USDA Outlook Forum Sugar Outlook: HFCS – The Wildcard in the US/Mexico Sweetener Market February 25, 2011 Paul Bratley Sr. Director, Global & NA Beverage Markets

"This presentation was prepared by the author in his personal capacity. The opinions expressed herein are the author's own and do not necessarily reflect the view of my employer, Corn Products International, Inc. "

Corn Wet Milling Industry Fundamentals Market Issues, Consumption & Industry Action Trade with Mexico

“To pretend that a product sweetened with sugar is healthier than a product sweetened by high fructose corn syrup is totally misguided.” Michael Jacobson, Ph.D., Executive Director, Center for Science in Public Interest “There’s no substantial evidence to support the idea that high fructose corn syrup is somehow responsible for obesity.... I think there’s this overreaction.” Walter Willett, Ph.D., Chairman of the Nutrition Department, Harvard School of Public Health ( The New York Times, July 2, 2006) Sugar is Sugar / Myth versus Reality “This is a marketing issue, not a metabolic issue. The real issue is not high fructose corn syrup. It's that we've forgotten what a real serving size is. We have to eat less of everything.” David Klurfeld, Ph.D., USDA’s Agricultural Research Service Source: Corn Refiners Association (CRA)

Sugar is Sugar / Myth versus Reality “HFCS is the chemical and nutritional equivalent of table sugar (sucrose). The two substances have the same calories, the same chemical composition and are metabolized identically.” Arthur Frank, M.D., Medical Director George Washington University, Weight Management Program The Washington Times December 2006 “Once absorbed into the bloodstream, the two sweeteners (sugar and high fructose corn syrup) are indistinguishable.” American Dietetic Association Hot Topics paper on High Fructose Corn Syrup, December 2008 “Because the composition of HFCS and Sucrose are so similar, particularly on absorption of the body, it appears unlikely that HFCS contributes more to obesity or other conditions than sucrose.” American Medical Association Report 3 of the Council on Science and Public Health (A-08), June 2008 Source: Corn Refiners Association (CRA)

Obesity and US Sweetener Deliveries per Capita Source: Behavioral Risk Factor Surveillance System,CDC and USDAERS Source: USDA Obesity levels have increased significantly since 2000 but sweetener deliveries per capita have decreased by 18 lbs. with HFCS deliveries decreasing by nearly 13 lbs.

Sweetener intake up only +58 cal/d since 1970 Source: U.S. Department of Agriculture, Economic Research Service Calories: average daily per capita calories from the U.S. food supply, adjust for spoilage and other waste. Loss-Adjusted Food Availability Data

Sales Trends in Major Food Categories before and after switch from HFCS Source: Nielsen Company Food companies believe they are responding to the needs and wants of their customers by switching from HFCS however there appears to be little evidence to support their decisions either scientifically or economically.

Costs of Switching from HFCS to Sugar Formulary –Switching from HFCS to another sweetener (honey,sugar alcohols, etc.) can increase a baked good's cost 140% to 300% depending on sweetener type and baked good type. Switching from HFCS to granulated sugar or another sweetener can substantially increase costs and lower profit margins. Source: Institute of Food Technologists / Corn Refiners Association

Status of Proposed Soda Taxes Obesity is a very real problem but in most cases proposed soda taxes appear to be more about fighting deficits than waistlines. Source: Corn Refiners Association

Food formulators still are finding new uses each year for HFCS as new product introductions still continue to rise As sweetener formulations become more complex, HFCS will increasingly find its way into new products. # of Launches HFCS has properties beyond sweetness that should insure its place in the U.S. & Mexico markets for years to come. It’s soluble, retains moisture, controls crystallization and blends well with other sweeteners. Source: Innova Market Insights

Activities of the Corn Refiners Association Petitions FDA for Use of Corn Sugar as alternative name for HFCS The equivalence of high fructose corn syrup and sugar Consumer confusion regarding the nature and content of high fructose corn syrup Superiority of corn sugar as common or usual name for high fructose corn syrup Launch consumer education TV campaign and sweetsurprise.com & cornsugar.com websites – sugar is sugar and is fine in moderation

Corn Wet Milling Industry Fundamentals Market Issues, Consumption & Industry Action Trade with Mexico

