What are you paying for seed corn for 2010, and will the price be more if you buy multiple traits, or could you get a lesser price if you purchased just the traits you needed?
Multiple-stacked traits seemed to be the industry preference, but that may not be the best buy. There is little that farmers can do about it, other than pay the freight to get the product you need.
The cost of seed corn with bundled traits was analyzed by a trio of economists from the University of Wisconsin, who looked at the price structure for seed corn around the Cornbelt from 2000 to 2007. Their data did not reach into the current pricing period, but they identified the trend that is determining the price of seed corn. Their report is a lengthy analysis of the practices of the major seed retailers. Their research begins with the statement about the industry, “One major finding is that standard component pricing in biotech traits is soundly rejected in favor of subadditive bundle pricing.” The economists say new seed technology offers prospects for increased productivity, but they add that mergers and acquisitions in the seed industry have resulted in a concentrated seed market dominated by a few large biotech firms, and add, “This has raised some concern that market power and imperfect competition could lead biotech firms to charge high prices for the biotech seeds, with potential adverse effects on farmers’ welfare.”
At the conclusion of their data collection in 2007 about 80% of US corn acres were planted with a genetically modified seed. In 2000 only 2.1% of seed contained multiple traits from genetic manipulation, but by 2007, more than 56% of acres were planted with multiple traits. You may already have purchased 2010 seed with eight different traits. While this trend was in the making, there was a flurry of mergers among seed companies, which the economists suggest was spurred on by cost reductions in the production of genetic traits. But they say trait bundling can also be part of a marketing strategy, as well as a scheme to extract more profit from seed sales.
The research conducted by the economists was based on phone calls to 38,617 farms during the 8 year period. The seed buying practices and prices were recorded from farms in 80 crop reporting districts in IL, IN, IA, KS, KY, MI, MN, MO, NE, OH, SD, and WI. Although 300 seed companies operate in the US, only six biotech firms were involved, including: Monsanto, Syngenta, Dow AgroSciences, DuPont, Bayer CropScience, and BASF. In 2000, conventional seed corn was planted on 67.5% of acres, averaging $79.37 per bag, but that had declined to 20.6% in 2007, when the price averaged at $93.53 per bag. In 2000, a bag of seed corn with a single trait cost $100.24 for corn borer Bt, $87.34 for a herbicide tolerant seed, but $95.21 for a double traited seed, and $100.95 for a triple traited seed. Fast forward to 2007, when a single corn borer trait seed would cost $111.36, $121.07 for a single rootworm Bt seed, and $114.67 for a single herbicide tolerant seed. But for a double traited seed, the cost would be $124.71, a triple traited seed would costs $133.02, and $140.03 for a seed with four genetic traits.
Compared to conventional seed corn, the economists report that adding a corn borer trait raised the price of a bag of seed corn by $25.64, adding a root worm trait raised the price by $46.06, and adding one of two herbicide tolerant traits added $9.63 per bag. But additionally, price differences existed, depending on where you farmed. The economists report, “Compared to Illinois, the price difference is statistically significant for Iowa ($1.53), Indiana (-$1.13), Ohio (-$2.16), Wisconsin (-$2.34), and Kentucky (-$3.22). This suggests that seed companies do price discriminate across regions, reflecting spatial differences in elasticities of demand for seeds….seed price rises from south to north, reaches a peak near the center of the Corn Belt and then declines when moving further north.”
The origin of the seed also makes a difference. Purchasing from a seed company means a bag of seed is $4.57 less than if purchased from a farmer/dealer. And if a farmer/dealer buys his own seed, it is $4.40 cheaper than if purchased from the company. Additionally, farm size means paying more, not less, “The farm size effect is statistically significant: large farms within each state pay more for corn seed. This result may be due to the fact that large farms are more productive (compared to smaller farms) and located in areas where corn hybrids are better tailored to local growing conditions.”
The Wisconsin economists looked at trait pricing in Illinois in 2004 for their example of the impact of bundled pricing. They report, conventional seed corn was priced at an average of $90.86 per bag. Adding the corn borer Bt trait along raised the price by $17.96; adding the rootworm Bt trait was added with a $29.91 premium, and herbicide tolerance traits
Book of Rawere added for $13.03 and for $4.51, depending on the trait. The economists said there was a $41.74 premium for adding the Bt traits for corn borer and rootworm, but “While this is greater than the price premium farmers pay for unstacked versions of these seeds, it is less than the sum of them (17.96 + 29.91 = $47.87). A similar pattern is evident in all the double stacked seed prices….The triple stacking of (corn borer, rootworm, and herbicide tolerant) traits has a price premium of $40.49. This is greater than the value of any individual trait component or any relevant double stacked seed price. But this is less than the sum of the individual premiums of $65.41.
In reviewing the pricing changes for seeds following merges of companies selling genetically traited seeds, the researchers found both price savings and price increases for farmers:
- Our simulation results show that mergers of biotech firms in the herbicide tolerant markets could potentially induce a price increase of up to $19.08/bag of herbicide tolerant seed.
- Mergers across corn borer and rootworm markets are associated with a price reduction of $5.99/bag for corn borer seeds, a price reduction of $25.10/bag for rootworm seeds, and a price reduction of $31.09/bag for corn borer/rootworm stacking seeds.
- Mergers involving corn borer and herbicide tolerance could potentially induce a price increase of up to $22.22/bag of herbicide tolerant seed and $22.55/bag of corn borer and herbicide tolerant stacking seeds but not on the corn borer trait market. And mergers involving rootworm and herbicide tolerant could be associated with a price reduction of up to $21.34/bag of rootworm seed and a price increase of up to $19.91/bag of herbicide tolerant seed.
- The simulated merger indicates that the conventional seed price would rise significantly. Such a price increase may be of great concern to policymakers because the impact would contribute to raising the price of the entire corn seed complex.
Summary:
The price you pay for seed corn is quite dependent upon its component pricing for genetic traits, and how they compete both individually with conventional seed corn and how they compete with conventional seed corn when the traits are bundled into one hybrid. Additionally, the pricing of seed corn may be determined by the mergers of companies that supply genetic traits , and would vary by how those traits are combined through mergers. Seed prices also vary by state, by farm size, and by how the corn is sold to the eventual customer.
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