1. 1 www.codevasf.gov.br Investment Opportunity in Pineapple in the Valley of the São Francisco and Parnaíba Rivers INTEGRATED AND SUSTAINABLE AGRIBUSINESS PROJECTS

2. 2 www.codevasf.gov.br Project Team PRESIDENT OF THE REPUBLIC MINISTER OF NATIONAL INTEGRATION Luiz Inácio Lula da Silva Geddel Vieira Lima CODEVASF DIRECTORY President: Orlando Cezar da Costa Castro Cabinet Chief: Manoel Geraldo Dayrell Director of the area of Integrated Development and Infra-Structure: Clementino Souza Coelho Executive Secretary: José Eduardo Borella Director of the area of Irrigation Companies Management: Raimundo Deusdará Filho Executive Secretary: Frederico Calazans Machado Director of the Area of Hydrografic Basins Revitalization: Jonas Paulo de Oliveira Neres Executive Secretary: Silas Macedo Executive Manager of Strategic Administration: Alexandre Isaac Freire Executive Secretary of Administrative Management and Logistic Support: João Honório Carvalho Ramos

3. 3 www.codevasf.gov.br Agenda Introduction Business Model Profitability Analysis Irrigation Projects (CODEVASF)

4. 4 www.codevasf.gov.br INTRODUCTION Project Description The project is a governmental initiative, aiming to attract investments to the Valley of the São Francisco and Parnaíba Rivers (web page: http://www.fundace.org.br/pins). PENSA Agribusiness Intelligence Center. PENSA researchers are responsible for the business models proposition, economic and marketing analysis and for the interaction with potential investors tailoring the analysis to their particular needs (web page: http://www.pensa.org.br). CODEVASF São Francisco and Parnaíba Development Company, which the mission is to develop economically and socially the Valley of the São Francisco and Parnaíba Rivers (web page : http://www.codevasf.gov.br).

5. 5 www.codevasf.gov.br Global Pineapple Demand +4,92% +2,69% -1,79% +6,96% Source: FAO. Why Investing in Pineapple Production and Exports?

6. 6 www.codevasf.gov.br Low occurrence of fusariose; Shorter production cycles; Reduced problems with plant diseases; High yields with irrigation techniques; São Francisco river has a high quality water for irrigation; Climate conditions favor product standardization; Land availability; Growth of international demand; Possibility of exports during market availability; Why Investing in Pineapple at the Valley of the São Francisco and Parnaíba Rivers Valley?

7. 7 www.codevasf.gov.br Business Model Strategies for the Agricultural Anchor: 1. Vertically Integrated Agricultural Production 2. Vertically Coordinated Agricultural Production Own Production Vertically Coordinated Growers Anchor Company Retail Food service Industries CONSUMERSCONSUMERS Public Irrigation Project with Private Management

8. 8 www.codevasf.gov.br Coordinated GrowersCooperativeAgricultural AnchorInfra Structure Firm -Producing pineapple contracted with the anchor company, following agreed quality standards; - Implementing on farm irrigation systems; - Coordination of small holders; - Technical assistance; - Joint use of equipments; - Joint purchase of selected inputs; - Representation of small holders; - The right to use the land will be conceded to selected growers; - Sustainable contracts with selected coordinated growers; - Determination of quality standards; - Packing or industrialization of raw material; - Marketing; - Payment of the water to the water management firm; - Farming on its own area; -Supplying water for irrigation at the right quality and quantity; - Maintenance of the common infra structure for irrigation; Players’ Role Specification

9. 9 www.codevasf.gov.br Standard Sheets for Economic Analysis Pineapple Economic Viability Analysis Investments Graphs Cash Flow Consolidated Chain Agricultural Production Packing Detailed PH Costs Detailed PH Costs Results and Cash Flow PH Detailed Agricultural Cost Results and Cash Flow Analysis Chain Summary Inputs Summary Inputs Packing House Agricultural Cost Packing Packing House Costs Comparative Analysis Sensitivity Analysis Price Level

10. 10 www.codevasf.gov.br Assumptions – Agricultural Production Land area considered: 600 ha (50% with contracted growers); 2 years for total land occupation; 20 years of time horizon; Dripping Irrigation System; Investments (Financing with 100% own capital, conservative scenario); −Investment (R$): 6,480,000 (US$ 3,502,000.00). −Operating Costs (R$/year): 4,428,000 (US$ 2,393,000.00). Agricultural production average cost: R$3,75/box of 15Kg (US$ 2.02/box); Yields per cycle : 60 tons / ha; Average selling price: R$6.01/cx (15kg) (US$ 3.24/box); Exchange Rate: 1 US$ = R$ 1.85;

11. 11 www.codevasf.gov.br Assumptions– Packing House Production Capacity : 1,200,000 boxes/ year; PH will be built during pineapple orchards implementation; 20-year-long project; Investments (Financing with 100% own capital, conservative scenario); −Packing House (R$): 969,211.19 (US$ 523,897.00). −Certifications (R$):12,500.00 (US$ 6,756.00). −Operation (R$/ano): 10,574,000.00 (US$ 5,715,000.00). Average cost per box of 15 Kg: R$ 8.64 (US$4.67); Product destination: 90% for exports and 10% for the Brazilian internal market; Average selling price : R$12.68/box (US$ 6.85 - external market) and R$11.00/box (US$ 5.95 - internal market); Exchange Rate: 1 US$ = R$ 1.85;

