Feature II: Aim for an Even Higher Level of Profit Growth

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Expanding the Agricultural Materials Value Chain

Increasing Crop Production is a Global Task

The international food situation has seen profound, unprecedented change over the past several years. The world's population has topped seven billion, and is projected to reach nine billion in 2050. The emerging markets driving this growth are seeing changes in lifestyles along with major transformations in quantitative and qualitative demand for food as economic development swiftly advances. Furthermore, demand for biofuels, like biodiesel and bioethanol produced from crops such as corn and soybeans, is rising amid recently heightened global environmental interest. This has spurred concerns about competition between food and fuel uses for these raw materials. Moreover, extreme weather events attributed to global warming are frequently occurring around the world. If global warming progresses further, it is feared that large-scale climate changes, desertification, changes in land suitability for cultivation, and the like will affect worldwide crop production.

Meanwhile, limited agricultural land means it is actually very difficult to increase crop yield in one fell swoop. Clearly, crop protection products, seeds, fertilizers, and other agricultural materials will play an increasingly important role in making the most of finite agricultural land and raising crop productivity. Sumitomo Corporation is also working to be a part of the solution to the global task of boosting crop production, with various measures focused on its strengths in the crop protection business.

Crop Protection Product Global Distribution Network

Developing the Crop Protection Business and Expanding Into Multifaceted Support for Crop Production

Our crop protection business has a long history even among integrated trading companies. Since the 1970s, our Group has leveraged its overseas networks to distribute crop protection products produced by Japanese manufacturers around the globe. We now export crop protection products to approximately 100 countries around the world, and our crop protection products import and distribution business has grown to span around 30 countries.

Developing crop protection products requires huge investments of time and money, and approval standards are becoming tougher everywhere. Launching a new crop protection product is said to take about 10 years and ¥5 billion (equivalent to US$50 million currently) in development costs. In addition to supporting development and sales—primarily of Japanese manufacturers' products—to quickly get new crop protection products to market, Sumitomo Corporation handles generic products that have synergies with those products to enhance the product lineup. As agriculture conditions are different in each country, we are also working to tailor our operations to meet the needs of local customers. This includes promoting human resource localization, and drawing on our know-how in areas such as credit, inventory, and foreign exchange management. Our initiatives have earned us a solid reputation and trust from our customers and suppliers. By staying in tune with the changing times and landscape in this way, we have built a stable business model at each stage in the value chain.

In addition to such worldwide activities supporting the product development and sales of manufacturers near the upstream, and midstream operations in crop protection product import and wholesaling (distribution), Sumitomo Corporation is focusing on developing a multifaceted crop-production support business rooted in direct transactions with downstream farmers. We will use our relationships of trust built on crop protection product sales, forging partnerships with leading wholesalers in various countries to serve as a one-stop shop for everything farmers need—from crop protection products to seeds, fertilizers, agricultural machinery, and soil tests. In doing this, we hope to contribute to resolution of global food issues.

Crop Protection Business Value Chain

Helping Increase Romania's Crop Production

Romania has many small farms and machinery use has been slow to gain ground, with new farming equipment sometimes used together with antiquated machinery from the 1970s.

Alcedo's open and efficient office atmosphere with the president and employees seated side by side

Alcedo's grain silos

In 2011, we acquired the Romanian agricultural materials distributor Alcedo S.R.L. and launched our multifaceted crop-production support business encompassing direct transactions with farmers. Romania is an agricultural country with fertile grain-producing regions where cultivation of crops, including wheat, corn, sunflower, and rapeseed, is abundant. At about 14 million hectares, Romania's farmland area is the sixth largest among 27 EU nations and roughly three times that of Japan. However, the country's crop yield per hectare is extremely low at one third that of France where the food self-sufficiency rate is 121%. Romania is behind in the efficient use of agricultural land, chiefly due to low use of crop protection products and other agricultural materials. Established in 1990, Alcedo is the largest comprehensive agricultural materials sales company in Romania. Targeting a universe of medium-sized farmers (including farming companies) throughout Romania, it serves 3,500 customers (farms), or about one third of that universe. Along with agronomists (sales staff with a knowledge of crop production technology) nationwide and meticulous distribution service extending from crop protection products to seeds and fertilizers, the company provides technical services such as soil tests to improve soil quality. Moreover, Alcedo's group companies have crop protection production sites and grain silos that help make it a one-stop provider of a wide range of services, from supplying farmers with agricultural materials to buying their crops. This has earned Alcedo the trust of farmers and top market share among Romania's agricultural materials sellers.

Subsequent to participation in its management, Sumitomo Corporation has been working to fortify Alcedo's strength so far in agricultural materials sales as well as bolster services such as financing for farmers and the purchasing of their crops.

Our first step was to raise Alcedo's creditworthiness through equity participation, strengthening its ability to obtain financing and deliver products. We established a scheme where Alcedo supplies farmers with the seeds and fertilizer they need for the planting season, and then collects payment after crops are harvested. We are also adding depth to finance functions including by enabling deferred payment for tractors and other farming machinery.

In addition, Alcedo's group companies have silos to store corn, sunflower, and other seeds sold to farmers, and grains purchased from farmers. Alcedo is planning to build even more silos to increase storage capacity for grains bought from farmers from 8,000 tons to 50,000 tons. By expanding the framework for buying crops from farmers, and supplying more agricultural materials such as crop protection products and fertilizer in line with increased purchase volume, Alcedo is contributing to higher agricultural productivity. This system facilitates closer interaction with farmers from the start of grain production through harvest, generating a virtuous cycle where consultations regarding issues like poor growth and low crop yield tie to growth in sales of crop protection products and fertilizers meeting the individual needs of some 3,500 farms.

Greater involvement with farmers, from production through harvest, enables Alcedo to grasp crop protection products and fertilizer use history. Leveraging the traceability that this ensures, we have begun taking steps toward grain export. Growing interest in food safety and security in Japan and other developed nations has come with rising demand for traceable food. Sumitomo Corporation exported Romanian rapeseed to Japan on a trial basis in 2011, in rising to the challenge of diversifying sources of such safe food in Japan.

In this way, Sumitomo Corporation and Alcedo aim to increase agricultural productivity by always standing in the shoes of farmers to offer them even more sophisticated comprehensive services. While steadily working toward solutions for agricultural development in Romania, we are also looking to help establish Romania as a grain supply hub in the future by strengthening our functions in purchasing crops and executing bulk sales to major grain companies and others.

Contribution to Solutions for Global Issues and Increasing Our Presence

Our initiatives in Romania have given us an understanding of tasks for agricultural development and latent demand from farmers, while keeping us in touch with agricultural issues from the government to the individual farmer level. Moving ahead, we will leverage this knowledge to expand our multifaceted crop-production support business, and extend operations to other emerging agricultural countries with scope for increasing the yield per farmland.

In managing Alcedo, we aim to better understand the needs of the countries we serve and realize sustainable community-oriented operations. Local human resources have filled the top management spots from the very start when we acquired the firm. We believe this is vital in order to truly contribute to the community. We will continue to expand our business globally in keeping with various countries' agricultural circumstances, while taking on the challenge of helping find solutions to worldwide food problems.