Pioneer Hi Bred International, Inc. Business Information, Profile, and History

Company Perspectives:

Producing the best products is the key to our success. We believe that there is no better selling aid than good performance by the product. We spend much more on research to improve our products than we spend to advertise them in the conventional ways.

History of Pioneer Hi Bred International, Inc.

Pioneer Hi-Bred International, Inc. is one of the world's largest seed companies. Pioneer develops, produces, and markets hybrid corn, sorghum, sunflower, soybean, alfalfa, wheat, canola, and vegetable seeds. The company dominates most of the markets in which it participates, holding more than a 40 percent share of the North American seed corn market, and even higher shares in European markets. The company was instrumental in one of the most important genetic accomplishments of American agriculture, the development of hybrid corn. Pioneer has in recent years become increasingly involved in the use of biotechnology. Always known as a very independent company, Pioneer agreed to be purchased by chemical giant Dupont in 1999 to stay competitive in a rapidly changing industry.

Creation of the First Company for the Development and Marketing of Hybrid Seed Corn in 1926

Pioneer was established in 1926 as the Hi-Bred Corn Company under the leadership of Henry Agard Wallace. Before the company was created, it was commonly assumed that a farmer's best-looking corn yielded the highest-producing seeds. Farmers took their handsomest ears to university-sponsored countywide and statewide contests to be judged and used as the following season's seed. But a select group of people questioned the efficacy of this seed-choosing process. One of those forward-looking people was young Henry A. Wallace. At 16, he conducted a field test pitting one of the area's best-looking ears of seed corn against one of the ugliest, and the ugliest ear outyielded the pretty one. The tassels of corn grown in test fields were removed to isolate a hybrid's desirable characteristics. 'Detassling' continued throughout the 20th century, requiring massive numbers of seasonal laborers at Pioneer's seed corn fields.

Studies made during the first two decades of the 20th century revealed that yield varied greatly with the quality of seed: the seed yielding in the top 10 percent outproduced that in the bottom 10 percent by an average of 25 bushels per acre. At a time when farmers generally expected to yield about 40 bushels per acre, the disparity was astounding. Unfortunately, the results of these tests would have seriously undermined the university-sponsored 'pretty corn' contests and many researchers' findings were not published.

Henry Wallace had an advantage over many researchers, however: his father, Henry C. Wallace, owned a progressive farming newspaper, Wallace's Farmer. The Wallace family provided a heritage of farming leadership that helped launch Pioneer: young Henry's uncle had served on President Theodore Roosevelt's first Commission on Life in Rural America, and in 1921, his father was appointed to be U.S. Secretary of Agriculture. Henry A. Wallace inherited the editor's chair at Wallace's Farmer that year and got both a forum for his studies and an advertising medium for his seed.

When Henry, his brother Jim, and several partners founded the Hi-Bred Corn Company in Johnstown, Iowa in 1926, it was the first business created for the specific purpose of developing and marketing hybrid seed corn. The joint stock company was established with 200 shares and a $5,000 capitalization. Hi-Bred's first seed crop consisted of 40 acres of hand-planted, hand-picked corn. The company's seed was sold by mail order through advertising in the family newspaper and profited $33.62 in the first year of sales, 1928. Sales doubled in 1929, prompting Hi-Bred to purchase 80 additional acres and create a Parent Seed Department. Soon, Pioneer's hybrid seeds dominated Iowa corn yield contests. The majority of farmers, who still relied on open-pollinated seed, complained that hybrid corn was too costly and unrealistic to produce and use, so the contests were split into two separate divisions.

Surviving the Great Depression and World War II

The 1930s brought depression to the world economy and drought, erosion, and pestilence to the fields of the Midwest. The brutal growing conditions were both a blessing and a curse for Hi-Bred. Several breeds of corn failed during the harsh drought of 1934, but other lines endured the weather long enough to produce a crop. In comparison with open-pollinated fields, which performed miserably, Hi-Bred was able to show a significant advantage in hybrid corn.

