The correct option is D Differential action of hormones
The lateral flow of auxin determines the differential activity of vascular cambium. Phloem differentiation requires lower auxin concentrations as compared to those required by xylem differentiation. The initial increase in auxin concentration initiates the phloem differentiation, which in turn induces xylem differentiation when the required auxin concentration is reached, which is maintained towards the inner side. That’s why vascular cambium exhibit higher activity towards centre and differentiation of xylem is always associated with that of phloem.
Thus, the correct answer is option D.