Biotechnology is revolutionizing the seed industry and U.S. agriculture. Over the last 24 months, we have witnessed unprecedented changes in the roster of the major players in the seed industry (see sidebar). To survive in this marketplace, the 400-plus U.S. regional seed companies must continue to have access to new seed technologies, capitalize on unique local marketing or distribution strengths, identify profitable niche markets and be willing to form alliances with other companies.

"Technology shifts of the magnitude we're seeing in ag biotechnology create `haves' and `have nots,'" says Sano Shimoda, president of BioScience Securities Inc., an investment banking firm in California that focuses on agricultural biotechnology. "Some regional seed companies have the expertise to be meaningful contributors focused on regional needs, but many do not. In the past there were few barriers to entry in the seed industry. Now the bar has been raised. Companies need a whole combination of assets and expertise to be competitive."

Shimoda predicts that only a handful of strategic players will remain in the seed/ag biotech business, plus a couple dozen regional seed companies with umbilical cords to the giants. The strategic players will be mega life science companies with strong agricultural biotechnology platforms and alliances with large grain and food processors, food companies and industrial end users. He thinks that Monsanto, DuPont/Pioneer, Novartis, Zeneca/Garst, AgrEvo and Mycogen/Dow will be contenders in the new agricultural industrial complexes. Ultimately, four companies may control most of the market. Today, the top three hybrid corn marketers account for a 67% share of the U.S. corn acreage (Pioneer, 42%; Monsanto with Asgrow and Dekalb Genetics, 15%; and Novartis Seeds, 10%).Licensing technology. Thus far, many regional seed companies have obtained broad access to the first wave of new seed technologies, sometimes referred to as input traits. Monsanto has widely licensed its Roundup Ready soybean trait and its YieldGard Bt trait to hundreds of seed companies. Nearly 80 seed companies have access to Optimum's high-oil corn. Likewise AgrEvo has broadly licensed its LibertyLink corn. Novartis has partnered with several regional marketers like Beck's, Hoffman Seeds, Croplan Genetics and others to market its YieldGard and Knockout Bt technologies.

Many of these biotech traits were made available to regional seed companies through Holden's Foundation Seeds, which supplies the parent seed used in 35% of the hybrids planted in the United States. But now that Holden's is owned by Monsanto, many companies say they haven't determined how they will license future seed technologies. Dan Cornelison, general counsel for Optimum Quality Grain, reports, "We have not fully developed our licensing strategy for future traits and are talking with many different players to determine the best path for licensing and marketing."

Col Seccombe, president of Garst Seed, predicts that getting access to new traits will become increasingly difficult. "The cost of developing this technology is so high that companies want to capture as much of the value chain as they can to get the full margin. The trend is for companies to forward and backward integrate in this industry. I think the future is bleak for seed companies that do not have their own technology or germ plasm to trade with other technology providers."

New opportunities, new alliances. Ed Shonsey, president of Novartis Seeds, envisions new opportunities for the regional seed company that knows its local market and is willing to partner with large technology providers to service new niche markets developed through biotechnology. "Seed will become customized for specific attributes and end uses. The grain won't be a commodity but will be grown in a specific way and be kept in identity-preserved channels for specific feed, food, medicine or health industry products. I think creative regional seed companies will participate in these new markets by partnering with the Novartises and Land O'Lakes of the world. They will bring the technology to qualified growers, monitor production and perhaps deliver identity-preserved grain to the end user."

To gain marketing clout with technology providers, some seed companies have joined together. Professional Applied Technology Inc. (PAT) was formed in 1997 to help 40-plus member companies obtain access to new seed technologies. PAT is considered one entity when it licenses technologies for all its members. Another ex-ample is the Core Group Inc. It was formed by five geographically diverse regional seed companies to gain access to the marketplace and to new seed technologies. Core president Brad Biddick, Livingston, WI, explains, "We developed a marketing plan to build a national brand around regional seed companies. The High Cycle Seed Systems brand has been able to access many new technologies. If a seed company is willing to align and work with other people and make new relationships, it will survive. The day for being totally independent has gone by. Now we need to be cooperative and have more connections than ever before."

Other regional seed companies will choose to exit the marketplace. "Regional seed companies will have access to technologies, but they will have a lot of extra paperwork, need additional expertise and will have to share their bed with a partner that has most of the blanket," says Frank Thorp, president of the Independent Professional Seedsmen Association. "This is a different life than many third- and fourth-generation independent seed companies are used to and some won't want to participate."

Will you get the products you want? Many farmers are excited about the potential for multiple stacking of new biotech traits into one hybrid. Several such products are now on the market, but some desired stacked combinations may never see the light of day because two or more competing companies will not agree to work together. For example, Monsanto hasn't licensed Roundup Ready corn to Pioneer, perhaps preventing Roundup Ready corn from being stacked with traits that might be developed by Pioneer and DuPont through Optimum Quality Grains. And although farmers may desire the flexibility provided by a hybrid with both the LibertyLink and Roundup Ready genes, such a hybrid is not likely to be developed soon because AgrEvo and Monsanto sell competing chemicals.

