FMC Corporation (FMC) Earnings Call Transcript & Summary

Welcome, everyone, to our 2021 Chemicals Innovation conference. My name is Kevin McCarthy, and I cover the chemicals sector here at Vertical Research Partners along with my associate, Cory Murphy. We're very pleased to welcome FMC Corporation as our next presenting company. Before I introduce our speaker, though, I do want to mention we've prepared a number of questions to kick off the dialogue today, but listeners will also have the ability to ask questions. So if you do have a question, please type it into the portal at any time, and we'll do our best to prioritize those as they come in. So with that, I'd like to welcome Andrew Sandifer, Chief Financial Officer of FMC as well as Mike Wherley, who directs Investor Relations. We know you guys have many options in terms of events. So thanks very much for sharing time with us today. Great to see you, Andrew.

Good to be here, Kevin, good to see you this morning. Good to see you back in an office.

Yes, yes, feels good to be back, onward and upward. So again, thank you. Maybe without further ado, we'll kind of dive into the Q&A. And we then -- your questions as we go along.

Andrew, I think you've been CFO for roughly 3 years now. And a lot has changed, if I look back over the last 3 to 5 years, you've separated Lithium. You've executed and integrated a very attractive deal with DuPont that added the diamide, insecticide chemistry of the portfolio as well as some other products. And I know you've implemented a new IT system. So a lot going on there over that period. As you look ahead over the next 3 years or so, what excites you most about the future at FMC?

Sure. And just hearing you read it back, reminds me why, I guess, I'm so tired after the first 3 years as the CFO.

You look great.

Yes -- thanks, a little more gray hair than when I started. But yes, it is -- this is my fourth year as CFO, I became -- May 1 was the anniversary. So it's been 3 years I've been CFO. And it's been -- it's really been a faster years. I mean, as you mentioned, a lot of changes to the company really reconfiguring as a focused agricultural sciences player, finishing the integration of DuPont, spinning off Lithium, putting up the SAP system, all those pieces. What's exciting now to me is really getting to take some of the benefit of the fruits of those labors. We really do have a world-class platform and an innovation-driven platform, where we have, I think, a pretty unique position in the industry. We are a focused crop protection player. And we don't have the distraction of seeds. We have a very diverse crop portfolio. We're not overly reliant on any single crop or country, particularly not over reliant on U.S. corn or U.S. soybeans. We've got a very diverse geographic footprint. Still some opportunities to keep filling out pieces of it, but a pretty global footprint. So when I think about the opportunity ahead, it really is demonstrating the power of this portfolio. It's sustained organic growth well above market. It's showing continued margin expansion from our already highest margins and profitability in the industry for Crop Protection. So I think more specifically, I'm very excited to see the continued strength and progress of the diamides platform, Rynaxypyr and Cyazypyr. It's sort of 2 key anchor molecules for us. Those have been very, very strong growers in the first 3 years of FMC as a focused ag sciences company and will continue to be. Really excited about the new product pipeline. We can talk a bit more about that today. And certainly, we've got a number of products already introduced. Our new Isoflex herbicide for cereals that launched in Australia this year. Xyway and -- a fungicide, it's a corn fungicide here -- launched here in the U.S. We have Fluindapyr just coming to market, a new fungicide. Some new diamide formulations, Elevest and Vantacor, for example. And then coming in 2023 of our next new active ingredient introduction, which is tetflupyrolimet, which is a rice herbicide, and it's a brand-new mode of action, new to the industry, new to the world and a molecule we're really excited about. I think it's going to bring great benefit to farmers. And it has a nice peak sales potential. We think it's a $400 million molecule at peak sales. So when you think about all of that growth, all of this new technology that we're bringing to marketplace, it's very exciting. At the same time, we made the investment in infrastructure, particularly through the SAP system to allow us to have some significant back office leverage and be able to grow without having to grow the back office. So it's a great time for FMC. And again, I'm really just excited to demonstrate how powerful this portfolio and this business that we've built is and to really start seeing the benefits of the new product pipeline.

