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Will DuPont’s strategy enable meaningful market share recovery?
Dec. 23, 2008
DuPont’s Pioneer Hi-Bred corn seed market share has tumbled this decade, and an outmoded distribution strategy may have been a contributing factor. Its new model finally allows for regional seed companies, whether recently purchased or independently signed up as a direct licensee, to sell seed based on Pioneer germ plasm. To meaningfully regain market position and make up “for lost ground,” Pioneer must develop and commercialize new technologies and/or genetics over a relatively short time frame.
Analysis:
DuPont’s Pioneer Hi-Bred seed company has taken a new step to bolster its corn market share which has been declining in the US in most recent years. In a meaningful change in its historic practices, the company has agreed to share its in-house corn genetics (and, in most cases, soybean germplasm as well) with small, independent, regional seed companies.
In the US, the five partnering companies signed up thus far are AgVenture (based in Indiana), Doebler’s Pennsylvania Hybrids, Hoegemeyer Hybrids (Nebraska), NuTech Seed (Iowa), and Seed Consultants (Ohio). Under this new so-called PROaccess strategy, Pioneer will provide more growers increased access to its elite varieties, thereby promoting farmer productivity and its stake in the corn seed market. While Pioneer will not own the five companies outright, the new distribution agreement will provide Pioneer with direct entrée to organizations which collectively have captured about 5 share points in the US corn seed market. The independent seed firms’ sales teams (rather than Pioneer representatives) will market their own branded products.
The PROaccess program is also being adopted outside the US as Pioneer attempts to further increase is market position, especially in corn and soybeans.
Beyond this PROaccess program, DuPont announced in May 2008 that it had agreed to acquire the “Curry Seed” brand, a deal which is tantamount to buying the independent South Dakota-based Curry Seed Company. Curry will continue being managed locally and is expected to maintain its marketing efforts in Iowa, South Dakota, Nebraska, and Minnesota. It is conceivable that other smaller, regional seed companies will be acquired – perhaps even those that are in the PROaccess line up.
In our view, these moves are a step in the direction of Pioneer’s strong desire to regain market share in the highly competitive and profitable US corn seed market. In the late 1990s, the company controlled between 40 and 45% share of this lucrative sector. By 2008, this proportion had eroded to approximately 30%. Pioneer’s owner, DuPont, maintains that the company did not suffer a loss in share this year (vs. 2007) and that the company expects to boost its relative position in the 2009 season. It is not clear whether this prediction includes the contribution, for the first time, of Curry or even of the independent firms joining the PROaccess program.
As is well known, Monsanto has been the big winner when it comes to capturing market share in the branded US corn seed arena. From approximately 12% in 2002, Monsanto’s lead DeKalb unit (which also sells Asgrow brand seed) has steadily penetrated the market and achieved roughly a 23% share in 2007 and approximately a 25-26% proportion in 2008. In addition, the various brands of its American Seeds (ASI) subsidiary (a 100%-owned holding company which is composed of a series of regional seed firms with over 20 brands of hybrid corn varieties) contribute an estimated 10-11% share, meaning Monsanto-controlled brands now represent about 35-36% of the market. ASI began operations in November, 2004, when Monsanto made its first purchase for this unit – Channel Bio which controlled 3 corn seed brands with roughly an aggregate 2% market share.
Pioneer’s purchase of Curry could be viewed as the first official step by the DuPont unit’s emulating Monsanto’s successful American Seeds strategy. Moreover, while the initial 5 companies included in the PROaccess effort will remain independent, this approach does provide another avenue to market for Pioneer’s corn seed genetics. Clearly, it won’t be as profitable as Pioneer selling its own brand, but it will certainly be additive to the bottom line.
In addition, both Monsanto and DuPont are in the foundation seed business. The respective units are Holden’s’ Foundation Seeds (wholly owned by Monsanto and acquired in 1997) and Greenleaf Genetics (50% owned by DuPont and 50% by Syngenta), which was formed in 2006. We believe that roughly one-third of independent hybrid corn seed sold in the US is based on male- and female-backcrosses sold by Holden’s and its associated units. In contrast, Greenleaf is very new and we doubt that this venture has more than a 2% share of the market thus far. To our knowledge, this is the first time Pioneer was willing to share any of its underlying corn genetics with other domestic corn seed companies; of course, Greenleaf is also encompassing germ plasm from Syngenta’s library.
Distribution is a critical matter when it comes to market share in corn. A significant proportion of Pioneer’s US corn seed sales are made by so-called “farmer reps” who work with their customers (neighbors) to decide on the best hybrids for their localized region. A smaller proportion is sold by retail agricultural stores, and Pioneer’s practice is to require these retailers to carry Pioneer corn seed exclusively. Pioneer tends to use retail stores to a greater degree in the South than in the Midwest.
In contrast, Monsanto has predominantly employed agricultural retail stores to sell its branded seed. One of the main advantages of this approach – and it’s hard to argue with success – is that many farmers prefer the one-stop shopping technique. It is very convenient for growers to purchase virtually all of their inputs from a single local dealer – be it fertilizer, crop protection chemicals, seeds, and even critical services such as custom application. Representatives from Monsanto’s branded seed units use a 2-pronged approach to direct marketing – by visiting not only the personnel at the retailer but also many of the individual growers. Perhaps Pioneer should consider relying more on full-service retailers and less on farmer-reps, especially in the Midwest – at least on a test basis in several areas.
We’re certainly not concluding that the main reason Monsanto’s seed companies have gained share in the past decade is due to the different distribution practices between Monsanto and Pioneer. But this certainly could be a contributing factor, and a change in the modus operandi could surely help a bit.
More important, in our view, is the rapid advance DeKalb and other Monsanto brands have made in improving the underlying genetics of their offerings. Another key to Monsanto’s achievements is this company’s lead position in developing genetically modified traits and its ability to provide a greater amount of hybrid seed with the most desirable traits (or critical combination of traits) to growers over the years. Hence, Pioneer must develop and commercialize new technologies and/or genetics over a relatively short timeframe in order to meaningfully regain lost share.
Source: Reuters
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