12. 12 www.codevasf.gov.br Agricultural Production Cost Source: PENSA * Petrolina Juazeiro region is chosen for the financial analysis. R$/Ha 3,352 8,014 720 63 7 780 640 345 R$ - R$ 2.000,00 R$ 4.000,00 R$ 6.000,00 R$ 8.000,00 R$ 10.000,00 year 0 4 - DESPESAS ADM./GERAIS 3 - MÃO-DE-OBRA 1- INSUMOS year 1 LABOR- MECHANICAL OPERATIONS GENERAL EXPENSES AG INPUTS Exchange Rate: 1 US$ = R$ 1.85

13. 13 www.codevasf.gov.br Revenues x Costs Source: PENSA Exchange Rate: 1 US$ = R$ 1,85

14. 14 www.codevasf.gov.br Cash Flow for the Agricultural Activity Source:PENSA Exchange Rate: 1 US$ = R$ 1,85

15. 15 www.codevasf.gov.br PH: Revenues x Costs Source: PENSA Packing House 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 Ano 0 1 2 3 4 5 6 7 8 9 10 Ano 11 Ano 12 Ano 13 Ano 14 Ano 15 Ano 16 Ano 17 Ano 18 Ano 19 Ano 20 R$ thous CostsRevenues Exchange Rate: 1 US$ = R$ 1.85 Years 1 to 20

16. 16 www.codevasf.gov.br Cash Flow Agricultural Activity Source: PENSA Cash Flow Agricultural Activity (1.500) (1.000) (500) 0 500 Million R$ Cash Flow (1.009422 Year 0 1 2 3 4 5 year 6 7 Year 8 9 10 Year 11 Year 12 Year 13 year 14 Year 15 Year 16 Year 17 Year 18 Year 19 year 20 Exchange Rate: 1 US$ = R$ 1.85

17. 17 www.codevasf.gov.br Consolidated Analysis of Revenues and Costs Source: PENSA Exchange Rate: 1 US$ = R$ 1.85 Years 1 to 20

18. 18 www.codevasf.gov.br Years 1 to 20 Consolidated Cash Flow Source: PENSA Exchange Rate: 1 US$ = R$ 1.85

19. 19 www.codevasf.gov.br Financial Analysis Source: PENSA Agricultural ActivityPacking HouseConsolidated IRR: 16.70%IRR: 28.36%IRR: 21.18% NPV: R$ 10,329,220 NPV: US$ 5,583,416.00 NPV: R$ 21,145,790 NPV: US$ 11,429,000 NPV: R$ 31,474,009 NPV: US$ 17,012,970 Capital Need Fixed AssetsOperation (R$/year) AgriculturaR$ 6,480,000 (US$ 3,502,000)R$ 4,428,000 (2,393,000) Packing House969,000 (US$ 523,000)R$ 10,574,000 (US$ 5,715,680.00) Exchange Rate: 1 US$ = R$ 1.85

20. 20 www.codevasf.gov.br Comparative Analysis Source: PENSA and FNP. * Petrolina – Juazeiro Region 45 60 Canápolis Valley of the São Francisco River * Yields (ton/ha) Exchange Rate: 1 US$ = R$ 1,85

21. 21 www.codevasf.gov.br Valley of the São Francisco and Parnaíba Rivers* X Canápolis Although it has a higher total cost, the cost per box is lower (2,6%<), due to the higher yields in the Valley of the São Francisco and Parnaíba Rivers. Source: PENSA and FNP. * Petrolina – Juazeiro Region Exchange Rate: 1 US$ = R$ 1.85 Average Cost per box - R$ Valley of the São Francisco and Parna í ba Rivers X Can á polis R$ 0.33 R$ 0.61 R$ 0.17 R$ 0.59 R$ 0.36 R$ 0.60 R$ 0.34 R$ 1.99 R$ 2.84 R$ 0,00 R$ 0,50 R$ 1,00 R$ 1,50 R$ 2,00 R$ 2,50 R$ 3,00 R$ 3,50 R$ 4,00 R$ 4,50 Can á polis - Irrigated (R$ 4.11 – US$ 2.22) Valley of the São Francisco and Parna í ba Rivers – Irrigated (R$ 3.71 – US$ 2.01) 5 – LAND COST4 – GENERAL EXPENSES3 - LABOR2 – MECHANIZED OPERATIONS1 – AG INPUTS

22. 22 www.codevasf.gov.br Valley of the São Francisco River* X Canápolis Source: PENSA *Petrolina - Juazeiro Agricultural Activity Comparative Analysis RegionIRRNPV Canápolis16.10% R$8,740,860 (US$ 4,724,789.00) Valley of the São Francisco and Parnaíba Rivers* 16.70% R$10,329,220 (US$ 5,583,362.00) Exchange Rate: 1 US$ = R$ 1.85

