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A European Perspective on the Economics of


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A European Perspective on
the Economics of Big Data
Krijn Poppe, Sjaak Wolfert and Cor Verdouw
LEI Wageningen UR

Alan Renwick
University College Dublin

Modern information-based technologies, such as self-driving tractors, GPS (global


positioning systems), robot milking machines, automated egg production, drones,
satellite data and social media, will change farm practices and agricultural structures
and contribute to the prosperity and resilience of farming systems. Food chains will
not only become much more data-driven but will also move away from a situation
characterised by a low level of data integration. This will have a significant impact
on such issues as sustainability, food safety, resource efficiency and waste reduction.
The economic and social effects of such developments are still to be explored. At
first sight they could lead to more closely integrated supply chains that make the
farmer act simply as a franchisee with limited freedom, but the opposite could be
true. Farmers could be empowered due to greater transparency and easier options
for direct sales in consumer food webs (using social media and smart solutions for
the ‘last mile’ delivery). Therefore we can see conflicting pressures between the
globalisation and localisation of supply chains.
As with previous technological developments, not all farmers will invest in new
skills and where technologies are labour saving, farms will get bigger. Some farms
or regions will become less competitive if the basic infrastructure (eg broadband
internet or GPS systems) is lacking. Competition between advisors could increase,
if they are able to serve farmers digitally. In addition, part of such value added
activities may move from the most remote rural areas to regions with clusters of
knowledge and could also become more international in nature.
A major issue is that information and communication technology (ICT), combined
with higher food prices and demographic changes could fundamentally shift the
competitive advantage from family farms to more industrial holdings, leading to
radical structural change in agriculture.

Introduction • Processes for combining remote sensing


data on crop growth and farm data on crop
Over the last decade the use of information and interventions (and ex-post yields) leading to
communication technology (ICT) in the farm more informed decision-making.
sector has increased significantly (Henten et al.
2009). Poppe et al. (2013) highlight a range of • Wiring of glasshouses with sensors and
areas where ICT has been successfully applied. computers to steer the production process in an
These include: optimal way.

• Use of satellite data to precisely control field • Introduction of robotic milking on family
operations, making it possible to increase labour farms in North Western Europe where labour
productivity by increasing the size of machines. is expensive and farmers are highly educated.

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12

• Increased use of sensor technology with cows To address this question the paper is structured
increasingly measured as intensely with sensors as follows. The next section considers ICT in the
as athletes. Sensor data are much better than food chain and highlights how it has resulted in
the human eye at predicting diseases (such as large amounts of data that are poorly integrated.
lameness) or the optimal time for insemination. It then introduces the project FIspace as an
• Tracing and tracking have become standard in example of how the European Union (EU), in
agri-logistics. a public-private partnership construction – the
future internet (FI-PPP) – is developing data
• Retailers are increasingly using apps on exchange platforms to overcome the difficulties
smartphones to support consumers and to with integrating data across the supply chain.
increase brand loyalty. Following this, the paper discusses three areas
• Establishment of online shops by farmers due where changes in farm systems may be induced
to sharp falls in prices of delivery services by a seamless exchange of (big) data in food
as a result of liberalisation of post and parcel chains. These are: the market for apps and data;
markets. the evolution of food chains; and the organisation
of the farm business itself. The final section pulls
This list of examples shows that several together the analysis to draw conclusions.
participants in the food chain are already making
advanced use of ICT and are experimenting with
new developments. However this is just the start
The Data Challenge
of what could become a revolution in agriculture, ICT in the food chain
not unlike the wider adoption of the tractor and
Currently food chains are confronted with several
the introduction of pesticides in the 1950s. It will
business issues and societal challenges. In terms
change the way farms are operated and managed
of new business models these include: advice
and it will change both farm structures and the
being increasingly bundled with technology;
wider food chain in unexplored ways – just as in
precision farming; better service concepts in
the 1950s the extent of the changes in the next
logistics; segmentation in the food industry to
three decades could not be foreseen.
cope with heterogeneity in farming and among
consumers; and consumer decision support
The key to this new revolution is unlocking
(Poppe et al. 2013). Figure 1 summarises the
the potential of the data generated through the
extent that data and ICT contribute to the
application of ICT. At the present time, for
development of new business models and the
example, farm data are still rarely shared with
relevant policy challenges that are addressed.
advisors or the processing industry, analysed
by intelligent software or combined in regional
What is needed for many ICT-based solutions
analysis and advice. With the Internet of Things to address the challenges in the food chain, as
(IoT) (using data from sensors, machines and highlighted in Figure 1, is a better exchange of
other devices) we have entered the era of big data. data between business partners (and with the
Especially in sectors with many small players, government). In the near future, Facebook-like
like agriculture, there is a need to invest in data exchange platforms will make it possible
software that makes data seamlessly available to to move data seamlessly from one partner in the
business partners and government agencies – like food chain to another. A key issue is whether
large firms already do internally in their enterprise these systems will be proprietorial (developed, for
resource planning (ERP) systems. These firms example, by the global players in the food chain)
now have a need to connect to the digital data of or whether they will be more ‘open’ systems.
farmers and logistic service providers. This brings An example of the latter is described in the next
us to the research question of this paper: how will section which highlights how the EU’s FI-PPP is
big data, exchanged between farmers and their developing the infrastructure for data exchange.
business partners change the nature of farming?

