Vilmorin & Cie - Annual report 2017-2018

1 ANNUAL REPORT Vilmorin & Cie 17 2017-2018 Many high value-added niches The operators on the vegetable seeds market work side by side in the major production and consumption zones. The sector has become highly concentrated yet it still remains scattered in terms of products. This segmentation can be explained by the numerous specificities of the vegetables market, and in particular by the great diversity of species (more than 150 botanic species are cultivated throughout the world), with great diversity in types of product for the same specie (shape, size, color, taste) and extensive line-ups. In this way, all the sales possibilities can be covered, from production in season to that of counter-season, while responding to the tastes and eating habits of the population. Some production is highly region-specific, such as Daikon radish in Japan or tomatillo in Mexico, while other vegetables are produced worldwide. This is the case of tomatoes, the most cultivated and consumed vegetable in the world, also the world's leading species in terms of value: tomatoes thus represent nearly a third of the total world acreage devoted to vegetables. Onion, cucumber, pepper, carrot, watermelon, cabbage and melon are also world-leading species in terms of value. The segmentation of vegetable markets is also due to the wide variety of vegetable production methods (open field, cold or heated shelters and tunnels, plastic greenhouses, glass greenhouses, etc.) as well as the wide geographical dispersion of production areas. Therefore, the world market for vegetable seeds is composed of many niches, with particularly strong added value. Innovation at the heart of market growth The vegetable seeds market is highly sensitive to the technical performance of seeds. Indeed, the varieties the growers choose will determine the quality and added value of their production, while the cost of seeds remains moderate compared to that of other inputs*. It is therefore a strategic choice, above all driven by economic considerations, and by the criteria of yield, resistance to diseases and suitability to trends in consumption. Consequently, even though the market for vegetable seeds is powered by the global increase in vegetable consumption, it is also dependent on the research results of seed companies and the development of innovation that can stimulate producers to purchase seeds with greater added value. 1.3.2.2. The field seeds market The value of the world field seeds market is estimated to be almost 34 billion USD in 2017 (Source: Phillips McDougall 2018) , including more than 21 billion USD for genetically modified seeds. Corn holds the position of top crop in terms of value, representing more than 16 billion USD, whereas wheat is the most widely cultivated world crop in terms of acreage (217 million hectares in 2017, about 15% of arable land) (Source: USDA) . Outlets for corn are numerous: it is mainly used for animal feed (forage corn or grain corn), but it is also an important raw material for industry (agri-food, starch, etc.). Corn is also used as a source of energy (agrofuels). As for wheat, it is mainly used for human food and is the staple food for one third of the world’s population. Soft wheat is used to make bread, biscuits and cakes, whereas hard or durum wheat is used to make pasta and semolina. The environment for field seeds markets remained difficult over fiscal year 2017-2018. It was hit by the particularly low level in prices for agricultural production, both corn and wheat. Variations in the prices of agricultural raw materials can above all be explained by the lack of coherence between supply and demand that is specific to all agricultural production, by fluctuating weather conditions in different geographical areas, leading to surpluses or shortfalls, and by the fact there is persistent speculation on agricultural produce. There is no direct correlation between the prices of raw materials and the price of seeds. Nevertheless, the current low level of prices for agricultural production has a grave impact on the profitability of farms and the revenues of farmers, who are therefore more careful about how much they invest in their inputs*. Sources: Marché des céréales, France Agrimer. September 2018. Wheat Corn Evolution of the prices of corn and wheat in Europe between 2001 and 2018 (in euros per tonne) 195 170 300 250 200 150 100 50 16 01 02 03 04 05 06 07 08 09 10 11 13 12 14 15 17 18 1.3. The seed market PRESENTATION of Vilmorin & Cie