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Information Age Agriculture: Commodity Concept and Automation

David Hennessy

No 297997, 2020 Allied Social Sciences Association (ASSA) Annual Meeting, January 3-5, 2020, San Diego, California from Agricultural and Applied Economics Association

Abstract: What constitutes a commodity is circumscribed by the pertaining technology and by incentives. Biotechnology innovations allow for more consistent production while sensors and other information technologies have allowed for improved discernment of material attributes. These two innovation classes are underpinning deep structural change in how agricultural products are produced, transformed and marketed. Since the beginnings of the Industrial Revolution, standardization of materials and equipment have enabled machinery to replace labor that can deal with non-standard decisions. Witless machines are now being replaced by discerning machines, allowing capital to compete with labor in new ways. When there are two underlying raw materials types, this paper provides a Bayesian information processing model of production and processing where three parameters matter. The state of biotechnology determines product consistency, and so the prior information that a resource receives when handling raw materials. Handling resources vary in the quality of the signal that is read from the materials. Finally, incentives determine tolerance for miscategorization of raw materials types. We show that produce consistency and discernment substitute when the costs of mis-categorizing are symmetric. Then low discernment costs promote differentiation while low costs for consistent materials promote commodity production. When mis-categorization costs are asymmetric and penalize more heavily mis-categorization into the more prevalent type then discernment and consistency can complement at low consistency levels but will substitute at higher consistency levels. Furthermore,commodity production will occur whenever consistency is close to 100% or to 50%. A Slingshot Effect can occur for materials consistency whereby improved biotechnology first increases demand for both discernment and consistency, through complementarity, but then eliminates demand for discernment and further boosts demand for consistency because the pair have become substitutes. Finally when sorting frictions, i.e., switching costs, decrease due to the advent of automation technologies then product differentiation is promoted. The model adapts to pure production cost settings where raw material types are replaced by input needs.

Keywords: Crop Production/Industries; Labor and Human Capital; Production Economics; Research and Development/Tech Change/Emerging Technologies (search for similar items in EconPapers)
Date: 2019-11
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Persistent link: https://EconPapers.repec.org/RePEc:ags:assa20:297997

DOI: 10.22004/ag.econ.297997

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