23. 23 www.codevasf.gov.br Logistics : Valley of the São Francisco River * X Canápolis (MG) Source: SIFRECA/ESALQ/USP * Petrolina-Juazeiro Exchange Rate: 1 US$ = R$ 1.85 Comparative Freights R$/tons Valley of the São Francisco and Parna í ba Rivers X Can á polis 0,00 10,00 20,00 30,00 40,00 50,00 60,00 70,00 80,00 90,00 Canápólis - Santos (755km) Valley of the São Francisco River*-Salvador (513km) R$/ton

24. 24 www.codevasf.gov.br São Francisco River Natural Conditions x Ideal for Pineapples AspectIdealValley of the São Francisco River* Temperature 22º C and 32º C21 º- 31 º C Precipitation 1,000 to 1,500 mm/year 500 - 600 mm/year Luminosity 2,500 and 3,000 h/year 2,300 to 2,800 h/year Altitude Lower than 400 m300 m Production Cycle Around 19 months 1 o harvest and 14 months the new planting time Around 24 months Soil Depth >75 cm >= 90 cm Soil Texture Medium texture (from 15% to 35% of argila and more than 15% of sand) Sandy texture PH 4.5 to 5.54.5 to 6.8 Humidity >75%54 - 67% Source: EMBRAPA and PENSA. * Petrolina - Juazeiro

25. 25 www.codevasf.gov.br Annual Tax Generation: Total: R$ 1,086,000. –Agricultural Production: 54%; –PH : 46%; Coordinated agricultural production (300 ha, 50% of the total area): –16 coordinated independent growers; –Net payoffs generated per family R$1,508.00; –Farm size of around 19 ha each; Job Generation : 1 worker/ha; Agriculture: 1,500 jobs for a area of 600 ha; Direct jobs: 600. Indirect : 900. Packing House: 43 employees; Benefits for the Social and Economic Development

26. 26 www.codevasf.gov.br For a project of 600 hectares: Ag input firms revenues: R$ 3.362.000; Expenditures with logistics : R$ 985.000; Value Adding activities by its processing; Economic activity diversification; Introduction of new production technologies; Benefits for the Social and Economic Development

27. 27 www.codevasf.gov.br Sensitivity Analysis – Agricultural Activity 80%90%100%110%120% 80%15.90%13.22%9.10%#NÚM!#DIV/0! 90%18.21%16.34%14.03%10.82%4.59% 100%19.89%18.39%16.69%14.67%12.01% 110%21.22%19.93%18.55%16.99%15.18% 120%22.31%21.17%19.97%18.68%17.25% Price to the PH (R$/box) Cost (R$/box)

28. 28 www.codevasf.gov.br Sensitivity Analysis– Packing House 80%90%100%110%120% 80%#NÚM!#DIV/0!#NÚM! 90%15.71%#DIV/0!#NÚM! 100%26.37%22.95%15.11%#NÚM! 110%30.55%28.93%26.80%23.66%17.29% 120%33.32%32.28%31.06%29.58%27.67% Exporting Price (R$/box) Packing House Cost (R$/box)

29. 29 www.codevasf.gov.br New Irrigation Projects Jaíba (66,000 ha); Salitre (31,330 ha); Pontal (8,000 ha); Baixio do Irecê (60,000 ha); Fonte: PENSA

30. 30 www.codevasf.gov.br 1 2 3 4 JAÍBA – MG (110 thousand ha) BAIXIO DE IRECÊ – BA (54 thousand ha) 3 SALITRE – BA (32 thousand ha) 4 PONTAL – PE (8 thousand ha) 1 2

31. 31 www.codevasf.gov.br Jaíba

32. 32 www.codevasf.gov.br Salitre

33. 33 www.codevasf.gov.br Pontal

34. 34 www.codevasf.gov.br Baixio do Irecê

35. 35 www.codevasf.gov.br Responsible Team CODEVASF Director of the area of Integrated Development and Infra-Structure Clementino de Souza Coelho Board Assistant of the area of Integrated Development and Infra-Structure Alvane Ribeiro Soares First Secretary of the area of Integrated Development and Infra-Structure Guilherme Almeida Gonçalves de Oliveira PENSA Coordinator: Prof. Dr. Marcos Fava Neves Executive Manager of the Project: Luciano Thomé e Castro Executive Manager of the Project : Ricardo Messias Rossi Executive Assistant of the Project: Vinicius Mazza da Silva Executive Assistant of the Project : Marina Darahem Mafud Technical Team Responsible Researcher: Ricardo Messias Rossi Assistant Researcher: Helio Afonso Braga de Paiva Contributor: Ricardo Kouiti Santos Iguchi Translation: Central de Traduções

36. 36 www.codevasf.gov.br For further Information: E-mail: pins@fundace.org.brpins@fundace.org.br Mail Address: Av. Pres. Vargas, 2001- Conj. 143/144, Jardim América Ribeirão Preto - SP - CEP: 14.020-260 Tel.: +55 (16) 3911 6088 INTEGRATED SUSTAINABLE BUSINESS PROJECT