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How more data contributes to current business models


Logistics
Input Software Food Retail/
Farmer solution
industries providers processor consumer
providers

Transport Transport Transport

GRIN* Small Cost price Service Cope with retail Loyalty

Feed the growing world Sustainability Food safety Health

Precision farming: Segment products


better control and input suppliers
Better management Benchmarked with
decisions competitors Consumer
Sophisticated decision support
technology, (pre- and post-sales)
more advice Better service concepts
(eg in-store replenishment)

Figure 1: Business and societal challenges and their ICT solution in the food chain.
* GRIN: Genetic, Robotic, Information and Nano technologies
Source: Poppe et al. (2013).

Data Exchange with FIspace The issue is even more complex, if one realises
that the data exchange between, for example
Cloud technology (that gives people access to farmers and their cooperative or robot supplier,
their data from different devices and places) also will lead to digital data that has to be used by third
makes it easier to share. Open data (in which parties. This will mean accountants, for example,
governments or others share their data free of require access to the electronic invoices of the
charge) can be seen to be an example of such cooperative, whilst the farm management system,
exchanges. Together with the Internet of Things
the vet and the herd book needs access to the data
this contributes to the era of big data.
from the cows milked by the robot.
Within an organisation these developments can be
Data needs to be exchanged with common
implemented relatively easy. Enterprise resource
standards and an Agri-Business Collaboration and
planning systems (ERPs) and customer relation Data Exchange Facility (an ABCDEF) is required
management (CRM) software can be extended. as an infrastructure for this data exchange. This
However, between organisations it is more is a common pool investment, and the EU has
problematic, as the so called ‘interoperability’ of understood that it should help to build such
data and information systems is very low. This infrastructure in the FIspace project of the FI-PPP.
holds for SME1-to-SME or SME-to-government
communication as well as SME-to-big company FIspace (www.fispace.eu) can best be imagined as
communication. Imagine for instance the a business-to-business software tool comparable
challenge for a large dairy cooperative that wishes to LinkedIn or Facebook – a social media service
to exchange digital data with 10,000 farmers, or that connects companies (instead of persons)
a manufacturer of milking robots that wants to and their operations. Businesses can contact
monitor operational data from products that are each other (or a government agency) and start a
sold to farmers. collaboration. They could, for instance, detail a
contract and specify which data they would like
1 Small and medium-sized enterprises

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to exchange, the standards the data will conform following sections three areas are chosen to
to (eg EDIFACT2 or XBRL3), and under which illustrate some of the changes that will occur.
circumstances the exchange will occur. This could These are i) the impact on the market for farm
be data like invoices or delivery notes, but also management software, ii) the changes in the food
Internet of Things data that allow for real time chain, and iii) the organisation of the farm itself.
tracing and tracking.