As word of Hi-Bred's relative success spread, demand for the seed increased. To market the product, the company instituted the 'farmer-salesman concept,' where farmers worked part-time for Hi-Bred and full-time on their own farms. This sales method became an industry standard and was continued throughout the century. These local representatives were familiar to their customers and had firsthand knowledge of the product and its performance. Farmer-salesmen often used eight-pound samples of seed to graphically illustrate Hi-Bred seed's advantages versus open-pollinated seed. Skeptics soon learned that the commercial seed produced heartier, stronger, more uniform plants and yielded about 20 bushels more per acre. Hi-Bred's first distributorship was established in the 1930s in the southwest.

Growing competition in the hybrid field prompted the company to distinguish itself from its rivals, and the Pioneer Hi-Bred name was instituted. Even though the company lost money throughout the depression years, remote research operations were expanded to several areas in the Midwest to test seed under varying climactic conditions. Founder Henry A. Wallace left Pioneer in 1933 to follow his father as Secretary of Agriculture. In 1941, he was elected vice-president of the United States under Franklin D. Roosevelt. Fred Lehman, Jr., a founding partner in Pioneer, succeeded Wallace as president of the company.

World War II's profound technological and workforce changes affected Pioneer as well as the rest of the world. While 'Rosie the Riveter' took her husband's place in the factories, 'Marge the Detassler' roamed Pioneer's corn fields. Pioneer even brought German prisoners of war into the process when labor was scarce. Wartime rationing slowed Pioneer's growth somewhat, but the company was able to expand into Canada and to expand research into cold germination and increased mechanization. Pioneer's eggs and broiler hens became a more significant part of the business during the 1940s as well. By the end of the decade, nearly all farmers had made the transition to hybrid corn seed. With much of the world engaged in war, the United States became the world's granary.

Adapting to Changes in Farming in the 1950s and 1960s

Pioneer chalked up several 'firsts' during the prosperous 1950s: the first electronic analysis of research and sales data, the first sorghum hybrid breeding program, and the first attempts at alternative packaging. Research facilities were expanded to Florida and South America, and Pioneer entered into a joint venture with the Arnold Thomas Company to produce alfalfa hybrids. By the end of the decade, corn sales rose to 400,000 bushels per year. The company's upper management clarified the company's four guiding principles in a 1952 booklet titled, 'The Long Look.' Executive Vice-President Jim Wallace and Sales Director Nelson Earvin noted that Pioneer had always tried to provide quality products, honest product information, strong product promotion, and advice to customers.

Farming in America had changed dramatically since Pioneer was created. The number of farms had decreased from 6.5 million to four million, and the number of farmers had shrunk from one-fourth of the population to just 5 percent. When Pioneer first sold corn seed, the average family farm consisted of 150 acres producing a variety of livestock and crops for subsistence and commercial use; by the 1960s, most farmers devoted their 300-acre farms to a single crop. Technological improvements in corn harvesters in the 1960s permitted farmers to shell corn as it was mechanically 'picked' and dry and store it on the farm, saving time and money. These advances made new demands on hybrid corn: it had to shell easier and dry faster. Farmers averaged three hours of work per bushel of corn in 1929, but advances in equipment, pesticides, fertilizers, and especially hybridization had shortened that time to six minutes. Higher yields meant higher profits and a better standard of living for many farm families.

Pioneer concentrated on overseas development during the 1960s, establishing joint ventures in Australia, Argentina, and South Africa. As concerns about overpopulation and global hunger mounted, Pioneer strove for ever higher yields and worked to lengthen the company's growing season by creating its first winter nursery, in Hawaii. The 50th state's year-round growing season permitted three crops of seed per year. In 1972 the company added 'International' to its name to reflect the growing importance of overseas operations. But with its eyes on foreign development, Pioneer lost market share in America.

Reorganizing and Concentrating on Research and Development, Increasing Sales and Profits, and Dealing with a Grain Embargo: 1960s--80s

By the 1960s, the U.S. hybrid seed corn market was saturated and had little unit growth, forcing a higher level of competition. DeKalb AgResearch Inc., a rival since the 1930s, pulled ahead of Pioneer in terms of market share. The rival company introduced a revolutionary hybrid that gave it a slender lead in the industry by the end of the decade. But by 1972, each of the seed corn producers held 22 percent of the hybrid seed corn market.

