Seed Industry

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CONTENTS

An Overview of the Industry- The Global Scenario- The Indian Seed Market- The Hybrid Seed Industry

3

3

4

5

Understanding Market Dynamics

- A Case of Hybrid Rice- A Case of hybrid Cotton

9

9

10

The Distribution Channels 12

Promotional Tools 13

The Way Forward 16


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An Overview

Seed is the most important input component for productive agriculture. In the significant advance

that India made in agriculture in the last four decades, the role of the seed sector has been

substantial. The expansion of the seed industry has occurred in parallel with growth in

agricultural productivity.

The global seed market:

The seed industry is undergoing a significant change towards providing farmers with high-yield

seeds and reduced production cost. GM seeds are expected to grow up from the fringes of crop

protection into newer potential applications, thus increasing the presence of biotechnology in the

industry.

The size of the world industry is USD 30 billion. It is expected to triple to USD 91 billion soon.

World seed market is projected to exhibit a CAGR of 4.27% over 2001-2010 and settle at about

US$42.2 billion by 2010. Europe, win an estimated share of 34.57% in 2008, is the largest

market for seed worldwide. In terms of growth, however, Asia-Pacific is forecast to surpass all

other regions with a forecast CAGR of 5.85% over the 2001-2010 period.

Grain seeds, with an estimated 2008 share of 32.70%, forms the largest product category in the

global seed market. In terms of growth, however, vegetable Seeds, with a CAGR forecast at

4.99%, are expected to outpace all other categories of seed.

(Source: Global Industry Analysts, Seed Quest News Section)

The Major Global Seed Players are shown below:

Company Seed Sales(USD

million)

% share of Global market

Monsanto (US) 4964 23DuPont (US) 3300 15Syngenta (Switzerland) 2018 9Groupe Limagrain (France) 1226 6Land OLakes (USA) 917 4KWS AG (Germany) 702 3

Bayer Crop Science(Germany)

524 2

Sakata (Japan) 396


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means to characterise and use it more effectively. Breeding cycles can be reduced, allowing new

products to be developed more quickly and with greater confidence.

The Indian Seed Market

The Indian seed industry is currently valued at Rs. 5000 crores and is growing at 12-13%

annually (According to Mr. Prabhakar Rao, President of National Seed Association of India, 9th

Nov, 2008, Asian Seed Congress). However the rate of growth of hybrid seeds in India is 13%

per year. Japan ranked first, India second and China third in the region in terms of trade volume

of seed business. If we look at the production capacity 70% of Indias seeds sales come from

farmer bred seeds, 26% from those bred in publicly financed institutions, and only 4% from

researched hybrids. The home market works out to about 3.7% of the global market.

As the organized Indian seed industry is just forty years old. Yet, its growth has been

phenomenal. India is among the few countries where the seed sector is already reasonably

advanced.

Evolution of Indian Seed Industry:

The Private Sector: The private sector in the seed industry is highly fragmented with an

estimated 300 players. The top 10 companies account for 25% of the total volume. (The Hindu

Businessline, 20th February, 2009) An estimated 250 companies operate as trading firms and

these generate an average turnover of Rs. 5 crore annually. The private sector accounts for 70%

of the market in terms of market turnover. The private sector accounts to 50% of the totalcertified seed production.


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companies. Alliances are becoming increasingly important in seed industry to bridge the gap

between the field experience and emerging technologies.

It is this symbiotic relationship that fuels an increasing number of opportunities. It also brings

opportunities to operate collaborative R&D programmes in biotech, especially, in genetically

modified field trials. As farmers face a limited choice of new seed traits, seed companies are

looking forward to developing projects that are required to supplement their product pipelines.

Biotech leadership of the country will certainly play a vital role to bridge the gap in the days to

come.

Understanding The Market Dynamics

The proliferation of product choices, information sources, distribution channels and marketing

platforms has made the market a complex place for the buyers as well as the sellers. In the highlycompetitive seed market it is imperative for a company to focus on customer psyche to provide

the right product to the right person.

