First and foremost, I think it is clear that many in this industry have not asked themselves the fundamental question to sustain profitability: "What is the barrier to entry in this business model?"

Or, more appropriately, "How can I stop any Tom, Dick, or Harry from eating my lunch once I sink my life savings into this?"

Some of the more ballyhooed Web startups have been the grocery shopping services.

These services have been touted as a way of providing a value added service in the form of convenience to the ever time-starved consumer.

Yet, e-commerce may also play another important role in the efficient performance of a market--a means of providing information.

Consumers can comparison shop, even for groceries, from the convenience of their home.

The impact of providing more information to the market place on prices is well documented.

In the 1970's several studies showed that the provision of price information through advertisements or other public notices resulted in lower gasoline, grocery, and eyeglass prices for consumers.

For the Web to have this impact, though, it requires this form of shopping to become a realistic alternative to strolling the store's aisles.

To date, many e-commerce grocery services have stumbled and their projected shares of total grocery sales are minuscule.

It is still unclear whether most consumers, like Mr. Whipple, are ready to give up squeezing, smelling, and looking at their produce. Retail commerce, though, is only part of the produce marketing story.

Business-to-business e-commerce applications are also fast developing. This includes produce marketing services like www.producebuy.com and DTN's Tradelink.

These business marketing services typically provide buyers and sellers a place to post price offerings and negotiate sales.

While relatively new to grocery trade, these types of trading systems have been tried in other sectors of agriculture as early as the late 1970's when a pilot trading system was developed for hogs in the Midwest.

Compared to traditional terminal markets, the electronic markets produced higher prices for farmers.

Further, prices in the electronic market were found to change more frequently and by smaller amounts, suggesting the prices responded more quickly to new market information.

These same opportunities hold for today's produce industry. To the extent that these business e-commerce services become a site for recording transaction prices on a sufficient volume of trade, they may become a new source of improved price information.

Many already question the accuracy of reported USDA prices for fruits and vegetables, given the small volume of trade moving through the terminal markets for these products.

The business e-commerce sites may also serve as a platform for reconciling the variety of products codes used by retailers and suppliers, providing common product description to all market participants, which would further reduce the cost of buying and selling produce.

Cost reduction, however, does not necessarily mean profitability.

For decades, farmers have improved productivity at an astonishing rate for an industry typically thought of as low tech.

How many billionaire farmers has this created? The fact of the matter is that when an industry is competitive and there are no barriers to adopting a cost-reducing technology, the net effect is to reduce prices in the long run.

Once one firm adopts the new technology, the rest must do so just to survive.

Should growers reform the Luddite party and lobby for repeal of the Internet?

No, because through this process of creative destruction, consumers will ultimately benefit from lower prices, better service, and higher quality produce.

In the long run, consumption of all fruits and vegetables will rise. Rather than create instant millionaires out of a group of net-savvy techno-geeks, early and thoughtful adoption of truly effective e-commerce solutions will allow existing growers to continue doing what they have for years - to provide American consumers with a low-cost source of high quality produce.

Reprinted with permission of the authors