This month's Dairy Farmer features Cogent's Managing Director Mark Roach discussing the future with ST Genetics.

(Interview taken from December issue of Dairy Farmer)

Speculation has been rife about the future of Chester-based breeding company Cogent, but its announcement tie-up with Sexing Technologies in the States promises to bring us a whole raft of new breeding advances a much wider stud choice. Peter Hollinshead talks to Cogent's managing director Mark Roach.
The speculation has finally come to an end and Cogent has been sold to Texas-based Sexing Technologies (ST). What will this mean for the Cogent brand here in the UK?
The Cogent brand, identify and culture will remain exactly the same. One of the reasons we chose to partner up with ST was because they would keep the Cogent business operating as normal, and they would give us the genetic and technological firepower we need to make advances in the marketplace.
Yes, and we'll come on to the firepower bit in a moment, but it's a fact that Cogent has kept a minority shareholding... can you tell me how big that retention is and what the selling price was?
Well, Wheatsheaf (investment arm of Grosvenor Estate) was the previous owner of Cogent and they have kept a 24% share in the new business, so Grosvenor will still be a minority shareholder in Cogent and ST have bought 76% of Cogent. The reason Wheatsheaf and Grosvenor have kept a minority interest is because Wheatsheaf on its wider platform is invested in 20-30 companies across the wider bovine sphere, so there are some very good synergies between Wheatsheaf and ST. One example is the Growsafe business which is owned by Wheatsheaf and provides feed efficiency data which ST has been working with for the past four years.
Just what you didn't say, though, was what sort of cash changed hands?
Well, I think that is commercially confidential, but we think a fair price has been achieved for Wheatsheaf and a fair price for ST.
Okay, why would ST want you as you are already a licensee of their sexing technology and they have a growing foothold on the European mainland... was it just as an entrée to the UK market or to be able to place some of their bulls here as an insurance safe haven in case of disease outbreaks back home?
I think there are a number of advantages for ST. First of all we provide ST with a very strong UK platform and also a European base, and the routes to market which we have internationally tend to be very different to theirs, and so I think we complement each other there. Also, as you mention, we will be able to create a parallel breeding programme in the UK which spreads ST's biosecurity risk, so I think there are a number of very, very good advantages and synergies between the two businesses.
How do you rate your alliance with ST going forward in achieving the aims you want to achieve?
Well, another one of the reasons we chose to partner up with ST is that they are a very strong business with a lot of financial clout, they are highly profitable and want to become the number one in the bovine genetics market, and that aligns very closely with what we want to achieve.
Now I can remember the sixth Duke launching Cogent with the intention of what he termed, if I remember correctly, restoring 'the UK as the stockyard of the world'. Has he failed in that wish?
No, I don't think so. This latest move, I think, enhances that objective of the sixth Duke. When he launched Cogent in 1995 with Tim Heywood, I think his overriding objective at the time was to bring world class genetics to UK dairy farmers at affordable prices, and I think Cogent has achieved that, and this tie-up with ST with all their bull firepower will only enhance that.
Yes, but it goes slightly further than that doesn't it, because one of the original propositions put forward for Cogent was that it would be a British-based stud made up of British-bred bulls and that no longer seems possible, so do you concede the best genetics lie elsewhere?
I think genetics is a global industry and British dairy farmers want access to the best genetics wherever they are around the world. The Cogent bull stud will still be in operation and we will have a UK breeding programme which will run parallel with the US breeding programme, so the very best genetics will be available to UK farmers from wherever they need to be sourced.
Now the sixth Duke liked being involved with cattle and farming, and I suppose while he lived he was able to afford that indulgence... and I use that word particularly because I read that Cogent lost £4.6m last year on a turnover of £12m, so have the Grosvenor accountants moved in and taken over?
No, not at all. I think everyone will accept that the last two or three years have been incredibly difficult for the dairy industry with low milk prices, and that the supply trade and AI businesses have found it very difficult to make profits over this period. I think these headline figures are somewhat misleading in that last year all the development costs of a new IVF business in the US are in those accounts, as well as development costs in Russia, Australia and Canada.
We have restructured the business and we are now back in profit so the decision to sell the business to ST was not based on past performance, and now we have new owners the past accounts are totally irrelevant anyway.
But it has always been difficult for Cogent to make a decent return on the business, hasn't it, and it is a highly competitive world out there so how viable would Cogent have been if it had been left on its own?
It is unfair to say Cogent has never had successful years - in some years it made very good profits, and it's been a bit of a roller coaster. Going forward Cogent could have remained in its current form and it would have become more of a niche business. The main reason we decided to merge with ST is because the industry is changing fundamentally. When I came here in February my first task was to stabilise the business, and it has restructured, and we are now back in the black. But we wanted to look forward to see what we needed to do to have a long-term sustainable business and to be a leading player in the global market.
