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 Number of seed orchard ramets by operator group (excludes Yc hedges) 50,000 45,000 40,000 35,000 Number of ramets 30,000 25,000 20,000 15,000 10,000 5,000 0 Forest Service Licensee Private SelectSeed

In BC Forest Genetic Resource Management (GRM) is a fully integrated system Policy Genetic Genecology conservation & seed transfer Cone and Tree GRM seed pest Breeding management Seed Seed production extraction and markets Research and storage support

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

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

Value chain Breeding Stand Stand Seed Stand & Establish- manage- production harvest selection ment ment ......

Products Breeding Stand Stand Seed Stand & Establish- manage- production harvest selection ment ment ...... Selected Stands for Established Seed trees harvest stands

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 operation Economies of scale for large  Fixed costs sites – 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)

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 operation 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 operation 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