In 1973, Pioneer went public and reorganized its operations. Prior to this time, Pioneer was a federation of geographically based companies. Each independent dealer purchased its seed from Pioneer's centralized research division, but was responsible for its own operations. The incorporation and reorganization also brought about the formation of the Cereal Seed Division to breed wheat. Pioneer made acquisitions to diversify primarily within the hybrid seed business. The company expanded its alfalfa and soybean seed research with the purchase of the Arnold Thomas Co. and Peterson Soybean Seed Co. The acquisition of NORAND, a computer company, put Pioneer in debt for the first time since 1926, but the parent applied the new subsidiary's hand-held computer technology to field research and sales programs. Pioneer also acquired New Labs, a developer of microbial products that encouraged the formation of silage (feed that is fermented in a silo) and aided animal digestion. Pioneer was reorganized so that central management could assess the company's total value and consolidate its competitive efforts against DeKalb and new entrants into the market by bringing uniformity to policies, pricing, and promotion.

By the mid-1970s, the company faced new competition from chemical and pharmaceutical companies like Ciba-Geigy, Sandoz, Union Carbide, Upjohn, and Pfizer, who all applied their research expertise to the development of new hybrids. But Pioneer's decades of experience in the industry set it far ahead of these new rivals.

Over the course of the 1970s, Pioneer and its primary rival, DeKalb, applied divergent business strategies: DeKalb diversified into oil and gas exploration, mining, irrigation, and other industries, while Pioneer concentrated on developing seed with ever-higher yields. Pioneer's concentration on research and new product development paid off with the development of 3780, a corn hybrid that broke yield records and soon became the company's and the industry's best-seller. Pioneer's timing could not have been better: from 1970 to 1980, unit sales in the overall seed corn industry grew by one-third, and dollar volume tripled. Farmers were willing to pay Pioneer's premium prices for higher yields. At the same time, the United States' seed exports nearly doubled, fueled by technological improvements and increased global demand for food. By the end of the decade, Pioneer had regained the top share of the seed corn market, with 34 percent, and DeKalb's share had diminished to 14 percent. Pioneer's sales multiplied five times from 1972 to 1980, to $400 million, and profits grew eightfold, to $53 million.

The United States' 16-month grain embargo in protest of the Soviet Union's invasion of Afghanistan marked the beginning of a difficult decade for American farmers. The 1980-81 embargo caused grain prices to fall sharply, which precipitated a farm crisis in the United States. Grain surpluses from the embargo combined with a recession to force many farmers into bankruptcy. Others stuck with farming, but reduced their corn acreage to take advantage of government subsidies. A drought in 1983 deepened the downward spiral: corn acreage decreased by 27 percent over the course of the decade, and the U.S. seed corn market was diminished by one-fourth.

On the other hand, however, the Soviet grain embargo encouraged production in the affected countries, creating new markets where there were none before. After the embargo, Pioneer worked to capture these new global customers. By the end of the 1980s, Pioneer had expanded to 32 countries abroad.

Protecting Intellectual Property and Expanding into Biotechnology in the 1980s and 1990s

Rivals in the seed corn industry introduced hybrids that closely resembled some of Pioneer's best-selling products in the early 1980s. These low-priced knock-offs were so similar to Pioneer's most popular hybrids that company officials became suspicious of their origin and development. When genetic mapping proved that Holden Foundation Seeds had illegally used Pioneer's proprietary germ plasm to develop their seeds, Pioneer brought suit against the rival company and won. Pioneer instituted stricter controls to protect the company's intellectual property as a result and has worked to patent many of its products.

Pioneer expanded into biotechnological research in the late 1980s and early 1990s. Biotechnology is a genetic science that seeks to add new traits through gene manipulation rather than the slower process of traditional breeding. This emphasis on research helped Pioneer claim 'the best-performing product lineup in the seed industry,' as well as more than 39 percent of the U.S. seed corn market by 1992. The company posted record results in the early years of the decade. Earnings rose more than 40 percent in 1991 and again in 1992 to $152.16 million in the latter year. By 1995 Pioneer would command 45 percent of the country's seed corn market.

As the greater claims of biotechnology came closer to realization, however, Pioneer and the seed industry in general would undergo some fundamental changes. It became imperative that companies reach consumers first with the latest genetically engineered seed. Because Pioneer was a year behind the competition in introducing corn that was immune to corn borer, and tardy in bringing to market a variety of seed to grow high-oil corn that would lower the cost of feeding livestock, the company saw its share of the U.S. seed corn market fall two straight years, dipping from 45 percent to 42 percent.

