Seed Today - Q3 2008 - (Page 75)

not only explain the dynamics of history, they also suggest future changes as well. Transactions. Market share has moved significantly due to acquisitions and divestitures/sales. Nearly all of the purchases of seed companies have been by multinational companies who own their own germplasm and are evolving to owning their own technology. For those with owned technology, there is significant value to market share with which to capture the premiums associated with this technology. In addition, it is important for larger companies to have a large enough owned footprint to be significant, both for economies of scale and for recognition of their products/technologies. On the other side of the coin, there have also been acquisitions by large companies that appear to be defensive; needing to own share so they are not deprived of that share by their technology competitors. Those who have sold their businesses generally fall into three camps: • Offer too good to pass up. There have been significant premiums paid for seed companies over the last 10-15 years. The amounts paid defy normal financial measures and are clearly being made for strategic purposes. There have been sales of seed companies for sums exceeding three times gross sales. “Significant consolidation activity should and will occur over the next few years in [the seed] industry.” Blake Sieker, CPA, partner, Context Network tions have occurred because the companies are in financial trouble. Generally this has taken the form of using technology dollars collected from customers for cash flow and thus not being able to pay the suppliers when those bills come due. This has occurred almost exclusively with smaller companies. Market Share Loss/Gain The second reason for changes in the market share profile is market share gain or loss. Companies gain or lose share due to many factors, among them are: • Availability of technology. • Product performance. • Sales force and distribution systems. • Pricing and sales incentives. generics and others with their conventional products. Furthermore, even though biotechnology is extremely expensive to develop, the “cost of goods” once developed is near zero, unlike chemicals that require large facilities and logistics as well as fixed costs. • Need for platform. There is a slow but steady evolution towards competitive bundled/packaged technology offers in the marketplace. Ultimately, these developers will have to compete head on for each acre and the value of an owned footprint is significant. Smaller Companies in the Marketplace As the seed business has evolved from a production/niche product marketplace to a technology distribution marketplace, the role of the smaller seed company has changed significantly. Unlike a decade ago, retail seed companies are reliant on technology suppliers (both their willingness to supply and the price at which they supply it). This creates a very challenging paradigm in the long-term for smaller companies. They do not have the economies of scale of the larger companies, they generally have significantly higher production costs, and they are increasingly competing in the marketplace with their technology suppliers. Context believes that significant consolidation activity should and will occur over the next few years in this industry as the more innovative of the smaller companies look into the future and strategically think through whether and how they fit in this marketplace. For more information: Seed industry white papers are available at Context Network, West Des Moines, IA (515.abc.wxyz/www.contextnet.com) Third Quarter 2008 Future Outlook and Dynamics The one sure thing about the seed industry is that it will not stay the same. There is a very high level of interest in the seed business for multiple reasons, including: • Higher planted corn acres and commodity prices. Larger U.S. and global acres have driven up prices and demand for ag products, With a larger market to operate in, the value of market presence increases. • Technology delivery system. Technology implanted in seed is increasingly substituting for herbicides and insecticides. This dynamic causes major ag chemical companies (who are largely the significant seed players as well) to invest heavily in this area as the value streams undergo substitution. In addition, key chemicals have come off of patent and others are not far behind. This causes companies to seek better chemicals and modes of action in order to maintain their value in the marketplace while competing with Market Share Profile U.S. Corn Seed • Fear of the future. Some seed companies feel they “see the writing on the wall”—that they are increasingly becoming captive or semi-captive technology distributors and that they are competing in the retail marketplace with their technology suppliers who obviously have a lower “cost” point. • Financial Strain. Some transac- 75 http://www.contextnet.com

Table of Contents Feed for the Digital Edition of Seed Today - Q3 2008

Seed Today - Q3 2008 Contents Editor’s Notes Cover Feature Fred Miller, Ph.D., MMR Genetics Crosbyton Seed Company AOSCA Greg Lowry Floyd Hansmeirer AOSA/SCST According to ASTA Seedsellers, Inc. BinMaster Blake Sieker Ad Index

Seed Today - Q3 2008

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