Product and Service
Companies included in Alfalfa seeds sector in crop production industry primarily breed and produce alfalfa seeds varieties for alfalfa hays growers.
Demand for Product and Service
Demand for alfalfa seeds has been solid in the past 2-3 years and growing probably with the same pace as growth in demand for dairy products. Increase in global demand has been the major driver behind intensive competition, which has caused frequent M&A activities.
The Sector
Sector’s current, trend, causes behind trend, and future
Current and Trend
- Demand for alfalfa seeds has been solid but growth seems to be slowing down in the past several years probably consistent with the growth in demand for dairy products.
- Increase in global demand has been the major driver behind intensive competition, which has caused frequent M&A activities.
- Companies in this sector, facing uncertain demand, pursue expansion in more value-added business/products to keep profitable.
Causes behind the trend
- Alfalfa seeds are used only for growing alfalfa hays, which are used as forage for dairy cattle. Therefore, alfalfa seeds sector should have the same drivers as dairy industry does including demographic factors, economy factors, or consumers’ preference. Increasing global demand for high quality protein food may provide long term support for the growth in demand for alfalfa seeds.
Industry Future
Increasing competition will continue to put more pressure on the margins of alfalfa seeds companies and due to lowered profitability companies will find increasing difficulties in keep market share and keep profits.
A competition advantage will probably be able to be established only by new products’ development, which is able to improve productivity for farmers, under the situation where available land and water resources have been decreasing.
Numbers
General Financial Performance of Companies In the Sector
While we do not have direct data about growth in demand for alfalfa seeds, considering the uncertainty of dairy industry such as the decreasing demand for dairy products, we think the demand from the market for alfalfa seeds, which are used to grow alfalfa hay, the forge for dairy cattle, will probably weak. In fact, it seems, based on performance for some of typical companies in this sector, that international and domestic demand have not been increasing in the past several years.
A typical gross margin of companies comes between 19-22% and operating margin between 0-2%.
According our analysis, companies’ enterprise price/sales ratio is around 1.4.
