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 When
not seeds but traits are the centre of competition.
It looks like the seed business has entered the play-offs, the
part of the season when the prestigious prizes and awards are
disputed by a limited number of teams. A look at some recent
developments clearly indicates that this is the case. Take for
example Monsanto’s pending acquisition of Delta & Pine Land
(DPL) – this will earn them the number one position in cotton
seed. Apparently, last year’s take-over of Stoneville (Emergent
Genetics) – DPL’s main competitor in the US market – was not
good enough for Monsanto. Sure, the imminent lawsuit between
Monsanto and DPL influenced this move but the eventual result is
significant and similar to what it achieved a year earlier in
the vegetable seeds market through the Seminis acquisition. At
the same time, Syngenta and Pioneer have joined hands to
establish the Greenleaf joint venture, aimed at the licensing of
traits and genetics. This brings us to an important driver of
the movements we observe: securing an outlet for technology and
thus return on R&D.
After all, serious money is spent on R&D (2005: US$822 million
by Syngenta, US$588 million by Monsanto). It explains why
companies attempt to increase the use of the traits they
developed and in some cases literally acquire smaller seed
companies to ringfence their market share in this. Monsanto’s
subsidiary American Seeds Inc. is an example of that, but
Greenleaf is also targeting the pool of smaller, regional seed
companies in the US. And, let’s not forget that the Syngenta
umbrella already incorporates companies like Garst and Golden
Harvest.
Competition in seeds has always existed but competition in
traits is a relatively new phenomenon. Although only a few
companies can afford to be engaged in this, the competition in
itself is favourable for other seed firms that are to license
the traits. A lot of companies do this, even the bigger ones,
and the trait competition should place them in a better position
to bargain terms and conditions of the material they license.
It should be remarked that this competition for traits relates
mostly to crop seeds. It is still a question how technology will
find its way into the vegetable seed market. So far, traits have
focused mostly on herbicide tolerance and insect resistance –
which may not always be attractive for vegetable seeds. In this
segment the potential for output traits is considered promising.
The point is also that the vegetable sector encompasses a wide
range of different crops that are relatively small as compared
to row crops like maize, soybeans, etc. Thus, the question
arises as to whether it pays to develop something specific for
one species. In other words, the lower production volume of
vegetables versus row crops makes it harder to achieve
‘economies of scale’ in R&D expenditure for individual species
like pepper or cucumber.
The companies mentioned so far are also leading agrochemical
companies, although with a different relative importance. This
begs the question - does the focus on resistance traits
incorporated in seeds mean that there is no future for
conventional crop protection? Unlikely, although these companies
are confronted with a situation where the traditional use of
pesticides is to some extent substituted by traits and seed
treatment. In other words, the seed itself becomes the host of
the herbicides and insecticides.
Moreover, patents of blockbuster products such as glyphosate
have been running out in recent years, allowing the generic
players a competitive advantage. The companies that are heavily
involved in patented products (and thus R&D) do indeed
increasingly rely on seed as an alternative outlet for their
products and continuously strive for product differentiation.
This is confirmed by the recent strategic moves these companies
have made on the seed front and by announcements of plant
closures or staff reductions at their agchem operations.
In a nutshell, R&D in the seeds and crop protection industry is
very substantial and increasingly focussed on direct application
in seeds. Securing seeds as an outlet for traits is an essential
element of a return on this investment. The increasing
competition among traits to find their way into seeds will be
key for both the companies that are licensing them out as well
as those that license them in.
The interesting fact is that after all, play-offs wouldn’t exist
without the entire league and all competing teams. While few
make it to the play-offs this time, next season the lowest
ranked teams always have the first option to contract talented
players. In other words, all seed companies face the challenge
of obtaining the Most Valuable Trait and to integrate it in
their team (germplasm) successfully. No doubt this will lead to
some interesting matches.
Martin van Vaals can be reached at
Martin.van.Vaals@rabobank.com |