Sharing such data should be as easy as uploading


The Market for Software,
a photo on social media, but here the analogy with Apps and Data in Agriculture
social media in private life ends. Companies may There is significant diversity among European
be more willing to maintain control of their data, agricultural holdings in terms of farm type,
specifying access and use rights, and whether their size, geography, language etc. Network and
data can be centrally stored with a third party. communication infrastructures, software, service
Companies typically have their own databases and media technologies systems throughout the
(those CRM and ERP systems or simpler farm agrifood chain are predominantly produced and
management systems) and use web services to distributed on a national or regional basis, or by
connect them to each other. manufacturers in relation to specific subsectors.
The companies selling farm management
SMEs can use specialised software applications to
software generally emerged in the 1980s with
store their own data ‘in the cloud’. As companies
the introduction of the personal computer (PC)
wish to maintain control of their data, FIspace
and are actively operating as SMEs in national
does not store the data exchanged between
markets. Their revenue stream is often relatively
companies. It only stores the links between
small, based on maintenance contracts from a
companies and the rules that have been specified
declining number of farmers. However, due to
to share their data.
software trends (like cloud technology) they are
confronted with rising costs, especially if they
Another difference between companies and
have to build in new functionality to incorporate
consumers is that companies need much higher
Internet of Things data as it becomes available.
standards of security for their data management.
The future internet technology on which FIspace
This situation increases the costs of producing
is built makes this possible (eg by encryption
devices, software, service and media technology
and selective access rights). Once the data is
systems, it slows down the introduction of new
available in a digital form it becomes attractive
products to the market, and it causes frustration
to employ the data in business processes using
among the stakeholders throughout the agrifood
special software, similar to how apps on mobile
chain. Not only is data sharing between systems
telephones or tablets enrich external data. For this
almost entirely absent, but there is also little
reason, FIspace has an app store in which app
tradition for incorporation of standardised
developers can market and sell their software (see
components into the systems. However,
Poppe and De Smet, 2013, for more information
ABCDEF’s like FIspace and future internet
on FI-PPP and FIspace).
technologies (as introduced in the FI-PPP) will
change this.
Essentially, such ABCDEF software makes
it possible to give business partners (and
FIspace establishes an infrastructure to
governments) access to farm data and farmers
exchange (or better, to give access to) central
to combine data from different sources. This
data for software-providers. In this cloud-based
has important economic consequences and
business-oriented social media the users (like
will improve the sustainability of the food
SMEs and farms) can make the data they control
chain. Whilst recognising that the impacts of
available to apps. These apps can be bought
this exchange of data are wide ranging, in the
(or downloaded free) in an app store, like those
2 Electronic Data Interchange For Administration, Commerce currently available on mobile phones.
and Transport
3 eXtensible Business Reporting Language

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Apps will replace some of the functionality of Changes in Current Food Chains
farm management information systems (as well as
adding new functionality). Such apps can be built A seamless exchange of (big) data will have a
more cheaply with future internet standardised significant impact on food chains. Important
software-components (so called enablers, like a changes include: i) the end-to-end tracking and
standard component for a web-shop or to run an tracing and virtualisation of food chains, and
auction). This implies that app builders do not ii) the emergence of direct farmer-consumer
have to worry about organising access to the data, markets supported by ICT.
as long as they use the data standards by which
The most obvious change is that tracing and
farmers access their data.
tracking, not only of products, but of the full
As FIspace is a European or global service, history of their treatments will become a reality.
this also means that app builders have access This will lead to more influence from business
to a large European or global market with partners on farm decision-making. This could
many more potential clients than software be through the provision of advice or by tighter
makers have in their current national markets. contract stipulations. In addition, service
Besides specialised apps for sale, governments, level agreements by advisors or, for example,
researchers, non-government organisations companies that sell machines are possible.
(NGOs) or businesses in the food chain might
With cloud-services like FIspace the tracing
want to provide services and advice to farmers
and tracking of products becomes much easier.
free of charge in an app. For example, it may be a
Business partners can share the data on the history
way for governments to communicate public-good
of the product with the buyers at the next stage of
type advice (around animal health and welfare or
the chain. This implies that apps for consumers
the environment, etc) to farm businesses.
can provide information on the product, all the
For current farm management information way back to the grower of the product and its
systems (FMIS), this means breaking up their seeds. This even holds for complex products like
software into one or more apps that help farmers pizzas that are made of many ingredients.
in entering farm data manually, if needed in sync
Such data can also be used for real-time
with data exchanged by the farmer (eg taking the
virtualisation. Through sensing of physical
data from delivery notes or invoices on pesticides
objects at different levels of aggregation (eg
bought and adding the information on the use on
product, box, pallet, container, truck), rich and
a particular crop in a particular field by entering
globally accessible virtual representations of these
additional data on a mobile telephone using its
geographically dispersed physical objects can
location service) and into apps that help farmers
be created (Verdouw et al. 2013). Virtual objects
interpret the data.4
must provide multiple views for different users
These technological developments replace a who have distinct requirements. Visualisation
market for farm management software with a plays an important role in creating views that are
market for ABCDEFs (with FIspace as a first experienced by human users as reality.
product in this category) that have an embedded
As in a kind of second life environment one
market for apps. An intriguing question is whether
could ‘walk through’ the supply chain and see
or not this will also lead to an embedded market
what is going on at any stage at any moment,
for data. Currently nearly all data are exchanged
and also place it in the context of its historical
free of charge, exceptions being ticker data from
development (Poppe et al. 2013). Whilst this
stock markets and marketing data (eg shopping
may be fun for children to see where their milk
pattern data). In agriculture, data are used to prove
came from, or to see where the bottles of olive oil
that products are of a different quality (eg organic)
ordered online are en route to the consumer, real
and lead to a higher price for the product, but data
time virtualisation primarily has practical use in
itself is not priced.
business processes. Examples include applications
4 See Kaloxylos et al. (2014) for a first example of such a
future internet based farm management system.

