Finding Value In The Chain

The live goods brokers have been the link in the chain that’s been most immune to the consolidation we’ve been seeing at the breeder, grower and retail levels. But we have seen consolidation in distribution on the hard goods side of the industry and even more dramatic consolidation in manufacturing plastic pots and growing media. How can the live goods segment support so many distribution companies? 

Unlike their hard goods counterparts, live goods brokers are handling very little inventory. Cuttings are delivered to growers from offshore. Plugs and liners come from the young plant growers. The only inventory has been seed. A national sales force could be commission based with people working out of their homes. The biggest investments are in information technology and customer relationships. And as far as breeder relationships and genetics go, there seems to be an endless global supply of varieties to represent.

Over the last 20 years, the live goods distribution companies have settled into a big three at the top – Ball Seed, Syngenta Horticultural Services and Express Seed. While Ball and Syngenta are vertically integrated with breeding divisions, Express and Ball have key alliances in plugs.

Then there’s a second tier of national brokerages that have found niches based on serving smaller to mid-sized growers and grower-retailers and through plant offerings extending into nursery crops. McGregor Plant Sales is unique in its relationship with Florexpo, a cuttings farm in Costa Rica. Henry F. Michell Co. has had exclusive partnerships with breeders, including Floranova and Bodger.

One of the most interesting developments at this level is three competing firms cooperating on a marketing program. Fred C. Gloeckner & Co., McHutchison and Eason Horticulture Resources are all partners in promoting and facilitating the supply chain for Hort Couture with a strong focus on grower-retailers and wholesale growers who serve independent garden centers. Below this second tier of national brokers are smaller distribution companies focused on specific plant niches or regional needs.

When I posted my question about brokers on our Fresh Air Forum, grower Lloyd Traven from Peace Tree farm in Kintnersville, Pa., said the broker relationship is often a very personal one. “We all have a broker rep we love, someone who has been there for us and we reflexively give the business to first,” he says. “When they retire, that business will likely go to another brokerage, and that’s when the smaller brokerages will start to go away.”

He adds that most breeders and young plant producers have not invested in technology required to sell widely on their own. “As e-sales get easier, the broker will become less important,” Traven says. “Many breeder houses also stipulate that all sales must go through a broker, perpetuating their place in the chain.”

But the broker’s biggest role is bankrolling the industry and facilitating transactions in the supply chain. The global financial crisis has forced brokers to tighten up their credit extension terms. Six-month payment terms are common A broker should not be supporting a grower a banker would not. When a large growing operation files for bankruptcy, it’s often the brokers who feel it the most.

Brokers are looking for ways to minimize their risk. Heading into the spring ordering season, several told their suppliers they will start assessing a fee for royalty collections to recognize the costs associated with collecting royalties for breeders. Up until now, royalties had been passed through to breeders and marketers without a markup. As a result, we can expect pricing to be bundled to include royalties instead of them being broken out separately. While a royalty may be 2-5 cents on a vegetative annual, they can be as high as a dollar on a shrub. It all adds up.

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