with farming by employing machines powered first by steam and then combustion engines.

The current agricultural value chain is increasingly complex in terms of vertically and horizontally differentiated value segments, economic agents and intermediate and final products. It includes more than 200 industry subsectors and ranges from agricultural inputs such as fertilizer, seeds, farm land, irrigation and labor, to processing, manufacturing and packaging, all the way up to the final point sale of products and services to consumers. Innovation arises at many points along the agricultural value chain often drawing on technological advances in other sectors of the economy such as molecular biology, computing, satellite imaging or materials science.

Figure 3.1 illustrates an agricultural value chain, using the Brazilian sugarcane as an example. It shows how each segment of the value chain may consist of different economic agents with the potential to innovate and transform the sector. The end use for sugarcane products has diversified over time. Traditionally, sugarcane was used primarily for the food and beverage industry while its waste was used for animal feed and fertilizer. Today, sugarcane can end up as a source of renewable energy. Each sugarcane value segment requires different sets of skills and specialties, and each final category is governed by separate standards, rules and regulations.

The agricultural value chain has strong internal connections; a change in one value segment can impact another further along the chain. In the case of sugarcane, the government’s program to produce ethanol increased the demand for raw sugarcane and induced many sugar mills to install ethanol plants. Innovation and developments in these segments help build the innovation ecosystem’s local innovative capabilities and may shift its agricultural technology (AgTech) innovation trajectory.

Innovation can happen at different points in the value chain Figure 3.1 The diversification of the traditional sugarcane industry in BrazilSource: Adapted from Machado and Abreu (2024) and Neves et al. (2010).

Most of the productivity improvements in the agricultural sector are sourced from knowledge outside the sector. ⁽²⁾See Clancy, M., P. Heisey, Y. Ji and G. Moschini (2020). The Roots of Agricultural Innovation: Patent Evidence of Knowledge Spillovers, In P. Moser (Ed.) Economics of Research and Innovation in Agriculture. University of Chicago Press, 21–75. Available at: https://www.nber.org/books-and-chapters/economics-research-and-innovation-agriculture/roots-agricultural-innovation-patent-evidence-knowledge-spillovers. Scientific and technological breakthroughs from the chemical, biological and biotechnology fields have led to better agricultural inputs such as fertilizers, pesticides and crop varieties, as well as better livestock genetics, medicines, vaccines and veterinary care for animal health. The mechanical innovations such as the steam engine and internal combustion engine, that led to significant labor savings in agriculture were adapted from technologies introduced elsewhere. Engineering achievements, such as irrigation, railroads, data infrastructure, and new digital technologies, such as the Global Positioning System (GPS), precision agriculture and technologies providing real-time access to weather information, water use and land surveillance are also transforming the industry. Even advances in the packaging, storage and manufacturing of agricultural products feed into the sector’s general productivity improvements.

The increasing complexity and diversity of the agricultural sector, in addition to its global presence in every world economy, make it a useful case study in understanding how local capabilities can influence a country’s technological trajectory.

This chapter traces the evolution of three AgTech innovation hubs; namely, São Paulo in Brazil, Nairobi in Kenya, and Denver, Colorado, in the United States of America (US). This provides  important insights into the importance of local capabilities in shaping AgTech specializations. It also illustrates how these three hubs were able to shift from being traditional agricultural producers to leading ethanol producers (Brazil), major producers of maize varieties for Africa (Kenya), and global exporters of biotechnology crop varieties alongside other AgTechs (United States).

There are three takeaways from this chapter. First, innovation in agriculture is context-specific. This implies that for AgTech to be beneficial to different countries it must be adapted to specific agro-ecological conditions relating to the soil, landform and climatic characteristics of the growing region, as well as other cultural, political and market factors that shape regional farming systems. Second, the public sector is one of the main drivers of AgTech specialization. And third, the appropriability conditions, market opportunities and general innovative capabilities of an innovation ecosystem explains how countries can shift their AgTech innovation trajectories. The innovation ecosystem is a concept that links different innovation stakeholders loosely categorized into the private sector, government and universities, as well as research institutions, and provides a framework in which to describe how their interaction and complex relationship can give rise to new innovation.

The chapter is structured according to its key takeaways. The section that follows explains why agricultural innovation is agroecologically and regionally specific. It emphasizes how market failures resulting from its public good traits requires public sector involvement in driving agricultural sector innovation. The third section highlights the role of governments and the public sector in creating the conditions necessary to initiate and build innovative capabilities in agriculture. The penultimate section focuses on how the capabilities of a country’s innovation ecosystem determine the innovation trajectory of its agricultural sector. The final section concludes by looking toward the future of agricultural technology and sets out some policy implications.

Preparing the ground: importance of soil and context

Innovation in agriculture is different from other sectors.

First, without government support, the incentives to innovate in the agricultural sector are not sufficiently attractive to generate enough interest from private sector primary producers, namely, farmers to invest in the activity. This is largely because of the agricultural industry’s highly diffused structure wherein many small producers face narrow and uncertain profit margins. While profitability in farming depends on many factors, studies show that larger farms tend to have larger profit margins, partly due to economies of scale. However, the sector is highly skewed, with 70 percent of all farms worldwide operating on less than one hectare of land. ⁽⁴⁾In contrast, farming areas greater than 50 hectares are farmed by the largest one percent of farms. See Lowder, S.K., J. Skoet and S. Singh (2014). What Do We Really Know about the Number and Distribution of Farms and Family Farms Worldwide? Background paper for The State of Food and Agriculture 2014.  ESA Working Paper No. 14-02. Rome: Food and Agriculture Organization of the United Nations. Available at: https://www.fao.org/3/i3729e/i3729e.pdf.

In addition, farmers face risk and uncertainty when deciding which crops or livestock to produce. This is because they have to take decisions and make investments with only limited information and then wait for a payoff sometime in the future, if at all. Moreover, profits are tied to yields, which can be adversely affected by factors outside a farmer’s control such as the weather, pests, disease, conflict and global market prices. For instance, the cost to Kenyan rose growers of choosing the “wrong” type of flowering rose to plant can be up to USD 160,000 per hectare. ⁽⁵⁾ Whitaker, M. and S. Kolavalli (2006). Floriculture in Kenya, in: Chandra, V. (Ed.), Technology, Adaptation, and Exports: How Some Developing Countries Got It Right. World Bank. DOI: https://doi.org/10.1596/978-0-8213-6507-6.

Second, agricultural commodities and activities tend to have the economic properties of a public good. Benefits such as ensuring food safety and security, adequate nutrition for public health, and environmental sustainability require public sector support. Recognizing such public needs early, the US Department of Agriculture (USDA) and the Land Grant agricultural research universities were established in 1862. ⁽⁶⁾Wright, B.D. (2012). Grand missions of agricultural innovation. Research Policy, 41(10), 1716–1728. DOI: https://doi.org/10.1016/j.respol.2012.04.021

Third, the agricultural sector needs an ongoing and consistent level of innovation. Constantly evolving pests and diseases, rising production costs from higher agricultural input prices, and extreme weather events are some of the factors that threaten industry producers. For instance, a 2023 report co-authored by the Organisation for Economic Development (OECD) and the United Nation’s Food and Agriculture Organization (FAO) estimated that agricultural commodity prices would be likely to increase by 0.2 percent for every one percent increase in fertilizer prices. ⁽⁷⁾OECD and FAO (2023). OECD–FAO Agricultural Outlook 2023–2032. Organisation for Economic Co-operation and Development. Available at: www.oecd-ilibrary.org/agriculture-and-food/oecd-fao-agricultural-outlook-2023-2032_08801ab7-en. Moreover, weather – including the frequency and severity of extreme events, such as heat waves, droughts, floods, tropical storms and wildfires – can reduce food production yields and quality.

