An economic analysis of commercialization of innovation in small Saskatchewan agribusinesses

Abstract

Small firms make up a large proportion of businesses in Saskatchewan and likely have more potential for innovation given their diversity and flexibility. As agribusiness refers to all firms involved in food production, including input suppliers, producers, processors, distributors and retailers, small agribusinesses play a significant role in the economy and assist in diversifying agriculture. Of these, small producers and processors, however, are at a disadvantage in the current, highly consolidated and concentrated retail market environment. Largely restricted to a cottage industry-sized market they suffer from not generating sufficient profits from their commercialization of new products. Due to capital constraints, limited access to financing, and poor understanding of manufacturing, business management, and marketing, they also face many challenges and barriers to entering commercial retail markets where supermarket chains predominate. Given this perspective, commercialization in small Saskatchewan agribusinesses is analyzed using a case study approach. Relying on supply chain theory and transaction cost economics, a theoretical framework to model successful commercialization by small firms is developed and tested in case studies undertaken among Saskatchewan food processors. In particular, economic models of commercialization and a checklist for commercialization are developed. The models assume that small agribusinesses can access commercial markets through achieving economies of scale and, hence, succeed in commercializing their new products. The checklist for commercialization includes three main challenges of commercialization, namely increasing production scale, accessing commercial markets, and defining optimal production scale and corresponding barriers. A case study analysis has given some validity to the applicability of the economic models of commercialization and the checklist for commercialization.