When it comes to seed, Monsanto’s pricing is based on the value our products deliver compared to other available seed products. We price our seed annually with a goal of making farmers more profitable using our products than they would be if they used a competitor’s. This means our seed and trait brands have to give more return for the dollar than other seed brands, whether conventional seed or biotech seeds.
Our business success depends on our ability to consistently provide farmers with the best seeds available – seeds with high yield that provide farmers with agronomic solutions to the challenges they face. We’ve been successful. Our seed products have helped farmers maximize their profits and productivity. Our success has also given Monsanto the opportunity to reinvest in new product discovery as well as provide a return to our shareholders, who risk their money to invest in our business.
When determining the value provided by seed, we consider tangible and intangible benefits the product provides as compared to competing alternatives. Tangible factors include the money farmers save on inputs that our products reduce the need for (chemicals, labor, equipment, fuel, etc.) and the additional income from increases in yield. Intangible factors include convenience, reduction in financial risk and reduced exposure to chemicals. In some crops, these benefits differ between regions and we account for this through regional pricing. Much of the data we use to quantify benefits comes from annual field testing conducted in cooperation with our customers on their farms. Analysis of this data helps us price products so they deliver more value to farmers than competitors’ products.
Increasingly our new products are delivering more value in the form of yield. Determining this tangible value includes an assessment of the market price for the additional yield. While pricing decisions happen at one point of the year, commodity prices fluctuate daily. To address this we use a rolling average of prices on the Chicago Board of Trade for corn and soybean and New York Exchange for cotton. The rolling average looks at a longer term measure of change, such as the actual commodity prices from last year and this year, and estimated commodity prices for next year, averaging the price across that 36 month period.
With first-generation technologies, like Roundup Ready soybeans, pricing is based on the advantages over non-biotech soybeans. As the next generation of Roundup Ready technology arrives, Roundup Ready2Yield, it will be priced based on the advantage it has over the first generation of Roundup Ready soybeans—a very tangible benefit of increased yield.
Farmers are astute businesspeople. We realize they have a choice when it comes to the seeds, trait technologies and herbicide systems they use, and they make this choice every season. That’s why, as a business, we pride ourselves on products that provide the most value, and on being transparent in the way we price them. We believe this transparency is critically important to helping farmers understand what they are getting for their investment, and what products will bring them the most return. Our pricing philosophy is a key component of our commitment to serving the best interest of our farmer customers. If farmers don’t succeed, Monsanto doesn’t succeed.