Figure1:CustomerBuyingProcess.The diagram illustrates how the potential customers make their choices and falls into the basket

of different companies. Thus, a seed company has to target its customers in the proper way so

that more and more customers fall into its basket.

In this context two cases have been discussed in detail.


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A Case of Hybrid Rice:

The Indian Council of Agricultural Research (ICAR) had started a mission mode policy on

hybrid rice in December 1989, with the technical support of the International Rice Research

Institute (IRRI). Since then the hybrid rice market in India has gone a long way.

However the rate of adoption of hybrid rice was far below than what was expected. Hybrid rice

was accepted in small pockets of the country and mass production of hybrid rice is still not

prevalent. Under such circumstances, it becomes imperative for any company dealing in the

hybrid seed industry to find out the customer preferences and to understand the reasons for poor

adoption of hybrids in many regions of the country.

Speaking about buying behaviour: It must be mentioned at the onset that the competitor of a

hybrid rice brand is not another brand of hybrid rice! At the present market scenario, the maincompetitor of hybrid rice is other OPVs. Thus companies marketing hybrids must understand

why the farmers are not going for hybrids rather than inbred and, of course, to tackle these issues

in favour of the comapny.

In several studies, the most prominent reason cited by the farmers for not cultivating hybrid rice

is poor cooking quality. However there are several regions where the awareness about hybrids is

also very poor. The farmers complain that the hybrid rice after cooking is sticky and this is a

negative attribute among Indian rice consumers. Some farmers also complain about higher

disease and pest incidence in hybrids. Therefore the market is in demand of a disease resistant

hybrid capable of providing an yield advantage over OPVs.

The question now arises that which are the markets that a hybrid rice company should target?

Since cooking quality is not acceptable, the best segment would be enterprising farmers whose

staple diet is not rice. Thus, Punjab, Haryana, parts of Chattisgarh and Western UP would be

good markets. For understanding the districts which would emerge as high adopters of hybrid

paddy, a survey may be made to estimate the yield advantage and profit advantage of hybrid rice

over the popular inbreds of the region. Wherever the advantages of growing hybrids are higher,

the rate of adoption is expected to be higher. These districts may be targeted by the companies.

Hybrid paddy growers generally do not consume the rice they produce. They grow hybrids to geta yield advantage and by selling a larger volume, they expect to get a profit advantage over

OPVs. Thus a farmer is expected to switch over to hybrid paddy if he is ensured of a good price

for hybrid paddy. So areas with a price premium for hybrid paddy may be targeted.

The market is still riddled with subcontracted buying behavior of the customers. Thus push

strategy remains as the key factor to promote sales. However the market is slowly moving in a

direction of brand awareness. Thus the right mix of push and pull strategy would work well.


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Talking about market dynamics, there is a change in buying behavior in hybrid cotton farmers

that is becoming popular. Instead of purchasing seeds on the advice of the dealers, the farmers

are increasingly becoming brand aware. This means that the companies must try to strengthentheir brands as much as possible in the days to come rather than only depending on dealers

push.

The level of involvement of the farmer in the purchase of agriculture input (in our case hybrid

cotton ) is a high involvement one as the farmer tries to convience and confirm himself that the

brand he is buying is the best available in the market and the most profitable one in terms of all

the attributes he is looking for.

According to a study, 80-85 % of farmers depend on their prior experiences as well as the advice

of fellow farmers. 10 % on advice of dealers and 5-10 % on company persons etc. It is at this

time that who ever is able to convince the farmer wins his confidence and the farmer prefers the

variety told by him.

It was also seen that there is a shift of farmers from BG-1 to BG-2 cotton.

Year BG I BG II

2008-09 70% 30%2009-10 60% 40%

Way Forward:

Thus it would be prudent for a company to emphasise on BG-2 in the days to come as greater

number of farmers would use it. It would be more important to promote the brand of seed they

are marketing than depend on push strategy only.


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trading terms. This encourages dealers to stock their products and give them prominence. If

farmers go to buy seed, and are undecided about the variety, the dealer will recommend seed

from the most profitable supply source.

Sales Promotion

It is the term given to describe a variety of techniques designed to encourage customers to buy.