Well, it's a great foundation for the discussion today, Andrew, and I definitely want to dive into some of the products that you mentioned, the exciting things going on with regards to the pipeline. But maybe to just set the stage a little bit. I'd be curious to hear your thoughts on kind of baseline market growth. So if we look at Crop Protection chemicals globally and the different categories, such as herbicides insecticides, fungicides, which of those categories do you think will grow the fastest and the slowest over the next several years and why?

Sure. Yes, look, I'll start with just some external reference points and then share more of our FMC view. I think ag by Investor, was one of the reference sources out there. Their forecast for the next couple of years through 2024 would have fungicides growing most rapidly at about 2.5%, with insecticides growing at a similar kind of level and herbicides growing more in the 1.5%. So overall, a low single-digit kind of market backdrop for the next couple of years. And I think in the context of a low-to-no growth market for the past 3, 4 years, it's a nice improvement, a steady step-up and a pretty large overall crop chem market, approaching $60 billion. I think from FMC's perspective, when we look at the market and start looking out a bit further, closer to 2030 kind of horizon, we think that insecticides will actually lead to market growth somewhere in that 3% to 3.5% compounded growth range. We think herbicides will grow at least 2% and fungicides probably still around 3%. And so let me break it down a little bit in terms of what's driving that. A big chunk of what we think is going to be driving that growth is actually regulatory pressure, pushing older market -- molecules out of the market. And the replacement molecules tend to be higher value. So it's not necessarily pure volume growth that we're talking about. Some of that is just value growth as you turn over lower value, older, more harsh chemistries and introduce and grow more rapidly some of the newer chemistries that are a bit more higher value. We are seeing continued resistance issues with -- in a number of classes of products, basically across all herbicide, insecticides and fungicides. That can lead to the need to drive new products, again, typically at a higher price point or using new mixtures or using higher volumes of chemistry to control the pest. So I think if you look at the individual categories themselves, herbicides, a lot of noise around glyphosate and replacement chemicals there. From our perspective, there's a lot of opportunity for chemistry that can help deal with traditional herbicide-resistant weeds and certainly, a lot of our new products, our 2 new herbicides, Isoflex and tetflupyrolimet both fit in that category. On the insecticide space, there's certainly a lot of regulatory pressure on some of the older classes of chemistry that open a lot of room up for diamides as well as for a few other new types of chemistry. And then in fungicides, it's a constant battle to keep innovating with new fungicides, particularly Asian soybean rust in Brazil, where we have a lot of mutation and a very high pest pressure. There's a constant need to keep innovating and bringing new products to market. So look, I think, whereas the last several years, again, we've had a flattish to slight growth market, underpinning the -- on our overall performance, we now have a bit healthier market outlook, again, driven by a number of secular factors around new technologies displacing older technologies but also higher value [ news ] coming to market as well.

Okay. So we've got growth picking up relative to the prior few years. And your own view is maybe a little bit more constructive relative to at least one leading consultant. And you talked about regulatory and resistance issues driving that. I did not hear in the answer anything about commodity prices, right? So I want to ask you about that because they're obviously going through the roof nowadays. How does that change the equation? If it does, do growers change their behavior at all in your experience, Andrew? And if so, how does that dynamic vary across regions of the world or across crops. We sometimes field questions on this. It seems like a very good thing if more money is going into the customer's pocket. But I think a lot of investors struggle with how to process that dynamic quantitatively or financially. How do you think about it internally?

