The Business of Seed Orchards Jack Woods Program Manager, Forest - - PowerPoint PPT Presentation

The Business of Seed Orchards

Jack Woods Program Manager, Forest Genetics Council of BC SelectSeed Ltd.

Seed orchards in BC

•  100 orchards
• 13 sites
• 120,000 ramets
• 388 hectares
• Orchard capacity needs are driven by

– Seed zones – FGC objectives – Seed needs

Provincial orchards by owner

5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000

Number of ramets

Number of seed orchard ramets by operator group

(excludes Yc hedges)

Forest Service Licensee Private SelectSeed

In BC Forest Genetic Resource Management (GRM) is a fully integrated system

Genetic conservation Cone and seed pest management Research support Policy Genecology & seed transfer Seed production and markets Tree Breeding Seed extraction and storage

GRM

Focus on seed production

Genetic conservation Cone and seed pest management Research support Policy Genecology & seed transfer Seed production and markets Tree Breeding Seed extraction and storage

GRM

Focus on seed production

Genetic conservation Cone and seed pest management Research support Policy Genecology & seed transfer Seed production and markets Tree Breeding Seed extraction and storage

GRM

Value chain

Breeding & selection Stand Establish- ment Seed production Stand manage- ment Stand harvest

......

Breeding & selection Stand Establish- ment Seed production

Products

Selected trees Seed Established stands Stands for harvest Stand manage- ment Stand harvest

......

Organizational types that operate seed orchards

• Large-scale private integrated timber operations

– TimberWest, Weyerhaeuser

• Governments (provincial, federal, state)

– Seed orchards are a department meeting broad public objectives

• Cooperatives

– Private (and sometimes public) organizations work together – VSOC; ProSeed in NZ before it became private; SelectSeed Ltd.

• Independent companies

– Privately owned companies (PRT, Yellow Point Propagation, ProSeed now)

Organizational types that operate seed orchards

• Large-scale private integrated timber operations

– TimberWest, Weyerhaeuser

• Governments (provincial, federal, state)
• Cooperatives

– Private (and sometimes public) organizations work together – VSOC; ProSeed in NZ before it became private; SelectSeed Ltd.

• Independent companies

– Privately owned companies (PRT, Yellow Point Propagation, ProSeed)

All types of organizations are enabled by a legal structure

Public financing often facilitates start up

• Research and development supported
• As the businesses mature, public money diminishes
• In BC, public support in past years is enabled development of orchard

infrastructure

• BC orchards are now largely supported on seed sale revenue

– Forest Genetics Council early (mid ‘90’s) policy for seed pricing to reflect cost of production – Seed sale revenue accounts for about 40% of the total value of the full forest genetics enterprise in BC

Orchard business drivers

• Seed demand on a specific land base is the ultimate business driver

– The projected amount of tree planting dictates orchard size

Business drivers vary by organizational type

• Seed to meet broad organizational objectives (usually related to

timber)

– Integrated timber companies – Government organizations – Cooperatives

• Seed as a final product generating revenue

– Private orchard companies – Can vary: i.e. PRT also has the objective of meeting customer seedling needs

Defining costs (more complex than it may seem)

• Capital costs

– Land, structures, equipment, site development, initial propagation – Depreciated on schedules fixed by the tax jurisdiction

• Fixed costs

– Staff, site, administrative, land tax

• Variable costs

– Labour – Materials – harvest; seed extraction; pollen management

Large operations reduce per-unit capital and fixed costs

• Capital costs are spread over a large
• peration
• Fixed costs

– Can afford trained staff and better facilities – Technical quality may improve

• Variable costs and harvest costs

– Fewer economies-of-scale available – Harvest costs can be significant for some species (i.e. Pli)

Economies

• f scale for large

sites

Downsides with large operations

• Finding enough short-term labour for cone picking may be difficult
• Trained staff available to supervise large crews

