With seed firms poised to release next year’s contract offerings, Federated Farmers is encouraging herbage seed growers to utilise its cost of production calculator.
The spreadsheet, available here, provides a valuable tool to compare the relative merit of seed production contracts from competing firms. Growers can evaluate both price and terms in relation to their own production costs.
Federated Farmers Herbage Seed Subsection (FFHSS) chairman John McCaw said they worked with a group of growers to create the spreadsheet in response to concerns around a lack of profitability in the herbage seed industry. Rampant inflation and static pricing on the back of a poor harvest has seen growers move away from herbage seed production while others question its’ long-term viability.
Rather than demand a certain price for seed, Feds were keen to work with industry to understand the true cost of production and quantify the extent of the problem. In that, they have been highly successful, McCaw says.
The group held a roadshow, meeting individually with 11 seed companies to present and discuss the spreadsheet. In every case they were well received and the call for improved pricing and profitability was widely supported.
McCaw is cautiously optimistic. “The industry has never been so united. We’ve had a series of similar conversations with all the major seed firms and we’re all on the same page.
“The scene is set for real change, but we face headwinds in international markets.”
Strong supply - particularly out of Denmark - combined with reduced demand due to Russian sanctions and drought in China has seen a correction in international pricing, while elevated freight cost and delays around shipping continue to erode New Zealand growers’ competitiveness. Of particular concern are the high-volume international seed traders who dictate the price of commodity seed, trading on volume and margin with no consideration of cost of production. Put simply, international buyers will not pay what NZ growers need at this point, McCaw says.
“New Zealand seed companies now face the difficult balancing act of increasing the grower price in line with industry expectations whilst not pricing New Zealand Inc. out of international seed markets.”
Meanwhile, the domestic proprietary market remains stable, returning relatively strong returns to seed companies and providing greater opportunity to address low grower returns. However, increasing domestic proprietary prices too far will incentivise the ‘grey’ market of uncertified over-the-fence seed trading to the detriment of the entire industry.
The message to growers is that there will be no quick fix. McCaw says the market will correct but it will do so in a number of steps rather than one leap.
“We expect a significant lift in pricing for next season but not in line with what the spreadsheet says is required. Consecutive price increases and reduced input costs are needed to return strong profits.”
He believes seed merchants understand that profitable growers are key to the success of their businesses.
“The current situation is unsustainable. Growers are hurting and our resolve is strong. We need to keep the pressure on but continue to work collaboratively with the seed companies. Unfortunately, things are so far out of whack it’s going to take some time to unwind.”
Growers should expect a considerable range in pricing and terms across firms and across cultivars for the 2024 harvest. The cost of production calculator is a powerful tool to unite growers and give them information they need to respond to these price signals and optimise their crop rotation.
