1. 1 www.codevasf.gov.br Investment Opportunity in Dried Fruits in the Valley of the São Francisco River INTEGRATED SUSTAINABLE BUSINESS PROJECT

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 River (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 interacting 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 Dried Fruit Global Exports 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 20002001200220032004 From 2000 to 2004, the dried fruit exports growth was 27%, corresponding to an increase of over 79 thousand tons. Source: FAO

6. 6 www.codevasf.gov.br Shorter production cycles; Reduced problems with crop plagues and diseases; High yields with irrigation; São Francisco River has a high quality water for irrigation; Climate conditions favor product standardization; Land availability; Growing demand; Why investing in Dried Fruits in the Valley of the São Francisco River?

7. 7 www.codevasf.gov.br Introductory Concepts on Dried Fruits Product: Dried fruit or Dehydrated. Fruit with reduced content of water Process: Drying Partial dehydration of a whole mature fruit or pieces of it, towards 15% to 3% of humidity. This process may be undertaken with the use of sun light, gas, wood or electricity.

8. 8 www.codevasf.gov.br Dehydrated Fruit There is a need for a Dehydrating plant. Image: Fruit arriving at the plant.

9. 9 www.codevasf.gov.br Washing and Peeling Dehydrated Fruit

10. 10 www.codevasf.gov.br Cutting Dehydrated Fruit

11. 11 www.codevasf.gov.br Dehydration Dehydrated Fruit

12. 12 www.codevasf.gov.br Drying Process Dehydration using specific equipment. It may be used an osmotic process.

13. 13 www.codevasf.gov.br Dried Fruit Packing

14. 14 www.codevasf.gov.br Drying Process Using sun light for fruit drying.

15. 15 www.codevasf.gov.br Liofilization FIGURE: Liofilization equipments Drying Process

16. 16 www.codevasf.gov.br Raisings There is a need for a processing plant: Process: – Cutting the steam; – Washing; – Drying; – Adding Oil;

17. 17 www.codevasf.gov.br For the product: – It limits microorganisms growth; – It limits darkening; – It limits perishing; Dehydration Advantages

18. 18 www.codevasf.gov.br For the grower: – It adds value to products that would be discarded otherwise; – It decreases transportation costs; – It allows business diversification; – It expands stocking possibilities. Dehydration Advantages

19. 19 www.codevasf.gov.br For the retailer: – New and differentiated product; – It is a healthy product; – It has a longer shelf life. Dehydration Advantages

20. 20 www.codevasf.gov.br Market Functional food (teas); Cosmetics (soaps); Food: Soups; Bakery; Candies; Cereal bars; Breakfast;

21. 21 www.codevasf.gov.br Raisins Other countries: –Raisins, table grapes, vinegar, wine; Bakery imports: 1,500 ton/year; Brazil imports: 6,000 ton/year;

22. 22 www.codevasf.gov.br Business Model Strategies for the Anchor Company: 1. Vertically Integrated Agricultural Production 2. Vertically Coordinated Agricultural Production Own Production Vertically coordinated growers Anchor Company Retail Foodservice Industries CONSUMERSCONSUMERS Public Irrigation Project with Private Management

23. 23 www.codevasf.gov.br Fruit GrowerAnchor Company (processing plant) Buyers - Fruit production to the anchor company as contracted; - Use of fruits out of quality standards for in natura exports; - Buying fruits according to established contract; - Responsible for the fruit transport from the grower to the plant; -Responsible for dehydrating and processing the fruit; - Contracts for buying the dried fruits; - Aid for maintaining dried fruit standards; Players’ Role Definition

24. 24 www.codevasf.gov.br Different Alternatives for Implementing the Business Model Different strategies for the anchor company to obtain raw material: 1.Own discarded fruits; 2.Own discarded fruits + Growers discarded fruits; 3.Diversification of supplying sources; 4.Vertically integrated grape production for raisins; Strategies related to implement the processing utilities: 1.Dehydrated fruit (with or without the osmotic drying process); 2.Fruit Liofilization (with or without pulp production in cubs); 3.Raisins;

25. 25 www.codevasf.gov.br Strategies for selling the dried fruits: 1.Selling in bulks for food industry or wholesaling; 2.Selling in bulks for another dehydration fruit firm; 3.Selling in ready-to-eat convenient packs (with or without private branding); Different Alternatives for Implementing the Business Model

26. 26 www.codevasf.gov.br Raisins Grapes used for drying purposes: Discarded grapes from exportation; For an anchor company to produce 10 ton per day of grapes : 10% discarded = 1 ton/day; Efficiency 25% = 250 kg of raisins / day; Minimum production suggested for implementing a plant is 100 tons/year.

