Part B: Pricing Based on Annexes 1& 2: 1. What inflation would you anticipate for next year? This affects local costs. ______ % 2. What exchange rate would you anticipate for next year? This affects foreign costs. _____ % i) First, graph the data on an X-Y chart in Excel (copy-paste the data from the case). ii) Do the points go up in a straight line? If so, the forecast function should work. Otherwise, eyeball it. iii) Note that you can ask excel to extend the line as many years as you want if you just add a trend line to the X-Y chart. Using the above calculations and the cost data in Annex 3: 3. Assume all costs are constant per kilogram except for inflation and exchange changes i) Last year, Cargills costs were $2.12. How much will Cargills total costs per kilogram of seed corn be next year? _______ 4. Just to maintain margins at the same levels as today ($1.00 per Kg.), i) how much should Cargill charge per Kg. to distributors next year (2007) given expected inflation and devaluation? 5. How much profit would a farmer have per hectare if he purchases Cargill seeds? ________ 6. How much profit would a farmer have per hectare if he purchases Pioneer seeds? ________ 7. Dividing the difference between these figures by the number of kilograms needed per hectare (20) gives the additional value per kilogram given by Cargill over Pioneer. ______ Logically, Cargill can charge Pioneers price plus the differential value given and farmers would still be just as well off. This is the maximum price Cargill can charge. 8. Given the above, what is the maximum price that Cargill can charge without losing customers to Pioneer? ___________ 9. What price would you charge? ___________. Do not consider lowering the price. If you lower prices, you get a zero on the case. PROVIDE EXCEL SOLVING WHERE NEEDED In 2006, Cargill, a multinational commodity trader headquartered in Minneapolis, was the largest privately held firm in the world. According to Freddy Dunia, sales and marketing manager of Cargill Venezuela's hybrid seed division, "Our seeds produce more corn per hectare than competitive products. Even though we charge high prices, our products have made us the market leader in only three years (see Table 1)". "It's important to have a great R\&D department", added Mr. Dunia, "because these products have short life cycles". "Our competitors will probably develop equally productive products within five to seven years". The benefits of high technology did not come free to Cargill Venezuela. "Cargill international charges us $1.00 per Kg. of seed that we sell as a license fee. THE VENEZUELAN ENVIRONMENT To assure a local supply of corn, the Venezuelan government guaranteed farmers a price of 30 cents per Kg. of corn produced. Thus, the local price for corn was much higher than the international market price of about 20 cents per Kg. Without this subsidy, farmers would not grow corn in Venezuela. THE CYCLE OF PURCHASE, PLANTING, HARVEST AND PAYMENT Hybrid seeds ar.

1. Part B: Pricing
Based on Annexes 1& 2:
1. What inflation would you anticipate for next year? This affects local costs. ______ %
2. What exchange rate would you anticipate for next year? This affects foreign costs. _____ %
i) First, graph the data on an X-Y chart in Excel (copy-paste the data from the case).
ii) Do the points go up in a straight line? If so, the forecast function should work. Otherwise,
eyeball it.
iii) Note that you can ask excel to extend the line as many years as you want if you just add a
trend line to
the X-Y chart.
Using the above calculations and the cost data in Annex 3:
3. Assume all costs are constant per kilogram except for inflation and exchange changes
i) Last year, Cargills costs were $2.12. How much will Cargills total costs per kilogram of seed
corn be
next year? _______
4. Just to maintain margins at the same levels as today ($1.00 per Kg.),
i) how much should Cargill charge per Kg. to distributors next year (2007) given expected
inflation and
devaluation?
5. How much profit would a farmer have per hectare if he purchases Cargill seeds? ________
6. How much profit would a farmer have per hectare if he purchases Pioneer seeds? ________
7. Dividing the difference between these figures by the number of kilograms needed per hectare
(20) gives
the additional value per kilogram given by Cargill over Pioneer. ______
Logically, Cargill can charge Pioneers price plus the differential value given and farmers would
still be
just as well off. This is the maximum price Cargill can charge.
8. Given the above, what is the maximum price that Cargill can charge without losing customers
to Pioneer?
___________
9. What price would you charge? ___________. Do not consider lowering the price. If you
lower prices, you
get a zero on the case.
PROVIDE EXCEL SOLVING WHERE NEEDED In 2006, Cargill, a multinational commodity
trader headquartered in Minneapolis, was the largest privately held firm in the world. According

2. to Freddy Dunia, sales and marketing manager of Cargill Venezuela's hybrid seed division, "Our
seeds produce more corn per hectare than competitive products. Even though we charge high
prices, our products have made us the market leader in only three years (see Table 1)". "It's
important to have a great R&D department", added Mr. Dunia, "because these products have
short life cycles". "Our competitors will probably develop equally productive products within
five to seven years". The benefits of high technology did not come free to Cargill Venezuela.
"Cargill international charges us $1.00 per Kg. of seed that we sell as a license fee. THE
VENEZUELAN ENVIRONMENT To assure a local supply of corn, the Venezuelan government
guaranteed farmers a price of 30 cents per Kg. of corn produced. Thus, the local price for corn
was much higher than the international market price of about 20 cents per Kg. Without this
subsidy, farmers would not grow corn in Venezuela. THE CYCLE OF PURCHASE,
PLANTING, HARVEST AND PAYMENT Hybrid seeds are a cross of two different species.
Hybrids often have different characteristics than either of their parents and they are generally
sterile. As an example, the mule is a mammalian hybrid. It is stronger and has greater endurance
than either of its parents (a donkey and a horse) and it is sterile. For marketers, the wonderful
attribute of hybrid seeds is that farmers can't reproduce them because they don't have the parent
seeds from which the hybrid was obtained. Thus, Cargill can sell the same seed to the same
farmers every year. FARMERS Growing corn cost farmers around $400 per hectare (2006),
including herbicide, pesticide, equipment rentals, hired labor, fertilizers, etc. so that seeds were
only a small part of their total costs. Farmers used one 20Kg sack of seed per hectare.
Table 2 Cargill's Market Share by Farm Size When asked why Cargill did so badly with small
farmers, Freddy replied, "Small farmers (less than 50 hectares) buy in stores rather than from
distributors because they don't have access to bank or manufacturer financing for their supplies
(pesticides, herbicides, seeds and fertilizers). They depend on the government or on the stores to
finance their purchases. They are unsophisticated (often illiterate) and need technical support.
Above all, they value relationships and hate to feel that someone has taken advantage of them".
THE CHANNEL Distributors Almost all of Cargill's sales passed through distributors that sold,
warehoused and delivered supplies to farmers. Distributors promote and deliver products,
however, they do not offer financing. The largest farmers obtained a small discount by buying
directly from Cargill. COMPETITION Local retailers supplied the Venezuelan market with seed
until two multinationals, Cargill and Pioneer, arrived. Pioneer had been the leading multinational
in Venezuela until Cargill brought out its improved hybrids in 2003. The other competitors, such
as Himeca, offered low prices and presence in chains of stores that they owned. In the case of
Himeca, the chain was Agroislea. Agroislea, offered Himeca seeds in their stores as part of a
complete package of agricultural supplies that included financing and transportation. Cargill and

3. Pioneer only sold seeds so they could neither offer a complete package nor financing for a
complete package. PRICE Cargill sold seed to distributors at a price of $3.13 per Kg. and
required that distributors charge farmers at least $3.59 per Kg. This left distributors a margin of
between 15 and 20%; the highest in the industry. Freddy now had to set the price for the coming
year. The task was complicated by the uncertain exchange and inflation rates.
(*) Source: Monthly Bulletins of the Central Bank of Venezuela.