Consolidation in the seed industry has become a fact of life. For small seed companies it can mean access to new technology—or an opportunity to excel in a niche market.
“Consolidation” has often been a dirty word in many industries, caricatured as a symbol of the death of the “Mom ‘n Pop,” with power increasingly centralized on major players located far from local communities. In Canada, as in the United States, consolidation has been a fact of life in the seed industry for decades. Only recently has the pace of consolidation slowed, with a range of alternative partnership arrangements, including collaboration on specific projects or vertical integrations, increasingly emerging as viable alternatives to outright transference of ownership.
But whether or not the pace of consolidation is slowing, the notion that it is always negative is an idea that requires re-examination, according to industry experts. Consolidation has received a bad rap in the press, but it can offer a way forward for companies struggling to stay relevant in an increasingly technologized and competitive business atmosphere.
“A lot of people in the ag business think of consolidation as negative, but I’m not sure we’ve thought that through,” says John Cowan, vice-president of strategic development for Grain Farmers of Ontario. “I can think of a lot of companies that have consolidated, and they look different, but are not only surviving but thriving because of the consolidation,” he says. “Some of the drivers [of consolidation] would be cost of research, or access to a specific market. For some reason, in ag, we tend to think of this in a negative way, but if you look at other businesses, consolidation is a pretty basic ‘Business 101’ concept.”
Defining Partnerships
Cowan defines consolidation as “a buyout direction which focuses a company in one area,” where collaboration offers flexibility to both companies, and vertical integration involves cooperation between companies which “goes up and down the value chain.”
With regard to vertical integration, according to Cowan, “everybody tries to do it, but it’s more complex than it appears. Say I have a wheat that makes a good bran flake. To get the communication from the variety developer all the way to the processor to make the bran flake, sometimes we use the same words that have totally different meanings—for example, the word ‘yield’: to a farmer that means, how many tonnes per acre? To a manufacturer that means, how many bran flakes do I get out of a tonne?” If vertical integration is to be successful, says Cowan, “you navigate it through communication, communication, communication. You have to have somebody asking the proper questions and being willing to listen to the answers.”
All of the models of cooperation have their own unique sets of problems and benefits. But one thing is clear, according to Cowan: consolidation offers small companies a way to not only survive, and continue offering value to the market, but thrive.
Dale Adolphe, executive director of the Canadian Seed Growers’ Association, believes that currently, strategic alliances are more in vogue than takeovers and consolidations. He argues that partnerships between smaller seed companies and larger corporations can bring significant benefits to both parties. Small companies, he suggests, offer “local flavour, knowledge, contacts and reputation” to larger companies, along with local connections that are essential to overall success. “Having large life science companies investing in research and development, and having smaller companies handling distribution and sales, is a model that follows the adage ‘think global, act local,’” says Adolphe. “In some ways it can be seen as a parallel to the auto industry. Toyota is huge, but it is locally-owned and operated dealerships that are Toyota’s face in the local community.”
And on the reverse, large companies offer small companies access to technology they cannot afford to develop themselves. For example, with regard to traits in seed, “only big companies can seem to afford the investment required to enter into new variety development,” says Adolphe. “Even government is pulling back on variety finishing in Canada.”
Partnerships between small seed companies and larger corporations can bring significant benefits to both parties.
Staying Competitive
Some companies—large or small—have great resources, but limited means to get their specific offering, whether it be research, technology or excellent customer service, to target markets.
According to Marty Vermey, business manager for Hyland Seeds, which became a division of Dow AgroSciences in 2010, consolidation offers both companies benefits that are only possible through this type of arrangement. In his view, consolidation is a driver of business.
“Organizations can combine their specific specialties, and combine their efforts to bring solutions to the market,” he argues. “People look at it negatively because there’s less competition, but it creates room for more start-ups.” Such start-ups, he says, include businesses that spring up in response to a need generated by consolidation—companies with specific knowledge, technology or service offerings that are useful to everyone in the new business environment.
But the benefits of consolidation for seed companies in particular, says Vermey, are many. “For life sciences it’s a means of discovery and finding new trait technologies. The cost of registering new trait technologies is extremely expensive. Small companies just can’t spend everything they have on new technologies. Years ago, it was government that invested in new genetics through public breeding,” he says. “Now it’s the life sciences companies that have the resources to [produce] these new technologies and new genetics.”
“In the seed industry we have regulations on traits and seed, but it’s not regulated in terms of who can play in the same sandbox—it’s a really open business.” —Marty Vermey
Additionally, there is flexibility in terms of how such business partnerships can be arranged. “In the seed industry we have regulations on traits and seed, but it’s not regulated in terms of who can play in the same sandbox—it’s a really open business.”
Vermey argues that whether through consolidation or vertical integration, smaller companies can excel in the marketplace if they are partnered with larger companies. “There are a lot of examples of successful stories where small seed companies can access the right genetics, the right traits, and be competitive,” he says.
But it has to be a win-win scenario for everyone, he cautions. “In order for this to continue in the future [the market] needs to stay competitive, and everybody in that chain has to succeed—whether it’s the end-use customer, the seed company delivering the traits and technologies to the customer, or the provider of the technology.”
A Tale of Two Companies
Small seed companies looking to remain independent—and thrive—in Canada’s competitive business atmosphere must follow two rules: first, they must gain access to the technology they require. Second, they must find their niche—the aspect of their business that differentiates them from competitors. These two guidelines, according to Rob Hannam, founder and president of Synthesis Agri-Food Network, are essential if small seed companies are to stay relevant.
Synthesis provides consulting and communication services to a number of organizations and companies including the CSGA and Canadian Seed Trade Association, and Hannam himself has worked with family-owned seed companies and multinational corporations. In his view, consolidation is a good thing for companies that embrace it, but for those that wish to remain independent, there are different strategies for success.
Two companies in particular stand out to him as offering opposite visions.
The first is Maizex Seeds, a Canadian hybrid seed corn company that sources traits and technologies from all over the world. “In my opinion, Maizex Seeds is an excellent example of a company that had a strategy to gain access to traits from more than one trait provider and offer a broad mix of those traits, and they’re thriving because of it,” he says.
“Conversely, another company that has thrived for the opposite reason is the newly-formed Sevita. Sevita was formed as a combination of PRO Seeds Marketing, Agworks, Hendrick Seeds and Hendrick AgriFoods, and they’re focusing on specialty soybean markets that are requesting non-GMO soybeans,” says Hannam. “Maizex jumped on the trait bandwagon and is thriving because of it, offering a suite of traits from different providers. Sevita has gone after a non-GMO market and do have access to technology, but have chosen to go after a niche market that’s been created because of the trait technology. Their strategy is similarly visionary but in a different direction.”
Hannam emphasizes the importance, for both of these companies—and every seed company—of carving a fresh identity in order to stand out from the pack. “As consolidation occurs, it’s more important for small and medium companies to figure out what they can do differently and why that matters. If they don’t have a differentiated, distinguishing factor, they likely won’t survive and thrive in the long term.”
In the end, says Cowan, it comes down to attitudes. “We have to look at the positives as well as the negatives. A good businessperson will say, ‘Where can I fit? What can I bring that’s unique and different? Here’s an opportunity for me.’”
Julienne Isaacs
