Professional Documents
Culture Documents
Until recently, success in the seed business could be traced to the strength of a
company’s classical breeding programme. But with the advent of the first transgenic
plants, such breeding, as well as access to germplasm, genes and biotechnologies
have become of considerable strategic importance. Genetic material, biotechnologies
and their associated intellectual property rights (IPRs) are in fact leading to a new
restructuring of the relations between agrochemical, agrobiotechnological, food
processing, and seed companies.
The seed industry matured due to the introduction of hybrids, especially hybrid maize in
North America, hybrid sugar beet in Europe, and hybrid vegetables in South-East Asia.
Of the US$ 15 billion market in commercial seed at present, hybrids account for
approximately 40 per cent of sales, and most of the profit.
In North America and Europe the hybrid seed industry grew from regionally based family
businesses. The profitability of hybrids far outstripped that of non-hybrid open-pollinated
seeds. This leads to eventual consolidation in the industry and the dominance of several
key companies in particular crops. The attraction of hybrids for the seed industry is
obvious: when double-cross maize hybrids were first commercialized in the USA in the
early 1930s, they were priced at approximately 10 to 12 times the price of commercial
grain. With the introduction of single crosses in the 1960s, hybrid maize seed prices
jumped to between 20 and 25 times the commodity price. In the 1970s these high margins
attracted the attention of several agrochemical companies, waiting to exploit possible
synergies of the seed business with their own line of business. The acquisition of
Northrup King (USA) by Sandoz (Switzerland), of Funk Seeds (USA) by Ciba-Geigy
(Switzerland), of Nickerson (USA) by Shell (UK/the Netherlands), and of Asgrow (USA)
by Upjohn (USA) took place during this period.
In the 1980s agrochemical companies engaged in biotechnology research began to
acquire seed companies. They did so this time in the realization that seed would be the
primary delivery system for their new technologies, particularly biotechnology. They
believed that delivering and capturing value from new input and output traits required
control over the distribution channel. This brought companies such as Dupont (USA), Elf
Aquitaine (Sanofi) (France), ICI (USA), Monsanto (USA), Rohm & Haas (USA), and
Unilever (the Netherlands) into the seed business. Their strategy was to capture margins
along the length of the agribusiness chain from the laboratory to the field.
This strategy did not work for all new entrants. Firstly, the time required to convert the
early new technologies into products took much longer than originally envisioned.
Secondly, there was a conflict between the entrepreneurial management style of the
comparatively smaller seed companies, and the hierarchical style of most large chemical
companies. Thirdly, the learning curve has been longer and more complex than expected
and has led to poor financial performance. Finally, unlike chemicals, seed cannot be
marketed globally, but only in agroclimatic regions similar to where it was developed. As
a result, companies such as Shell, Rohm & Haas, Sanofi, Upjohn, began to divest
themselves of their seed and biotech businesses in the 1990s.
Recent developments
Lately however, there has been a reassessment of the seed industry now that genetically
engineered seed is finally reaching the market. In 1996, roughly 720,000 ha of Bt cotton
(transgenic insect resistant cotton expressing a Bacillus thuringiensis gene), 80,000 ha of
Bt maize and 7,200 ha of Bt potato were planted in the USA. Approximately 20,000 ha of
transgenic canola, tolerant to the herbicide Liberty, were planted in Canada, and
approximately 800,000 ha of transgenic soya beans, tolerant to the herbicide Roundup, in
the USA.
These developments are hastening the convergence of the agricultural biotechnology,
seed and chemical industries. In turn, this convergence is changing the cost structure of
the traditional seed business and product pricing. Therefore, attempts are being made to
separate the value of technology from the value of the seed in the form of a ‘technology
premium’ to be paid by farmers when they purchase a product improved by
biotechnology. For example, in 1996 the technology premium for Bt-based insect
protection in cotton is over US$ 75 per ha, and roughly US$ 25 per ha for maize.
Because most transgenic plant products contain or have been developed with several
biotechnologies, it is very easy for a company owning the IPR on one such technology to
block development of a product. As a result, in order to maximize value recovery,
minimize the threat of litigation, and secure access to technology, several strategic
‘partnerships’ were formed in 1995 and 1996. Monsanto’s acquisitions of 49.9 per cent of
Calgene (USA), 45 per cent of Dekalb (USA) and 100 per cent of Agracetus (USA) were,
to a large extent, driven by technology and IPR issues. The acquisition of Plant Genetic
Systems International (PGS, Belgium) by AgrEvo GmbH (Germany) in August 1996 for
approximately US$ 750 million is perhaps the noteworthy strategic partnership. Both
Monsanto and AgrEvo have invested heavily to gain access to technologies that were
subject to IPRs held by PGS and others. Similarly, Empresas La Moderna’s (ELM,
Mexico) acquisition of DNA Plant Technology (USA) was driven by the latter’s
technology and portfolio of delayed fruit-ripening patents. Dow Elanco’s 46 per cent
participation in Mycogen (USA) was driven by the former’s desire to secure access to Bt
technology and other patents. On the other hand, the Zeneca (formerly ICI, UK) and
Vanderhave (the Netherlands) merger was triggered more by geographical convenience
and other considerations than by IPR considerations. The Ciba and Sandoz merger was
also to a large extent driven by their mutual interests in the chemical and pharmaceutical
business.
With the seed industry in a state of flux, new competitive strategies are expected to
emerge. These strategies are likely to focus on four areas: (1) pricing based on separating
the value of technology from the value of the seed; (2) market segmentation; (3) product
development using classical breeding, genetic engineering, and technologies to reduce
‘cycle time’; and (4) sales and distribution.
In the flagship USA maize seed market, for example, it is anticipated that within the next
five years the seed distribution system will undergo significant changes to meet farmers’
expanding needs for more sophisticated technology and information. There will be a
growing trend towards multi-channel distribution rather than the existing farmer-dealer
system alone. In hybrid seed maize, the very existence of many local and regional US
companies will depend upon the success of Holden’s Inc., a major supplier of foundation
seed, in integrating new technologies in its proprietary germplasm. Through foundation
seed (or parent seed) Holden’s is essentially the supplier of genetic material to most of
the local and regional US maize seed companies. Unless Holden’s can access the new
biotechnologies, those companies will be excluded from the current shift in the
competitive landscape and will continue to lose market share.