Investments into innovation for agriculture must be long term as well. This is because it takes time for research to become commercialized and for technology to be adapted to meet multiple regions’ needs, as well as meet national guidelines before being adopted and planted in a farmer’s fields. For instance, it took at least 60 years from the introduction of hybrid corn technology before its adoption became widespread. ⁽⁸⁾Griliches, Z. (1957). Hybrid corn: An exploration in the economics of technological change. Econometrica, 25(4), 501–522. DOI: https://doi.org/10.2307/1905380. Alston, J.M., P.G. Pardey, D. Serfas and S. Wang (2023) . Slow magic: Agricultural versus industrial R&D lag models. Annual Review of Resource Economics, 15(1), 471–493. DOI: https://doi.org/10.1146/annurev-resource-111820-034312.

Fourth, agricultural innovation has to be adapted to local agroecological conditions. According to the FAO, regions sharing the same agroecological zones have “similar combinations of climate and soil characteristics and similar physical potentials for agricultural production.” ⁽⁹⁾See Chapter 2 of FAO (1996) for further information on agro-ecological conditions. FAO (1996). Agro-ecological zoning guidelines, FAO Soils Bulletin 73. Food and Agriculture Organization of the United Nations. Available at: https://www.fao.org/3/W2962E/w2962e00.htm#P-2.  This means that an agricultural innovation developed for the specific agroecological conditions of one region is not easily transferred and used in another region with different agroecological conditions. Instead, the innovation would have to be adapted to the specific conditions of that other region and respect its biodiversity and environmental requirements and guidelines. Some such adaptations can be seen through the steadily increasing number of plant varieties protected under the plant variety protection instrument administered by the International Union for the Protection of New Varieties of Plants (UPOV) in Figure 3.2. ⁽¹⁰⁾UPOV is an intergovernmental organization to provide and promote an effective system of plant variety protection. It currently has 78 members.

Figure 3.2 illustrates how innovators are increasingly coming to rely on intellectual property (IP) protection for their inventions, as seen in the total number of patents, utility models and plant varieties equivalent protection systems applied for on agricultural innovation worldwide. Box 3.2 outlines the different IP instruments that protect inventions in the agricultural sector.

For example, in the case of crop genetic innovations made either by conventional or by genetic plant-breeding technologies the original innovation would need to be incorporated into the locally optimized germplasm and/or cultivars in the target region. This means that the genetic innovator may need to either license to germplasm or cultivars owners or otherwise collaborate with them to develop and adapt the technology to local conditions. This adaptation requirement leads to extra costs and hurdles for those innovation stakeholders who have limited budgets or restricted access to supporting institutions. ⁽¹¹⁾Graff, G.D. and I. Hamdan-Livramento (2019). Global Roots of Innovation in Plant Biotechnology. WIPO Economics Working Paper No. 59. World Intellectual Property Organization.

AgTech evolution is hub dependent

The three AgTech hubs of Denver, Colorado (United States), São Paulo (Brazil) and Nairobi (Kenya) illustrate how AgTech evolution depends on context. Each hub has distinctive starting conditions, constraints and challenges. They also have different levels of public sector support and face different market opportunities. Moreover, each hub has nodes of innovation activities, innovators and relevant institutions that facilitate the knowledge sharing that feeds their respective innovation ecosystems. These factors, together with local innovative capabilities, determine how AgTech trajectories evolve.

The role of agriculture in Brazil, Kenya and the United States varies according to income level. In Kenya, agriculture accounts for 33 percent of the total workforce and contributes around 21 percent of the country’s gross domestic product (GDP). In Brazil, the sector employs almost 10 percent of the total workforce, and accounts for seven percent of GDP. Meanwhile, in the United States, fewer than two percent of workers are employed in the agricultural sector, which accounts for less than one percent of GDP. ⁽¹²⁾Data curated from the World Bank’s World Development Indicator. Available at: https://databank.worldbank.org/source/world-development-indicators.

Colorado, United States: an AgTech hub because of water irrigation infrastructure

As the United States is the largest exporter of agricultural commodities worldwide, US AgTech producers enjoy global market opportunities. It is therefore not surprising that the United States has been innovating significantly in the sector and filing for patent protection on its AgTech inventions both at home and abroad. ⁽¹³⁾Patent applications filed by US innovators tend also to be filed at other national patent offices. This indicates that innovators intend to commercialize their inventions in other jurisdictions as well as the United States. See Hamdan-Livramento, I., G.D. Graff and A. Daly (2024). Innovation Complexity in AgTech: The Case of Brazil, Kenya and the United States. WIPO Economics Working Paper Series No. 82. World Intellectual Property Organization.

Figure 3.3 shows the total number of applications filed through patent, plant patent, and plant varieties equivalent protection systems filed for AgTech inventions in the United States.

Colorado is the second biggest agricultural innovation hub in the United States, tied with New York and second to Silicon Valley. ⁽¹⁴⁾See Graff, G.D., A. Berklund and K. Rennels (2014). The Emergence of an Innovation Cluster in the Agricultural Value Chain along Colorado’s Front Range. Colorado State University. Its rise to prominence as an AgTech hub coincided with early private investments into water resource infrastructure for irrigation and transportation infrastructure, primarily railroads, in the late 19th and 20th centuries. Colorado is known for its beef cattle, dairy products and wheat. The largest city between Chicago and San Francisco, Denver, the capital of Colorado, became a major hub for the transportation and processing of agricultural commodities. It was later a key location for the establishment of federal research laboratories, in addition to several state universities. This enabled research to be undertaken into the needs of agriculture and related industries in the region and facilitated the technology transfer of innovations developed in adjacent fields. ⁽¹⁵⁾See Graff, G.D. and I. Hamdan-Livramento (2019). Global Roots of Innovation in Plant Biotechnology. WIPO Economics Working Paper No. 59. World Intellectual Property Organization; and Wright, B.D. (2012). Grand missions of agricultural innovation. Research Policy, 41(10), 1716–1728. DOI: https://doi.org/10.1016/j.respol.2012.04.021 Moreover, major research institutions were located within a one-hour drive of each other, fostering collaboration and knowledge exchange. In addition, there is a thriving agribusiness in the region. This includes innovators in water technology and infrastructure, soil fertility and pest control, plant genetics and new crop varieties, animal health, nutrition and health management, bioenergy, commodity processing and food manufacturing, and even natural, organic and local foods and marketing services. ⁽¹⁶⁾Graff, G.D., A. Berklund and K. Rennels (2014). The Emergence of an Innovation Cluster in the Agricultural Value Chain along Colorado’s Front Range. Colorado State University.

One of Colorado’s biggest constraints is access to water. Innovations in irrigation technology in the state that began a century ago include the Parshall fume and the center-pivot irrigation system, both of which are now used worldwide. Colorado ranchers were among the first to develop the concentrated feedlot system for the more efficient fattening of beef cattle before slaughter. And Colorado became a major region for aerospace, satellite and atmospheric research, due to the regional concentration of US military facilities and federal laboratories, such as the National Oceanic and Atmospheric Administration (NOAA) and the National Center for Atmospheric Research (NCAR), which model and predict weather for agriculture and develop applications, such as remote sensing.

The farming industry is one of the biggest consumers of water resources in the state. Technological advances in improving irrigation, developing plant varieties to withstand weather conditions, such as lack of water, and those that optimize water use are readily adopted in Colorado. For example, Colorado experienced a severe drought in 2012. This adversely affected its farming outputs. So when a genetically-engineered (GE), drought-tolerant corn variety was introduced in 2012 and made available in 2013 Colorado was one of the states that adopted it. By 2016, 20 percent of corn planted in Colorado was of the GE corn variety. ⁽¹⁷⁾McFadden, J., D. Smith, S. Weschsler and S. Wallander (2019). Development, Adoption, and Management of Drought-Tolerant Corn in the United States Economic Information Bulletin Number 204. United States Department of Agriculture: Foreign Agricultural Service.