Yes. Look, better ag commodity prices are always a better situation for the industry. And we would certainly frame that as a positive right now. I think we have -- we are probably a little more circumspect in thinking that the relationship is not nearly 1:1. And I think you have to think about it in a couple of stages. There are price levels where acreage goes out of production. And when prices recover to a certain level and it brings more acreage back into production, the biggest, strongest -- the biggest correlating factor to crop protection volumes is acreage, all right? So if you get more acres of cotton in Brazil, we will sell more crop chemistry. Now once you get past that point of bringing most of any follow acres off the sidelines, further increases in price really start getting into sentiment and farmer psychology. And that's where you can get the incremental spray where the value proposition of crop chemistry to protect yield and provide downside protection, not just the essential keeping me -- let me have a harvestable crop, can lead to some additional use of crop chemistry and to some switching to higher value chemistries. It is just not as linear a relationship as you have with increases in acreage. So I think it's -- I would just comment that favorable commodity prices are good for the industry. It is not a 1:1 ratio. Depending on where that -- where you are in the absolute price relative to the attractiveness of putting that incremental acre into production can have a different impact on volumes. Again, once you have all the acreage in production, now you're looking at swapping up in mix and maybe getting incremental sprays for additional insurance value, if you will, that part of the crop protection value proposition. Yes, the other factor that I think doesn't get quite as much attention, but also is an important one. When there's stronger commodity prices, there's typically stronger farmer cash flow. That means cash flow through the whole chain is stronger, and that tends to improve collections. So from a free cash flow perspective, commodity prices are also a positive reinforcement on collections and management receivables. So again, all in all, we think higher commodity prices is very favorable for Crop Protection chemistry. It's just not a linear one-for-one relationship that $1 price increase in commodity X is going to lead to this incremental volume.

Right. That makes sense to me. And just to follow up briefly on that, Andrew, to the extent that you do get incremental sprays, does that tend to happen more in insecticides? Or do you see it more in fungicides as well? How would you characterize that?

I think it can be in all categories, but certainly fungicides because they often have some other plant health benefits, just protecting vitality of the plant in addition to controlling visible fungus. That's a spot where you think a lot about that sort of incremental spray, particularly on high value crops if crop prices are up high. With insecticides, again, that's a more defensive posture. If the crop values are very, very high, you may have taken additional spray just to ensure that you don't have any pests, any insects that are reducing your yield. So it can be a benefit to both.

Got you. Okay. Then maybe to shift over to the pipeline, which is probably one of the most important topics, at least from our vantage point, you've got some world-class R&D capabilities nowadays, and you've laid out some pretty important goals, I think, $2 billion of revenue from the pipeline by 2030 with even higher peak sales potential, I think, closer to $3 billion. And just to put it into context for viewers that may not follow FMC too closely, those are pretty big numbers relative to your sales base of $4.6 billion or $4.7 billion last year. So a couple of questions, a, what in your mind are the biggest risks to delivering? Is it science? Is it competition? Is it regulatory? And then b, 2030 is a long way off. But as you demonstrate progress toward those goals, do you think we'll reach an inflection point whereby investors are maybe more willing to capitalize the future value of the pipe?

Great questions. Look, we're -- I think you're right on the proportions here. This is a major part of the story for FMC is a sustained organic growth play for a long duration. And that's the success in launching these new products. We have 11 new active ingredients that we're bringing to market over the next -- rest of this decade through 2030. To your first question, the gating issues here. Look, by the time a molecule gets into our late-stage development process, late-stage development can take 5 to 7 years, but it's where you're doing all the regulatory studies and the final field trials and you're preparing formulations and getting ready to get a product registered. The science is usually pretty clear at that point. We know the product works. We know how to make it. We understand the competitive products around it because we're seeing -- we're monitoring patent filings and registrations of our competitors, just like they're monitoring ours. So we have a pretty good understanding of the space we'll be launching the products into. We have a very good understanding, technically, of their efficacy. The variable that's hardest for us to control is regulatory. It's the time that it takes to do the field trials and the other studies that are required, and it's the time that it takes regulatory bodies to review the data and approve. So if I would say the biggest uncertainty in schedule for launches in any of these products is regulatory. So we have a pretty significant regulatory infrastructure and internally, a very strong team, that's getting registrations at a pace about twice that of our competitors in the past 3 years. But it is an area that does introduce a little bit of risk. So that, to me, is the biggest risk to timing. The second question here is -- the sort of the bigger picture question about us, how do people start to value that pipeline? Part of it is Show Me, I get it. We did an extensive investor event for those who may not be as familiar with FMC. If you want to go look up our November 2020 Virtual IR day where we went through the entire portfolio and gave adoption curves, et cetera, for our -- the 11 active ingredients that we're introducing on this decade. It gives a better sense of how that comes out. I think the initial success we've had with the launch of Isoflex as -- branded as Overwatch herbicide in Australia. It is a good indicator and a confidence builder. I think as we look ahead to the new products that we're introducing in the next couple of years, particularly 2024 is a big year. We'll be introducing Fluindapyr commercially in China, Mexico and Brazil in 2024 as well as the EU. That's also the year that we have the most very significant introductions of tetflupyrolimet, which I will affectionately call tetflu. It's a rice herbicide, truly game changer, new mode of action, first mode of action in this area in 30 years in the industry. So that product will be introduced in Japan, China and Vietnam, all big rice markets in 2024. So I think as we start to get that early part of the pipeline commercialized, and people can understand and relate a bit how we've talked about them, how we've sized them, how we -- how the growth comes relative to the ramp-up that we've laid out, I'm hopeful at that time that the market will start to more directly value or include -- reflect the value of that pipeline, including some of the interesting stuff that comes a bit later in the decade.

