EVERY weekday 20,000 pigs are delivered to the Danish Crown company’s slaughterhouse in Horsens, in central Denmark. They trot into the stunning room, guided by workers armed with giant fly swats. They are hung upside down, divided in two, shaved of their bristles and scalded clean. A machine cuts them into pieces, which are then cooled, boned and packed.

The slaughterhouse is enormous, ten football pitches long with 11km of conveyor belts. Its managers attend to the tiniest detail. The fly-swatting workers wear green rather than white because this puts the pigs in a better mood. The cutting machine photographs a carcass before adjusting its blades to its exact contours. The company calibrates not only how to carve the flesh, but also where the various parts will fetch the highest prices: the bacon goes to Britain and the trotters to China.

Denmark is a tiny country, with 5.6m people and wallet-draining labour costs. But it is an agricultural giant, home to 30m pigs and a quiverful of global brands. In 2011 farm products made up 20% of its goods exports. The value of food exports grew from €4 billion ($5.5 billion) in 2001 to €16.1 billion in 2011. The government expects it to rise by a further €6.7 billion by 2020.

Why, in a post-industrial economy, is the food industry still thriving? Much of the answer lies in a cluster in the central region of the country. Policymakers everywhere are obsessed by creating their own Silicon Valleys. But Denmark’s example suggests that the logic of clustering can be applied as well to ancient industries as to new ones. In central Denmark just as in California, innovation is in the air, improving productivity is a way of life, and the whole is much greater than the sum of the parts. Entrepreneurs see the future in meat and milk.

The cluster includes several big companies, which act as its leading investors: Danish Crown, Arla, Rose Poultry and DuPont Danisco. (DuPont’s purchase of Danisco in 2011, which created a great deal of anxiety about American multinationals buying up Denmark’s crown jewels, was a sign of the agricultural sector’s vitality.) Plenty of smaller firms are also sprouting, which act as indicators of nascent trends and incubators of new ideas.

Though the food industry, capital-intensive and tightly regulated, is rarely rich soil for entrepreneurs, in Denmark it is fertile. Several young companies are making information-technology tools for different bits of the business: LetFarm for fields, Bovisoft for stables, AgroSoft for pigs, Webstech for grain. ISI Food Protection focuses on dealing with organisms that spoil food or spread poisoning. InOMEGA3 specialises in food ingredients containing Omega-3 fatty acids, which are credited with various health-giving powers. Soy4you develops alternatives to meat products.

The cluster also has a collection of productivity-spurring institutions such as the Danish Cattle Research Centre and the Knowledge Centre for Agriculture. Danish universities remain at the forefront of the agro-industry: at Danish Technical University (DTU) 1,500 people work on food-related subjects. A tradition of public-private partnerships, which began with farmers forming co-operatives to improve production and marketing in the late 19th century, continues to flourish. An Agro Food Park near Aarhus, backed by the industry and the regional government, is nearing completion. It employs 800 people already and is expected to have 3,000 staff by 2020.

The Cattle Research Centre, for example, demonstrates that there are dozens of ways to boost bovine productivity. Robots can do everything from milking cows to keeping them washed and brushed to mucking out their living quarters. The milking robot can also act as a “lab in the farm” by analysing the milk for signs of health problems. Microchips can keep an eye on cows’ behaviour. Carefully screened “Viking semen” can improve the quality of the stock.

The word on everyone’s lips is “innovation”. Big companies are building centres to develop new products. Arla is spending €36m on one in the Agro Food Park. DuPont’s centre in Aarhus is part of a global network with branches in America, Australia and China. They are also abandoning their insular ways, collaborating with startups and sponsoring food festivals and star chefs. Universities are adding departments: Aarhus now has a centre devoted to consumer behaviour in regard to food and DTU is focusing on “bio-silicon”—applying IT to food.

Land of milk and honey-roast ham

If all this spending on innovation is to pay off and Denmark’s food industry is to continue to thrive, the country’s farmers will have to overcome formidable challenges at home and abroad. Among the Danish public, distaste for “factory farming” is increasing. “Borgen”, a popular television political drama, devoted an entire episode to criticising pig farming. Demand is shifting from the European Union, which consumes more than 60% of Denmark’s food exports, to emerging countries, some of which are becoming agricultural powers in their own right. Growing pressure on natural resources such as water and feedstock could render some of the industry unsustainable.

Against that, food is a growing industry: demand is set to rise by 60% by 2030, and Denmark’s food cluster is as well placed as any to benefit. Its companies have lots of expertise in food safety, for example: China has identified Denmark as a model. Danish firms are thriving at the high as well as the low end of the business: Noma, a celebrated restaurant in Copenhagen, has helped to create a cult of Nordic food, including pig’s tails, supplied by Danish Crown. Above all, perhaps, Danes are remarkably hard-headed about making money out of blood and soil: the Danish Crown slaughterhouse organises regular tours for visitors, including schoolchildren, with views of the killing line.

Economist.com/blogs/schumpeter