Innovators have also emerged in the processing of agricultural commodities, with some of the region’s agribusinesses becoming global leaders in food and beverage manufacturing. ⁽¹⁸⁾They include Coors Brewing (today, Molson Coors), Monfort Meats (acquired by JBS), Leprino Foods and Celestial Seasonings (today, Hain Celestial). These corporate leaders have more recently been followed by a sort of counter revolution led by consumer-driven food and beverage companies focused on quality, health and environmental attributes.

Colorado’s robust innovation ecosystem is what enables it to be a technology-frontier AgTech hub. The interface between agricultural production, commodity processing and food manufacturing close to urban and high-tech consumers, and increasingly sophisticated retail markets has created a unique set of challenges, tensions and opportunities for this hub.

Colorado’s climate and access to new talent brings many agribusinesses and seed companies to the region. A number of global agricultural and food companies have set up headquarters for their US operations in Colorado, including Nutrien, the world’s largest potash producer from Canada; JBS, the world’s largest meatpacker from Brazil; and Danone, one of the world's largest dairy manufacturers from France.

São Paulo, Brazil: becoming a leader in ethanol production

São Paulo’s status as an AgTech hub is due to the region’s agribusiness growth and its sugarcane and ethanol production, as well as its range of specialty crops such as coffee and citrus fruits. Its biome is classified as Atlantic Forest, making it a fertile ground for growing coffee and sugarcane.

Since the introduction of Brazil’s National Alcohol Program (Programa Proálcool), in 1975, São Paulo has evolved from a mainly coffee and sugarcane-producing agricultural state to become a world leader in ethanol production. Some of the ethanol produced is categorized as a biofuel and used as a renewable energy source. One of the catalysts for Brazil’s quick shift to sugarcane production was due to the severe frost of coffee crops, known as the Black Frost (Geada Negra) , in Paraná and São Paulo states in 1975. ⁽¹⁹⁾See Parikh (1979). Parikh, A. (1979). Estimation of supply functions for coffee. Applied Economics 11(1), 43–54. DOI: https://doi.org/10.1080/758520522  This frost wiped out almost all of coffee crops on plantations from the region.

As Brazil is one of the world’s largest and most competitive ethanol producers, its exporters cater to the global market demand for biofuel. In fact, producing sugarcane ethanol costs 50 to 60 percent less than producing corn ethanol. ⁽²⁰⁾Manochio, C., B.R. Andrade, R.P. Rodriguez and B.S. Moraes (2017). Ethanol from biomass: A comparative overview. Renewable and Sustainable Energy Reviews, 80, 743–755. DOI: https://doi.org/10.1016/j.rser.2017.05.063.  And sugarcane produces more ethanol per hectare than corn. Brazilian biofuels produced from ethanol are far superior to those produced by the United States from maize or sugar beet. ⁽²¹⁾Sugarcane produces 6,314 liters of ethanol per hectare versus corn’s 2,729 liters per hectare (see Donke et al., 2017). Donke, A., A. Nogueira, P. Matai and L. Kulay (2017). Environmental and energy performance of ethanol production from the integration of sugarcane, corn, and grain sorghum in a multipurpose plant. Resources 6(1). DOI: https://doi.org/10.3390/resources6010001

A recent increase in environmental awareness, especially in the European Union market, has prompted industry leaders to shift ethanol production toward second-generation (2G) ethanol production. One of the biggest drivers of this is the European consumer’s willingness to pay premium prices for 2G ethanol. In addition, environmental awareness has prompted industry leaders to become more willing to adopt precision agriculture in order to optimize the use of natural resources.

Figure 3.4 shows how Brazilian innovators are steadily relying on patent and utility model protections for their agricultural inventions. In addition, their use of plant varieties protection system to protect their AgTech innovation is equally practiced.

Strong agricultural research centers investing in agricultural innovation and the growing strength of the private sector are two of the factors that have contributed to the sector’s development. São Paulo state is home to the largest number of agricultural research institutions in Brazil, some of which are the most prolific in publishing agricultural research. ⁽²²⁾de Castro, C.N. (2014). Agriculture in Brazil’s Southeast Region: Limitations and Future Challenges to Development (Texto para Discussão, No. 1952a). Instituto de Pesquisa Econômica Aplicada (IPEA). Available at: http://hdl.handle.net/10419/121530.; Furtado, A.T., M.P. Hekkert and S.O. Negro (2020). Of actors, functions, and fuels: Exploring a second generation ethanol transition from a technological innovation systems perspective in Brazil. Energy Research & Social Science, 70, 101706. DOI: https://doi.org/10.1016/j.erss.2020.101706.

Two of the biggest challenges and constraints that Brazilian ethanol producers face is the lack of proper road infrastructure and government intervention in setting national prices for fossil fuels. ⁽²³⁾The road infrastructure in São Paulo is not, however, as bad as it is in the rest of Brazil, particularly the north; see Rada, N. (2013). Assessing Brazil’s Cerrado agricultural miracle. Food Policy, 38, 146–155. DOI: https://doi.org/10.1016/j.foodpol.2012.11.002. Regarding the latter, because domestic demand for ethanol depends upon the oil price, a low oil price reduces demand for ethanol. This in turn adversely affects producers’ returns, making it riskier for producers to invest in new ventures.

At the same time, São Paulo hosts the headquarters of some of the world’s largest agribusinesses. And this has given rise to a thriving agricultural start-up scene within the region. Indeed, São Paulo is known as the largest innovation and entrepreneurship center in Latin America. Moreover, it has a relatively mature financial and banking system, which provides much needed capital to start-ups. ⁽²⁴⁾See the Startup Genome information on Sao Paulo at https://startupgenome.com/ecosystems/sao-paulo and the BBVA, 2022. São Paulo, the largest innovation ecosystem in Latin America - BBVA. BBVA Spark Open Innovation. Available at: https://www.bbvaspark.com/contenido/en/news/land-of-unicorns-and-fintech-empire-this-is-sao-paulo-the-largest-innovation-ecosystem-in-latin-america/ (accessed 11.13.23).

Nairobi, Kenya: innovation built on plant breeding and in collaboration with an international AgTech network

Agricultural production in Kenya is diversified, with the main products for domestic consumption being maize, wheat, rice and beans and the main products for export being tea, coffee, sugar and horticultural crops such as cut flowers, fruits and vegetables.

Its fair weather conditions, soil fertility and adequate sun exposure, and proximity to Europe have all made it the largest producer of flowers in Africa. Kenyan floriculture exports grew by 300 percent between 1995 and 2003 in spite of stagnation within the rest of the economy. ⁽²⁵⁾Whitaker, M. and S. Kolavalli (2006). Floriculture in Kenya. In Chandra, V. (ed.), Technology, Adaptation, and Exports: How Some Developing Countries Got It Right. World Bank. DOI: https://doi.org/10.1596/978-0-8213-6507-6.

Kenya has a long history of plant breeding and has built its innovative capability in this field. In 2013, four of Kenya’s agricultural research institutes were merged into the Kenya Agricultural and Livestock Research Organization (KALRO). The four institutes in question were the former Kenya Agricultural Research Institute (KARI), the Coffee Research Foundation (CRF), the Tea Research Foundation of Kenya (TRFK) and the Kenya Sugar Research Foundation (KESREF). The Government’s public support programs, investments into R&D and infrastructure, and its collaboration with regional and international agriculture research centers together work toward fostering innovation tailored to local needs.

A survey undertaken by the FAO in 2007 showed how Kenya possessed some capabilities in developing conventional and transgenic plant varieties. ⁽²⁶⁾Falck-Zepeda, J. B., P. Zambrano, J.I. Cohen, O. Borges, E.P. Guimaraes, D. Hautea, J. Kengue and J. Songa (2008). Plant Genetic Resources for Agriculture, Plant Breeding, and Biotechnology. IFPRI Discussion Paper. International Food Policy Research Institute. Available at: www.ifpri.org/publication/plant-genetic-resources-agriculture-plant-breeding-and-biotechnology. In fact, it is one of the few African countries to have a research agenda in biotechnology. However, it has still to develop sufficient capacity to provide technological solutions to its agricultural problems. ⁽²⁷⁾Kingiri, A.N. (2022). Exploring innovation capabilities build up in the deployment of crop biotechnology innovation in Kenya. Innovation and Development, 12(2), 305–324. DOI: https://doi.org/10.1080/2157930X.2021.1884934.

