Seed corn salesmen have been calling regularly to book your 2009 order, and you have been appalled at the price increase. “High tech, it does everything,” they say, and while that may be true, seed companies implement pricing strategies that are high tech themselves. What is behind seed corn pricing, anyway?

Shop rags come in a bundle, just like seed corn traits, and while that comparison is only intended to depict bundling, it serves to indicate whether you buy one or many, the price will be strategically adjusted depending on many factors. A trio of University of Wisconsin ag economists, Guanming Shi, Jean-Paul Chavas, and Kyle Stiegert, analyzed at component pricing, bundle pricing, and mixed bundle pricing, the latter of which allowed farmers to have a choice of traits and dominated the other strategies.

Research shows a 67-fold increase in genetically modified crops planted in the US and around the world in the past 12 years, bolstering the economic power of a few large biotech firms that have been formed with both vertical and horizontal mergers. The WI ag economists analyzed the trends in seed corn pricing from 2000 to 2007 with the industry dynamics in full swing, particularly comparing the pricing of genetically modified (GM) bundled seed with conventional seed corn, while gauging the market power of the biotech firms.

Interestingly, the pricing information did not come from the companies, but from over 38,000 farms in 48 states which bought seed in nearly 169,000 transactions. When the complete data was distilled, it covered 94% of the total seed varieties. Regarding the biotech share of the seed corn market, it expanded from 27% in 2000 to over 74% in 2007. And while some hybrids are available for only a few years, biotech and conventional hybrids disappear from the market at the same rate.

The WI researchers found that depending on your state, there is an automatic premium added, except for Kentucky. “Ordered from high to low premium, these states are: Nebraska ($7.50), Iowa ($7.00), Kansas ($6.86), Missouri ($6.31), Illinois ($5.96), Minnesota ($5.24), Colorado ($5.01), South Dakota ($4.75), Pennsylvania ($3.93), and Indiana ($3.70). This shows that the main corn-producing states in the Corn Belt charge more for corn seeds (e.g., Illinois or Iowa). It suggests that seed companies do price discriminate across regions.” Not surprisingly, the introduction of biotech varieties increased seed prices, but for both biotech and conventional seed. They also found that large farms pay more for seed, possibly due to the fact they are more productive and willing to pay more for high quality seed. Additionally, the average price rises about 2% per year, which is less than the inflation rate.

The WI trio examined seed corn pricing in Illinois in 2004 to illustrate how stacked traits were actually priced:
• Conventional seed corn averaged $88.33 per bag.
• The Bt corn borer trait added $20.49
• The Bt rootworm trait was alone worth $27.28.
• One herbicide tolerant trait was priced at $14.51, another at $6.83.
• Double stacking of corn borer and rootworm traits added $35.51.
• Triple stacking of corn borer, rootworm, and herbicide tolerance added $37.30.
• Quadruple stacking added $39.45 for corn borer, rootworm and both herbicide tolerant traits.
• The market power of the seed company added over 8% to the price.

Summary:
Great advancements have been made in seed corn technology since the turn of the century, and farmers have had choices of purchasing conventional seeds, or biotech seed with a variety of different genetic traits focused on either insect resistance or herbicide tolerance. Seed companies, which frequently merge to acquire increased market power, also acquire new technology which allows them to offer seeds that have multiple traits packaged in one hybrid. Pricing of the traits can become complex, and has rapidly increased over time, but has also allowed farmers to purchase combinations of seed with some degree of savings within a bundled trait package.