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for advanced visioning (eg high-speed/low-cost consumer market has become more heterogeneous
solutions, three-dimensional, and of internal and so has the farm sector. Reducing market
features such as ripeness of fruit) for quality interventions in the Common Agricultural Policy
inspection of food and flowers based on (mobile) (CAP) in Europe gives farmers more freedom to
augmented reality. produce as well as exerting pressure to choose
their own strategy. With heterogeneous consumers
The exchange of data will also make it possible and farm systems, it becomes attractive to search
to add more (computer) intelligence to the chain, for methods to match the demands of those
including monitoring, problem notification, segments (Poppe et al. 2013).
deviation management, planning and optimisation.
Examples of food-specific intelligence By reducing transaction costs, ICT enables
functionalities are apps for early warning in collaboration in regional clusters such as
case of food incidents or unexpected quality local-for-local food webs that deliver local,
deviations (eg temperature or humidity changes), often organic, food products to local consumers,
advanced forecasting about consequences of restaurants or health care institutions. The
detected changes by the time the product reaches internet plays an important role in these clusters
destination (eg dynamic simulation of best-before by matching local demand with supply and
dates). This could also lead to dynamic pricing subsequently managing the last-mile logistics. The
and less waste. liberalisation of postal markets and the restraining
of labour costs, especially for low-paid jobs, have
These developments will contribute to greater supported the trend towards an increasing market
levels of sustainability, where food processors, share for online shops.
retailers and consumers can trace products to their
source and investigate the different aspects of
sustainability of individual products or batches of
Changes in the Scope of the Farm
products. Ultimately, they can give feedback to and Farm Organisation
farmers or penalise the least sustainable producers. As with previous technological developments,
not all farmers will invest in new skills (Läpple et
It is unclear to what extent the tracing and
al. 2015; Islam et al. 2013). To what extent these
tracking as well as the real-time virtualisation
developments in ICT will exaggerate differences
services will be provided by current service
between farms is an interesting question. For
providers, including ICT suppliers and auditing
example, will they be scale-neutral or benefit
firms, or if new types of service companies will
larger farms more than smaller ones – which
be established. As transaction costs change with
has been the case with innovations in the past,
such ICT solutions, it is likely that the way the
especially ones that improve labour productivity.
food chain is organised will change too. In some
cases, this will even lead to totally new chains that The devices (like smartphones and tablets)
replace current ones. For instance, auctions could involved in data sharing with ABCDEFs like
go online, making it possible to sell the fish when FIspace, as described above, are not very costly.
the fisherman’s boat is still at sea. The breaking up of complicated farm management
systems into apps, based on standard components
Another example is direct marketing between
and marketed more broadly (eg Europe instead
farmers and consumers. There is an increased
of one national market), makes software cheaper.
interest in ‘local’ as opposed to the dominance
This suggests that the trend to big data may not be
of ‘global’. Food has always been a means for
detrimental to the position of small family farms.
consumers to profile themselves in a social
They might even benefit more than large farms
environment, but in the last decade food culture
from options for direct sales in consumer food
has clearly grown in importance. Sustainability
webs, using smart solutions for the ‘last mile’
aspects are much discussed, by chefs as well as
delivery, as described in the previous section.
large segments of consumers and NGOs. The