Instead, Kenya has been able to take advantage of the developments in the Africa region to develop its AgTech synergies. In building its capabilities as a plant varieties producer, KALRO collaborated with the world’s primary international agricultural innovation network, known as the Consultative Group on International Agricultural Research (CGIAR) research centers to create the plant varieties that it needs.

One example of this regional synergy is when Kenya’s maize crop was devastated by the maize lethal necrosis (MLN) disease. The disease led Kenyan farmers to lose between 30 and 100 percent of maize crop production in 2011. This disease was equally disastrous for other maize producers in the Africa region. In response, CGIAR’s International Maize and Wheat Improvement Center (CIMMYT -Centro Internacional de Mejoramiento de Maíz y Trigo) research center was able to derive four MLN-tolerant hybrid varieties. It distributed these varieties among private and public sector partners in East Africa to be released. In 2012, CIMMYT collaborated with the Kenyan KALRO, national plant protection organizations and commercial seed companies in stopping the spread of the disease across sub-Saharan Africa. Other collaborators included the International Institute of Tropical Agriculture (IITA), the Alliance for a Green Revolution in Africa (AGRA) and the African Agricultural Technology Foundation (AATF), and advanced research institutions in the United States and Europe. After national performance trials in Kenya, several hybrids of the second-generation variety were released over the course of a five-year period from 2013 onwards.

In addition, funding from these non-profit organizations helped to train, diffuse and share the benefits of new plant varieties to its farmers.

Kenya’s collaboration with CGIAR explains how this AgTech hub has been able to build its local capabilities as a plant varieties breeder for the African region. First, its capital, Nairobi, hosts two research center campuses. One of the research centers is the Center for International Forestry Research and World Agroforestry (CIFOR-ICRAF) and the other is the International Livestock Research Institute (ILRI). Second, Nairobi’s central location makes it a natural trade and distribution hub for agricultural products for the country, as well as the continent.

Third, the challenges and constraints that this AgTech hub faces can be overcome through its collaboration with CGIAR research centers. The challenges that Kenya faces include limited access to irrigation, the high cost of agricultural inputs, including seeds and fertilizers, and limited access to financing. About 83 percent of Kenyan land is arid or semiarid and unsuitable for rain-fed farming or intensive livestock production. Only seven percent of the land is irrigated. ⁽²⁸⁾See D’Alessandro, S.P., J. Caballero, J. Lichte and S. Simpkin (2015). Kenya: Agricultural Sector Risk Assessment. Available at: http://hdl.handle.net/10986/23350.

International public institutions like CGIAR, backed by NGOs such as the AATF, help Kenyan plant breeders to breed abiotic stress- and drought-resistant crops. For example, maize is a major food crop in the country. It accounts for 40 percent of the crop area and a majority of the staples grown. However, maize yields are low. To overcome this problem, KALRO collaborated with CIMMYT to develop, test and then convince Kenyan farmers to farm a drought-tolerant maize variety. ⁽²⁹⁾See Simtowe, F., D. Makumbi, M. Worku, H. Mawia and D.B. Rahut (2021). Scalability of Adaptation strategies to drought stress: the case of drought tolerant maize varieties in Kenya. International Journal of Agricultural Sustainability, 19(1), 91–105. DOI: https://doi.org/10.1080/14735903.2020.1823699

However, Kenyan AgTech innovators do not rely on IP protection to the same extent as those in the United States and Brazil.

Figure 3.5 shows that Kenyan innovators have only applied for a few patents and utility models over the last few years. This is partly owing to CGIAR’s reluctance to allow innovators to file for patent protection on innovation it has co-developed. However, this stance is slowly changing. Separately, the Kenyan innovators’ reliance on plant varieties equivalent protection has been relatively consistent since Kenya signed the UPOV Convention back in 2000.

Sowing the seeds: how public support propels AgTech development

The market failure argument based on the public goods characteristics of agricultural innovation explains why the public sector is still the largest contributor to agricultural R&D worldwide.

Governments that invest heavily in agriculture see stronger economic growth, declining poverty rates and better nutritional status. ⁽³⁰⁾Ousmane, B. and T. Makombe (2015) . Agriculture, growth, and development in Africa: Theory and practice. In Monga, C. and J.Y. Lin (eds), The Oxford Handbook of Africa and Economics: Policies and Practices – Part II, Microeconomic and Sectoral Issues. Oxford University Press, Vol. 2, 307–324. Available at: www.ifpri.org/publication/agriculture-growth-and-development-africa-theory-and-practice.  A study conducted by the USDA found that between 1900 and 2011, every dollar spent on public agricultural R&D generated USD 20 for the United States economy. ⁽³¹⁾Baldos, U.L.C., F.G. Viens, T.W. Hertel and K.O. Fuglie (2019). R&D spending, knowledge capital, and agricultural productivity growth: A Bayesian approach. American Journal of Agricultural Economics, 101(1), 291–310. DOI: https://doi.org/10.1093/ajae/aay039.

According to the International Food Policy Research Institute’s Agricultural Science and Technology Indicator (ASTI) Global Report (2020) report, global R&D spending on AgTech totaled nearly USD 47 billion in 2016. ⁽³²⁾Beintema, N., A.N. Pratt and G.-J. Stads (2020). ASTI Global Update 2020. Agricultural Science and Technology Indicators Program Note. International Food Policy Research Institute. This number excludes private sector for-profit expenditure. The public sector in high-income countries accounted for 40 percent of global spending. Since 2011, however, the share of agricultural R&D undertaken by the public sector in high-income countries has either declined or stagnated. In its place, the private sector is spending more on agricultural R&D. In most low and middle-income countries (except Brazil and China), the public sector still funds the vast majority, if not almost all, of agricultural R&D. ⁽³³⁾Pardey, P.G., C. Chan-Kang, S.P. Dehmer and J.M. Beddow (2016). Agricultural R&D is on the move. Nature 537(7620), 301–303. DOI: https://doi.org/10.1038/537301a.

Figure 3.6 provides a snapshot of the public versus private sector share of spending on R&D across different income levels in 1990, 2000 and 2014.

There are three main ways government support is vital to building local innovative capabilities in agriculture. First, governments fund or conduct the research and help disseminate the findings through education, extension, training collaboration with and technology transfer to the private sector. Second, governments create the enabling conditions that provide incentives and support to innovative activities undertaken by the private sector. And third, governments can set policies or mission-oriented targets to boost innovative capabilities in agriculture.

Conducting AgTech research

Across all three regions profiled in this chapter, governments have been vital in funding and conducting agricultural research, including research that may not have an immediate payoff.

Colorado’s rise as an agricultural innovation hub was rooted in the United States Government’s investments into agriculture that began in the 19th century with the establishment of agricultural state universities and agricultural experiment stations. The Government provided reliable research funds to those universities, together with each of the state governments, such as Colorado, and also established federal agricultural research institutions, carrying out its own research through the USDA. ⁽³⁴⁾Nelson, K.P. and K. Fuglie (2022). USDA ERS – Investment in US public agricultural research and development has fallen by a third over past two decades, lags major trade competitors. Amber Waves, June 6. Economic Research Service, U.S. Department of Agriculture.  Available at: www.ers.usda.gov/amber-waves/2022/june/investment-in-u-s-public-agricultural-research-and-development-has-fallen-by-a-third-over-past-two-decades-lags-major-trade-competitors.  For example, the United States Government funded much of the basic research extending applications of molecular biotechnology into agriculture. ⁽³⁵⁾See Graff, G.D. and I. Hamdan-Livramento (2019). Global Roots of Innovation in Plant Biotechnology. WIPO Economics Working Paper No. 59. World Intellectual Property Organization. Most of the research results generated by government-funded universities and USDA research labs were transferred to the private sector in the early years through publication of results or through extension services, and more recently through collaborations and partnerships with private sector companies, through licensing of technologies or through the creation of technology start-ups.

