Gro Alliance’s diverse client base gives us unique insight into the business planning activities of seed companies. In almost every case, conversations pivot to a discussion about margin and brainstorming how we can work together to improve the bottom lines for both companies. These discussions are healthy and have led to creative solutions that put money back in clients’ pockets.
They’ve also helped us learn about hidden costs that erode seed company margins. Everyone talks about what I call the Big Three: royalties, labor and inflation. But beyond those are multiple factors that eat away at profits. Here are the top two.
Seed Testing Costs
I want to start this section by saying that I believe the prices charged by seed testing firms are fair and reasonable given the complexity and capital costs associated with conducting the required tests. The industry should further be grateful that we have multiple, high-quality public and private labs to conduct seed quality testing. The U.S. system is the world’s most effective, and our testing partners are key to that success.
What’s happened recently is an escalation in required testing with stacked traits in corn and soybeans. Soybean seed testing has increased 3-4x as multiple herbicide traits have been introduced. In corn, new modes of insect control require new testing protocols that can cost close to $2,000 per unique lot number. That’s not a typo!
When considering new products in your lineup, make sure to ask the developer about the seed testing requirements. There should also be a line item in your company budget that is tied directly back to the testing costs of each hybrid and variety on an individual basis.
Internal Trucking Costs
Hiring a third-party trucking firm is expensive. In response, many seed companies have invested in their own trucks. However, maintenance, DOT compliance and insurance all come at a higher cost than most companies expect.
Additionally, delivering seed to farmers is one of the biggest challenges for seed companies and a lot of that challenge is that companies want to deliver the seed themselves. They cite farmer relationships, driver knowledge and complexity as the reasoning. But, if a company only has a small fleet, the delivery timeline is greatly extended. This means they start delivering earlier than the farmers want and struggle to get the last third of their seed delivered on time. Load bans, farmer availability and last-minute order changes further exacerbate the challenge.
If all the internal trucking costs are accurately counted and measured on a per unit basis, outsourcing trucking will likely come in at much lower cost than that of truck ownership. Plus, unexpected repairs and breakdowns become someone else’s problem!
Seed companies are experiencing the most challenging margin environment in recent history. As such, the laser focus on the Big Three is critical and warranted. Additionally, seed testing and internal trucking costs need to be examined and considered. In fact, a top to bottom analysis of all company decisions and assumptions is healthy, especially in today’s environment. Remember, there are no sacred cows when it comes to improving margin!
