Understanding Seed Market Systems
This month, Marketlinks is exploring the enabling environment and market systems of the seed sector. This post was originally posted on Agrilinks and was authored by Feed the Future Partnering for Innovation in July 2017.
Access to improved seed is an important step in increasing smallholder productivity and understanding the systems that produce and deliver appropriate seed varieties in a timely manner to farmers. Feed the Future Partnering for Innovation, a USAID program that invests in private-sector partnerships to commercialize agricultural innovations in smallholder markets conducted a study in 2016 that distilled lessons learned on commercializing seed in smallholder markets in sub-Saharan Africa through six partnerships in Kenya, Malawi, Mozambique, and Zambia.
It is widely understood that smallholder farmers in developing countries source seed from both formal and informal seed systems. The formal seed system entails a chain of research and development, plant breeding, seed certification, and marketing and distribution through recognized outlets. Well-functioning formal systems are governed by a regulatory environment intended to ensure quality and sanitary standards and to maintain varietal identity.  The formal seed market worldwide is estimated to be valued at $45 billion annually;  however, sub-Saharan Africa’s share of the global seed trade is estimated to be less than two percent.  It has been estimated that smallholder farmers in sub-Saharan Africa currently access up to 90 percent of their seed from informal systems, with 51 percent of that sourced from local markets. 
This indicates that smallholder farmers are already making important investments in purchasing improved seed. This latent yet growing demand can create the incentive for the private sector, both globally and through local agribusinesses, to invest in developing, producing and distributing improved seed. However, market demand varies by country and crop, and these differences need to be understood in order to develop an effective commercialization strategy.
Market context also matters. Seed market dynamics are not the same across countries, or even within countries. A clear understanding of end-market demand, agro-ecological conditions across production zones, existing socioeconomics, appropriate business models (e.g. use of outgrowers) and the prevailing enabling environment are necessary to gauge commercial potential and design investments appropriately.
Intrinsic characteristics of the seed matter. Not all seed technologies are the same. Some exhibit "private good" characteristics while others exhibit "public good" characteristics. For instance, the genetic profile of certain technologies will reduce second and third-generation germination rates, thereby incentivizing agribusiness investment and promoting market participation rather than seed recycling from farmers. Some seeds are easily stored, and therefore harvested grain is reused as seed rather than purchasing potentially higher-yielding varieties. Alternatively, other seed types or varieties are more challenging to store, lending themselves to continuing purchase each planting season, which creates farmer demand for commercial seed. In sum, the varietal characteristics must be understood clearly to determine the potential for private-sector-led commercialization efforts.
Increasing farmer demand for seed requires a clear and stable output market, seed company capacity to demonstrate and market the advantages of the technology to farmers, and farmers’ capacity to implement good agricultural practices to maximize their output returns from seed investments.
Increasing seed supply requires availability and access to breeder seed (first level), capacity to multiply foundation seed/basic seed (second level), and capacity to multiply certified seed (third level). Protected production systems with appropriate farm isolation, farm mechanization and access to irrigation will reduce environmental challenges and accelerate seed technology commercialization.
Expanding rural distribution networks requires agro-dealers to have the technical capacity to understand and communicate the benefits of the technology to farmers and business capacity to manage cash flow or access inventory credit. Consignment between seed companies and independent agro-dealers often fails due to poor management and/or borrower credibility issues.
Improving the enabling environment for seed markets requires a public policy framework for seed development encompassing an efficient and effective varietal release process and accessible catalog of released varieties, inspection, and quality assurance system, and appropriate plant breeder rights. Government-sponsored seed subsidies are generally viewed as distortive for markets and tend to be politically motivated, but how they are implemented also matters. Engaging seed companies, providing farmer choice and ensuring that subsidies are temporary and time-bound would go a long way to improving these programs. Restrictive import policies can increase product costs, and restrictive export policies reduce farmer incentives to invest.
Accurate demand forecasting is needed to close the loop between supply and demand. This includes projections of specifically how much seed of specific varieties is needed, where and when. This will address many issues holding back seed market development. If a seed company overshoots its production targets, it risks having to manage expensive inventory; if it undershoots its target, it risks losing market share. The seed must be available when and where farmers demand it at the appropriate volumes in order for seed companies to produce enough and for agro-dealers to avoid inventory losses. While demand projections are a public good, government resources and capacity to do those projections well are limited. Partnerships between seed companies and farmer associations may help bridge the information gap.
1. “Understanding Seed Systems Used by Small Farmers in Africa: Focus on Markets”. Seed Aid for Seed Security, Practice Brief 6
2. Bonny, S. (2014). Taking stock of the genetically modified seed sector worldwide: market, stakeholders, and prices. Food Security, 6(4), 525–540.
3. CTA, “Seed Systems, Science and Policy in East and Central Africa”, The Technical Centre for Agricultural and Rural Cooperation (CTA). 2014
4. McGuire, S., and Sperling, L. “Seed systems smallholder farmers use”, January 2016.