Canada Agri-Food Market Outlook – Where Are We Going?APAS AGM - Murad Al-Katib, President/CEO, AGT Foods

December 2019

AGT Foods Overview

• AGT Food and Ingredients Inc. (“AGT Foods”) is a global leader in pulse, grains, staple food and food ingredient processing and distribution, with merchandising offices and value-added processing facilities in Canada, the U.S. Turkey, Australia, China and South Africa; India and European sales offices, Russian origination office and a global customer base exporting to 120 countries globally

• AGT is strong because its diversified. Canada businesses in pulses have struggled but AGT’s pasta business and food ingredients and its operations around the world has made it stronger and able to deal with these cycles

• $1.55 billion sales in 2018, 2,200 employees globally

• Majority investment in AGT by Fairfax in 2019 with plans to build an agri-food platform from Canada. Plan for AGT team will lead a global growth expansion strategy in agri-food for Fairfax and AGT

• Fairfax Financial Holdings: Largest Owner with 60% Share

• Point North Capital (OMERS and John Bitove): 12% Share

• AGT Management Group led by Murad Al-Katib, CEO/President and Director: 28% Share

Company and Ownership Overview Global Company & Brands

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Global Facilities & Offices

Arbella Pasta Mersin, Turkey

Big Sky Rail / Last Mountain Railway, Saskatchewan, Canada

AGT Foods South Africa / Advance Seed, Johannesburg,Gauteng, South Africa

AGT Foods USA Minot Minot, ND, USA

AGT Foods Canada Regina MainRegina, SK, Canada

AGT Foods Australia, Horsham, Victoria, Australia

Arbel GroupMersin, Turkey

• Canada head office and over 45 facilities in 6 key agricultural production origins on 5 continents with sales, merchandising, origination and administration offices located around the globe

• Provides significant cost savings, superior market intelligence and stability of supply through diversified origination

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Arctic Gateway Group

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• The ARCTIC GATEWAY GROUP is owned by First Nations and Bayline communities, Fairfax and AGT Foods, “Building A Natural Resources Gateway Through The Arctic To The World”.

• Commenced operations in Sept 2018 with acquisition of the railway and the port facilities; repairs on the line continued through December 2018 and freight service resumed in October 2018 and passenger service shortly after that

• Loaded and shipped vessels of grain (lentils and durum wheat) from Churchill this season for the first time in years

Food Production Targets

We need to produce in the

next 40 years the equivalent of all

of the food produced in the

last 10,000 years.

Source: UN FAO 5

Agri-Foods Market DynamicsMIDDLE CLASS CONSUMER SPENDINGOUTER RING: 2030 in trillions, USD (projected)INNER RING: 2009 in trillions, USD

Traditional Markets for Agri-Food

Growth Driver: Population & Global Demand for Food

Markets: S. and E. Asia Pacific, MENA, Central/South America, Africa

• 2050 - Global population expected to rise 30% to over 9 Billion

• Global food output will have to grow by 70% to feed the world with growing middle class

• Pulses, grains are a sustainable source of vegetable protein, a key nutrient for large numbers of the world’s populations

New Markets for Pulses driven by:

Growth Driver: Health, Nutrition and Sustainability

Markets: Europe, North America, China

• Health, nutrition, changes in diet choices

• High Protein and Fibre, Nutrient Dense, Low Fat, Gluten Free, non-GMO, Low Allergenicity

• Lower Energy Use, Reduce Greenhouse Gas Emissions, Improve Soil Health through Rotational Cropping, Increase Water Use Efficiency

Source: AAFC; UN FAO 6

Canada – The Global Agri-Food Partner• Abundant natural resources

(e.g. freshwater, long coastlines suited to aquaculture, least densely occupied arable land in the world)

• Strong network of R&D facilities universities• Sophisticated, ethnically diverse consumer base

that stimulates product development• Early adopters of technology • Reliable access to capital and inputs (e.g.,

fertilizers, feed, seeds) • Lowest use of pesticides per-hectare• Political stability and goodwill that encourage

foreign investment• Strong primary and secondary processing sector

Source: Advisory Council on Economic Growth; 7

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Canada – Crop Production

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

metric tons (mt) production

Chick peas Lentils Peas, dry Wheat, durum Wheat, all excluding durum wheat Canola (rapeseed)

Source: StatsCan; AAFC

Canada – First Stop on Protein Highway

• In emerging economies, demand for protein is growing rapidly due to urbanization and rising incomes.

• Canadian ingredients and food have a reputation of safety, quality and trustworthiness.

• Canada's food brand is enhanced by the country's natural advantage, - producing food that is among the best in the world

• Pulses, Cereals, Meat & Poultry, Dairy, Eggs• Canada's ag-food sector could become the

trusted global leader in safe, nutritious and sustainable food for the 21st century.

