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Prepared for The American Sugar Alliance August 2017

Sugar Market Outlook

Sugar demand, total Food deliveries: Is demand really growing?

How have concerns surrounding genetically modified crops (GM vs. non-GM) affected sugar demand?

What consumer are our customer, food and beverage companies, targeting?

How costly is reformulation?

What is the biggest threat to demand for sugar?

Supply side Availability of refined sugar: Do we have enough?

Is the call for non-GM sugar really affecting our refining capacity?

Trade policy How will the amendments to the Suspension Agreements change our market?

Pricing scenarios A look at pricing scenario for cane, beet, and overall market

Factors affecting the U.S. sugar market

2

USDA showing 2016/17 deliveries up 3.5 over 2015/16—is this growth real??? Debate over guidelines for calories from added sugar Manufacturers casting for any way to cut calories while also staying “Natural”

3

Is USDA-projected 3.5 percent growth for 2016/17 real?

*Estimate Source: USDA, McKeany-Flavell

Cane vs. beet: Between 2014 and 2016, concern over potential labeling laws and a push to “All Natural” supported cane deliveries, but did real growth happen? Large beet crops, higher prices for raw sugar, and delay in labeling laws

may see some demand switch back to beet sugar. Non-reporters may be holding massive inventories—currently counted

as “deliveries” by USDA. “Added Sugars” campaign could negatively impact the public’s

perception of sugar.

Factors affecting sugar demand

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5

Domestic beet & cane sugar deliveries

* Estimate

Growth in sugar use over the past three years appears to have gone to cane refiners.

46% 47% 49%44% 44% 46% 45%

45% 44% 43% 42%46%

54% 53% 51%56% 56% 54% 55%

55% 56%57% 58%

54%

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40%

50%

60%

70%

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Beet sugar domestic consumption Cane sugar domestic consumption

Growth in cane sugar deliveries may be attributed to multiple factors, such as more competitive pricing when raw sugar prices were around $0.2450 in 2013/14, combined with marketing decisions by end users.

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Overview of growth in cane sugar deliveries

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

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Cane Sugar Deliveries to Cereal & Baked Goods to Confectioneryto Dairy & Ice Cream to Beveragesto Other Processed Foods to All Other Food Uses

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U.S. sugar deliveries: beet sugar gaining market share since July 2016

Beet deliveries for the first eight months of 2016/17 are up 19 percent from the same period last season.

More competitively priced beet sugar and high raw sugar prices affect deliveries for refiners.

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Beet Sugar Deliveries for Domestic Consumption Cane Sugar Deliveries for Domestic Consumption

Consumers: Have limited understanding of what “genetically modified” (GM) means. Nevertheless fear GM foods. Overwhelmingly claim to want transparency, such as labeling of

products containing GM ingredients.

How does the “man on the street” feel about the genetically modified organisms (GMOs) debate?

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9

Domestic sugar deliveries

* Estimate Source: USDA, McKeany-Flavell

Despite shifts in consumer opinion, the actions of many food and beverage companies suggest that cost remains a chief concern.

Impact of GM debate on specific categories of major sugar use

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Around 5 percent of sugar usage in this category has a cane-only designation This segment has seen its share of ingredient changes in the last few

years: Industry-wide reduction of sugar content in cereal formulations

Move away from artificial coloring and flavoring for some products

Cereals sector

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Sector is hard to track as 70 percent of this category may be considered artisanal products Of the major brands, very little is labeled non-GM and typically falls into

the organic category Our best estimate is roughly 1-5 percent of usage involves non-GM

claims

Bakery sector

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Sugar deliveries to cereal & baked goods sector

*Forecast based on year-to-date data (October through May)

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1,000,000

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Deliveries to Cereal & Baked Goods, Beet Sugar Cane Sugar

Around 30-35 percent of confectionery sugar usage has a cane-only designation. This sector was one of the first to see significant switch to non-GM

ingredients.

Confectionery sector

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*Forecast based on year-to-date data (October through May)

Sugar deliveries to the confectionery sector

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Confectionery has traditionally been a large user of cane sugar.

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Deliveries to the Confectionery Industry, Beet Sugar Cane Sugar

Over 60 percent of sugar usage in this category has a cane-only designation when looking at manufacturers producing a variety of dairy products, including ice cream. When narrowing the category to companies that manufacture ice cream

exclusively, however, cane-only sugar use drops to about 28 percent. Keep in mind that in order for milk to be non-GMO, cows cannot be given

bovine growth hormone (rBST/rBGH). Dairy was an area where re-melters were able to gain market share.