They complement advertising and other promotional activities. They are tactical devices that

provide incentives to 'buy now', thus sales promotion is short-term (to achieve an immediate

effect) whereas advertising is a longer term communications process. The techniques used to

achieve these short-term effects can be divided into either selling to the market channel or sellingout of the marketing channel. There are two types of sales promotion activity:

1. Selling to the marketing channelThese are the techniques which, by providing incentives and support, enhance sales to the trade

and encourage the distributors and dealers to stock the product. Some examples follow.

Dealer 'loaders'. These are ways of encouraging dealers to build up their stocks in sufficient

time, so that inadequate supplies and last-minute transport problems are avoided. Examples are:

offering discounts on orders taken early and progressive, volume discounts on large orders(quantity discounts). These discounts can, of course, be passed on to the customer.

Point-of-sale materials. These are materials supplied by the seed company to the sale points to

support sales of their product range. They are used to display and attract attention to the product

range as well as to provide information. This form of sales support encourages the dealer to order

stocks. Examples of point-of-sale materials include colourful display boxes in which seed

packets are placed, particularly vegetable seeds, product information leaflets, seed catalogues

and audio-visual displays, such as slides with sound tracks or videos.

Dealer competitions. The larger seed companies can afford to offer significant prizes linked todealer sales' performance. It is also an established technique in the more developed countries to

hold dealer seminars in attractive locations. While it may not be realistic to expect companies in

developing economies to incur the high levels of expenditure necessary to organize dealer

seminars, some form of incentive scheme may be worth running. Overseas suppliers could also

be asked to support such schemes by inviting the 'dealer of the year' to visit the producing

country. A dealer will also value the status of seeing his name in print so press releases and

dealer names featured in catalogues and advertisements can be used.


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Dealer training. Training dealers in the use and benefits of the product is a vital form of support.

A dealer will attract customers and sell more if confident and knowledgeable about the product.

Training should also cover product care in store and stock rotation as well as retail presentation.

Credit. This again encourages higher stocking and can be used selectively to promote certain

product lines. Credit can be used as an incentive to dealers where companies have to compete for

shelf space.

Sale or return. This is particularly relevant for the stocking of new products as it provides an

element of risk-sharing. However, it can be costly to the supplying company. A return system is

used to promote preferential stocking but simply stocking the dealer on a sale or return basis

should be avoided as the dealer will have no commitment to sell. Such a system should always

provide an incentive to take stock. Thus, for example, returns could apply only to stock takenover and above the previous year's sales. There are, of course, quality considerations and

companies may prefer to collect unsold stock for secure storage and relabelling to avoid the

possibility of farmers complaining of poor germination in a subsequent year. This can be

provided as a service to the dealer with the product remaining the property of the dealer. It is

important that the supplying company protects its name and image at all times.

Promotional gifts. Small gifts (give-aways) can be given to dealers as added incentives. The

seed company's name can be promoted on pens, cigarette lighters and calendars. These serve the

purpose of keeping the company and its brand names in the dealer's mind. Small value items can

also be passed on to farmers when they purchase their seed. Larger value items may be given todealers as presents in return for orders for new products, achieving higher volumes or even for

displaying a company's seeds in front of its competitors' products. Many of these techniques may

only seem relevant to the more sophisticated and competitive market situations but marketing

managers should be aware of the techniques that are used to encourage dealers to stock and to

promote one product in preference to another.

2. Selling out of the marketing channelThese are the techniques which assist the retail trade in promoting and selling products to the

final consumer. Some examples follow.

Free samples. Dealers can give out samples of new varieties. The indiscriminate use of free

samples can be counterproductive, however, as the farmer may not achieve a good result and

blame the variety or may not use the sample as it was free.

Seed exchange. Seed can be exchanged for farmers' grain to overcome initial resistance to

buying and using improved seed. This is perhaps more of an extension practice which should be

organized by the seed company on a direct basis.


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Coupon offers. Refundable coupons can be used offering 'money off' the next purchase to

encourage repeat orders or purchases of other products in the company's range.

Price reductions. This will obviously be popular but the danger is that revenue will simply be

reduced without significantly increasing sales so the technique needs to be used selectively.

