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Protecting and Capitalizing on Intangible Agricultural Assets
advisor to the president of the Permanent Assembly of Chambers of Agriculture
This account by Virginie Allaire-Arrivé, advisor to the president of the Permanent Assembly of Chambers of Agriculture (APCA), addresses a topic that is fundamental to the future of agriculture and clearly demonstrates that agriculture holds an essential place in human heritage. It is both a crucible for producing expertise and the source of well-being for a constantly growing global population. This is yet one more reason to campaign for an international agricultural organization that could help to protect, capitalize on and develop these assets.
In the public opinion, there is no sector more "tangible" than agriculture. Generations of economists have been trained to distinguish between the "primary," "secondary," "tertiary" and, more recently, even the "upper tertiary" sectors. In this approach, each sector represents a stage in societal development: in the late 1990s, everyone expected new, internet-related activities to permanently supplant traditional "brick and mortar" establishments! Clearly, this vision reduces food- and agriculture-related activities to basic activities with little added value and no grand prospects.
Observation of the facts, however, reveals a different reality. Far from leaving the traditional sectors outmoded, the new economy of knowledge and intangibles opens up a new dimension for these sectors, demolishing conceptual boundaries and all types of boundaries in general. At the same time, it reopens the debate on the role of agriculture in modern societies. Agricultural production, whether for food or other products, is using increased technology and expertise, both individual and collective; agri-food products are being put through increasingly complex transformation processes, not to mention the "tertiarization" of agricultural activities: creating services, producing amenities, etc.
The main aggregates used in domestic accounting, in which agriculture weighs in at 2 percent of France’s national wealth, fail to take into account this growing, intangible dimension. In fact, that criticism applies to the entire domestic economy. Nonetheless, "physical production processes are part of a complete value-added chain of which intangible investments are an essential component1." Under these conditions, how can we protect, capitalize on and develop this wealth? The Jouyet-Levy report2 pointed out the inadequacy in this area last year, leading to the creation in April 2007 of the French agency for intangible assets (APIE) responsible for taking an inventory of all intangible assets held by government institutions. It's a step in the right direction.
Why this concern? The interest in understanding the intangible aspects of our societies, and in particular of agriculture-related activities, is not purely theoretical.
The underlying question is that of how value is created in a sector and how it contributes to national growth. It is also a way to build up a capacity for "exporting" standards – cultural, legal, economic, technological – that will continue this growth over the medium and long term.
1. What are the various approaches to intangible assets? How can effective measures be recommended?
According to the World Bank, intangible capital represents the largest portion of domestic wealth: 87% of GDP for France, ranking the country 9th internationally. Another study by the OFCE3 [the French Economic Observatory] estimated that French educational capital alone is worth 140 GDP points! The variety of measurements used reflects the extreme difficulty in defining an area with such hazy boundaries.
At the microeconomic level, within a company, intangible assets are defined as all assets that have value but do not show up on the balance sheet: patents, brands, clients, human capital, organizational modes, etc. In practice, several approaches coexist, from the broadest (everything is intangible…) to the most restrictive (an accounting calculation of innovation effort).
The same diversity of approaches exists at the macroeconomic level, with each major operator offering its own definition. INSEE [France’s National Institute for Statistics and Economic Studies], for example, calculates an "augmented GDP" that includes software expenses. An "expanded GDP" is currently being developed to eventually include all research and development expenses. For its part, the OECD is working on an approach based on "intellectual assets" that distinguishes between intangible investment in technologies and investments in facilitating these intangible investments. The European Commission, in the framework of its MERITUM project, accounts for human capital, relational capital and structural capital, an approach that matches the one chosen by the International Federation of Accountants.
2. Can we be more precise in operational terms?
We have just seen that identifying intangible assets is a complex subject. Even beyond measuring this type of wealth, the more specific question is how to strategically manage these resources. At this stage, and from an operational point of view, it is clear that a simple accounting calculation of R&D efforts is too limited an approach. In the context of globalization, even high value-added activities are being increasingly relocated to developing countries4. The strategy of constantly pushing the technological frontier forward does, therefore, have its limits in terms of improving competitiveness and influencing standards.