Andrew, if we kind of zoom in the lens a little bit from that long-term pipeline goal, you have interim goals as well. And I think one of them is $200 million to $250 million of sales from new products in 2023, if I'm not mistaken. Are you on track for that today? And what are the key sources of upside or downside variability as you execute against that target?

Sure. Yes. So when we launched the current 5-year plan, when we launched the company at the end of 2018 as a really focused ag sciences company. We did set out new products as a big goal. And the $200 million to $250 million you referenced is specifically for products based on new active ingredients introduced in that time period. We also are introducing a lot of formulations of existing products during that time horizon as well. So yes, I would say, of our growth horizon through 2023, we're expecting $600 million to $750 million in growth from new products, broadly speaking. With about $400 million to $500 million of that coming from new formulations and the balance coming from new active ingredients. This year, in 2021, we're anticipating about $400 million in sales from products introduced in this time period. So that's a combination of new formulations, things like Elevest and Vantacor, which are new formulations of diamides as well as new active ingredients. Flutriafol fungicide, which is Xyway and Lucento, Isoflex and Fluindapyr. So we are well on track to get into that $600 million, $750 million range, $400 million as of this year, $100 million in growth this year alone and new products that have been introduced. So again I think we're on the right trajectory to deliver that to where we have that level of contribution to revenue in 2023 from new products.

Let's ask you a broader question on the R&D experience, for lack of a better word. We hear a lot about product phaseouts. And so from a regulatory point of view, at least from my vantage point, as an outsider looking into the industry, it seems like there's a lot of stick and not so much in the way of carrots to develop newer, greener chemistry that may be more environmentally friendly than some of the incumbent products across the industry. Is that fair or unfair? Does the industry need more in the way of subsidies? Or are there lots of subsidies that just don't get pressed? How would you characterize that?

Yes. I think the phrase I'd use first is cognitive dissonance. I think there's a lot of interest in the industry and with the regulators and interest groups around us, in continuing to reduce the unintended or negative consequences of impacts of use of our products. I think we all recognize the need for crop protection products to help deliver the yield that's needed to provide secure food supply for the world. And the simple math, the math is very simple. You can't feed the world without Crop Protection chemistry. What we need, though, is to continue to improve the balance of impact so that we minimize the impact on off-target species rather in collateral impacts. There's a lot of aspirational statements coming out of different governmental and regulatory bodies. I think your characterization is correct that it's been largely more stick than carrot today. Certainly, there are some minor subsidies or research incentives and programs, particularly around the biological space. But bluntly, they're immaterial to our financials right now. We do gain some support and we certainly appreciate the support. But it certainly doesn't match in intensity or volume the stick element of this. And I think that cognitive dissonance is one of the things that needs to change, right? And it's not just about subsidizing research, although we could certainly look over at the solar industry or other industry, quasi green industries that get much more explicit government subsidy. It's also in the way that the regulators look at the review processes. And the way you think about making it -- so biologicals, for example, where the dream is to have more targeted, softer chemistries, they tend to be more narrowly focused products. They tend to be smaller products. They should be something that moves more quickly through the regulatory regime. And in some countries, that's the case. And in many parts of the world, and particularly one large region that has very strong aspirations in this space, they actually take longer than synthetic chemistry to get through sometimes. So that cognitive dissonance hasn't resolved yet. And I think that's where some broader partnerships and broader collaboration between industry and the government. Yes, we will gladly participate and incentives to do further research to drive more green chemistry. I think that's a great idea. But we'd also like to see processes that allow green chemistry to move through and get on to the market more quickly rather than going through the current, very extended regulatory review.

