East-West Seed was founded in 1982 in a small farm in Lipa City, Batangas. The combination of European seed technology and expertise, and local experience in entrepreneurship and tropical climate farming led to the first market-oriented vegetable breeding company in Southeast Asia.
Challenges still abound in the agriculture industry; to wit, lack of infrastructure on effective irrigation water distribution, dependence of farmers on toxic chemicals for pests and diseases control, chemical fertilizers which increases the acidity and eventual death of the soil, lack of knowledge in agronomic and farm management, inefficiencies of multiple channels, cold chain not linked properly, lack of access to inputs, and a much fewer number of the next generation who want to be farmers.
Mr. Ard Groot, a seventh-generation seedsman rooted in the long history of the family business model in the Netherlands’ seed industry, took over as the new chairman of East-West Seed on January 24, 2018. He shares his perspective about the future of agriculture, as well as what East-West Seed is doing to help solve the challenges of smallholder farmers, who depend on less than 2 hectares of land, which supplies 85% of the world’s food.
Q1: Smallholder farmers have been facing many challenges for decades. What is East-West Seed doing to help remove industry challenges to improve demand?
A: Farming is a high-risk business. We do our part to support farmers and minimize their risks through plant breeding, innovation and knowledge. Our seeds help farmers get higher productivity and income from vegetable farming. We also support them through training on good cultivation practices – trainings that equip farmers with essential knowledge on how manage their crops, recognize plant diseases, and employ proper techniques to produce high quality and safe-to-eat vegetables. In the long run, this contributes to improving the availability and quality of vegetables in the market, and drives the demand among consumers.
Q2: In 2016, East-West Seed was ranked no. 1 in the “Global Index for Vegetable Seed Companies” and “Regional Index for Eastern Africa” by Access to Seeds, an independent organization funded by the Bill and Melinda Gates Foundation. What exactly were your efforts that worked which enhanced the productivity of smallholder farmers?
A: Interestingly, among the top 10 companies in the Access to Seeds Index, we are the smallest in terms of revenue. I think what sets us apart from our competitors is our closeness to the market. Our smallholder-centric business model and scale of operations allows us to reach farmers in markets where access to quality seeds is critical. We have an extensive distribution network, and we develop packaging and labeling that fit smallholder farmers’ needs.
Our products are very local. We breed vegetable crops that are often unattractive for big multinationals. Our portfolio includes crops that are tailored to local farmers’ needs, with priority breeding objectives of disease and insect resistance, heat tolerance, off season adaptation, improved transportability, shelf life and higher yields. In the Philippines, for example, we specialize in the “pinakbet” vegetables.
Finally, we put a lot of attention and effort into knowledge transfer (KT). KT improves the profitability of vegetable production for farmers by equipping them with the tools they need to succeed: better knowledge that enables farmers to take advantage of improved seed varieties. We do this through direct training, field demonstrations, peer-to-peer learning and on-field advice. Our ambition for KT is to reach 100,000 farmers yearly.
Q3: From a supply perspective, compared to planting rice, a vegetable farmer for bitter gourd needs only 10% of the land to give him roughly the same income as one hectare planted to rice. From a demand perspective, the average consumption of vegetables in the Philippines is about half of the recommended level of the World Health Organization. While East-West Seed is the dominant market leader in vegetable seeds, substitute foods like meats, considered less healthy by some sectors, continue to win demand versus vegetables. What are you doing to convert your superior product yield to superior market penetration?
A: That’s a very good point you made. Vegetables are often referred to as “cash crops” because they grow faster and can be grown throughout the year. Leafy vegetables, for example, only need 25-30 days from sowing to harvest compared to rice which takes between 120-140 days. Therefore more vegetable crops can be raised in a year for earning a more steady income.
It’s true that there’s plenty of room for improving vegetable consumption in the Philippines, but we are encouraged to see the changes. People are becoming more aware of what they eat. We also try to promote increased vegetable consumption through various CSR programs that encourage healthier eating habits, especially among the youth.
