Drought in the U.S. Midwest pushes up seed costs

Saturday, November 3, 2012

And the possibility that the Canadian Food Inspection Agency might outsource seed crop inspections may also have an impact on future prices

by MARY BAXTER

Like the many other materials and resources needed for growing crops, seeds have become more expensive over the past decade.

Roundup Ready corn seed varieties in Ontario in 2012, for example, cost nearly double per acre, on average, what seed corn cost for all varieties per acre in 2001, according to data from Statistics Canada and the University of Guelph Ridgetown Campus economics and business group's Ontario Farm Input monitoring project (See Figures 1 and 2).

Those in the industry predict that prices will continue to rise in both the short and long term.

Drought in the U.S. Midwest cornbelt has helped to push up prices for grains and oilseeds, which in turn affects the cost of seeds, explains Dale Adolphe, executive director of the Canadian Seed Growers Association. An anticipated rise in the cost of seed crop inspections as the Canadian Food Inspection Agency looks at outsourcing this service might also eventually have an impact on prices.

The agency wants to concentrate on its core business of food and plant safety and animal health, and is planning on reducing its seed crop inspection budget, Adolphe explains. "They haven't communicated how much saving is required, but they're basically indicating that they won't have the budget to hire the 120 casuals that they normally hire," he says. An agency spokesperson could not be reached for comment.  

One alternative under discussion is to privatize inspection, a model already in use for certified hybrid canola seed in Western Canada. Another is to permit seed growers to do their own inspection, a practice currently followed by four hybrid corn seed companies that grow their own seed and have agronomists and field staff available. Still another is allowing the companies that develop the varieties to perform the inspection for farmers they have contracted to grow the seed. A pilot of the third model is underway in Ontario for some soybean seed production.

These alternative approaches only account for five per cent of the total seed inspections performed in Canada – 10 per cent if the Ontario soybean seed inspection pilot is added in, Adolphe says. He asserts that a substantial expansion of the alternative approaches to inspection by 2014, the agency's goal for having the changes in place, just isn't feasible. Federal officials are beginning to recognize "the size and complexity of the task and are maybe reluctantly starting to realize that this is not going to be an easy target to reach."

Transforming how seed inspection will be done will also mean more expense for companies or individuals. Some may decide to pass this added cost on to growers; others may decide to absorb it all, or a portion of it. It might cause, at most, a small increase for growers, Adolphe emphasizes. "It's not like the price of seed is going to double."

Mike McGuire, president of Monsanto Canada, points out that his company already has to arrange for crop inspection for its corn seed because it's grown in the United States and South America. Monsanto grows its soybean seed in Canada and he says that there is little interest in maintaining inspectors on staff.

The biggest cost factor in seed production for this company is what seed corn growers are paid, because the prices are based on commodity prices. "It's our single biggest cost factor and it's trending higher than it was a few weeks ago," said McGuire in July. The company, however, determines its seed prices more on what sort of performance the variety delivers than on the cost of seed production. "There sometimes are small increases based on increased cost," he said.

Randy Duffy, a research associate with the University of Guelph Ridgetown Campus economics and business group, notes that when commodity prices are high, the cost of all inputs – fertilizer and pesticides – generally goes up, too. While there are choices that can be made to save costs on other inputs, such as temporarily cutting back on their use, it's more difficult to economize on seed costs.

Farmers "can adjust their planting populations, but they can't cut back on the amount of seed they use as much as they can potentially with fertilizer," he points out. There is the possibility of switching to a different hybrid to reduce costs, he adds. BF