In Brazil, the Government is the largest source of agricultural innovation funding. Its national agricultural research institution and research arm of the Brazilian Ministry of Agriculture, the Brazilian Agricultural Research Corporation (EMBRAPA –Empresa Brasiliera de Pesquisa Agropecuária), carries out research into the country’s vast and diverse biomes. EMBRAPA consists of multiple research centers across Brazil focused on the agricultural needs of each region. ⁽³⁶⁾Mueller, B. and C. Mueller (2016). The political economy of the Brazilian model of agricultural development: Institutions versus sectoral policy. The Quarterly Review of Economics and Finance, 62, 12–20. DOI: https://doi.org/10.1016/j.qref.2016.07.012. This research institution has developed over 9,000 technologies and over 350 cultivars. Most of these have been transferred directly to Brazilian farmers. ⁽³⁷⁾Correa, P. and C. Schmidt (2014). Public research organizations and agricultural development  in Brazil: How did EMBRAPA get it right? Economic Premise No. 145. World Bank. Available at: http://documents.worldbank.org/curated/en/156191468236982040/Public-research-organizations-and-agricultural-development-in-Brazil-how-did-Embrapa-get-it-right.

Universities and government-sponsored research institutions were crucial to São Paulo’s agricultural productivity gains. They contributed to São Paulo’s rise as an agricultural innovation hub, initially for sugar and ethanol production. Two of the first research institutions to receive sugar and ethanol production funding were the University of Agronomy in Campinas (IAC – Instituto Agronômico de Campinas) and the São Paulo State Research Foundation (FAPESP – Fundação de Amparo à Pesquisa do Estado de São Paulo).  The Government also established the National Sugarcane Improvement Program (PLANALSUCAR – Programa Nacional de Melhoramento da Cana-de-Açúcar), a government program to develop sugarcane varieties and improve crop yields.

  It also led the work on seed development, while the Interuniversity Network for the Development of the Sugar-Energy Sector (RIDESA – Rede Interuniversitária para o Desenvolvimento do Setor Sucroenergético) developed various sugarcane crop varieties to fit Brazil’s needs. ⁽³⁸⁾ See the History of RIDESA, available online at: https://www.ridesa.com.br/historia. Accessed 06.03.2024. See also da Silva Medina, G. and B. Pokorny (2022). Agro-industrial development: Lessons from Brazil. Land Use Policy 120, 106266. DOI: https://doi.org/10.1016/j.landusepol.2022.106266

Finally, EMBRAPA invested heavily in educating and training its workforce in order to build up the country’s innovative capabilities. Between 1974 and 1982, EMBRAPA allocated approximately 20 percent of its budget to education. ⁽³⁹⁾Correa, P. and C. Schmidt (2014). Public research organizations and agricultural development in Brazil: How did EMBRAPA get it right? Economic Premise No. 145. World Bank. Available at: http://documents.worldbank.org/curated/en/156191468236982040/Public-research-organizations-and-agricultural-development-in-Brazil-how-did-Embrapa-get-it-right.

Kenya’s agriculture research center, KALRO, aims to generate and disseminate food crop knowledge, innovative technologies and services. Despite the country’s long experience with plant breeding, it still required collaboration with CGIAR research centers, backed by funding, for instance from AATF and the Bill & Melinda Gates Foundation, for the country to build its innovative capabilities.

One of those CGIAR research centers is CIMMYT referred to earlier. CIMMYT has access to a global innovation network of agricultural researchers worldwide. It also maintains a connection to private seed companies by working on the development of abiotic stress hybrids in 17 countries over nine years. ⁽⁴⁰⁾Gaffney, J., M. Challender, K. Califf and K. Harden (2019). Building bridges between agribusiness innovation and smallholder farmers: A review. Global Food Security, 20, 60–65. DOI: https://doi.org/10.1016/j.gfs.2018.12.008; Boyer, J.S., P. Byrne, K.G. Cassman, M. Cooper, D. Delmer, T. Greene, F. Gruis, J. Habben, N. Hausmann, N. Kenny, R. Lafitte, S. Paszkiewicz, D. Porter, A. Schlegel, J. Schussler, T. Setter, J.  Shanahan, R.E. Sharp, T.J. Vyn, … J. Gaffney (2013). The U.S. drought of 2012 in perspective: A call to action. Global Food Security, 2(3), 139–143. DOI: https://doi.org/10.1016/j.gfs.2013.08.002; Weber, V.S., A.E. Melchinger, C. Magorokosho, D. Makumbi, M. Bänziger and G.N. Atlin (2012). Efficiency of managed-stress screening of elite maize hybrids under drought and low nitrogen for yield under rainfed conditions in Southern Africa. Crop Science, 52(3), 1011–1020. DOI: https://doi.org/10.2135/cropsci2011.09.0486.

Governments also play a key role in coordinating, collecting and disseminating valuable information about agricultural innovation. In Kenya, for instance, KALRO and CIMMYT trained the agribusiness actors along the value chain as part of convincing Kenyan farmers to farm drought-tolerant maize varieties. They were able to reach over one million farmers in Africa, partnered with 28 seed companies (four Kenyan) and established nearly 550 field demonstrations in Kenya. This effort led to 4,500MT of climate-smart varieties of maize being sold, and seed packs distributed to 10,000 Kenyan farmers.

Enabling innovation

Private investments into agricultural innovations are influenced by government policies and market demand, both in the producing country and those countries that might potentially import the commodities in question. Policies, in addition to the market’s own price-based decisions, can affect the allocation of resources. Like farmers, the private sector decides which crop to plant and what technologies to adopt today, based on projected future prices of agricultural commodities.

Thus, governments must try to create incentives that align the private sector’s interests with their own in order to induce changes or the adoption of new technologies. There are multiple policy levers by which governments can achieve this including:

• IP protection to create an important precondition for the private sector to begin investing in agricultural innovation. In the United States, IP protection was one of the factors that incentivized the private sector to invest in innovation in agriculture. The other was when the Government enacted the Bayh-Dole Act allowing universities to take title to IP over technologies developed using federal funding.

• Providing access to credit to facilitate adaption and adoption of new AgTech since it can be expensive for farmers. Brazil established the National System of Rural Credit providing finance to commercial agriculture to promote the use of new technologies, such as fertilizers, pesticides and agricultural machinery. ⁽⁴¹⁾While the program has been criticized for funding larger farmers focused on export commodities in the center-south region of Brazil, it has nonetheless provided the necessary impetus to achieve its stated goal (Mueller and Mueller, 2016). Mueller, B. and C. Mueller (2016). The political economy of the Brazilian model of agricultural development: Institutions versus sectoral policy. The Quarterly Review of Economics and Finance, 62, 12–20. DOI: https://doi.org/10.1016/j.qref.2016.07.012; Corcioli, G., G. da S. Medina and C.A. Arrais (2022). Missing the target: Brazil's agricultural policy indirectly subsidizes foreign investments to the detriment of smallholder farmers and local agribusiness. Frontiers in Sustainable Food Systems, 5. Available at: www.frontiersin.org/articles/10.3389/fsufs.2021.796845; Medina, G. da S. and A.P. dos Santos (2017). Curbing enthusiasm for Brazilian agribusiness: The use of actor-specific assessments to transform sustainable development on the ground. Applied Geography, 85, 101–112. DOI: https://doi.org/10.1016/j.apgeog.2017.06.003.

