Thursday, December 7, 2023

A natural blend of grains firms

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Two New Zealand-based, foreign-owned seed companies marked a milestone merger in October.
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PGG Wrightson Seeds chief executive John McKenzie has seen a good number of mergers and acquisitions over 45 years in the grain and seed trade.

Some deals went well and good and others were distinctly disappointing. The lastest was a natural blend, he said.

The sale of PGG Wrightson’s former grain and seed division has put McKenzie in charge of an Oceania business unit in a global business, DLF Seeds.

At a welcoming event for PGG Wrightson Seeds’ new office space at Lincoln, McKenzie said even though the deal was described as a DLF acquisition of PGG Wrightson seeds, in the NZ market it is really the other way round.

PGG Wrightson had 480 staff in NZ and Australia while DLF had just nine in this country.

“At the end, what really happened was DLF bought PGW Seeds Holdings, which owns all the PGW seeds group. PGW Seeds NZ basically bought DLF.”

DLF was basically a grass seed company with a forage and turf business so it had structured that part of its business into four strategic business units for Oceania (NZ and Australia), South America, North America and Europe. In NZ, PGG Wrightson Seeds had an Ebitda of about $30m. 

The assets included two forage brands in Agricom and PGG Wrightson Seeds, which have about 60% of the country’s forage market, 80% of the turf market now that it has DLF and a large grain business.

The grain operation has three parts. In the North Island it dries, stores and trades maize grain, a planting and seed business and a South Island grain trading business.

The company also exports from NZ to about 40 countries, in commodity trading, seed multiplication taking germplasm to produce seed on order and selling proprietary products. In Australia, PGG Wrightson Seeds sold forage brands, tropical and cereal seeds. Much of the trade was in annual legumes, alfalfa and lucerne rather than grass and clover, which dominate the NZ export market.

The company’s big engine is its research and development capacity, McKenzie said. 

“We would spend around $15-$16m a year on research and development. And if you look at our proprietary sales, that is in the order of 12% of what our proprietary sales are.”

Most of that investment was through the Crown research institute Plant and Food, through its firm, Forage Innovations, which developed brassica varieties on an annual budget of about $1.3m. 

“It’s basically a virtual company. It doesn’t have any employees, it’s got a manager who is contracted in through the two shareholders, which are Plant and Food and ourselves. Then it contracts to both organisations, services to produce the varieties.”

The partners delineate responsibilities between themselves to ensure they are not duplicating facilities because they want a partnership that’s successful.

McKenzie said PGG Wrightson operates the same model with another research institute, AgResearch. The operating company, Grasslands Innovation, 70% owned by PGG Wrightson Seeds Holdings and 30% by Grasslanz Technology, manages the exclusive breeding for cultivars for PGG Wrightson Seeds. 

“So, Grassland Innovation is the equivalent of Forage Innovation.”

Grasslands had a budget of about $9m, doing all the grass, clover and herb breeding. 

“Again, it’s a similar construct (to Forage Innovations). There are no employees that actually work for the company. It’s all contracted in from the participants and again PGG Wrightson Seeds has rights to utilise the products.”

The other major partnership is Endophyte Innovations, a partnership rather than a joint-venture company. 

“It does the endophyte work in NZ and we have access to those endophytes.”

McKenzie said despite the axing of the original plan for AgResearch and Lincoln University to share space at Lincoln, something is needed at Lincoln to bring together academia, science research and private enterprise.

Now the firm is set up in its own admin space, beside Lincoln University and industry organisations like DairyNZ and Plant and Food all those interfaces with a number of organisations became easier.

PGG Wrightson Seeds originally planned to run its head office from suburban Christchurch with its research farm at Kimihia, just a couple of blocks from the Lincoln University campus.

That idea was harder to realise than imagined. 

“You wouldn’t believe the rigmarole that you have to go through to be able to build an office for 100 people on farmland. You could just about build an office for the cost of the consents.”

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