katakura & co-op agri corporation

There is a risk that demand for fertilizer will visibly decline due to reduced agricultural product consumption stemming from population decline, shrinking cultivated land area, aging of farmers, and fertilizer-reduction policies. In the Chemical Products Business as well, consumer purchase restraint due to price increases, reduced production by industrial-use customers amid economic downturns, and sluggish demand in specific markets caused by sudden events such as avian influenza could lead to a decline in sales volume. If these changes in the market environment overlap, the impact on the Group's overall business performance and finances is expected to be significant.

In addition to fluctuations in raw material prices, freight rates, foreign exchange rates, and energy market conditions, social instability such as war, terrorism, infectious diseases, and geopolitical risks may cause raw material prices to surge or lead to procurement difficulties and supply shortages. In particular, since the Fertilizer Business has a high ratio of raw material costs to total costs, fluctuations in raw material market conditions may have a greater impact on business performance and finances compared to other businesses. Although measures have been taken to ensure stable procurement, the impact of external factors cannot be completely eliminated.

The Group holds raw material and product inventories for the purpose of ensuring stable supply, but if raw material market prices decline significantly, this may affect business performance and finances due to a decrease in asset value. Since the Fertilizer Business has a high ratio of raw material costs to total costs, the risk of inventory valuation losses when market prices decline is greater than in other businesses. Given the difficulty of predicting market fluctuations, appropriate management of inventory levels is an important issue.

Domestic fertilizer distribution is largely dominated by cooperative organizations such as the National Federation of Agricultural Cooperative Associations, and the Group also relies on cooperative organizations for the majority of its fertilizer sales. If the distribution share of cooperative organizations were to decline significantly for some reason, or if distribution were to become difficult, securing alternative sales channels would be difficult, potentially having a material impact on business performance and finances. High dependence on a specific distribution channel constitutes a structural risk factor.

There is a risk that sales prices will decline in the Fertilizer, Chemical Products, and other core business areas due to intensified competition among companies amid changes in and shrinkage of demand structures. In addition, if industry consolidation and reorganization result in competitors gaining a competitive advantage over the Group, this could lead to loss of market share and deterioration in profitability. Intensified competition amid contracting demand is a factor that puts pressure on business performance in terms of both price and volume.

While the Group thoroughly complies with relevant laws and regulations such as the Act on Assurance of Quality of Fertilizers, the Agricultural Chemicals Regulation Act, the Feed Safety Act, and the Food Sanitation Act, the possibility of regulatory violations due to negligence or accidents cannot be ruled out. If a violation occurs, there is a risk that business activities may be restricted through administrative orders, fines, or claims for damages. In addition, unexpected changes in or the introduction of new legal regulations may restrict existing business activities or the use of raw materials.

If a serious occupational accident, or a major disaster or accident occurs at any of the 20 plants nationwide, business performance and finances may be affected by temporary or prolonged suspension of operations. Although the Group is working to establish occupational health and safety systems, safety and disaster prevention management systems, and equipment maintenance, it is not possible to completely prevent serious accidents. As operational suspension directly results in the loss of production and sales opportunities, the impact on Group performance is significant.

Since the core Fertilizer Business is dependent on agriculture, damage to farmland and the environment caused by abnormal weather such as typhoons, droughts, and insufficient sunlight, or by large-scale natural disasters, directly affects fertilizer demand. In addition, if production facilities are damaged and production is reduced or halted, or if computer systems are damaged, due to a large-scale natural disaster such as an earthquake, this may affect business performance and finances. Although the Group has implemented disaster mitigation measures such as forming voluntary disaster prevention organizations and conducting regular equipment inspections, damage cannot be completely prevented.

The Group holds confidential information of customers and business partners as well as important business information, and while it works to strengthen employee training and IT security measures, if an unforeseen incident results in an information leak, this may affect business performance and finances due to a decline in corporate trust. Against the backdrop of increasingly sophisticated and diversified cyberattacks, information security risk is an area requiring continuous strengthening of management. There are also concerns about the impact on customers and business partners and the legal liability that could arise if an information leak occurs.

If pension assets decline due to a downturn in the securities market or other factors, it may become necessary to increase retirement benefit expenses or make additional contributions to pension assets. In addition, if assumptions such as the discount rate or salary increase rate used in calculating retirement benefit obligations diverge from actual figures, the amount of retirement benefit obligations may fluctuate. Although the Retirement Benefit Trust and Pension Trust Asset Management Committee manages investments within an acceptable risk range, the impact of fluctuations in the market environment cannot be completely eliminated.