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However, this picture could be too optimistic of interest (or too high profitability demands)
for the small farm. In existing food chains from outside investors. Therefore large farms
farmers have to invest in data gathering and where farmers manage a number of specialised
FMIS to satisfy demands from food businesses labourers (like in a plantation) cannot compete
and retailers for tracing and tracking and with family farms that accept a lower profitability
quality assurance schemes like GlobalGap. (as long as it satisfies their income needs). The
As agricultural processes become more low profitability and structure of small farms
programmable (and are less dependent on is explained by the (inefficient) working of the
unpredictable natural events), as investments are labour market. For example, farmers do not leave
less general in nature but become more tied to the sector easily as this may lead to having to
specific products (such as know-how on how to move to urban areas or giving up tax advantages,
grow organic broccoli) and marketing is a joint for example. This results in farmers having low
effort of a producer group and a retail chain (such opportunity costs.
as with some new apple cultivars), more complex
organisational forms appear. The second explanation, put forward by Allen and
Lueck (2002), deals with the fact that agricultural
In part these complications arise because relying production processes are difficult to monitor. This
on the spot market is a major business risk for leads to moral hazard and an agency problem. For
the parties in the food chain (Boehlje 1999). example, the investor cannot monitor the farm
Such movements away from commodity markets manager and is faced with the question whether
towards more complex organisational forms favour the disappointing results are due to weather or
larger farms – it is as easy to contract 1000 tonnes diseases as the manager claims or whether they
of potatoes as 10 tonnes. In the end this could lead are a result of poor performance by the manager.
to more closely integrated supply chains where In the same way, a manager may wonder if
the farmer acts as a franchise taker with limited the farm worker is working conscientiously in
freedom. There are likely to be ABCDEFs like the field furthest away from the farm office.
FIspace that could counterbalance this situation to This Coasean way of thinking implies that the
some extent, as they make a farmer less tied to the transaction costs of monitoring to address the
software of a supplier or food business, and reduce agency problem determines the organisational
the switching costs between chains. form. It is therefore a trade-off between
specialisation via the market or addressing moral
A second unfavourable aspect for small family hazard problems through doing it yourself.
farms is the fact that the monitoring of agricultural
processes will greatly improve. To understand Both theories that explain the strong position of
why this may work against family farms we the family farm also imply that some future trends
have to address the question why we have family may favour large non-family farms. In the first
farms at all, and not large companies like in food case, increasing prices and profitability make it
business, retail or other sectors. more attractive for outside investors to invest
in farming. This is a trend clearly seen in the
Markets generate income by making it possible to Ukraine, for example. Western Europe’s access
specialise, particularly in roles like farm manager, to cheap labour from Eastern Europe also leads
farm labourer, investor and land-owner. In family to more specialisation. In the second case, ICT
farms, farmers combine several of these roles is a clear threat for the family farm as with ICT
(especially those of management, investor-owner monitoring options increase considerably and
and labourer) when the market provides many agency problems can be solved.
insufficient incentives to specialise. There are two
explanations why these incentives are too low. Last, but not least, there is the threat of another
change to the organisation of the farm (and rural
The first is that the risks are too high and the areas). Some activities could disappear from the
profitability too low. This leads to low levels farm when they become automated. For example,

