Let’s discuss tomatoes in winter. Not just any tomatoes. Focus on the big juicy ones that seem out of season when they appear at the grocery store in January. Customers that suffer through the short days of winter pay a little bit more for them — it feels good to taste spring a little earlier.
Ever wonder how those tomatoes got there? They could not be grown nearby. The freezing cold would kill them. So how do they get there?
An article in the New York Times explained it for the east coast. Tomatoes grow in greenhouses in Maine. The article is very nicely written, and though it is not advertised as such, it explains many facets of demand-induced innovation.
Such juicy illustrations do not come along every day, so this one is worth some trouble. It is also enjoyable to use an everyday item like tomatoes to illustrate a deep point about innovation.
Many innovation junkies might have missed the article. The Dining and Wine Section featured it. That section aims its articles at at foodies, not techies. Of course, some techies are foodies, but many are not and would just skip the article altogether without a thought.
Ah, but I have a weakness for innovation with everyday items. Perhaps you do too. Let’s see what the article said.
Demand induced innovation
We need a bit of background to set the context.
Demand induced innovation is often called demand-pull theory, which contrasts it with technology push theory. Whatever you call it, the contrast illustrates a common misperception about innovation.
Technology push theory talks about how new technologies alter the frontier. Simplifying somewhat for the sake of brevity, this theory hypothesizes that inventors initially make discovery, move the frontier, which then generates many subsequent activities — such as investment in capital equipment. Things proceed in a linear direction, almost by stages, one after another. At the last stage productivity growth arises.
Demand pull theory hypothesizes that innovation occurs when economic incentives induce exploratory activity. Those incentives arise because demand for a new product or service could be valuable in settings where it is not yet supplied. According to this theory inventors sense that potential value and aim their activities in the direction of the most value. They explore, invest, explore, invest, and refine until that leads to satisfying the perceived demand. This process rarely is linear, though altogether it leads to productivity advance.
Now, to be frank, many years ago there was a stupid debate about which theory fits the facts most of the time. That was a dumb academic debate because it was premised on the false assumption that a single theory ever explains everything. Of course, that premise is false. Neither theory, by itself, is ever going to get anybody very far in explaining all the predominant activities found in complex industries, such as computing or the Internet.
Rather, each theory has a domain of examples in which the theory works well and a domain of examples in which the theory does not work well. (So it goes.)
This is how we get to tomatoes. Two aspects of demand induced innovative activity particularly challenging to apply to examples. Tomatoes turns out to address each of those aspects.
First, when innovation is induced by demand one expects to observe humans responding to market conditions. In other words, one expects to see suppliers and buyers developing and refining new technology when it suits their interests. When the conditions change so will innovative conduct.
Let me put it this way: to observe demand-induced innovation it is usually necessary to get very close to the details of choices faced by decision makers, to observe the options and paths not otherwise taken, and to appreciate the (potentially temporary) economic forces at work at the time when decisions were made. That can be challenging since observation often takes place long after the fact…
Second, demand induced innovation does not involve Einstein-like scientists wearing white coats in sanitized laboratories doing bench science. Much demand induced innovation arises in settings with no boundaries between the innovative activity and any other normal economic activity.
In other words, unlike technology-push theory, it is not possible to sit down and neatly describe demand-induced innovation with a neat abstract picture of arrows, one stage leading inexorably to the next. Nope. In demand-induced innovation, many things are contingent, depend on local prices, available options, limited information, and organizational rigidities, and it may be possible to make sense of it all only after the fact.
Which is why the creation of the winter tomato is such a good example. This one is easier to explain than most examples.
Tomatoes in winter
Tomatoes would not grow in the winter in most of the northern parts of North America. That is a fact. Potential buyers still exist nonetheless. Those facts frame the economic opportunity.
What was the opportunity? Well, it is not hard to see in retrospect… If somebody could invent a way to grow tomatoes nearby… then it saves on transportation and leads to a juicier tomato for the grocery. And the prices for the tomatoes might be higher than in the summer because the winter buyer is so willing to have fresh fruit and the supplies might be rather constrained….
