1. 1 www.codevasf.gov.br Investment Opportunity in Banana 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 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 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 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 Banana – Global Demand Source: FAO. From 2001 to 2005, global demand growth was 9.49%, corresponding to an increase of 5million tons in volume. Last couple of years, despite the low dollar value there has been a real price increase of 4% (FOB). Prices can get even higher if the product meet special quality standards and the destine is Europe. From 2001 to 2005, global demand growth was 9.49%, corresponding to an increase of 5million tons in volume. Last couple of years, despite the low dollar value there has been a real price increase of 4% (FOB). Prices can get even higher if the product meet special quality standards and the destine is Europe. +4,25% +3,48% +0,18% +1,31% Why investing in Banana Production and Exports?

6. 6 www.codevasf.gov.br Why investing in Bananas in the Valley of the São Francisco River? No incidence of Chilling; No incidence of Sigatoka-Negra; Higher 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 as well as the internal Brazilian market; Increase in the Brazilian competitiveness for USA and Europe exportation;

7. 7 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

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 BANANA ECONOMIC VIABILITY ANALISYS InvestmentsGraphs Cash Flow Agricultural Production Packing House PH Results and Cash Flow Detailed Cost Results and Cash Flow Consolidated Summary Agricultural Input Summary/Inputs Packing House Agricultural Cost Packing House Cost Comparative Analysis Sensivity Analysis Prices

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); −Investments : R$ 9,871,000 (US$ 5,335,000.00). - Operation Costs (R$/year): 5,607,000.00 (US$3,030,000.00). Agricultural production average cost: R$4.91/box (18,4Kg) (US$ 2,65); Average Yield : 40 ton/ha, for two year cycle; Average selling price: R$6.38/box (18.4kg) (US$ 3.44 ); Exchange Rate: 1 US$ = R$ 1.85;

11. 11 www.codevasf.gov.br Assumptions – Packing House Operational Capacity: 1,180,124 boxes/year; PH will be built during orchards implementation; 20-year-long project ; Investments (Financing with 100% own capital, conservative scenario); Packing House (R$): 3,371,000 (US$1,822,000.00). Certifications (R$): 12,500.00 (US$ 6,756.00). Operation (R$/year): 11,458,000 (US$ 6,193,000 ). Average cost per box of 15 Kg: R$ 9.74 (US$ 5.26); Product destination: 90% for exports and 10% for the Brazilian internal market; Average selling price : R$12.39/box (US$ 6.59 - external market) and R$ 7.50 /box (US$ 4.05 - internal market); Exchange Rate: 1 US$ = R$ 1.85;

12. 12 www.codevasf.gov.br Agricultural Production Cost At year 0, the crop is implemented. From year 1 to 6, costs do not alter significantly. At year 0, the crop is implemented. From year 1 to 6, costs do not alter significantly. Agricultural Production Cost per Ha 1. AG INPUTS2. MECHAN. OPERATIONS3. LABOR 4. ADMINISTRATIVE AND GEN. EXPENS. Source: PENSA * Petrolina Juazeiro region is chosen for the financial analysis. Exchange Rate: 1 US$ = R$ 1.85

13. 13 www.codevasf.gov.br Agricultural Production - Revenues and Costs Agricultural Production Revenues X Costs 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 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 Costs Revenues Source: PENSA * Petrolina Juazeiro region is chosen for the financial analysis. Exchange Rate: 1 US$ = R$ 1.85 Years 1 to 20

14. 14 www.codevasf.gov.br Cash Flow – Agricultural Production (3,0) (2,5) (2,0) (1,5) (1,0) (0,5) 0,0 0,5 1,0 1,5 2,0 2,5 Million R$ Cash Flow (2,6)(2,5)1,11,5 (0,7)(0,9)1,51,92,0 (0,5)(0,9)1,51,92,0 Fluxo de Caixa Cash Flow – Agricultural Production At years 7, 8, 14 and 15 there are reductions on cash flows due to crop and irrigation systems renewing process. Source: PENSA Ano 0Ano 1Ano 2Ano 3Ano 4Ano 5Ano 6Ano 7Ano 8Ano 9 Ano 10 Ano 11 Ano 12 Ano 13 Ano 14 Ano 15 Ano 16 Ano 17 Ano 18 Ano 19 Years 1 to 20

15. 15 www.codevasf.gov.br Revenues and Costs – Packing House Packing House Revenues X Costs 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 CostsRvenues Source: PENSA * Petrolina Juazeiro region is chosen for the financial analysis. Exchange Rate: 1 US$ = R$ 1.85 Years 1 to 20

16. 16 www.codevasf.gov.br Considering 20 years as the project time horizon, it generates an average cash flow of R$ 1 million. Cash Flow – Packing House Years 1 to 20 Exchange Rate: 1 US$ = R$ 1.85

17. 17 www.codevasf.gov.br Consolidated Analysis Revenues X Costs 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 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$ thousa. Costs Revenues Years 1 to 20 Consolidated Revenues and Costs Source: PENSA * Petrolina Juazeiro region is chosen for the financial analysis. Exchange Rate: 1 US$ = R$ 1.85

18. 18 www.codevasf.gov.br Consolidated Cash Flow (8,0) (6,0) (4,0) (2,0) 0,0 2,0 4,0 Million R$ Cash Flow (6,0)(1,7)2,12,7 0,1(0,2)2,63,1 0,3(0,2)2,63,1 Ano 0 Ano 1 Ano 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 Consolidated Cash Flow Source: PENSA Years 1 to 20 Source: PENSA * Petrolina Juazeiro region is chosen for the financial analysis. Exchange Rate: 1 US$ = R$ 1.85