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sensors that measure an animal’s activity can that these will lead to a market for such facilities
determine when cows should be inseminated as well as a market for apps and perhaps even for
for reproduction purposes. If this sensor then data. This could be preferable (especially for family
sends an SMS, to the vet for example, the role of farms) to situations where farmers are linked to
the farmer is bypassed. Taking this idea further a propriety ERP system of a big input supplier or
could imply that some value added activities, like food business. Overall, however, the trend to big
advice, move from the most remote rural areas to data may have significant consequences for how
regions with clusters of knowledge where they are farms and food chains are organised.
provided by ICT. For example, it is more likely
that the apps for the farmers based in Europe are Until now the development of the future internet
built in Berlin or Wageningen rather than in a has been dominated by research activities
remote area in Bulgaria. to design software and re-engineer business
processes based on business modelling and value
These effects are probably stronger in propriety chain analysis. However, the economic impacts
systems that are linked exclusively to the ERP and the longer-term effects on farm structures
system of a big food business, retailer or supply and rural areas of the future internet require more
company than in a system where switch costs are attention. Our preliminary analysis suggests that it
low. This raises major questions as to whether the is not necessarily positive for the family farm, but
already significant imbalance of power in the food that open systems with low switch costs are better
chain (see for example Renwick et al. 2012) will than propriety systems where the farmer becomes
be further exacerbated. Such concerns may mean a franchise taker of big firms in the chain, tied to
that an ABCDEF like FIspace should be favoured their software system.
over a propriety system, especially if one wants to
support family farms. However, the analysis does
suggest that the era of big data is probably less
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agricultural innovation: evidence from Ireland, Hague. His main research areas are Information
Food Policy, vol. 51, pp. 1–8, doi:10.1016/j. Management & ICT, Systems Analysis and
foodpol.2014.11.003 Sustainable Development. He is involved as
coordinator and researcher in several national,
Poppe, KJ, Wolfert, S, Verdouw, C Verwaart, T international and EU-funded projects. Since 2009
(2013), Information and communication he has also been affiliated part-time as assistant
technology as a driver for change in agri-food professor to the Information Technology Group of
chains, Eurochoices, vol. 12, issue 1. Wageningen University. He was president of the
Poppe, KJ, de Smet, A (2013), Plan to move into European Federation of ICT in Agriculture, Food
FI-PPP Phase-3, FIspace project, available at: and the Environment (EFITA) and also president
www.fispace.eu of its Dutch national member organisation (VIAS).

Renwick, AW, Islam, MM, Thomson, S (2012), Dr Cor Verdouw studied business economics
Power in global agriculture: economics, politics, at the Erasmus University Rotterdam and has
and natural resources, International Journal of worked as a business consultant in various
Agricultural Management, vol. 2, no. 1, October, industries. He received a PhD at Wageningen
pp. 31–48. University for his dissertation on reference
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Verdouw, CN, Beulens, AJM, van der Vorst, supply chains. He currently is senior researcher at
JGAJ (2013), Virtualisation of floricultural LEI, part of Wageningen University and Research
supply chains: a review from an internet of Centre in The Netherlands. His main research
things perspective, Computers and Electronics in area is information management in agrifood
Agriculture, vol. 99, issue 1, pp. 160–75. supply chains. He is also working part-time at
the Logistics, Decision and Information Sciences
About the Authors Group of Wageningen University.

Krijn J Poppe is a business economist working Alan Renwick is Professor of Agriculture and
in the research management of the Agricultural Food Economics at University College Dublin.
Economics Research Institute (LEI) of Prior to taking up this appointment in November
Wageningen University and Research Centre, 2012, he was with the Scottish Agricultural
located in The Hague, the Netherlands. He is College in Edinburgh where he was Head of
involved in the management of several large, the Land Economy and Environment Research
multidisciplinary research projects for the EU. Group. He began his career in the Department of
Current research interest focus on agricultural Land Economy at the University of Cambridge.
policy issues, monitoring, the agricultural He completed his BSc (Hons) in Agricultural
knowledge and innovation system, cooperatives Economics at Wye College in 1988 and his PhD at
and ICT. Newcastle University in 1992.

Dr Sjaak (J) Wolfert studied Plant Science A main focus of his work has been the economics
with a specialisation in Crop Ecophysiology at of agrifood supply chains from crop production
Wageningen University. From the same university through to retail pricing. Recently his research has
he received a PhD in 2002, on his dissertation focused on the innovation process in the agrifood
‘Sustainable agriculture: how to make it work? sector. He has led over 30 research projects for
– a modelling approach to support management such bodies as Scottish Government, Defra, the
of a mixed ecological farm’. Since 2001, he has UK Environment Agency, the National Audit
worked as a Senior Scientist at the Agricultural Office and the United Kingdom levy agencies.
Economics Research Institute (LEI) in The

Farm Policy Journal | Vol. 12 No. 1 | Autumn Quarter 2015

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