Rampant inflation and static pricing on the back of a poor harvest have seen growers move away from herbage seed production as others question its long-term viability.
But despite headwinds in international markets, the scene is set for change. With seed firms poised to release next year’s contract offerings, Federated Farmers is encouraging herbage seed growers to use its cost-of-production calculator.
Using the specifically designed calculator, growers can evaluate price and terms in relation to their own production costs.
Federated Farmers herbage seed subsection chair John McCaw said the spreadsheet, available on the Feds website, provides a valuable tool to compare the relative merit of seed production contracts from competing firms.
Feds worked with a group of growers to create the spreadsheet in response to concerns about a lack of profitability in the herbage seed industry.
Rather than simply demand a certain price for seed, Feds was 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 said.
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 said.
He 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 sanctions against Russia and drought in China, has seen a correction in international pricing, while elevated freight cost and shipping delays continue to erode NZ 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 New Zealand growers need at this point,” McCaw said.
“NZ seed companies now face the difficult balancing act of increasing the grower price in line with industry expectations whilst not pricing NZ 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, McCaw warns 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.
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 indicates is required.
“Consecutive price increases and reduced input costs are needed to return strong profits.”
McCaw has confidence in seed merchants understanding 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.
McCaw said 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.
