Vilmorin & Cie - Annual report 2017-2018

PRESENTATION of Vilmorin & Cie 1 ANNUAL REPORT Vilmorin & Cie 20 2017-2018 Only South Africa is the exception, where yellow corn dominates. This particularly promising market for field seeds, and corn above all, with almost 3 million hectares grown, is also fully focused on innovation. Genetically modified seeds are already widely used by farmers, with an adoption rate of 85% in 2017 for corn (Sources: ISAAA and USDA 2018) . 1.3.3. Strong barriers preventing entry into the seed market Any new protagonist entering the seed market has to benefit from several complementary assets which all constitute barriers to this entry. 1.3.3.1. Genetic resources*, expertise and time In order to create high performance seeds, first of all genetic resources* are required, as diverse as possible; this is fundamental for the continuation of seed production. What is specific about the creation of seeds is that they inevitably start from existing resources. Mastering each of the stages in the profession is also indispensable: the expertise of seed producers involves research, cutting edge technologies in terms of plant breeding*, production – first in fields and then the factory – processing and distribution of the seeds through networks that need to be as close as possible to the markets, in order to understand and anticipate the needs of growers and farmers better. And even if all these resources and this expertise are combined, it still takes 7 to 10 years for the seed producer to come out with a new variety for marketing. 1.3.3.2. Significant investments The level of investment required also makes it difficult for newcomers to penetrate the seed market. These investments concern the funding of the production cycle and working capital needs, setting up distribution networks and marketing plans, and above all research, the key to the creation of value. The seed market is indeed one of the most demanding sectors in terms of investment in research. Accordingly, Vilmorin & Cie spent more than 16% of its seed sales on research in 2017-2018. 1.3.4. A concentrated competitive environment undergoing reorganization In a competitive environment that was already highly concentrated, several mergers have recently been concluded, or are in the process of being finalized. They concern major operators in the seed and agrochemical sectors. As a result, even if market integration remains uneven across zones and species, the top five seed companies now account for more than half of the world’s commercial seed market (in terms of seed sales) (1) . These movements highlight a tendency for companies in the agrochemical sector to consolidate their portfolio of assets by integrating or strengthening seeds, as a response to the difficulties of an agrochemical market affected by farmers' economic difficulties and by the growing reluctance to use plant protection products in several countries. In the seed business, however, these mergers do not significantly change the size of the main operators. (1) Sources: corporate disclosures, internal, Phillips McDougall 2018. 1.3. The seed market