Q4: ChemChina acquired Syngenta for $43 billion. Bayer acquired Monsanto for US$66 billion to be the world’s biggest seed and chemical company. Dow Chemical and DuPont announced their merger plans in 2016 to be the second largest agricultural multinational, DowDuPont Agri. East-West Seed is still a private, family-held seed company with a very targeted focus on tropical vegetables. Why is your ownership structure still relevant in this day and age?
A: Not only is it relevant, I would even argue it is getting much more relevant now! I firmly believe that a privately held company with continued family ownership has a major advantage over publicly listed company. Our ownership structure and active involvement of the family in our business allows us to be agile and flexible. Decision making is quick and we can respond quickly to changing market needs and circumstances. And the best of all: we are not tormented by the demands of the stock market, driven by opportunistic shareholders with a strong focus on quarterly results and quick wins. As a family we are patient and take a long-term view, promoting stability and steady organic growth of the business. Certainly in the seed business that is key to success. Developing a new variety can take 7-10 years, and developing a market even longer. So there are no quick wins in our business. In fact I am very happy seeing the big multinationals spending their time merging and acquiring each other and reporting to their investors, while we go about doing what we are good at: bringing better seeds to smallholders farmers and helping them to get a better income from it. Our private ownership structure is optimally suited to allow us to do so, and we intend to remain a proudly independent family business for a very long time.
Q5: The global population is expected to reach 9 billion by 2050. By then, some 64% of the developing world and 86% of the developed world will be urbanized. The middle class will likely double. There will be 6 billion people living in cities with global demand for food increasing by 70%. How will the consumer behavior towards food change? What does this mean to East-West Seed?
A: If such population growth goes as predicted, the world will need an additional 730 million tons of fruits and vegetables by 2050. For us this is good news! But more importantly this underlines the need to support smallholder farmers who will be responsible for producing all this food for our growing cities and populations. In Southeast Asia, the average daily vegetable consumption per capita is 164g/day (FAO). This is far below the WHO recommendation of a minimum of 400g of fruits and vegetables per day.
Thankfully consumer behavior is changing for the better, towards more sustainable and nutritious food. In the last ten years, production volumes and areas planted to vegetables in tropical Asia have risen steadily. Tropical Asia produces 124 million tonnes of fresh vegetables. Production from five countries (India, Thailand, the Philippines, Indonesia, and Vietnam) represent 90% of the industry value.
Q6: East-West Seed is one of the 10 largest vegetable seed companies in the world and the only one focusing on tropical vegetables. As the new chairman, can you briefly summarize your growth strategy metrics for the next 10 years?
A: Our mission is to help smallholders farmers improve their income from vegetable farming by bringing better seeds and sharing our knowledge with them. Our vision is to be the best tropical seed company in the world. These have not changed in the past 35 years and we plan to stay true to them. Keeping our focus is important. That means that our breeding programs are all local, focusing on the needs of farmers and markets in the areas where we breed. Through our local distribution and knowledge transfer networks built up over many years, we know our markets well and can respond quickly to address the needs of our customers. We will further expand and intensify our market networks, and significantly increase our investments in R&D, which form the basis of our business. We will also keep focusing on attracting and keeping talented young people to help us drive and expand our business and reach more farmers. We plan to further cement our market leadership position in our home markets, and gradually expand into new tropical markets in Asia, Africa and Latin America. This being the seed business, changes do not happen overnight and we have the luxury of patient shareholders, so don’t expect major turnarounds next week. But rest assured: our strategy is suited for a bright long-term future and East-West Seed will stay around for a very long time to continue to serve farmers. We will make sure of that.
(Josiah Go is chairman of Mansmith and Fielders Inc. For full transcript of this interview, as well as interview with other thoughtleaders, Josiah Go will run the 33rd Market-Driving Strategy bootcamp on Feb 21-22, 2018. Inquire via email@example.com)