This means that other sources of leverage must be taken into account. To this end, one interesting perspective5 defines four areas:
› capacity for innovation: research effort, filing patents, industrial property, etc.
› quality of human resources: initial and ongoing training
› brand image: the cultural dimension
› relational networks
3. How can we apply this approach to agriculture?
This vision can be applied quite well to the possible scope of intangible agricultural assets, and the system could be improved:
› by including capacity for innovation, collective brands, technical reference systems (for example, corporate diagnostics as intellectual property), databases, (for example, professional organization of the health traceability system) or even clusters (for example, “competitiveness clusters”)
› the quality of human resources could also be enriched through the methodologies produced (for example, the development council)
› the culinary arts contribute to the image capital of France and its agriculture
› transnational partnerships (for example, supporting professional organizations in developing countries) enrich relational assets, etc.
4. Is it feasible?
We must keep sight of our objectives. In this respect, an accounting calculation is not an end in and of itself: we would be losing in overall perspective and operational capacity what we had gained in precision, at the cost of getting bogged down in refining the methodology. The clear objective is our ability to manage these intangible assets, which requires us to work in stages, in concentric circles, starting from what is most concrete (research effort, intellectual property, brands) and working toward the hazier aspects (human capital, organizational ability). We have a long way to go: we have yet to take the first step.
5. Isn't this issue somewhat irrelevant to the concerns and the "culture" of farmers?
It is important to keep in mind that intangible assets are part of our heritage. This term evokes the notion of a legacy from previous generations and for future generations. It has special resonance in a professional milieu which, culturally, has a relationship with specific times ("You have to sow before you can reap") and in which it follows that the production apparatus is renewed and transmitted to each new generation.
The intangible aspect expands upon this conceptual framework. At the microeconomic level, it is even starting to be integrated into practices, even if current efforts do raise some questions (creating the "agricultural fund," questioning the use of "rights to single payment" as commodities). At the macroeconomic level, the 50-year process of developing a first-rate production apparatus on a global scale drew on an unprecedented collective effort to increase production. All of the economic models were built around this physical production, while intangible assets developed in parallel as a sort of "co-product" of the production effort. It is consistent to now place this wealth, which was initially created on the margins, at the center of the economic and social development model for agriculture.
6. Can we pinpoint the strategic purpose of identifying and managing intangible agricultural assets?
French agriculture must meet two main challenges: food security (quantitative and qualitative) and sustainability of production modes. In an open economy, it will be difficult to find balance given the strong temptation to bank on an international division of labor based on the sole criteria of production costs. This perspective is an extension of the one mentioned in the introduction that consists of breaking down production sectors by their "level" of development. Introducing intangible aspects into this debate opens up a new perspective, one that is more "organic" and less "mechanical," for relations between the various dimensions of an economy and how it operates socially. This approach allows synergies to stand out clearly, offering new leverage points to create value, contribute to growth and develop a broader margin to influence the course of things.
Still, everything remains to be done, to be developed. The strategic perspective underlying this approach is easy to imagine. The capacity to manage and create value out of intangible assets is there. What we need now is knowledge about these intangible agricultural assets to help us effectively mobilize the right economic and political tools. Currently, this knowledge has yet to be produced.
1 "L’immatériel est-il gérable," (Is the intangible manageable?) Ahmed Bounfour, Annales des Mines, September 1998.
2 "L’économie de l’immatériel: la croissance de demain," (The economy of the intangible: tomorrow's growth) Jouyet-Levy report, November 2006
3 "Les 140 points de PIB oubliés de la comptabilité nationale française" (The 140 forgotten GDP points in French domestic accounting), OFCE revue 2006-2, No. 97. Thomas Melonio, Xavier Timbeau.
4 Annabelle Bismuth, OECD.
5 Bernard Marois, Professor Emeritus, HEC.