What became obvious is that the industry is changing and there are three factors behind that. One is genomic testing, the second is the sexed semen technology, and the third is the establishment of female nucleus herds. What that means if you put these three things together is that genetics is closing off, so the best genetics are now becoming propriety genetics and some of the very best bulls are now not released, and those top bulls that are released are released with sexed semen.
So it is very difficult to source bulls around the world unless you have your own genetics programme, but the cost of setting up genetic programmes is astronomical. So unless you have got a global reach and big turnover you can't afford to spend the money to generate the genetics you need to get that turnover, so it has become a Catch 22 situation. So we had a choice - a choice of staying as a niche player in the market or merging with somebody else. I think we were honest enough to realise we have lost the genetics arms race and unless you are at the forefront of this race it is very, very difficult to catch up.
When we looked around the world we quickly realised that ST were going to be one of the major players going forward, and my personal view is that with currently five or six players in this market, that in a period of five years I suspect there will be only two or three major players in this market. So we made a positive move and we approached ST - they didn't approach us - to secure the long-term future of Cogent with a partner we believe will be tomorrow's winner. Something like 95+% of bulls entering AI come out of closed genetic programmes, so there are very few bulls on the market that are not tied into closed programmes. So it's a classic case of supply and demand, and those few bulls are incredibly expensive and not always the best genetics either because the closed programmes are holding on to the best genetics.It's very, very difficult for tier 2 and tier 3 companies to compete in that marketplace unless they become niche, and it's our ambition to be a global player not a niche player, and I think the merger with ST will take us there.
Okay, let's get back to the impact of the acquisition. I presume you will now have access to an even greater range of top ranking bulls through ST will you?
There were a number of reasons we chose ST, and one was the genetic power they have. They have the largest genetics programme in the world - they have something like 7000 females in that programme and are creating 5000 embryo pregnancies per annum, and they currently have four of the top 10 Holstein bulls in the US GPTI list and eight of the top 15 Jersey bulls on the GPTI list, so their genetic power is unquestionable and the pipeline coming through we think will be second to none in the industry. As an example they have the current number one PLI sire Ruby Agronaut, which will be available here.
The other important part which we think will be a game changer for UK dairy farmers and others around the world is the sexed semen technology and the launch of Ultra 4M. Up to now sexed semen has been packed in two million cells (sperm cells), but the technology has advanced to the stage now where the sorting processes are much more efficient and we can double up the number of cells in a straw to four million.
We think that will be a game changer because we will be able to launch sexed semen for use on cows as well as heifers. And of course nobody wants Holstein bull calves so we will be launching Ultra 4M sexed semen around Christmas time and I for one, as a customer, am very much looking forward to using it in the Grosvenor herd.
By cells I'm not sure what you mean... are there more sperm per sample?
Four million sperm cells per straw rather than two million sperm cells per straw, so the efficacy of the product and its ability to get animals in calf is very much increased. Trial work taking place with ST in Germany and elsewhere has shown very good results using Ultra 4M sexed semen in cows.
So why hasn't that doubling up been used before? Presumably it's less efficient on the use of semen if you are using twice as much as before?
It's about the efficiency of the sorting processes. We were the first company to commercialise sexed semen way back in 2000, but back then the sorting speeds were very much slower than they are today, so the technology has advanced and that has enabled us to increase the number of cells in a straw.
But the economics of it to a layman would suggest you are only able to make half as many straws from a semen collection as previously?
Yes, but the sorting rates are so much higher and in terms of output per hour it is so much higher with 4M than 2M. Also the new medium we are using will enhance the quality of that semen and its ability to get cows in calf.
Have you got the machines here to do it?
Well, we only just signed the deal with ST over the last three weeks and already the machines have landed from America. They will triple our capacity here and we are very confident we will be able to supply the market by Christmas.
And are you alone in being able to offer this type of semen?
In the UK we will be the only providers of Ultra 4M sexed semen and we will have 12 new generation sorting machines in there.
But ST will be doing the same, so won't that give rise to a conflict in the international markets in which you operate?
No, we don't think that will be the case. Cogent will be selling Ultra 4M into its outlets in some 40 countries around the world and ST has its own outlets around the world, but most of these outlets don't have a big crossover. Where they will, there will be two brands of Ultra 4M semen in the marketplace.
Will your tie up with ST give UK producers twice the bull offering they may have had to date, and are even the top bulls likely to have sexed semen available from them?
Absolutely, all the top bulls we have available will be available sexed, and some will have come from the ST programme and some will come out of our own programme here in the UK.
Now you have been sexing semen domestically for Genus, and still are as far as I know, yet Genus-ABS has developed its own sexing process in the States which it is alleged has infringed the ST patents resulting in a peculiar litigious triangle. Will you continue to sex semen for Genus in the UK?