– Some additional costs keeping trained staff during non-busy times

• Everything happens at once

Managing harvest costs

• Safety first; efficiency second
• Harvest costs can kill profit (particularly for lodgepole pine)
• Link costs to product ($ per kg seed)
• Seed yield (filled seed per cone) is a bigger driver of cost than labour

rates

– FSPC can vary by a factor of 10 or more – Labour rates and labour productivity typically vary within a factor of 3

Managing harvest costs – Hourly vs. piece work

• Hourly pay

– Little incentive to workers – More supervision – Collective agreements on some sites

• Piece work (like tree planting)

– Incents workers and rewards good pickers – Less supervision – Safety a concern

• Combination

– Hourly rate with an incentive bonus

Financial and business planning

• Financial model

– Spreadsheets are your friend – Model costs and revenues

• You need a business plan

– Long and short-term objectives – Planned activities – Financial model – Budget – The dreaded KPI’s….

Understanding costs, revenues, and return on investment (ROI)

• ROI is defined as return on capital employed

– Revenue minus operating costs as a percentage of capital invested

• Not all organizations care; sometimes cost control is paramount

– Government operations – May not be an issue for integrated companies at the orchard level

• Some useful measures to calculate for every orchard you manage

– Operating margin = value of seed produced – total operating costs – Operating ratio = operating margin / value of seed produced

$

Seed price is commonly linked to cost of production

• Market pricing of orchard seed is uncommon worldwide

– Too few producers – Many government and cooperative agencies

• BC seed prices largely follow MFLNRO prices

– Producers set their own prices, but are typically near Ministry prices – True market-based pricing is not feasible with limited suppliers

• Linking seed to timber gains is very difficult
• Some price adjustments with Genetic Worth

Conflicting objectives: genetic gain vs. orchard cost and revenue

• Roguing to increase gain is often not in the interest of an orchard
• peration focused on seed production and revenue
• Integrated operations (governments and large companies); roguing is

a cost of business to increase timber value

• Private companies relying on sales revenue face an uncompensated

cost

– May be necessary to rogue to stay competitive

Conflicting objectives: genetic gain vs. orchard cost and revenue

• Roguing to increase gain is rarely in the interest of an orchard
• peration focused on seed production and revenue
• Integrated operations (governments and large companies) may

accept roguing as a cost of business to increase timber value

• Private companies relying on sales revenue face an uncompensated

cost

– May be necessary to rogue to stay competitive

In BC, the Operational Tree Improvement Program (OTIP) provides compensation and incentive to increase GW and maintain alignment with breeding programs

A world without seed orchards

• Other technologies could displace orchards

– Cuttings – Somatic emblings

• Cuttings are used extensively for some species

– Poplar – Radiata pine (although, most planting is with seed) – Eucalyptus

• In BC, cuttings are more expensive than seed (usually)
• Somatic emblings are much more expensive than seed
• Seed orchards are usually the cheapest way to transfer genetic gain

from breeding programs to operational planting

New technologies: should we use them?

• Research and improvement are good
• Blindly using new technologies is bad

– Know your real costs

• Small (micro) orchard with intensive management vs. a large orchard

with little management

– Lower land and propagation costs – Higher costs for trained staff (SMP, record keeping, induction, monitoring, etc.) – Options to do nothing and only pick cones are limited – Not for all species; usually lower cost to have a larger traditional orchard design with less management intervention

Barriers to entering the orchard business are substantial

• Capital costs
• Time to production
• Risks

– Seed-use policy change – Seed market change – Another player developing a similar orchard – Change to seed zones – Poor seed production

• This is why small private operators have not taken over the business

World-wide examples

• Sweden

– Skogforsk (government – industry cooperative) leads breeding and provides technical support for orchards – Forest companies or Crown Corp run orchards – Extensive management

• New Zealand

– Cooperative breeding company – Orchards mostly operated by private companies (varying intensity of management) – ProSeed – initially a cooperative company; now privately owned

• United States

– Many models – Mostly cooperative breeding programs – Orchards operated by companies or government

Take home messages

• Know your objectives
• Know your costs
• Respect your employees (fair pay; safe work)
• Look for better ways
• Fill your cones