19. 19 www.codevasf.gov.br Economic Analysis Agricultural Productions Packing HouseConsolidated IRR: 15.20%IRR: 14.92%IRR: 14.89% NPV: R$ 3.531.615 NPV: R$ 8,415,236 (US$ 4,548,000) NPV: R$ 11,946,851 (US$ 6,457,000) Investment Area Investments Implementation (R$)Operation (R$/ano) Agricultural Production 10,800,000 (US$5,837,000.00) 5,607,000 (US$3,030,000.00) Packing House 3,371,000 (US$1,822,000) 11,458,000 (US$ 6,193,000) Source: PENSA * Petrolina Juazeiro region is chosen for the financial analysis. Exchange Rate: 1 US$ = R$ 1.85

20. 20 www.codevasf.gov.br Valley of the São Francisco River X Ribeira Valley (SP) Total: R$ 54.620 Total: R$ 70.809 Total Cost for the Complete Crop Cycle - R$/ha 29,375 37,860 5,693 7,014 13,441 18,961 6,112 6,975 R$ 0,00 R$ 10.000,00 R$ 20.000,00 R$ 30.000,00 R$ 40.000,00 R$ 50.000,00 R$ 60.000,00 R$ 70.000,00 R$ 80.000,00 FNP – Ribeira ValleyPólo Petrolina Juazeiro 4 – GENERAL EXPENSES 3 - LABOR 2 – MECHAN. OPERATIONS 1- AGINPUTS Valley of the São Francisco River Source: PENSA * Petrolina Juazeiro region is chosen for the financial analysis. Exchange Rate: 1 US$ = R$ 1.85

21. 21 www.codevasf.gov.br Valley of the São Francisco River* X Ribeira Valley (SP) This graph shows the yield curve at both places. At the Valley of the São Francisco River the yield peak is reached more rapidly and replanting is needed after 7 years only, 2 more than Ribeira Valley. Last Year for Riberira Valley Year 0Year 1 Year 2 Year 3Year 4 Year 5Year 6 São Francisco Valley Ribeira Valley Ton/ Ha Source: PENSA * Petrolina Juazeiro region is chosen for the financial analysis.

22. 22 www.codevasf.gov.br Valley of the São Francisco River* X Ribeira Valley Average Cost per Box – Comparison in R$ Valley of the São Francisco River X Canápolis 2,75 2,63 0,53 0,49 1,26 1,32 0,57 0,48 - 1,00 2,00 3,00 4,00 5,00 6,00 FNP – Ribeira Valley (R$ 5.12) (US$ 2.76) Valley of the São Francisco River (R$ 4.91) (US$ 2.65) 4 – GENERAL EXPENSES 3 - LABOR 2 – MECHANICAL OPERATIONS 1- INPUTS Source: PENSA * Petrolina Juazeiro region is chosen for the financial analysis.

23. 23 www.codevasf.gov.br Valley of the São Francisco River* X Ribeira Valley (SP) Agricultural Production RegiãoIRRNPV Ribeira Valley 11.37%R$877.01 Valley of the São Francisco River 15.20%R$3,531,610 Source: PENSA * Petrolina Juazeiro region is chosen for the financial analysis.

24. 24 www.codevasf.gov.br Natural Conditions IdealValley of the São Francisco River* Temperature15 o C to 35 o C21 -31 o C Precipitation180 mm/month500 - 600 mm/year Luminosity10,000h/year2,800 h/year Altitude 0 to 1000 m 300 m Production Cycle 14 months 12 months Soil Depth > 75cm >= 90 cm Soil Texture Argilosa Medium to argilosa pH 6.5 6.8 Humidity>80%54 - 67% Source: EMBRAPA and PENSA * Petrolina and Juazeiro

25. 25 www.codevasf.gov.br Tax Generation ( for a 600 ha projects): – Total: R$ 1,053,000 (US$ 569,000.00); – Agricultural production : R$ 556,000; – Packing house : R$ 497,000; Insertion of Small Holders (300ha, 50% of the total area): – 13 small holders; – Gross monthly profit of R$ 2,500.00; – Farms size of 26 ha; Job Generation: 1 worker/ha; Agricultural production: 1,500 jobs for an area of 600 ha; Direct jobs: 600. Indirect jobs: 900. Packing House: 43 jobs; Benefits for the Social and Economic Development

26. 26 www.codevasf.gov.br Extra revenues for agricultural input firms : R$ 6,007,000/year (average for 20 years); Extra revenues for logistics firms of R$ 1,188,640/year (average for 20 years); Potential for value adding activities; Diversification of economic activities; Benefits for the Social and Economic Development

27. 27 www.codevasf.gov.br Sensitivity Analysis: IRR – Agricultural Production 4.71 4.81 4.91 5.01 5.11 6.18 12.94%#NÚM! 6.28 18.84%14.21%-0.56%#NÚM! 6.38 22.38%19.29%15.20%6.68%#NÚM! 6.48 25.17%22.57%19.68%16.01%9.60% 6.58 27.67%25.22%22.75%20.03%16.69% Agricultural Production Cost (R$/box) Price Received by the PH (R$/box)

28. 28 www.codevasf.gov.br 10.72 10.82 10.92R$ 11.02 11.12 12.19 13.64%#NÚM! 12.29 20.61%14.31%#NÚM! 12.39 24.75%20.86%14.92%#NÚM! 12.49 28.20%24.90%21.11%15.46%#NÚM! 12.59 31.58%28.30%25.05%21.34%15.96% Packing House Cost(R$/BOX) Price for Exporting (R$/BOX) Sensitivity Analysis: IRR – Packing House

29. 29 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: Frederico Fonseca Lopes Assistant Researcher: Helio Afonso Braga de Paiva Contributor: Ricardo Kouiti Santos Iguchi Translation: Central de Traduções

30. 30 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