74 



In view of those results, one might be tempted to question whether the situation 

 requires a change in the U.S. law. But it is not enough for us to be satisfied with the 

 status quo in American agriculture. American seed companies are under global 

 pressures to either perform or drop out of the competition. That performance is 

 measured not in the commodity markets, but in the financial markets of the world. 

 Simply put, there is a fundamental financial reason why hybrid crops account for 

 about 125 percent of Pioneer's total annual profit: Faced with unfair price competi- 

 tion from brown-bag seed, the varieties we have spent several years and millions of 

 dollars to develop cannot return the profits our investors require. That forces us to 

 make some unpleasant decisions. 



In 1989 Pioneer announced its decision to discontinue its North American activi- 

 ties in Hard Red Winter and Hard Red Spring wheat. Among the key factors that 

 resulted in the decision were: 



1. Low or negative profit margins in the Hard Red Winter and Hard Red Spring 

 wheat seed businesses because of the minimal pricing flexibility and loss of 

 market opportunity due to "brown-bagging." 



2. In the 6 years between 1984 and 1989, financial losses were experienced annually 

 in Hard Red Winter and Hard Red Spring wheat, with the exception of 1 year in 

 which Hard Red Winter wheat broke even. Losses totaled nearly $6 million over 

 this period, and projections for the future did not show prospects for improve- 

 ment. 



3. Farmers in the areas where Hard Red Winter and Hard Red Spring wheat are 

 grown typically save some of their crop to use as seed rather than purchasing new 

 bagged seed. Specifically, 80 percent of the farmers in the Hard Red Winter wheat 

 area and 70 percent in the Hard Red Spring wheat area did not purchase new 

 bagged seed from a commercial seed company. It did not appear that this trend 

 would change. 



4. Plant Variety Protection laws designed to encourage proprietary varietal develop- 

 ment were not effective. 



Here are some more specific facts: Official Kansas agricultural statistics published 

 in February 1989 indicated that 9.5 percent of the acres planted to Hard Red Winter 

 wheat in Kansas were planted with Pioneer Variety 2157. While one might expect 

 us to be pleased at having such a successful variety, our sales statistics for the same 

 period show that in that growing season, we sold a total of 100,600 units of wheat 

 seed in the States of Kansas, Nebraska, Colorado, and part of Wyoming combined. 

 We know that all of that seed was not planted in Kansas, but even if it had been, 

 our market share based on sales would have been 0.8 percent, not the 9.5 percent 

 suggested by the planting data. 



Looked at another way, these figures mean that Pioneer sold only 8.4 percent of 

 the seed necessary to plant those acres of our own proprietary 2157 variety, while 

 brown-bagged seed and saved crop accounted for the other 91.6 percent! 



After our decision was announced, a story on the Knight-Ridder Financial wire 

 service contained these comments: 



• Steven Graham, Kansas Wheat Commission administrator: "We're now begin- 

 ning to understand what we're up against. It [the departure of Pioneer] could defi- 

 nitely have an impact within our own country." 



• Lowell Burchett, executive director of the Kansas Crop Improvement Associa- 

 tion: "Wheat farmers have taken a real big hit with the withdrawal of these two 

 companies [Pioneer and Cargill]. There's a lot less research going to be done on 

 HRW wheat, and from my perspective, that's not good to see." 



• Rollie Sears, Kansas State University wheat breeder: "Total dollars for wheat 

 research probably will be cut." The loss of Pioneer is "a significant setback for all of 

 us in the wheat breeding community. Some of that [private company seed research] 

 we can pick up, but some of it's going to be lost forever." 



• In addition, an editorial in the Farm & Ranch Guide said: "* * * we can't help 

 but think that producers will lose the benefit of having a major company involved 

 in wheat research. Competition is good, and we need private companies involved in 

 Hard Red Spring wheat research, along with NDSU (North Dakota State Universi- 

 ty) and other universities." 



• Also, a story in Farm Talk newspaper of Parson, Kansas, quoted George Ham, 

 associate director of the Kansas Experiment Station at Kansas State University: 

 "Plant breeding is a numbers game. When breeders in the private sector fall out, it 

 puts more pressure on the public programs to come up with more competitive varie- 

 ties. We're very happy to get the germplasm [Pioneer is giving us]. But the fact that 

 Pioneer is getting out is a real loss to U.S. wheat producers." 