• Investments in infrastructure such as road, rail and port transportations can significantly reduce the cost of moving agricultural commodities from the farm to the market, as well as facilitate the growth of the sector. One study examining Brazil’s so-called “Cerrado Miracle” found that a one percent increase in paved roads led to an increase in crop production by slightly over one percent and livestock production by 1.11 percent. ⁽⁴²⁾Rada, N. (2013). Assessing Brazil’s Cerrado agricultural miracle. Food Policy, 38, 146–155. DOI: https://doi.org/10.1016/j.foodpol.2012.11.002.

Implementing targeted agricultural policies

As mentioned above, the United States agricultural mission implemented in the 19th century set the stage for building its innovative capabilities in the sector. Targeted policies were intended to promote research into solutions to agricultural challenges in the region and to train researchers and farmers on how to use AgTech. Today most of the innovation in agriculture in the United States is undertaken by the private sector. ⁽⁴³⁾See Fuglie, K., M. Gautam, A. Goyal, and W.F. Maloney (2019). Sources of Growth in Agriculture. In: Fuglie, K., M. Gautam, A. Goyal, and W. Maloney (Eds.), Harvesting Prosperity: Technology and Productivity Growth in Agriculture. World Bank, 1–42. DOI: https://doi.org/10.1596/978-1-4648-1393-1_ch1.

São Paulo’s relatively fast building of local capabilities in sugarcane production and ethanol biorefining was supported by the public spending. The country’s National Alcohol Program (Programa Proálcool) provided financial incentives to encourage companies to produce ethanol for fuel, and subsidized the price of ethanol fuel and reduced taxes for those consumers who purchased ethanol for their cars. ⁽⁴⁴⁾This incentive mechanism was suspended in 1986 because oil prices were low. The program boosted the country’s sugar production by 20-fold over the course of 16 years. ⁽⁴⁵⁾Stattman, S.L., O. Hospes and A.P.J. Mol (2013). Governing biofuels in Brazil: A comparison of ethanol and biodiesel policies. Energy Policy, 61, 22–30. DOI: https://doi.org/10.1016/j.enpol.2013.06.005. It also built Brazil’s capacity in producing flexible-fuel vehicles able to run on either gasoline or ethanol. ⁽⁴⁶⁾dos Santos e Silva, D.F., J.V. Bomtempo and F.C. Alves (2019). Innovation opportunities in the Brazilian sugar-energy sector. Journal of Cleaner Production, 218, 871–879. DOI: https://doi.org/10.1016/j.jclepro.2019.02.062. By 2017, nearly nine out of 10 vehicles sold in Brazil were flexible-fuel cars. ⁽⁴⁷⁾EPE, 2018. Energy Demand of Light Duty Vehicle: 2018-2030 (No. 01). Empresa de Pesquisa Energética, Rio de Janeiro.

Kenyan AgTech specialization in plant breeding is likely to expand after the Government lifted its ban on importing genetically-modified foods in 2015. This ban was in place partly because many of the richer economies that buy Kenyan exports ban the importation of transgenic crops. The Government has also allowed research into genetically-modified and engineered crops. In addition, the Kenya Government has enacted several agricultural-specific laws aimed at further transforming the country’s agricultural sector. ⁽⁴⁸⁾These bills and laws include the Agriculture, Livestock, Fisheries and Food Authority Bill 2012; the Livestock Bill 2012; Crops Bill 2012; the Kenya Agricultural Research Bill 2012; and the Fisheries Bill. See the USDA’s Global Agricultural Information Network (GAIN) website at https://gain.fas.usda.gov/#/home

At the same time, non-agricultural government policies in both agriculture-producing as well as agriculture-importing countries influence agricultural innovation both at home and on the global market. Standards and policies that relate to sanitary and phytosanitary measures and sustainability initiatives (including biofuels and food safety) play a significant role in the types of agricultural innovation that are adopted in farmlands. ⁽⁴⁹⁾See Wiggins, S., G. Henley and S. Keats (2015). Competitive or complementary? Industrial crops and food security in sub-Saharan Africa. Overseas Development Institute (ODI).  Available at: www.jstor.org/stable/resrep50756.

Bearing fruits: when appropriability conditions, local capabilities and market opportunities drive the path

Although governments may be the biggest supporters of AgTech development, they are not necessarily the main commercial users or producers of AgTech. This is where the private sector has a role to play in identifying and exploiting market opportunities in the agricultural sector. Market opportunities are what drive the private sector’s investments and commercialization efforts into AgTech development. However, its ability to do so varies according to the specific conditions and constraints faced by each hub. It also depends on the co-existing and related capabilities available locally.

First, local appropriability conditions have to provide sufficient incentives for the private sector to innovate in agriculture. In the United States, together, the Bayh-Dole Act and various IP protection instruments have encouraged private companies to accept the risk involved in adopting and commercializing new technological innovations. This was how start-ups and large seed companies collaborated with public research institutions and universities to commercialize transgenic crops.

Second, the presence of strong agriculture research centers, thriving farming communities and entrepreneurial businesses operating alongside enabling institutions and infrastructures contribute to a robust local innovative capability. The co-location of such innovative activities as these in AgTech hubs leads to knowledge and know-how spillovers in the sector, either from other value segments along the agricultural value chain or in a related or adjacent field.

Third, the ability of the local innovation ecosystem to exploit local capabilities in response to market opportunities is dependent on many factors. The main one is the diversity, complexity, relatedness and rarity of its local capabilities.

As explained in Chapter 2 of this report, countries with greater opportunities to shift their technological path tend to have highly complex innovation ecosystems. This can be seen across all three AgTech hubs under discussion.

Figure 3.7 compares the different innovation capabilities of these three AgTech hubs for the years 2004 and 2020. This is measured using the three capability dimensions introduced in Chapter 2, namely, trade, scientific publications, and patent applications. The figure illustrates how the United States leads through having the highest level of capabilities in highly complex fields, followed by Brazil and Kenya. Kenya and Brazil have both built on their innovative capabilities and because of this display some level of complex capabilities.

These general levels of innovation capabilities are similarly mirrored in the AgTech specialization of each hub.

Figure 3.8 maps the AgTech-related capabilities and shows how the distribution differs between simple to complex capabilities. Kenya has most of its AgTech capabilities within the simple range, implying that the capabilities it has managed to acquire are also present in other countries. Between 2004 and 2020, Brazil was able to build more complex capabilities in AgTech. The United States has the most complex capabilities, even in AgTech-specific fields.

Colorado is an AgTech frontier producer

The United States economy is at the frontier of innovation, both generally and in respect to AgTech specialization.

Figure 3.9 compares that economy’s capabilities across the scientific, technological and production dimensions between 2004 and 2020 and shows how specialized fields are related and concentrated together. The United States has the know-how necessary to develop rare and sophisticated technologies, which helps to explain why that country is the largest agricultural exporter in the world.

Consider the Colorado AgTech hub. Colorado is per capita the largest research performer under USDA funding in the United States. In 2011, it received the third highest total of USDA funding, trailing just California and Texas. The region is home to several USDA branch laboratories. Universities in Colorado have major programs in biosciences, water resources, agricultural science and food science, making the state one of the regional leaders in agricultural and food knowledge. According to a recent inventory, Colorado is also home to 550 agricultural innovators of which 460 are private sector (corporate and start-up) companies and 90 are public (federal, state and local) organizations. ⁽⁵⁰⁾See Graff, G. D., A. Berklund, and K. Rennels (2014) . The Emergence of an Innovation Cluster in the agricultural Agricultural Value Chain along Colorado’s Front Range. Colorado State University.

As a biotechnology hub, the United States was able to build its local capabilities based on the interactions between its strong public research center and institutions, on the one hand, and incentivized private sector, on the other. Appropriability conditions, such as through IP protection, have also helped facilitate the private sector’s investments into agricultural R&D.

