Operator: Thank you, Mr. Klieve. Our next question is from the line of Kristen Owen with Oppenheimer. You may proceed.
Kristen Owen: Hi, hood afternoon. Thank you for taking the question. I wanted to ask sort of a follow-up to some of the questions that have already been addressed, but really more thinking about how farmers’ willingness to invest in technology is impacted by some of the macro volatility that you’ve discussed, you know, willingness to transition to an HP4 model or even some of the biologicals. If you can just talk maybe in broad strokes about that farmer sentiment piece first and then I’ll have a follow-up. Thank you.
Federico Trucco: Thank you for your question. I think farmers willingness to invest in technologies is always a key aspect of our business. In general, farmers are very eager to invest in technology that gives them a return on investment. In other words, improve yields as a result of that technology investment. And the dynamics of this is probably different today between Argentina, which is a market where we’re looking at the HB4 growth, particularly in wheat initially, and the sort of growth of our biologicals business, which is mostly Europe, U.S., and in part Brazil. So I think that the drought situation in Argentina may have exacerbated the negative profitability situation that exists because of the taxation situation and some of the macro situation that’s specific to Argentina, which we hope will improve in the next political cycle as we’re going through an election year.
These things tend to change. And so I think farmer income in Argentina is likely to, in relative terms, be much better than where we were. And that will usually translate into greater appetite for the type of solutions that we commercialized. Now, that is specific to the Argentine situation. In the case of the biological products that we sell in the U.S., in Brazil, and in Europe, I think a lot of that we do through industry leaders, like, for instance, Syngenta, Corteva, and what we’re seeing from these industry leaders is almost like a frantic race to replace chemical active ingredients for biological active ingredients. So if that continues to be the case, I think we will stand as winners in terms of technology adoption in these other geographies.
For instance, in Brazil, where we’ve seen the headwinds of inventory readjustments, we’ve seen 20% growth on the biologicals business that we have with Syngenta on top of what’s being contractualized in the agreement that we announced. So I think we feel very positive in terms of customers, be them farmers in Argentina or these major industry participants elsewhere, accepting the value proposition of our main solutions there.
Kristen Owen: That’s actually very helpful. And then one of the follow-ups that I had to a question that Ben asked is just, again, on the HB4 profitability, can you just help us understand sort of the profitability of the identity preserved model versus this transition to the royalty model, just so that we can contextualize what that impact is to gross profit?
Federico Trucco: Sure. So the identity preserved model usually has a profitability that is above the average profitability of the company. So we’re talking upwards of 50%. When you go into the royalty model, obviously revenues decrease, but then the profitability is higher because there’s no added cost of goods. We are not involving the manufacturing of the seed product itself. So we’re talking about probably between 70% and 80% profitability when we deduct the payments that we need to do to other technology partners. And we sort of then have to look at our ownership interest on the royalty since, for instance, in Wheat we have a JV with a French company in this particular business. So short answer, it’s about 50% or around 50% for the identity preserved program and much higher, closer to 80% on the royalty front.