"Several seed companies are collectively spending $100 million a year in litigation to determine access to technology and freedom to operate," says Novartis's Shonsey. "The grower wins when companies cross-license their technologies and stack them for the best-yielding and highest-quality products. To the degree that that is prevented, the whole industry is going to suffer."Ted McKinney, spokesman for Dow AgroSciences, agrees. "In our view you do not have to fully own each segment of the value chain so long as you have access to it. We lead with the idea of partnering, alliances and joint ventures." Dow recently formed Advanced AgriTraits LLC to serve as a clearinghouse for companies wanting to bolster their biotechnology offerings through strategic alliances and/or licensing arrangements.

"There are universities and companies that may have a tremendous trait, technology or germ plasm, but they don't have all the necessary patents, licenses or technologies to insert the trait into a plant or they may not have access to a seed marketing arm," explains McKinney. "These companies and groups can come to Advanced AgriTraits to marry their capabilities with other partners. In addition, they can accrue a greater part of the income from a trait because unlike companies that have invested billions in owning parts of the value chain, Advanced AgriTraits does not have a significant cost of capital. Ultimately, the companies that have the most traits available to build into a plant without the stranglehold of an expensive value chain will be the most successful."

The right choice at the right price. With a wide array of new biotechnology traits, farmers' buying decisions become more complicated and more dependent on technical information. "Growers will buy from the people who can provide the information they need to be profitable," says Shonsey. "The half life (useful life) of seed and related technology information is about two years. With such a fast rate of change, some traditional seed dealers may or may not be able to provide the level of knowledge and understanding that farmers will require."

As consolidation occurs in any industry, concerns are voiced. One dominant supplier can stifle innovation and reduce price competition. If industry observers are right and only a handful of giant life science companies end up controlling the seed/technology marketplace, will farmers get the choices they need at prices they can afford? As quickly as things are changing in this high-stakes business, we may not need to wait long for the answer.

In the last two years, companies have formed joint ventures, made alliances or purchased smaller firms to develop and market new products from biotechnology.

Monsanto has or will spend $8 billion to acquire seed and biotechnology assets, including Agracetus, Asgrow, Calgene, Holden's Foundation Seeds, Dekalb Genetics Corp., Delta & Pine Land Co., Cargill's international seed business and others. In addition, Monsanto has formed a $50 million joint venture with Cargill to create and market new products for the grain processing and animal feed markets.

Hoechst Schering AgrEvo Inc. recently purchased Cargill's domestic seed business for $650 million. It also owns a majority interest in PGS biotechnology. DuPont invested $1.7 billion in Pioneer Hi-Bred International. The two companies formed Optimum Quality Grains, a joint venture company focused on value-added grain and oil crops. DuPont also purchased Protein Technologies, a specialty soybean processor, for $1.5 billion. Novartis (formed by the combination of Sandoz and Ciba Geigy) announced a $600 million in-vestment in agriculture genomics research, and Novartis Seeds formed a joint venture with Land O'Lakes that will focus resources on specialty corn hybrids for the food and feed markets. Dow AgroSciences formed a new company, Advanced AgriTraits LLC, to provide the agriculture industry with access to a broad range of biotechnology resources through partnerships and alliances. One of its first partners is Illinois Foundation Seeds Inc. Dow also acquired Mycogen Seeds and its extensive, patented Bt gene library. It also has alliances with Biosource Technologies, a California genomics company, and with Rhone-Poulenc Agro.

Founded in 1926, Wilson Seeds of Harlan, IA, has a long history of developing corn hybrids and soybean varieties for farmers in the western Corn Belt. The company was owned by a large French cement and chemical company, called Orsan, from 1984 to 1992. Before acquiring Wilson, Orsan acquired a vast collection of tropical corn germ plasm from other parts of the world that it began crossing with U.S. germ plasm.

In 1992 Wilson Seeds was acquired by Land O'Lakes. "In the early 90s we were confused about our future. We didn't see a future in being just a regional seed company. We needed to find our niche," says company president John Crabtree. "We developed a strategy to tightly focus our business on specialty, food-grade (white) corn and feed-grain corn with special protein and oil characteristics. This capitalized on our main asset, a vast collection of diverse genetic material."

Rampant consolidation in the seed industry in recent years forced Wilson Seeds to reevaluate its strategy. "With Land O'Lakes we had a tremendous livestock production and marketing resource, but we lacked that same expertise in research, particularly biotechnology," says Crabtree. "While a lot of big players currently make their technologies available to regional seed companies at a price, the future is less certain for use in specialty crops. We needed a more significant connection than that." Wilson Seeds began contacting a number of large technology players to see who had an interest in what they were trying to do with specialty corn.

In October Novartis Seeds and Land O'Lakes announced a joint venture to focus resources on specialty corn hybrids for the food and feed markets. Under the agreement, Novartis purchased a 50% interest in Wilson Seeds. The joint venture also included Zimmerman Hybrids of Evansville, IN, a leading developer of white corn hybrids, that Wilson Seeds recently purchased. In addition, the white corn genetics of Sturdy Grow Hybrids, a white corn breeding company in Arcola, IL, will be licensed to the joint venture through Novartis Seeds.

"Novartis Seeds turned out to be the company we needed to be with and they felt the same way. Now we're jointly owned by one of the biotechnology giants and one of the distribution giants for food and feed," says Crabtree. "Regional companies have to be very good at something. We have a specialty product niche and strong relationships with end users in the specialty grain arena."