Two factors facilitated the commercialization of agricultural biotechnology from the 1980s onwards. The first of these was the granting of patents on genetically-engineered plants. The second was the passing of the Bayh-Dole legislation allowing for the filing of patent protection on publicly-funded research. Soon, start-ups from research labs were applying biotechnology to the agriculture field. Then, seed, chemical, fertilizer and pesticide companies started adopting the technology.

São Paulo is capitalizing on its capabilities and premium prices to transition toward producing sustainable ethanol

Brazil has been able to build its AgTech hub from being a net importer of agricultural commodities into a world-class ethanol producer. It did this through strong government support and the entry of the private sector into the industry when it started maturing. This evolution can be seen in Figure 3.10 showing how Brazil built its innovation capabilities from 2004 to 2020.

The Brazilian Government initially implemented the National Alcohol Program to reduce its dependency on oil as an energy source. Through various schemes designed to influence the demand and supply of ethanol, the Government managed to increase sugarcane production in Brazil. The Government even imported the technology in order to produce vehicles that run on ethanol from the American Ford company.

A sharp oil price drop made the program difficult to sustain. However, the invention of flexible-fuel vehicles in 2003 encouraged the use of ethanol for powering motor vehicles once again. Consumers could fill their tanks with either ethanol or oil, depending on which was cheaper. By 2010, flexible-fuel vehicles accounted for 86 percent of light vehicles in Brazil. ⁽⁵¹⁾See de Castro, C.N. (2014). Agriculture in Brazil’s Southeast Region: Limitations and Future Challenges to Development (Texto para Discussão, No. 1952a). Instituto de Pesquisa Econômica Aplicada (IPEA). Available at: http://hdl.handle.net/10419/121530.

Around the same time, there was renewed interest by the Government in producing ethanol. This was because the price of oil was rising and the use of renewable energy sources slowly gaining acceptance. At this point, a few local companies were producing ethanol using 1G technology.

The shift toward adopting 2G technology was prompted by interest from the European market, where less polluting ethanol commands a premium price. The 2G ethanol technology is new to Brazil. The 2G ethanol technology uses existing 1G ethanol technology and the waste it generated to produce ethanol, thereby reducing waste and helping address climate change concerns. ⁽⁵²⁾1G ethanol is simply produced by crushing sugarcane, whereas 2G ethanol is production is based on the 1G ethanol technique plus the utilization of its “waste” called bagasse, which is the discarded stalk of sugarcane after the sugar has been squeezed out. The 2G ethanol technology is thus more environmentally friendly, as it reduces industrial waste while utilizing more of the energy embodied in the sugarcane plant to produce ethanol.

Large-scale bioethanol production using 2G ethanol technology is risky, even with government support. Only two of the six large-scale bioethanol plants established worldwide in 2000 remain in production. They are both in Brazil. ⁽⁵³⁾de C. L. e Penalva Santos, D., C. Correa, Y. Amaral Alves, C. Gomes Souza and R.A. Mancebo Boloy (2023). Brazil and the world market in the development of technologies for the production of second-generation ethanol. Alexandria Engineering Journal, 67, 153–170. DOI: https://doi.org/10.1016/j.aej.2022.09.004.

Nairobi is building on its agricultural research centers and disruptive mobile banking platform

Kenya’s local innovative capabilities are less diverse, related or rarer than those of the other two AgTech hubs. Figure 3.11 shows how most of Kenyan capabilities lie mostly in the simple capabilities. However, the latest data show that it has managed to shift its set of capabilities upwards and gained one complex capability, namely in immunology which could in the future be applied to maintaining the health of livestock animals for example.

A related development in the Nairobi AgTech hub is slowly benefiting the Kenyan agriculture value chain – the disruptive mobile banking platform M-PESA. Backed by the Communication Authority of Kenya, M-PESA was rapidly adopted across Kenya. It was made available to customers with little to no access to financial institutions, many of whom live in remote areas, have a low level of education and face financial security challenges. The M-PESA platform leverages mobile phone technology and enables secure electronic cash transfer through the short messaging services (SMS) available on almost all SIM-card mobile phones. Since mobile phones were already ubiquitous in Kenya, because of the relatively poor telecom infrastructure, the technology was easy for people to adopt and adapt.

M-PESA is disrupting the agricultural value chain. It provides access to finance and credit for agricultural producers and generates significant benefits. ⁽⁵⁴⁾See Oostendorp, R., M. van Asseldonk, J. Gathiaka, R. Mulwa, M. Radeny, J. Recha, C. Wattel and L. van Wesenbeeck (2019). Inclusive agribusiness under climate change: a brief review of the role of finance. Current Opinion in Environmental Sustainability, 41, 18–22. DOI: https://doi.org/10.1016/j.cosust.2019.09.014. It has also opened the floodgates for new start-up AgTech entrants to build on the M-PESA platform. The unique identification provided by a SIM card allows for a reliable identification system and has unleashed exchanges of products and services in the AgTech sector. For example, Hello Tractor is a new AgTech start-up that rents tractors to farmers who need them.

The next frontier: Adapting a new wave of digital technologies

One of the big challenges in the agriculture sector is how to continue to expand production while becoming much more sustainable. As climate change leads to extreme weather conditions that threaten livelihoods, there is a consensus that the world needs its food supply to be more sustainable.

Climate change poses an important and pressing issue impacting efforts to expand agricultural production globally. Paradoxically, innovation activities that have improved agricultural productivity, in respect to crops and livestock, also contribute to soil degradation, water pollution and greenhouse gas (GHG) emissions. ⁽⁵⁵⁾Agriculture activities account for 20 percent of global GHG emissions. Crop and livestock activities account for 11 percent of global GHG emissions, see FAO (2020). The Share of Agriculture in Total Greenhouse Gas Emission: Global, Regional and Country Trends 1990–2017 (FAOSTAT Analytical Brief Series No. 1). Food and Agriculture Organization. Available at: www.fao.org/documents/card/en/c/ca8389en. These in turn affect future opportunities for agricultural development. Moreover, external climate-related factors affecting the agricultural sector have the potential to cascade into higher global food prices and reduce food security for the poor. ⁽⁵⁶⁾See Porter, J.R., L. Xie, A.J. Challinor, K. Cochrane, S.M. Howden, M.M. Iqbal, D.B. Lobell and M.I. Travasso.(2014). Food security and food production systems. In IPCC. 2014. Climate Change 2014: Impacts, adaptation, and vulnerability. Part A: Global and sectoral aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, 485–533. Cambridge, UK and New York, USA, Cambridge University Press

One of the ways to overcome waste and emissions from agricultural is to adopt precision technologies. Precision agriculture is a field of AgTech focused on using digital technologies that collect large data to optimize farming conditions and processes.

There is a large presence of startups specializing in precision technologies across the three agricultural hubs discussed. Colorado’s innovation ecosystem consists of a broad range of public sector research institutions, corporations and vibrant start-up communities. Some of these new start-ups are focused on leveraging the latest wave of digital technologies and adapting them to the agricultural sector. São Paulo hosts headquarters for some of the world’s largest agribusinesses and has given rise to a thriving scene of agricultural start-ups in the region. Indeed, it is known as the largest innovation and entrepreneurship center in Latin America. Moreover, it has a relatively mature financial and banking system, which provides much-needed capital to startups. ⁽⁵⁷⁾See the Startup Genome information on Sao Paulo at https://startupgenome.com/ecosystems/sao-paulo and the BBVA, 2022. São Paulo, the largest innovation ecosystem in Latin America - BBVA. BBVA Spark Open Innovation. Available at: https://www.bbvaspark.com/contenido/en/news/land-of-unicorns-and-fintech-empire-this-is-sao-paulo-the-largest-innovation-ecosystem-in-latin-america/ (accessed 11.13.23).