Competitions. Competitions only create interest if they capture the imagination, e.g. a yield

competition and membership to a 'yield club' for a certain achievement. They can be organized

on a village level or directed at a certain group, such as young farmers.

Premium offers. The offer of an extra product for a promotional price can be made. This could

be a joint promotion with a non-seed product or linked to seed of another species that could be

grown by the farmer.

Field demonstrations and group discussions. These are both very effective ways of promoting

seed products and supporting the local dealer. The demonstration must involve proper seed and

fertiliser usage, soil and water management practices, weed control and plans protection

measures and, if necessary, security measures.

It is important that, before embarking on promotional activities, the marketing manager is given

the necessary support within the supplying organization as well as among the distributors and

dealers. There is obviously no point in starting a promotion without ensuring that sufficient funds

and materials are available and that there is the necessary administrative organization.

3. Personal selling

While seed products may be well advertised and promoted, a high degree of personal selling and

service will always be required. Seed company staff and, where possible, dealers should always

be provided with adequate training and familiarization with the products they are selling and the

market they are selling into.

A good presentation of the company and its product range is important in making the sale. The

company should provide the necessary visual material that can be used in both informal one-to-

one and more formal group presentations. A ring binder with sequenced seed product leaflets and

photographs is a useful way of conducting a one-to-one presentation. A good seed catalogue is

also useful, especially for a product group with a large range.


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Striking The Right Mix

It has been seen that the credibility of field demonstrations has been highest as a promotional

tool. Since promotional activities involve a lot of cost on the company, striking the right mix of

the promotional activities is an imperative. The right mix is decided by the depth of awareness

required by the company among farmers and the budget allocated. It differs from place to place

and between small and large farmers as well. The promotional strategy also depends on the

competitors strategy as well as the distribution channel that the company is using. Marketing

research in this respect may be conducted to get the right mix of promotional activities for a

particular region.

Way Forward

In the last few years, the seed industry has seen a substantial number of mergers and acquisitions

and an increase in vertical and horizontal integration. The structural changes underway in the

seed industry are due to a number of factors. Some of these factors are common to all industries

and have no specific link to biotechnology. For instance, the mergers and acquisitions in the seed

industry are at least in part a result of the need to consolidate costs and rationalize industry

capacity, a desire by the management of the firms involved to extend their sphere of influence,

and a wish by some firms to pre-empt other firms from taking over valuable assets.

The horizontal mergers and acquisitions that have occurred in the seed industry can also be

linked to R&D costs, economies of scale and scope created by intellectual property rights, and to

regulatory costs. The increased vertical linkages in the industry are connected to the product

complementarity that is increasingly present between seed and chemical products, as well as to

the difficulty in enforcing certain types of intellectual property. In other cases, the rise of better-

defined intellectual property rights has been a factor in the joint ventures and strategic alliances

that have occurred.

The pricing behaviour of the large firms in the seed industry appears to be strategic in nature,

with pricing being influenced by competition from other products and the value created by their

products. There is substantial evidence of price discrimination, whether it is in the form of

Technology Use Agreements, differential pricing, or tied sales. The key impact of this strategic

pricing is not on the total economic surplus created as a result of R&D, but rather on the

distribution of this surplus Structure, strategic pricing and the distributional impacts of this

pricing are important considerations of public policy. In particular, because a great deal of the

structural issues in the industry are linked to intellectual property rights, the question arises as to

the proper degree of protection that should be provided through IPRs. Intellectual property rights

are granted to companies and individuals as an explicit element of public policy. They are

specifically designed to encourage innovation and to provide incentives for the development and


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diffusion of new products and technologies. The empirical evidence suggests that the

establishment and strengthening of property rights in agriculture has led to an increase in private

investment in agricultural research. Intellectual property rights also provide benefits by creatingeconomies of scale and scope, which in turn mean lower costs for those firms that can expand

production. At the same time, IPRs can be linked to higher concentration, which in turn lead to

deviations from marginal cost and average cost pricing. Intellectual property rights thus represent

a trade-off between the potential negative effects of market power and the benefits from greater

R&D.

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