Ice cream & dairy sector

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*Forecast based on year-to-date data (October through May)

Sugar deliveries to ice cream & dairy sector

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Eight years of movement away from beet—could be an increase in deliveries by third-party melt stations.

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Deliveries to Ice Cream & Dairy Industry, Beet Sugar Cane Sugar

Who is your customer (food & beverage companies) marketing to?

And who is sensitive to the GM food debate?

Millennials...and Gen-Xers...and Baby Boomers...and the Greatest Generation Those with college degree more likely to view GM favorably New mothers Men (47 percent favorable) vs. women (28 percent favorable) Urban vs. suburban vs. rural Variations by race, ethnicity 50 percent of consumers always or sometimes read food labels

The role of demographics in buying patterns

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67 percent of consumers are not willing to pay a premium. 11 percent are willing to pay a premium. Millennials are most likely to pay a premium.

Willing to pay for non-GM?

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Challenges to reformulation

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Domestic availability of ingredients Complexity of ingredient statement End-product category Plant location Depth of supply chain

Case study 1: baked goods, bread

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Ingredient

Price

per lb, FOB

Possible

Non-GM

Replacement

Alternate

Ingredient Price

per lb, FOB

Basic Ingredients for a Loaf of Bread

Bleached enriched flour $0.13 n/a $0.13

Sugar (beet) $0.30 Sugar (cane) $0.35

Soybean and/or canola oil $0.34 Palm oil $0.39

Wheat gluten $0.93 n/a $0.93

Salt $0.10 n/a $0.10

Total $1.80 $1.90

Delta between using GM and non-GM ingredients $0.10

n/a: non-GM ingredient not applicable

Case study 2: confectionery, chocolate

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Ingredient

Price

per lb, FOB

Possible

Non-GM

Replacement

Alternate

Ingredient Price

per lb, FOB

Basic Ingredients for a Chocolate Bar

Sugar (beet) $0.30 Sugar (cane) $0.35

Milk chocolate $2.20 n/a $2.20

Cocoa butter $2.85 n/a $2.85

Lactose $0.27 n/a $0.27

Milk fat $2.25 n/a $2.25

Soy lecithin $1.65 Non-GM soy lecithin $3.30

Total $9.52 $11.22

Delta between using GM and non-GM ingredients $1.70

n/a: non-GM ingredient not applicable

What is the biggest threat to sugar demand?

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The industry chases the consumer

Dec. 2009: General Mills to Reduce Sugar in Kids’ Cereals

2014: Mexico Sweetened Beverage & Junk Food Taxes

Nov. 2014: Berkeley, CA Soda Tax

Apr. 2015: Chipotle Makes GMO-Free Announcements

Dec. 2015: Hershey to Move to Cane Sugar in Major Products

2016: World Health Organization Backs 20-50 Percent Sugar Taxes

Apr. 2016: Mars to Cut Added Sugar in 3 Yrs. for Select Products

May 2016: FDA’s New Nutrition Label Identifying Added Sugars

Jun. 2016: Philadelphia Passes Soda Tax Measure on Third Try

Nov. 2016: SF, Oakland, Albany, & Boulder Pass Soda Taxes

Nov. 2016: Cook County Approves Sweetened Beverage Tax

2016: Kraft Switches More Top Products to Cane Sugar, Organic

Dec. 2016: Nestle Pledges to Cut Sugar by 40 Percent by 2018

“The new tobacco?”

Source: Google

Food marketing class actions increased from 20 in 2008 to over 425 active cases in 2015 and 2016.

75 percent of these cases are filed in four states: California, 36 percent; New York, 22 percent; Florida, 12 percent; and Illinois, 7 percent.

Suits generally fall in 10 categories; “all natural” “ECJ” and “added sugar” are three that certainly impact sugar

Lawyers’ filed over 50 ECJ lawsuits between 2012 and 2014. Many are active again based on May 2016 FDA guidance, finding that describing sweeteners made from sugar cane on food labels as “ECJ” is false or misleading

August 2016 Law Office of Jack Fitzgerald field class actions asserting “excessive consumption of added sugar is toxic to the human body” and…. Under California’s Unfair Competition Law, cereal makers’ marketing of products with added sugar is likely to deceive consumers and is “immoral, unethical, unscrupulous, or substantially injurious to consumers.

Example of how frivolous these class actions are: one active complaint alleges that Subway “Footlong” sandwiches were less than 12 inches long.

Class action law suits – money bag for lawyers

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Source: U.S. Chamber Institute for Legal Reform, Feb. 2017

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Sugar or beverage taxes around the world

Denmark repealed 80-year old fat and sugar taxes in 2013 and 2014. Ireland and the UK’s soda taxes will go into effect in 2018.