Meanwhile, Nairobi is known as the “Silicon Savannah” because of its technologically-inclined ecosystem. ⁽⁵⁸⁾See the StartupGenome information on Kenya. Available at: https://startupgenome.com/ecosystems/nairobi. Kenyan start-ups are helping their farmers to overcome the overcoming the constraints and challenges of engaging in agriculture. These start-ups are using the innovative mobile banking M-PESA platform, to help Kenyan farmers access credit, rent tractors and even monitor real-time crop price changes. ⁽⁵⁹⁾M-PESA is a public–private partnership between the British telecom company Vodafone and its subsidiary Safaricom Kenya, a microfinance institution, Faulu Kenya, and the Commercial Bank of Africa, an established East African bank in Kenya. See Hughes, N. and S. Lonie (2007). M-PESA: Mobile money for the “unbanked” turning cellphones into 24-hour tellers in Kenya. Innovations: Technology, Governance, Globalization, 2(1–2), 63–81. DOI: https://doi.org/10.1162/itgg.2007.2.1-2.63; and Onsongo, E. (2019). Institutional entrepreneurship and social innovation at the base of the pyramid: The case of M-Pesa in Kenya. Industry and Innovation, 26(4), 369–390. DOI: https://doi.org/10.1080/13662716.2017.1409104. This success has led to a subsequent proliferation of other fintech start-ups in the region. Related to this, Nairobi is emerging as a top region for agricultural technology start-ups in Africa, including innovators in agricultural fintech, digital supply chain management and agribusiness business-to-business (B2B) marketplaces specialized in the needs and conditions of African farming and business. ⁽⁶⁰⁾See AgFunder (2023). Africa AgriFood Tech Investment Report 2023. AgFunder. Available at: https://agfunder.com/research/africa-agrifoodtech-investment-report-2023/

These three hubs are thus well equipped to adapt digital-based agricultural technologies and once again shift their AgTech specialization trajectories.

Conclusion

Agriculture is key to addressing our pressing need for food security, nutrition and sustainability. It also plays an important role in sustainable growth and development.

Raising agricultural productivity can have a positive impact on the welfare of millions of people currently living in poverty. Several studies show how growth in agriculture can improve income levels, which leads to better health, nutrition and access to education. Among findings are estimated gains of USD 25 billion across Bangladesh, Indonesia and the Philippines from the adoption of modern rice varieties and USD 140 million to those Ethiopian farmers who adopted an improved variety of maize. Most of these gains went to individuals living below the poverty line. ⁽⁶¹⁾On the study on Bangladesh, Indonesia and the Philippines, see Raitzer, D.A., A.H. Sparks, Z. Huelgas, R. Maligalig, Z. Balangue, C. Launio, A. Daradjat and H.U. Ahmed (2015). Is Rice Improvement Still Making a Difference? Assessing the Economic, Poverty and Food Security Impacts of Rice Varieties Released from 1989 to 2009 in Bangladesh, Indonesia and the Philippines. Rome, Italy: CGIAR Independent Science and Partnership Council. [A report submitted to the Standing Panel on Impact Assessment (SPIA)]. Consultative Group on International Agricultural Research (CGIAR). Available at: https://research.usq.edu.au/item/q4418/is-rice-improvement-still-making-a-difference-assessing-the-economic-poverty-and-food-security-impacts-of-rice-varieties-released-from-1989-to-2009-in-bangladesh-indonesia-and-the-philippines; and on Ethiopia, see Kassie, M., P. Marenya, Y. Tessema, M. Jaleta, D. Zeng, O. Erenstein and D. Rahut (2018). Measuring farm and market level economic impacts of improved maize production technologies in Ethiopia: Evidence from panel data. Journal of Agricultural Economics, 69, 76–95. DOI: https://doi.org/10.1111/1477-9552.12221

It is therefore not surprising that agriculture plays a pivotal role in achieving several United Nation’s Sustainable Development Goals (SDGs), 15 of the 17 SDGs can be improved by growth in the agriculture sector. ⁽⁶²⁾Agriculture touches on 15 of the 17 UN SDGs, namely on standards of living, inequality and economic growth (SDGs 1, 5, 8, 9 and 16), good health (SDGs 2, 3, 6), environmental stability (SDGs 6, 7, 11, 12, 13, 14, and 15). See the 17 Goals of the UN SDGs at: https://sdgs.un.org/goals.

The evolution of the three AgTech hubs discussed, namely, Denver, Colorado (United States), São Paulo (Brazil) and Nairobi (Kenya), illustrates how they were able to build on local and related capabilities, so as to specialize in the different AgTech fields. Each hub has shown progress in building technological capabilities and know-how over time. The most advanced hub, Denver, has been able to capitalize on available related technologies to become a global leader in the agricultural sector and show several specializations across many AgTech fields.

There are three important takeaways from these hubs:

• AgTech innovation is context-specific, and dependent on the agroecological conditions of a region. The AgTech trajectories of Denver, Colorado (United States), São Paulo (Brazil) and Nairobi (Kenya) were facilitated and hampered not only by the climate of the regions concerned, but also by the infrastructure available. Technological advances in irrigation are one of the main reasons Denver has been able to become an AgTech hub. São Paulo’s road infrastructure gave it an advantage over other parts of Brazil when it came to establishing itself as the country’s sugar production hub. While Nairobi’s central location in Africa, as well as it being home to two CGIAR research centers, has helped make it an innovation node for the entire continent.

• The public sector plays an important role in investing into agricultural innovation at the initial stage. In the United States, Brazil and Kenya, the public sector proved instrumental in helping build the initial capacities necessary to innovate in agricultural activities.

• Once a certain critical level of innovative capacity is established, and the appropriability conditions are sufficient, private enterprises can play a more prominent role in investing into agricultural innovation. This can be seen in the AgTech hubs of Denver and São Paulo. In Nairobi, the mobile banking platform M-PESA has given rise to digital start-ups applying digital technologies to agriculture. These start-ups are providing services that have the potential to overcome some of the challenges Kenyan farmers face, and help improve productivity.

One of the biggest challenges in agriculture is how to feed the nearly 10 billion people projected globally by 2050, which is nearly two billion people more than are alive today. ⁽⁶³⁾The World Bank estimates that the global population will grow to nearly 10 billion people by 2050. See the World Bank Population projection at https://databank.worldbank.org/reports.aspx?source=health-nutrition-and-population-statistics:-population-estimates-and-projections. This implies a further need to increase agricultural yield, given limited and increasingly scarce natural resources. Moreover, uncertainties due to on-going conflicts, climate change and potential pandemics, will have to be taken into consideration in ensuring food security for all. ⁽⁶⁴⁾In 2022, agriculture experienced a huge shock as a consequence of the global lockdown to contain the 2020 COVID-19 pandemic. In addition, the on-going conflict in Ukraine has disrupted the global supply of grain and contributed to higher food prices worldwide. This is likely to worsen the global hunger crisis. See “Joint Statement by the Heads of the Food and Agriculture Organization, International Monetary Fund, World Bank Group, World Food Programme and World Trade Organization on the Global Food and Nutrition Security Crisis”, February 8, 2023, available online at: https://www.imf.org/en/News/Articles/2023/02/08/pr2335-joint-statement-by-the-fad-imf-wbg-wfp-and-wto-on-food-and-nutrition-security-crisis.

Policy implications

There are three general policy implications that can help pave the way to ensuring that innovation in agriculture continues to sustain and feed the needs of the global populations:

First, investments in agricultural innovation should be continuous, consistent and for the long-term. While the pay-offs may take a while to be realized, the reward is beneficial to all.

Second, the new wave of digital technologies can help address the need for a sustainable growth in the agriculture sector. Governments may be interested in building the necessary enabling infrastructures to facilitate the adoption of these technologies and invest in infrastructure that facilitate the agriculture value chain.

Third, governments can pursue policies that promote investments from the private sector into the agricultural industry. These include having sufficient appropriability conditions that would enable the private sector to profit from investing in agricultural innovation, and a start-up friendly economy may create the conditions for them to pursue market opportunities to develop the sector.