Yes. I appreciate your thoughts there. A bit of a left field question, but something that occurred to me. You mentioned solar. You hear a lot about subsidies with EVs and so forth, not so much on Crop Protection chemistry. So I appreciate your perspective there. Maybe let's get back on the fairway. So I wanted to ask you a little bit about the partnership deals you're entering with regard to your diamide insecticides. I think you recently inked one with UPL. In my notes here, I'm seeing 5 global deals and dozens of smaller relationships. So maybe you could take a minute or 2 to talk about that. Do you have all the deals that you need or want at this point, Andrew, should we expect more to come? And what does a typical larger global deal look like? What does it entail? And how does it help FMC moving forward?

Sure. Sure. Look, partnerships are a key part of our strategy around the diamides franchise, something we've talked about to some degree. We talked a bit about it when we gave a pretty in-depth review on the patent portfolio 2 summers ago. We'll be giving a broader update in our Q2 earnings call. Just to update a bit more on how significant that partner business has become for us. So don't want to steal entirely Mark's thunder for the Q2 call, but let me share a few things. Certainly, we have over 50 partnership agreements in place today around the diamides. There -- with 5 of the other top 6 players, there are global arrangements. And then with more than 45 local and regional companies, we have partnership agreements in place. We're not done yet. We're continuing. It's largely at the local, single country or multi-country level, particularly in Asia. As much as we've done a lot of work to expand our market reach or market access, there's still a lot of the globe we don't cover. And certainly not -- when you get down to local level geography and crop and combinations, there's lots of places where we can accelerate the growth of the franchise by leveraging others as a route to market. So why do these partnerships work? Well, fundamentally, it's because we have a very strong patent position that prevents generic entry into this space until well after the process patents expire in 2025 and beyond. What we offer partners is the opportunity to enter into the diamide market in advance of those patents expiring, with either supply of formulated products that they can then directly sell or just of the active ingredient themselves -- itself that they can then formulate into their own products. Just particularly interesting if they have other active ingredients in their portfolio for combination formulations that we might not be able to develop on our own. So the partner gets access before the patent expiration, we get the broadened reach and accelerate the growth of the platform. But it comes with a commitment for long-term supply, typically 10 years, well beyond the expiration of the patent. That allows us to continue to fully leverage our investment in manufacturing and get the scale cost benefits of driving higher volume through the manufacturing network. Very capital-efficient for both sides. And it's something -- it's a model that people have been very, very responsive to. So again, on the August call, we'll give a little more color and a little more sizing where things are, but that's the basic structure. You mentioned the UPL agreement. It was the last of the big global majors agreements that we've signed, and it is unique relative to the other ones in that it's the first one we signed that has a manufacturing element. So UPL's world-class manufacturing organization. We have partnered with them. It's a series of agreements over 10 years where we will -- similarly, the way we work with other partnering manufacturing companies, we will provide the process engineers and help them operate the actual process, and they will manufacture Rynaxypyr in India for us and for their own use. It's a similar -- win in similar kinds of structure, only so much detail I can go into. But the same basic construct. And it really does give us a great advantage of being able to partner with and tap into a very -- a world-class manufacturing organization. Reduces the capital outlay for us because we're able to take advantage of some of their capital base for that next slug of capacity. It gives a little diversification in manufacturing sources. Currently, the diamides are produced in Jinshan, China and Mobile, Alabama. So this will give a third location in India where -- from a geographic diversification. And then specifically in the Indian market, look, depending on whose market research you want to believe, UPL and FMC are either #1 or #2 or vice versa. And we're essentially tied for first place in the very fragmented Indian market. Quite simply, they cover parts of the market in crops and geographies differently than we do. So as a way of accelerating the growth of the diamides in India, couldn't think of a stronger partner than UPL. So we're really excited about that partnership. Just got signed very early this year, we'll start to see some real activity much more significantly next year. So this partnership structure. Again, it's a reflection of the strength of the patents. The reflection of the durability of the diamides portfolio. And it's a part of the way we've been proactively managing to make sure that there is no illusory patent cliff here. It's a part of managing the life cycle and the molecule. And by bringing people in, in advance of the patent expirations, we make a much more smooth transition to post patent life. We protect the profitability. And importantly, when you're selling a formulated product or an active ingredient to a partner, there's no SG&A attached to it. So the margins here are actually -- and the returns on capital here are actually quite attractive and comparable to our own direct sales business. So it's been a really, really powerful model for us and one we're really pleased with.