Sugar or beverage taxes in place or announced

Sugar or beverage taxes under recent consideration

Berkeley, CA Boulder, CO San Francisco, CA Albany, CA Oakland, CA Philadelphia, PA Cook County, IL (Chicago) Seattle, WA Santa Fe, NM? Voters rejected this tax Portland, OR? Connecticut?

Sweetener & soda taxes in the U.S.

Arkansas adopted a tax on all soft drinks in 1993.

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Sugar supplyIs the U.S. market in balance? Is there enough refining capacity and raw material to capture all the move to non-GMO? What is Mexico’s role within the U.S. sugar market?

Deliveries of cane sugar increased by nearly 654,000 STRV from 2012/13 to 2015/16 Total deliveries of cane sugar in 2015/16 equaled 6.12 million STRV

Do we have enough non-GM refined sugar to match demand?

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Cane deliveries in 2015/16 totaled 6.12 million STRV Combined domestic raw production and imports of 7.21 million STRV On paper, the supply of cane sugar is adequate—however, not all imports ended in the hands of cane refiners

*Domestic raw sugar represents 53 percent of non-GM supply to U.S. refiners, and imports are the remaining 47 percent, so imports are critical to cane refiners maximizing capacity

2015/16 Season

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Is enough non-GM sugar available?

Chart excludes carryover stocks

GM Sugar

Supply, 41%

Non-GM

Sugar Supply,

59%

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Monthly cane sugar deliveries vs. capacity

Capacity is based on a operating schedule of 10 days on, 4 days off

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How are imports set under the amended Suspension Agreements?

* USDA may request an increase after Apr. 1, from Mexico first, from other countries if needed. Source: McKeany-Flavell

On Oct. 1, the minimum Base Export Limit is set at 70 percent of expected need for Mexican sugar as of July’s WASDE forecast.

Only 30 percent of that limit may enter between Oct. 1 and Dec. 31.

Before Apr. 1, USDA can ask DOC to increase the Export Limit if a sugar shortage is anticipated.* After Apr. 1, the remaining volume of the Export Limit may enter the U.S.

Up to 55 percent of that limit may enter before Apr. 1.

The full Export Limit is assigned based on the March WASDE, effective Apr. 1

Export Limit set at 80 percent of target volume based on Dec. WASDE.

July’s WASDE forecast sets the Base Export Limit for the next season.

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

U.S. Beet

U.S. Beet (California)

U.S. Cane

Mexico

Key: Note: sugarcane has a multiyear planting cycle.Planting Harvest

Approximately 65 percent of imports have gone to cane refiners in recent years Highest import volumes of Mexican sugar are seen between February and May

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U.S. monthly imports of Mexican sugar

Source: USDA

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Approximately 65 percent of imports have gone to cane refiners in recent years New amendments to the Suspension Agreements place Mexico as the de-facto largest raw-sugar-quota holder, limiting refined imports

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Breakdown of imports of Mexican sugar

* Estimate Source: USDA

25%

11%

24%

38%

23%

41%

26%

67%53%

42%39% 37%

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Estandar Imported from Mexico Refinado Imported from Mexico Total U.S. Sugar Imports

Domestic ending stocks by feedstock

* Estimate Source: FSA, McKeany-Flavell

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Cane refiners’ carryout expected near 15-year lows…

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All Beet Processor Stocks All Cane Processor and Refiner Stocks

* Estimate Based on projections prior to added TRQ and Mexico quota

The U.S. does require imports: Where are they coming from?

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0.5

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4.0Million STRV

U.S. Imports of Mexican Sugar Other Imports

Will sugar be delivered against the new quotas? For TRQ, mostly. For Mexico, likely little or none.

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With stocks-to-use projected at 8.8 percent, USDA acts

* Estimate Source: USDA, McKeany-Flavell

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2011/12 2012/13 2013/14 2014/15 2015/16 2016/17* 2017/18*

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Additional Mexico Quota

Additional Tariff-Rate Quota

Imports from Mexico

Other Program Imports

Tariff-Rate Quota Imports

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Domestic sugar market timeline: contracted share of industrial use

Source: Trade sources

0%

20%

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100%

2015 2016 2017 2018 2019

Market pricing

* Estimate

Impact on domestic beet sugar industry based on managed supply

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20

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s pe

r po

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Refined Beet Sugar, FOB Mill Mexico Floor Price (delivered, Chicago) Beet Loan Rate

Projected Beet Sugar, FOB Bulk Projected Cane Sugar, FOB Bulk Refined Cane Sugar, FOB mill

Projection