Well, I think that is a commercial, in confidence, contract that we have with Genus and I wouldn't like to comment on that, and the litigation is more a question for ST than Cogent, but what I will say is that going forward ST sexing technology and Genus sexing technology will be going head to head.
I don't know what their sexing technology entails but with your new sexing technology do you believe yours will be superior?
Well, the good thing about pregnancies and AI is that it only takes a few months for people to find out whether their cows are pregnant or not, so I think we will learn very, very quickly as to how effective these technologies are as within three months farmers will either have pregnancies or not, and so the answer will be out there very quickly and we are looking forward to that.
So you see a bit of a scrap there do you?
Well, we are very confident in our product and we'll have the best genetics and we think we have the best technology, so we feel that our combination will be a very strong combination for us to take to the marketplace.
Okay, you claim it is business as usual in the UK but will there be redundancies as ST attempts to bring the outlet into what might be claimed is a more viable form?
It'll be the very opposite actually. With the enhanced offering we expect some very rapid growth in our business. We expect our turnover and market share to increase significantly as we go forward and so we are now actively recruiting for people to join our company, so if there is anyone reading this who wants a career in bovine genetics then get in touch.
You have recently been appointed as managing director of Cogent, what is your personal strategy going forward?
As I say we will have the best genetics available anywhere in the world and we will have the best reproductive technologies, but one of the last missing pieces of the jigsaw in bovine genetics is food conversion rate. ST is very close to launching a food efficiency index, so I think in the next three years I will be very disappointed if we don't double our market share.
What's your market share now?
We are in the low teens and we would hope to increase that substantially.
Does that imply that you will become the number one genetics company in the UK?
Genus has somewhere about 55%, and they are the number one, but we think we will be able to give the UK dairy farmer a very strong alternative to the market leader.
Are there any other aspects of US cattle breeding we may be looking at here - I am particularly thinking of pure beef embryos into dairy cows which may be a possible solution where we are seeing a lot of Jersey crossbreds in the UK at the moment?
I think the embryo business is probably a little bit further out, but following on from using female sexed semen on cows the next step is male beef sexed semen for the beef farmers.
How far down the road is that for dairy cows?
I think male sexed semen will grow quickly over the next couple of years. It will be mainly used on cows rather than heifers as the best genetics are generally the heifers, and we will see female sexed semen used in them and male sexed semen being used on the cows, and with our beef progeny testing giving much more reliable data on calving ease, we will be able to launch easy calving sires into the male sexed semen market.
How far down the road will this male sexed semen be?
I think six to nine months away.
People may have been a little reticent to use sexed semen for two reasons, namely conception rates and sex ratio... can you offer improvements in these two areas with your new sexed semen?
We have been using sexed semen here on our own farm for the last 20 years, and we are very confident that 90-94% female calves will be born. With regards to conception rates we have been consistently achieving 50-60%, sometimes 65%, conception rates in heifers. The Ultra 4M product gives us the opportunity to take sexed semen to dairy cows and generally up to now most people would not have had the confidence to use sexed semen on cows.
Can you give me a figure as to the conception rate with cows?
The figures we have seen with trials in Germany have been very close to conventional semen - within five percentage points of conventional semen.
In due course you will be advocating sexed semen for cows as strongly as heifers?
There's no doubt in time people will only use sexed semen as the processes improve - they'll use sexed female semen for their replacements and male sexed semen for their surplus animals for the beef industry.
If you use sexed semen on cows, how much do you think it will grow your market?
Well ultimately I firmly believe all semen sold into the sector will be sexed semen. It's like black-and-white and colour TVs - no one has a black-and-white TV any more. How long will it take? The market for sexed semen will easily double in the next two to three years and in a few years I expect sexed semen will be half of our semen sales.
Okay, just slightly off the semen track, you are also carrying the responsibility for the Grosvenor dairy unit and have just put up a spanking new unit for 1800 cows - do you see dairying prospering after Brexit and will scale be everything?
I think Brexit is the elephant in the room at the moment and perhaps most disconcerting is all the uncertainly surrounding it. I am particularly concerned about three areas - probably in order of importance - and they are firstly the trade deal and the nightmare scenario of tariff-free imports and tariffed exports; the second area for most dairy farmers is access to labour; and the third area is the whole area of subsidies - subsidies are likely to be environmentally based and we will be competing with neighbours in Europe who will be subsidised, so we will need to have a very much more efficient industry to compete internationally.
Just finally on this topic, what faith do you have in politicians to give farming a fair solution to the problems we face as food production and agriculture don't weigh very heavily with them, do they?
They don't when people have full stomachs but when food gets in short supply that is a very different matter, and my hope is that agriculture is not traded off for finance, or the car industry or whatever, in any settlement we have to come to.