Maybe that's a great segue because you kind of ended the answer on the financial side. Now that's kind of where I was going. It's great when a plan comes together, right? It sounds like you've got all of the elements of the strategy in place as far as I can tell, please disabuse me of that if -- you've got big pieces still to go. But it sounds like a foundation is there to navigate through this transition or rolling wave of patent expirations in various countries on various time lines. What does it mean for growth of diamides? You've been, I think, either side of double-digits in recent years, we talked at the top of the conversation about maybe insecticides broadly growing 3% or 3.5% globally. What is the right trajectory for diamides through the patent expiration? And what's the right margin trajectory to attach to that?

Yes. Look, diamides have been incredibly fast growing. In 2019, we've grown them in the low to mid-teens. 2020, we're growing low double digits. This year, it will be on the high single digits, low double-digit edge. I mean, it's -- they are growing very, very healthily. In a market, as you said, it's -- as we talked about market growth been relatively flattish to low single digits. A big piece of that is within the insecticide market itself. There are several other classes of chemistry that are under significant regulatory pressure. That the higher -- better performing and much more sustainable diamides are a very good substitute for. So I think particularly organophosphates and carbonates where we've seen some large product withdrawals over the past several years. I think you will continue to see that kind of growth. And we're looking at, globally, a $17 billion insecticide market right now. Our hard diamide sales will approach about $2 billion this year. So we're -- they're a significant part of the market. But they're, by no means, fully penetrated. So with the swing between chemistry classes, we think there is a clear path to continue growing on a compound and a growth basis through 2030 in that mid- single-digit range. So we'll decelerate from where we've been in the past several years, but sustained mid-single-digit CAGR through 2030. At the same time, we're not sitting still on the cost to produce these molecules and on our infrastructure. So we are expecting to maintain similar levels of profitability over that time period. Obviously, the scale leverage and a continued process improvement is a piece of that picture. I'm not going to go into all of the details just yet and also because 2030 is still along the horizon. But we certainly expect these to remain a very, very profitable molecule and a very high return business for us through that 2030 horizon at least.

Okay. So I mean it sounds like you would anticipate a pretty steady margin trajectory there in this category.

Yes. Yes. I think so.

Great. Maybe to shift gears to insecticide. You mentioned Isoflex a couple of times, just being launched. I think in the past, you've talked about potential in the $400 million to $600 million range. What are the next mileposts for Isoflex? And what should we be watching out for there?

Sure. So just Isoflex is our serial herbicide for controlling grass weeds, in particular, that are resistant to traditional herbicides. We've launched this year in Australia. That launch has far exceeded our expectations. And we will be rolling out next year in China and Argentina and then in 2024 into the EU and India. The Australia launch has been so strong and the performance in the field has been so positive, we think there's more opportunity for this molecule. So we have been sizing a peak sales range of $400 million to $600 million. We think that the strength of the debut in Australia is pushing our viewpoint to the higher end of that range. Now that'll take through 2030 to reach because you really do have to introduce market by market. And we talked about registrations take time, and that's one of the key gating things in our industry. But certainly, I think Isoflex will be a significant contributor to growth over the near-term horizon. The second piece, I mentioned it earlier is tetflupyrolimet. It is a rice herbicide. Again, it's first new mode of action for -- in that type of herbicide in over 30 years. It is going to be launched in about 20 countries starting in 2023 with Korea, China, Japan, Vietnam in 2024, India in '26 and then Brazil and other countries '27 and beyond. That -- tetflu has a $300 million to $400 million sales potential. Again, we're very excited about its potential, what it's shown in all of the studies. And in both cases, as you mentioned it in I think your opening comments on our pipeline, but just to repeat, there's 0 cannibalization. These are both products that don't overlap any of our current product offerings. So these are purely additive sales to our portfolio. So it's an exciting place. And I think for us, since we're known so much for insecticides, it's exciting to have a couple of big herbicides coming into the portfolio to really balance that -- a little bit more balanced act with the herbicides.

