Food innovation driven by vertical integration and networks

The ability to deftly innovate can be a major factor in meeting changing market conditions and consumers’ fickle food demands – and thus retaining a sound balance sheet. While this is a global challenge, Denmark is recognised by the World Economic Forum as a country boasting high levels of innovation, and the food sector plays an important part in the economy.

This, according to researchers from the Universities of Copenhagen (Denmark), Manchester (UK) and Saskatchewan (Canada), makes it ideal for an analysis of how food companies’ organisational set ups can affect how they commercialise innovative ideas.

The team looked in particular, they looked at vertical integration – that is, links with or appropriation of activities carried out further up or down the food supply chain. Such linkages might include food ingredient companies involved in primary processing, or manufacturers sourcing from farmers directly. They also looked at industry alliances and whether companies draw up sales contracts with their customers or sell products ‘on the spot’.

The methodology involved data modelling from a survey of 444 food companies in Denmark, which completed questionnaires about organisation, strategy and behaviour in 2000 and 2005. They pitted this against the number of new products launched as an indicator of innovation.

“The first and most significant result is that organisation matters,” ​the researchers concluded. Both vertical integration and contractual arrangements were seen to be significant.

Interestingly, when companies were owned by an upstream firm, there tended to be greater innovation than when they were owned by a downstream firm – that is, closer to the end consumer.

The degree of network linkage both up and down stream was also seen to have Contractual arrangements were seen to have a positive effect on innovation, as were economies of scale, and whether the company was oriented towards exports rather than the domestic Danish market.

While the particular sector within the food industry was not seen as a great determinant of innovation, they stage in the food supply chain was: Wholesalers and retailers tended to have a larger number of new products than companies upstream, such as value-added ingredients firm.

Source​

Food Policy 35 (2010) 112–120

DOI: doi:10.1016/j.foodpol.2009.10.003
Innovation and integration in the agri-food industry​

Kostas Karantininis, Johannes Sauer, William Hartley Furtan