Table of Contents
Bolen, C.D. 1993. New crops from a seed company perspective. p. 658-660.
In: J. Janick and J.E. Simon (eds.), New crops. Wiley, New York.
New Crops from a Seed Company Perspective
Carrol D. Bolen
- CRITERIA FOR INVESTMENT DECISIONS
- Intellectual Property Protection
- Synergy with Existing Business
- Stage of Commercialization
- Market Potential
- Financial Considerations
- Alternative Opportunities
Seed companies are often encouraged to become more involved in the development
and commercialization of new crops. Seed industry response to requests for
support have generally been viewed as lukewarm, at best. Although this
response may seem unusual considering the fact that the seed industry is
accustomed to making long-term investments in research and development, a
thorough examination of the criteria used for investment decisions by seed
companies sheds light on the difficulty of getting support for investment in
Seed companies differ in the approach they use to make investment decisions.
This will depend upon such factors as company size, interest in
diversification, capital resources available, or willingness to take risks.
However, most seed companies will look at a similar group of factors in making
an investment decision. Comments here are those things generally considered by
Pioneer Hi-Bred International, Inc.
As we look at new opportunities, a key consideration is intellectual
property protection. We must be convinced that we can adequately protect the
investment made in research and development. Hybrid crops have generally given
that protection, while self-pollinated crops have not. The Plant Variety
Protection Act provides some protection, but the farmer exemption permitted by
the Act is clearly a major limitation to investment in self-pollinated crops.
For example, Pioneer started research and development of hard red winter wheat
in 1970. After several years of marketing products during the 1980s, the
program was dropped in December of 1989. Farmers had accepted our products
which commanded a nice market share, but most of the seed was coming from
farmers' bins rather than a Pioneer seed bag. We simply could not make enough
money to get a reasonable return on our research investment. A similar
scenario developed for our hard red spring wheat program. Cotton ginners
saving and selling seed was a major reason we decided to terminate our cotton
seed business in the United States.
Pioneer will likely not be interested in any new crop that doesn't have one of
the following protection mechanisms: (1) capable of being hybridized; (2) an
effective plant patent; (3) vertical integration through contract production.
Kenaf is a good example of a new crop that offers intellectual property
protection through vertical integration. I've been impressed with the Kenaf
International program and believe that system merits consideration in other new
crops as well. Clearly, we plan to use a similar plan for some of the
specialty products being developed at Pioneer. We intend to control a major
portion of the value added chain.
Businesses often expand into other areas because of synergistic effects. The
seed industry is no exception. Pioneer started as a hybrid seed corn company
and over a period of years successfully expanded into several other crops. The
logic was that we could use our plant breeding technology and seed distribution
channels as a competitive advantage. Generally speaking, this strategy has
been effective. However, as we look at new crops, we must assess how important
our strengths are in relation to what is needed to make the new crop
I can recall evaluating triticale as a potential new crop for Pioneer in the
mid-1980s. We started a full scale triticale breeding program in 1986 after
determining there would be good synergy between triticale and our winter wheat
program. Also, working with triticale should improve our chances of being
successful in hybrid wheat development. However, we decided to get out of hard
red winter and hard red spring wheat development in December of 1989 and as a
consequence decided to drop triticale at the same time. So, synergy helped get
Pioneer into triticale and synergy helped to get us out.
Canola is our most recent example of a new crop for Pioneer. The decision was
made in 1988 to enter the canola seed market. We acquired the canola program
of Biotechnica Canada, in 1989, and started our own research and development
program in Europe. In 1990, we acquired Allelix Crop Technologies of Toronto,
Canada, a major developer of canola seed. The major reasons for our interest
in canola are: (1) hybridization seems likely; (2) seed margins are good,
especially in Europe; (3) canola oil is growing in popularity with consumers;
(4) canola hectarage is significant worldwide and beginning to show growth in
the United States; (5) we are already involved with other oilseed crops
(soybeans, sunflowers) and needed canola to complete our involvement in the
three major annual oilseeds; (6) seed can be marketed through existing
distribution systems; (7) canola is a good crop for developing specialty oils
which is a target of Pioneer.
Most "new crops" have been around for a long time. Some have been in
commercial channels for years, but because of limited production are still
considered new crops. Naturally, we are most interested in crops that are
developed to the point where they have proven their commercial worth. This may
be viewed by many as wanting the reward without the risk. However, we see the
risk of too early an entry as being greater than the potential reward.
Pioneer's position is that once a crop has proven its' potential, we can then
become a player and obtain most of the benefits without much risk. That places
the major responsibility for new crop development in the hands of public
institutions. It is a role they have performed well over the years and should
continue to perform. There does become a point when a new crop looks promising
enough that a company like Pioneer will decide to become actively involved.
We must have some idea of the market potential for the new crop in order to
determine our interest. Ideally, we like to see large volume potential with
very good profit margin. Realistically, this seldom happens. Given a choice,
we're more inclined to opt for low volume and high margin rather than high
volume and low margin.
In dollar terms, we're seldom interested in looking at anything new unless it
has the potential of contributing at least one million dollars in profit per
year. We're not going to get very excited unless the long term potential is
five million dollars or more per year.
Pioneer has a stated goal of 20% return on stockholders equity. Although this
may sound like a high target, it is an accepted norm for many of the food
industry companies. New crops are evaluated against the 20% return on equity
(ROE) target. If the crop is still several years away from commercial
scale-up, it is very difficult to invest much at this stage and show a long
term 20% ROE unless there is a very good margin once the product comes to
Because of the large public ownership of seed companies that has resulted from
consolidation within the industry, there is considerably more pressure on
companies for good short to intermediate financial returns. This is not the
best environment for considering investing in something that likely will not
return a good profit for several years.
Seed companies generally have many investment options with limited resources
available. Priorities must be established. Heading the list of priorities
will generally be those items that protect or enhance the existing business.
New opportunities will normally be secondary.
There are two growing investment areas which I believe will make it difficult
to obtain funding for new crops. One is biotechnology in general, and the
other modification of traditional crops. Most, if not all, seed companies that
invest in research and development have maintained or increased their
traditional plant breeding budgets while adding on a layer of biotechnology
costs. In addition, Pioneer has begun a significant effort to modify the
protein, oil, and starch profiles of several traditional crops.
I firmly believe that modification of major crops will prove to be tough
competition for some of the product targets of new crops. Through a
combination of traditional plant breeding, mutations, and biotechnology, we are
seeing many opportunities for new products. For example, vegetable oils with a
modified fatty acid profile or protein meal with a modified amino acid profile.
These are much more exciting to us today than anything we've looked at in the
new crops area. Perhaps one of the main reasons for this view is that we see a
need to protect and an opportunity to enhance market share in our existing seed
Although there are several new crops that show promise for commercialization,
the seed industry has shown very little interest in supporting the development
process. That trend is likely to continue for the following reasons: (1) there
are few new crops success stories; (2) there are many investment alternatives;
(3) new crops often take a long time to get a return on investment while the
seed industry is looking to more short to intermediate needs; and (4)
intellectual property protection is limited with many new crops.
Last update May 16, 1997