Andrew, I wanted to talk a little bit about market access. I think it's an important issue for the company. You've talked about increasing or enhancing your market access in certain corners of the world like Southeast Asia and I believe India. How do you do that? And maybe you can talk through the financial benefits for FMC? What is...

Kevin, we can't hear you right now. [Technical Difficulty]

We lost you there for a second, Kevin. Can you hear us?

Can you hear me now?

Yes. Sorry, we lost you there for a second. I think you were asking a bit about market access and particularly how that -- what that means financially for the company, but also just commercially.

That's exactly right. Yes, Andrew, just to repeat, I was asking you to talk through your efforts to enhance market access in places like Southeast Asia and India.

Sure. Look, just terminology. We use the term market access to talk about our ability to reach growers, right? And because the distribution channel really does vary between countries. It's not the same thing in every country. So in a place like India, in 2018, we moved to a distribution model using a group of 5 super distributors who then distribute down to a number of local and more regional -- subregional within India distributors. That's been a great shift for us, and it certainly accelerated our growth in India. But it still didn't give us complete coverage of all crops, all regions, all pockets of India. So we've continued to add in second and third tier distributors under that super distributor structure to continue to increase our ability to reach all areas of India. Another place, certainly, Southeast Asia broadly has been a focus, Indonesia. When you think about the geography of that country. Just physically getting among the islands. We have not fully penetrated that country yet. We've made some new inroads this year with some additional distribution partnerships, Vietnam, Thailand, Philippines. But what we're trying to do there is essentially be able to get our products in the hands of more growers. And that's why we -- despite the kind of gross numbers that we've posted, particularly for the diamides, when we say we're not done yet, it's in part because we know we're not reaching 100% of the available market. We've grown significantly. We are in the fifth largest innovation-driven Crop Protection chemical company in the world, but we don't cover everything. And even some of our large competitors still don't cover everything. So it's still a significant opportunity for us. And it has been a significant contributor to volume growth for the past several years and will continue to be a contributor to volume growth. I think you should look, especially Asia, Southeast Asia is placed for continued growth. Eastern Europe would be the other place where we still have some significant opportunities to increase our market access.

Okay. Well a question, Andrew, coming in from the portal here. It's as you mentioned, regulatory pressure on, I think, competitive products to diamides as something that's going to support growth. Are you facing regulatory pressure on any of your current products? And where are you seeing a shifting regulatory landscape as beneficial to current or pipeline products?

Yes. Look, regulatory pressure and product rationalization and registration removal is just a fact of life in our industry. We churn somewhere around 1.5% to 2% of sales every year, where -- either by a regulatory action or by our own withdrawal. We remove older products from the portfolio. This year, it's that 1.5% to 2% range again. A big chunk of it, over half of that headwind is Europe. Bigger -- another big chunk of it is actually in Brazil. It was actually pretty heavily weighted in our Q1 results. In 2020, we actually had a slightly higher headwind because we chose to exit an older product line at year-end, we chose to exit that product line globally. But generally speaking, it's around a 1.5% headwind on any given year from either selective voluntary or involuntary removal of products. Certainly, the region that has the highest pressure on product from a regulatory perspective is Europe. And that's a spot where we invest a lot of time and a lot of energy in protecting our existing products and managing their life cycles. It's also one of the harder places to introduce new products. So the good news is if you have a good product and it's introduced there and well registered there, it's a lot harder for new competition to come in. But it is a constant struggle. It's not something that I characterize as a huge headwind. It's a part of how we manage the renewal of the portfolio. And honestly, it can be positive in that a lot of these older chemistries that tend to have more regulatory challenges often tend to be late in their life cycle, long off patent, lower margin. So then it opens up room for better performing, newer, often proprietary and, therefore, higher value products. So it's actually been a mix enhancer for us. It is a challenge that we constantly manage, and it's -- but it's a part of the structure of the industry. And I think for somebody like us with a pretty strong new product pipeline, it's as much an opportunity as it's a threat.