The winding road to free trade of sweetener between the US and Mexico Jan Mexico’s National Chamber of Sugar and Alcohol Industries files application for anti-dumping investigation. Claim US exports of HFCS being sold at dumped prices threatening Mexico’s sugar industry with material injury was the period of the investigation. –Provisional antidumping duties were imposed in June Jan Mexican Government imposes 20% tax on soft drinks and other beverages that use sweeteners other than cane sugar. –Eliminates all exports of US HFCS to Mexico and severely damages domestic producers. –Led to WTO case against Mexico. Significant damages eventually awarded to affected parties. Feb Coca Cola Femsa wins appeal against SHCP to use HFCS. Oct TRQ for exports of Mexican sugar and US HFCS up to 250 K tons (dry bases). Jul USDA announces that US and Mexican government trade officials had negotiated an agreement to end the dispute over US-Mexico sugar trade. The details of the agreements were: –Effective January 1, 2008, US and Mexico will not impose duties on imported HFCS/sugar –No quantitative restrictions between the two countries on HFCS and sugar trasde Jan A NAFTA tribunal unanimously upheld, that Mexico had breached its obligations under the trade agreement by discriminating against beverages sweetened with HFCS. The tax to soft drinks were eliminated.

U.S. & Mexican Sugar Prices ($/cwt) Mexican Prices: 50 kg bags, delivered Mexico City, SNIIM-ECONOMICA, U.S. Prices: Bulk Refined Sugars, FOB Midwest plants, M&BN low end average Even in the current corn market, U.S. and Mexican sugar continue to be supportive of HFCS pricing

US HFCS Exports to Mexico & Sugar Stocks to Use Source: USDA Sugar and Sweetener Outlook Given sugar pricing and stocks to use levels in the US and Mexico, 2011 exports could exceed 1.2 MM MT dry

US & Mexico’s Cola Consumption Per Capita Source: Euromonitor Mexico’s consumption of Reg. Cola forecast to grow at 1.3% per year through 2015 while US consumption expected to decline by 2% to 4%

US & Mexico’s Cola Consumption Total Volume (MM litres) Source: Euromonitor Total combined Reg. Cola volume forecast to decline by 0.8% through However there is significant opportunity for HFCS to increase share vs. local sugar

Corn Wet Milling Industry Fundamentals Market Issues, Consumption & Industry Action Trade with Mexico

Corn Wet Milling 101 Wet Mill Separates starch from fibre, protein & germ (oil) Saccharification Corn Syrup 26 to 63 D.E Modified & Unmodified Starches HFCS 42/55 Dry Dextrose Ferm. Feedstock Liquid Dextrose Finished Product Each box represents an area of possible constraint Ethanol

HFCS Shipments Increasing export demand has mostly offset annual declines in the domestic market resulting in a CAGR of -0.2% since Shipments are estimated to increase by just over 1% per year since 2008 Source: USDA, Connell Commodities

Industry finding new uses for CWM feedstocks Del Monte Fresh Produce With NatureWorks® PLA packaging Lesaffre yeast a co-location venture with ADM DuPont™ Sorona® polymer, a co-location venture with Tate and Lyle Source: Mintel GNPD Blue Lake Citrus juice bottles now released and made from 100% corn Supply and demand equilibrium is being maintained through new uses for CWM feedstock, closing the least efficient mills (Decatur, AL & Dimmitt, TX) and not adding unneeded capacity (Fort Dodge, IA)

Cumulative Changes in HFCS Prices vs. Corn Source: Connell Commodities, CBOT, Cumulative prices have increased to reflect higher raw material costs. The 2012 corn strip is currently $.40 to $.50/bu higher than it was during the contracting period for Corn Futures (absolute value) HFCS Price (cumulative change)

U.S. Corn Utilization Growing demand base will keep upward pressure on corn prices

2012 Corn Sweeteners Outlook Factor Potential Price Level 2012 Corn Futures Impact Sugar Market Corn Sweetener Exports Reformulations/New Launches / Finishing Channel Utilization Overall Sentiment

HFCS turning the “Corn”-er in public perception? “Pickles” comic strip from 1/19/2011