This sounds like demand-induced innovation.
Demand existed, and it was localized, but supply was seasonal at best. So an opportunity existed for some clever supplier to figure out how to meet demand.
The article explains that much demand for tomatoes comes from fast food and gets satisfied by Mexican grown tomatoes, but those tomatoes do not satisfy all demand. Those must travel far, and, thus, get picked when green, far in advance of their arrival in a grocery store several days later. These are good tomatoes, but not great tomatoes — good enough for fast food, but a higher quality tomato would sell for a higher price.
I might add this. The topic of winter tomatoes takes on special urgency for those of us who live in the Northeast or Midwest and visit grocery stores in February for the sheer joy of viewing any colors other than shades of gray. (But I digress.)
Anyway, here is the economic point: the demand conditions were there, and the needs were transparent to many growers and distributors. The main barrier was cost. The price of a juicy tomato had to be low enough to sell.
As it turned out the only way to lower cost was to achieve scale in production. And a very large industrial sized green house has scale….
Large scale tomato growing
The article discusses numerous small innovations that collectively added up to successful large scale tomato growing in greenhouses in winter.
1. Multiple plants are grafted onto roots.
2. No dirt is used, but special surfaces are used for the roots.
3. Plants grow vertically and in directions to save space and expose plants to as much sun as possible.
5. Temperature and humidity and other facets of climate are carefully controlled inside the greenhouses. All to nurture growth and fruit production.
6. Varieties have been bred that particularly thrive under these conditions. Though insect/pests are less of a threat than during the summer, these varieties survive the prevalent disease threats of the winter season.
7. The same facilities are designed to be used year round. To be sure, they earn their money in the winter, when they produce a crop that sells at a high price at a local grocery.
There is more, but that gives you are good flavor for the innovations discussed in the content of the article. Growers have had to tailor/tweak/refine a wide set of practices — in a wide variety of imaginative and entrepreneurial ways — to make them work well to meet market requirements in this instance.
More to the point, none of this was easy or automatic, and the lessons built up over long period of time. That is demand-induced innovation incarnate.
The picture at the outset of this post also provides a good sense of the appearance. Quite astounding.
I had only one minor complaint about the article: near the end the writer stressed a (feeble) ironic relationship between using greenhouses and emitting greenhouse gasses. In other words, these green houses use a lot of electricity and other energy, so their carbon footprint is not environmentally friendly.
All that seems true, but almost besides the point. The growers are simply responding to the incentives in front of them. The electricity is cheap, and the tomatoes are pricey in the off-season, and the growers did what they did best. There might very well be an environmental externality, but that is true in this example and millions of others where the electricity is cheap and the output valuable. Why pick on these growers in particular?
The writer also left open a big question: would this type of production be viable if more greenhouses entered and supply increased and prices dropped? That is a natural question because nothing described in the article appeared to be outside the technological grasp of an experienced grower and green house operator.
Innovation in the big and small
In the middle of the 1990s there was a famous attempt to genetically engineer a new tomato. It was called the Flavr-Savr tomato (pronounced “flavor saver”), because it was genetically engineered to ripen to a sweet juicy tomato on the grocery shelf. In fact, it was the first genetically engineered vegetable licensed for human consumption.
Famously, the Flavr-Savr tomato flopped in the market — for all sorts of reasons.
That example has been a staple for students of genetically modified organisms. First, outcomes are shaped not merely by technical matters, but also by commercial matters. Hence, success is harder than it looks. Second, the intuition about where to find innovation should be informed by a sense of market-size. Think dollars — namely, where would technology yield the largest dollar gains for the innovator?
In other words, the biggest bang from investment in innovation often comes changing markets for everyday items. The amount of revenue is enormous, so a small change in price or quality has enormous consequences for many people.
Demand-induced innovation is often hard to see, but wonderfully colorful when it arises. But it is not too hard to see when it arises in everyday items such as vegetables.