Great. Well, we have about 4 or 5 minutes remaining, Andrew, and I wanted to kind of get to a couple of additional topics. Number one, Brazil. Would really appreciate an update on your view of chain inventories there. And my sense is that's been normalizing kind of where we stand there. And then the second topic, I want to make sure that we touch was kind of the fun world of raw materials and logistics these days and how you're managing differently through the current environment.

Absolutely. So let's hit Brazil quickly. Look, we had a Brazil Q4 drought disparate impact on FMC in particular because of our crop mix. It was also a low cotton acre year in Brazil, which is -- cotton in Brazil is a big business for us. So the drought in Q4 caused a bit of a backup. We, very consciously in Q1, very openly and consciously said, we're hitting the brakes and shrank the business year-on-year very substantially in Brazil in Q1 so that we would bring down inventories of our products in the channel, right? So to be clear, when we're talking about channel inventory or chain inventory, this is our products -- the inventory that our customers, whether they be distributors or co-ops or large growers directly themselves have on their own shelves. So we wanted to bring that down as we get to the end of the second growing season here in Brazil. Now I'm going into the wintertime now in the southern Hemisphere because we wanted to be -- we wanted the inventories back into a more normal place as we go into what we expect to be a very robust 2021 to 2022 growing season. And particularly, while cotton was a headwind last year, we're expecting a very substantial increase on the order of 15% increase in hectares of cotton in production in Brazil in the coming growing season. So we don't want a lot of products sitting out there at old prices in the channel in the advance of a very -- what we anticipate to be a very healthy market. And at a time where, bluntly, we're raising price. So overall situation in Brazil, I think we feel pretty confident about, we're pretty happy with where our channel inventories are. It was painful in Q1, as everybody saw. It was not ideal, but it was something we felt we needed to do. And again, triggered by the drought in Q4 and then our own particular crop exposures, we wanted to make sure we were in the right place to set up success for the year. So it does tie to your second question, which is raw material costs and logistics and all those fun things. Our strategy in Brazil goes hand-in-hand with our intent to raise prices. And it's to raise prices to offset raw material cost inflation. When I look at our full year guidance, we're anticipating about $100 million headwind on EBITDA from costs, about $40 million to $50 million of that is raw materials and logistics. There's another big chunk, $34 million, which is normalizing R&D expenditures from a depressed level in 2020 due to COVID and the remainder is some SAR or snap back from COVID savings. But that $40 million to $50 million of really fundamentally raw material and logistics costs. Now we're fully intending to offset with price. And quite honestly, we're shooting to raise price above that to help recoup some of the FX gap that we didn't get last year. So our target, we've guided about $80 million in pricing as our target for the year. So that is what we're trying to do to directly take advantage of an opportunity. Look, it's very clear in the market that there are logistics disruptions and higher costs. We are seeing very public price movements from a number of competitors. We're seeing inavailability of certain materials due to supply chain disruptions. FMC has developed a very good capability in being agile and be able to manage through these kinds of disruptions. Going back to 2018's Blue Sky project in China, which caused a lot of disruption in the ag industry, we've shown that we've been able to manage through that kind of volatility. It does -- it did lead to a bit more logistics costs, particularly expedited shipping. Had to do some reconfiguring of our logistics network to keep more product closer to customers to give us a little more flexibility. But we have a good operating model for that. So now they got -- now the issue is go out there and get the price to recover that cost.

Andrew, that's perfect. I said 4 to 5 minutes. You're right on the mark and I feel like we could definitely keep going, a lot of interesting things to talk about. But I want to keep you on time. I want to keep everyone on today's call on time. So we'll leave it there. And with that, thank you so much for your attendance and the insights today on FMC in the industry.

Our pleasure. Great to see you, Kevin. Thanks.

Thanks very much.