|
 It's not about
yield. In fact, it never was about yield. Even though
growers say they want yield and declare that they make
buying decisions based on yield, they really want something
else.
If farmers
don’t want yield, what do they want? They want optimal
profitability.
To provide
optimal profitability
to their
customers, today’s seed companies need to understand that
farmers, either explicitly or implicitly, are constructing a
business plan for their farm and a pro-forma income statement
for each field when they make their seed decisions.
Historically,
the concept of optimal profitability was pretty straightforward
because, within a specific crop, profitability generally equated
to yield. If you are writing a pro-forma income statement for
your field, and your fertilizer and pesticide program does not
change with your seed choice, higher yield means more sales and
thus yield becomes the shorthand word for profitability.
But farmers
were also concerned with defensive attributes,
such as standability in corn or certain disease resistances, so
they were not strictly focusing on maximum yield. These
attributes go under the “insurance”
line item on the hypothetical income statement, and depending on
the farmer’s particular situation and appetite for risk,
individual defensive traits can take on greater or lesser
importance.
Only a very
few of the most quantitative thinkers would try to assign
probabilities to risks to help them understand the tradeoffs and
make decisions.
For example,
if a farmer had to choose between 1) hybrid A with a yield
average of 100 and a 20% probability of standability problems
that would cause a 50% yield loss and 2) hybrid B with a yield
average of 90 but virtually no probability of
standability-related losses, these would be economically equal
options for the farmer, but the latter would be less risky.
The optimal
profitability approach is well suited to getting your mind
around the plethora of seed, trait, seed treatment, pesticide,
and fertilizer alternatives available to each field.
Some tradeoffs
are pretty easy:
if there is no yield difference
between a) a certain herbicide-tolerant trait plus the limited
herbicide application and b) another seed option without
traits plus the much greater herbicide application, how does the
costs of these two alternatives compare?
Others are
more complex: what is the cost of an insect resistance trait
compared to the likelihood of an outbreak and the cost of rescue
treatment? And what if adding the trait gives me a 25% chance
at a 10% better yield?
Creating a
series of pro-forma income statements that compare your
alternatives will help you find the optimal profitability for
your field.
The first seed
company to develop a linear program to sort through all the
tradeoffs could build an exciting market advantage at many
levels.
Seed company
executives who grasp the full concept of optimal profitability
and its implications will be best able to focus the research,
product development, and marketing efforts for their
organizations. Are you such an executive? Does your company
have enough of those kinds of executives? |