27. 27 www.codevasf.gov.br Processing DRIED FRUITS Processing Cost Inputs Investments GRAPHS Processing Results COST – Mango Cash Flow Consolidated analysis SunLight Drying COST – Grapes LOGISTICSLOGISTICS ? ? ? COST – Guava Cost - Banana SENSITIVITY ANALYSIS

28. 28 www.codevasf.gov.br Business Model Assumptions Processing Capacity : 6,000 kg/day; Annual working days : 300; Annual processing capacity: 1,800,000.00; Annual production : 324,000.00; Fruits: Mango, Raisings, Banana, and Guava; Average efficiency rate is 18%; Fruit price: “Agrianual” price list; By products value not included (animal food and organic natural fertilizing); Raisins are not dried at sun light; Sales in bulks and in packages; Gas energy for drying process;

29. 29 www.codevasf.gov.br Tax generation: For 20 years: : R$ 4,318,444.65; Job generation: Processing plant : 60 direct jobs; Agricultural production : 1510 direct jobs; Other benefits: Business diversification for the region; Utilization of discarded fruits from exporting; Introduction of new technologies to the region; Benefits for the Social and Economic Development

30. 30 www.codevasf.gov.br Raw Material: Composition and Fruit Costs Source: PENSA * Petrolina Juazeiro region is chosen for the financial analysis. Exchange Rate: 1 US$ = R$ 1.85

31. 31 www.codevasf.gov.br Operation Plan Operations Plan Yields: Process efficiency (%): 18.00 annual production : 324,000.00 Operation plan Product Destination (%) Unit Volume Quantity with packaging Product description: kg Mango (20Kg) 25.00 20,000 81,000.00 4,050.00 Banana (20Kg) 25.00 20,000 81,000.00 4,050.00 Raisins (20Kg) 20.00 20,000 64,800.00 3,240.00 Guava (20kg) 8.00 20,000 25,920.00 1,296.00 Mango (0,05kg) 7.00 0.050 22,680.00 453,600.00 Banana (0,05kg) 7.00 0.050 22,680.00 453,600.00 Raisins (0,50 Kg) 5.00 0.050 16,200.00 324,000.00 Guava (0,05kg) 3.00 0.050 9,720.00 194,400.00 TOTAL 100.00 324,000.00 Source: PENSA * Petrolina Juazeiro region is chosen for the financial analysis. Exchange Rate: 1 US$ = R$ 1.85

32. 32 www.codevasf.gov.br Investment ITEMFacilities Equipments Working Capital TOTAL Start up investment (R$) 1,766,178.75 1,194,879.34 273,652.373,234,710.46 Credit limit – fund raising (%) 80.00 100.00 Own Resources (R$) 353,235.75 238,975.87 - 592,211.62 Loan (R$) 1,412,943.00 955,903.47 273,652.372,642,498.84 Grace period (years) 0.50 Amortization length (years) 7.50 Total length (year) 8.00 Rebate (%) 50.00 Total Interest rate (%) 9.75 Monthly interest rate 1.0077830 Interest rate according to payment frequency 1.0077830 1.0077830 1.0077830 Number of payments 90 Loan payments (R$)(22,935.66)(15,516.75)(4,442.07)(42,894.48) Source: PENSA * Petrolina Juazeiro region is chosen for the financial analysis. Exchange Rate: 1 US$ = R$ 1.85

33. 33 www.codevasf.gov.br Cost Analysis Total Production Cost COST TOTAL (R$) Average cost (R$/kg) Operating costs2,665,204.138.23 Fixed costs1,018,215.093.14 Production Cost3,683,419.2311.37 Cost Composition 8.23 3.14 - 2,00 4,00 6,00 8,00 10,00 12,00 Average cost (R$/kg) Fixed costs Operating costs Source: PENSA * Petrolina Juazeiro region is chosen for the financial analysis. Exchange Rate: 1 US$ = R$ 1.85

34. 34 www.codevasf.gov.br Annual Revenues PackagingVolume Selling Price FOB (R$/unity) Total (R$)Cost (R$/unity) Profit (R$/unity) Mango (20Kg) 4,050.00 200.00 810,000.00 167.31 32.69 Banana (20Kg) 4,050.00 180.00 729,000.00 150.58 29.42 Raisings (20Kg) 3,240.00 160.00 518,400.00 133.85 26.15 Guava (20kg) 1,296.00 200.00 259,200.00 167.31 32.69 Mango (0,05kg) 453,600.00 1.60 725,760.00 1.34 0.26 Banana (0,05kg) 453,600.00 1.60 725,760.00 1.34 0.26 Raisins (0,50 Kg) 324,000,00 1.00 324,000.00 0.84 0.16 Guava (0,05kg) 194,400.00 1.60 311,040.00 1.34 0.26 Total Revenue (R$) 4,403,160.00

35. 35 www.codevasf.gov.br Financial Analysis Financial Index IRR21.89% Pay pack:4.01 years Source: PENSA * Petrolina Juazeiro region is chosen for the financial analysis. Exchange Rate: 1 US$ = R$ 1.85

36. 36 www.codevasf.gov.br Financial Analysis Cash Flow (3,000,000) (2,000,000) (1,000,000) - 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 YEAR 0 1 2 3 4 5 6 7 8 9 10 Net Cash Flow Accumulated Cash Flow Source: PENSA * Petrolina Juazeiro region is chosen for the financial analysis. Exchange Rate: 1 US$ = R$ 1.85

37. 37 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: Eduardo Eugênio Spers Contributor: Gabriela Fernandes Begiato Translation: Central de Traduções

38. 38 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 AND SUSTAINABLE AGRIBUSINESS PROJECTS