Academic journal article Journal of Financial Management & Analysis

Economic and Financial Aspects of Developing New Market Niches-A Case Study of Exotic Animals in Israel

Academic journal article Journal of Financial Management & Analysis

Economic and Financial Aspects of Developing New Market Niches-A Case Study of Exotic Animals in Israel

Article excerpt

Introduction

One of the important issues facing agricultural development in every country is the decision in which products to specialize. This decision is determined to a large extent by economic and financial considerations, including the country's comparative advantage and disadvantages. A general approach to analyzing a country's comparative advantage in agriculture and to choosing the appropriate crops for each country was presented by Shalhevet et al.1 and applied to agricultural biotechnology research.2 In this paper we present a method of screening a large number of initial ideas of raising exotic animals for agricultural production, based on the country's comparative advantage, using Israel as a representative developed country with intensive agriculture. The results are applicable to other countries with intensive agriculture looking for small niche markets.

Exotic animals are generally considered one of the most significant areas in agriculture in developed countries, where it is still possible to find small market niches with high profits3, and as a method of raising the standard of living in rural areas in developing countries at a low cost.4 We use Israel as a case study and analyze its comparative advantages and disadvantages in raising exotic animals for the various uses. Based on this analysis, we point out which animals pass the initial screening and are candidates for the more expensive stages of business idea development. Our aim is to locate opportunities for profit from exotic animals at a low screening cost and to avoid large investments in detailed analysis of unprofitable projects. The business potential of the animals that passed the initial screening should then be examined by a more comprehensive economic analysis.

Competitive Advantage

A country's competitive advantage is based on a multitude of factors, reviewed at length in several papers by Porters5,6 and many others. These factors include: production factor requirements as compared with the country's production factor endowment, the existence of a local market, and the existence of a cluster of interconnected companies in that field, including suppliers, providers of infrastructure and manufacturers of complementary products6. These factors affect the nation's advantages as well as the comparative advantage of different regions within the country5.

Production factor endowment is important to competitiveness in agricultural products. Peterson and Vallurd7 examined the relationship between production factor endowments and agricultural trade patterns. They found that national factor endowments account for much of the trade variation in agricultural products, including meat products. In Israel the production factor endowments include medium-high level of capital and a high supply of educated workers in agriculture, with scarce and expensive land, scarce water sources and a shortage of inexpensive labor force1,2 These factors, in combination with the local weather conditions and market conditions, determine in which animals Israel has a comparative advantage over its competitors. The existence of the local market is particularly important to success. The local market for many meat products is limited by religious requirements ('kosher' meat), and by an especially conservative attitude towards new animal products.

In Israel, there is a niche of tourism that amounts to about 100 thousand people a year who are interested in active recreation connected with animals8, and income from tourism connected with livestock often far exceeds the income from the livestock products themselves. This is a common characteristic of agriculture in developed countries: In the UK the foot-and-mouth disease caused in 2001 a loss of L310 million, of which L60 million loss from agriculture, and L250 million loss from tourism9.

Israel's main competitive advantage is the combination of an agricultural cluster with scientific research. …

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