The forage & turf seed markets worldwide
are small relative to other commodity markets and participants
often suffer from this lack of economic scale. Regular stock
write downs have caused "B&B events", and I am not talking
about an overpriced night in someone's spare room! The B&B
event is a "Boom and Bust" event driven by seed yield
variations or rapid changes in the crop use, such as cutting
the bermuda crop for hay because the price of hay increased
and the price of seed decreased.
Plant Breeders Rights (PBR & PVP) was
seen as the savior for an industry suffering from B&B events.
In my view it has at best stayed the same but very likely
created more problems, particularly for seed merchants.
It was hoped that proprietary
varieties would reduce the number of "bust" events or at least
smooth out the B&B cycle. Two important consequences resulted:
- The owner or licensee took over
the inventory responsibility from the seed grower and thus,
in most cases, had to fund an increase in inventory.
- In some species it reduced the
area producing seed of common commodities and thus increased
the potential for production variations and, therefore,
price fluctuations.
Seed companies developed various
strategies for coping with these issues. Some companies
developed novel grower contracts that left the grower with the
inventory when the seed companies stocks became too high. This
made it more difficult for a commodity trader to estimate the
volume of any one species that might be available on the
market due to an amount of brown bagged product that the
grower was left with. (Brown bagged = proprietary varieties
re-bagged and sold as commodity seed or "Variety Not Stated"
or "VNS" seed). VNS was described by our breeder as "Very
Nearly Sawdust"!
To make matters worse breeders have
been prolific, to say the least. Many hundreds of improved
varieties have been bred and licensed to a large number of
companies. In species such as perennial ryegrass (Lolium
perenne) this has created a discounting culture when stocks
are slow moving and thus a reduction in margins, in some cases
as low as the trading margin for commodities.
The overall result in some species
such as Perennial Ryegrass is to divide what was one small
market into three very small markets; Commodity, VNS and
Proprietary.
So why are we in this situation? The
answer is that the consumer has spoken and the industry was
not listening. While the benefits from breeding in most
species were initially significant there has been a tendency
to release varieties with less significant benefits. The
consumer’s estimate of the "value offering" has been reduced.
A subsequent increase in clear cut advantages between
varieties resulted in lower prices and thus reduced the return
on investment for turf grass breeding.