New players, major chemical companies, were also entering the industry, which was clearly on the cusp of a revolution. Within a few years it was expected that seeds could be bioengineered to resist drought, produce corn with a higher protein content, or lead to a lower amount of saturated fat in the eggs of chickens that ate a special strain of corn. The applications were widespread and the rewards enormous, but also as a result of biotechnology a number of companies would be forced out of business. Because the chemical companies that provided pesticides and herbicides were likely losers, giants such as Monsanto and DuPont became extremely aggressive in acquiring biotechnology assets.

After Monsanto acquired a 40 percent stake in DeKalb, Pioneer in 1997 agreed to sell 20 percent of its stock at the cost of $1.7 billion to Dupont as part of a deal to form a crop biotechnology joint venture called Optimum Quality Grains. Pioneer, long known for its independence, insisted on a 16-year agreement that would prevent DuPont from purchasing more of the company without Pioneer's approval. For DuPont, the Pioneer alliance was a major part of an overall strategy to invest in what it called the 'life sciences'--the intersection of food, farm products, drugs, and biotechnology. Although the life sciences contributed less than 20 percent of its earnings, DuPont hoped that the number would increase to 30 percent by the time the company reached its 200th birthday in 2002.

The new technology created other changes in the seed industry. Instead of being a simple commodity, genetically engineered seeds were proprietary products that had to be protected from infringement. In 1998 Pioneer sued DeKalb, Cargill, and Monsanto's Asgrow Seed Co., alleging that the three companies wrongfully obtained and used genetic material that was the property of Pioneer. In order to sell to farmers year after year, hybrid seeds are intended to be good for planting but poor at reproducing. Stray 'inbred seeds,' however, can be found in the bags of seeds and have the potential of jump-starting a research project. Pioneer's suit contended that Cargill and DeKalb regularly purchased Pioneer seeds to engage in a practice called 'chasing the selfs.'

The seed industry continued to consolidate at a rapid pace, with DuPont and Monsanto emerging as the two most dominant entities. When Pioneer management learned that the two chemical giants were discussing a possible merger it decided that it would be at risk in a future where all that was certain was that only companies that could command the necessary research and development dollars would be able to compete. Pioneer began to negotiate a transaction with DuPont and in 1999 agreed to sell the remaining 80 percent of the company's stock for $7.7 billion. DuPont hoped that by acquiring Pioneer it could gain ground in biotech research, no longer having two units trying to balance the interests of their corporate parents.

In 2000 Pioneer was successful in two court cases. A U.S. federal district court of appeals upheld a 1985 U.S. Patent and Trademark Office decision that crops grown from genetically modified seeds could be patented. The company also settled out of court when Cargill admitted that some of its hybrid seed corn lines contained genetic material proprietary to Pioneer. Cargill agreed to pay $100 million and no longer engage in the practice of chasing the selfs.

Pioneer, as a part of DuPont, was clearly well positioned for a future that would be as rapidly changing as it would be uncertain. Resistance to biotech foods had to be overcome and the question of safety reviews and mandatory labeling still had to be addressed. In December 2000 Pioneer announced that it would postpone selling to farmers six lines of genetically modified corn because they had not yet been approved by the European Union. Concerns also were being raised about unforeseen problems with the brave new world of bioengineered crops. Because the new seeds were so genetically uniform, if one plant proved vulnerable to a new disease they all faced an epidemic. Economically, the result could be catastrophic. At the very least, the cost of production to safeguard against such doomsday scenarios would likely increase, to the detriment of revenues. One thing was certain for Pioneer and all the others engaged in biotechnology: there was no turning back.

Principal Operating Units: North American Seed Division; Research and Product Development; Supply Management.

Principal Competitors: Cargill, Inc.; DeKalb AgResearch Inc.

Chronology

• Key Dates:

• 1926: Hi-Bred Corn Company is established.
• 1933: Company founder, Henry A. Wallace, resigns to become Secretary of Agriculture.
• 1973: The company is incorporated as Pioneer Hi-Bred International, Inc.
• 1997: DuPont acquires 20 percent of company in a joint venture arrangement.
• 1999: The company becomes a wholly owned subsidiary of DuPont.