Source: McKinsey & Co; UN FAO 9

Canada Exports to Major Markets – 2018/19 (mt) Lentils Peas Chickpeas

2018 2019 YTD 2018 2019 YTD 2018 2019 YTD

Turkey 204,151 India 574,086 China 2,083,635 China 1,480,753 U.S. 19,953 Pakistan 30,457

UAE 177,285 UAE 158,548 U.S. 306,073 Bangladesh 476,000 Pakistan 26,736 U.S. 15,632

Mexico 154,806 Bangladesh 187,459 India 174,860 U.S. 178,701 UAE 6,004 India 11,439

India 162,886 Turkey 128,680 Bangladesh 241,618 India 138,909 Egypt 5,217 Portugal 8,074

U.S. 68,392 Pakistan 100,559 Cuba 62,000 Nepal 59,790 Italy 2,050 UAE 4,714

Source: Statistics Canada CIMT Database; 2019 YTD data to September 2019

Canola Durum Wheat

2018 2019 YTD 2018 2019 YTD 2018 2019 YTD

China 4,866,647 Japan 1,527,897 Algeria 981,534 Algeria 981,534 Indonesia 2,103,098 Indonesia 1,739,940

Japan 2,265,010 China 1,128,628 Morocco 633,770 Morocco 633,770 U.S. 2,113,294 Japan 1,210,113

Mexico 1,248,649 Mexico 872,568 Italy 580,013 Italy 580,013 China 1,746,420 China 1,164,649

U.S. 598,103 Pakistan 623,457 U.S. 410,245 U.S. 410,245 Japan 1,482,986 Bangladesh 1,007,964

Pakistan 479,174 U.S. 410,987 Turkey 260,014 Turkey 260,014 Colombia 1,271,205 U.S. 981,381

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Saskatchewan Government – SK’s Growth Plan 2020-2030 • Agriculture and agri-food features prominently in the SK Government

plan for growth - growing the Province’s agricultural advantage by 2030• Almost half of the “30 Goals for 2030” impact directly or indirectly on

agriculture, agri-food and value-added ag manufacturing including:• Growing Saskatchewan’s Agri-Food Exports to $20 Billion by 2030• Increasing Crop Production to 45 Million Metric Tonnes (MMT) and

Livestock Cash Receipts to $3 Billion by 2030• Expanding Irrigation in Saskatchewan• Increasing Agriculture Value-Added Revenue to $10 Billion

– e.g. Growing value-added agricultural revenue through research and innovation.

• Growing Value-Added Revenue Through Saskatchewan-Based Processing– e.g. Crushing 75 per cent of the canola Saskatchewan produces by 2030.– Processing 50 per cent of Saskatchewan pulse crops in Saskatchewan by 2030

to capitalize on increased North American and global demand for plant proteins.

– Doubling meat processing and animal feed value-added revenue by 2030, from $550 million to more than $1 billion.

– Ensuring a competitive business climate to encourage investment in the value-added agriculture sector.

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Three Big Markets for Canada

• Turkish crop affected by drought, export opportunities from Canada. Durum wheat and lentils for Turkey and MENA

• India tariffs persist, pea imports banned, lentils at 50% of usual imports. What happens if local production is affected negatively? Caution: non-tariff barriers such as quarantine weed seeds

• China Canola at 75% of usual, pea & wheat exports unaffected –misunderstanding of actual conditions by markets?

Conditions in These Markets

• Production is high in-market reducing imports

• With oversupply, end markets (India/subcontinent and Turkey/MENA) volumes are lower – impacting margins and earnings

• While supply/demand fundaments for pulses/grains/staple foods remains, oversupply and misalignment of farmer purchase and market purchase prices are also impacting export volumes and margins

• Importers are unwilling to deploy large amounts of capital even into relatively liquid staple commodities as they fear changes in governmental policies and local currency devaluations, hand to mouth buying

Market Notables

Source: Management Estimates; Based on data from StatsCan; USDA; Pulse Canada; AAFC and other statistical outlets 12

Changes with Agri-food Products in the Food System in Key Markets

• How agricultural commodities are marketed is changing in the world

• Drive to modernize food sectors comes from:– Consumers demanding convenience, nutrition and value– Farmers producing crops that maximize their return and create

sustainable opportunity for themselves

• Agri-products are commodities, but they are key to security, well-being and prosperity of countries and their populations

• Biggest challenge for modernization may be in Governmental policy on support of agricultural production to both support local production as well as global supply opportunities

• Many populations are vegetarian (India) or consume more protein from vegetable sources (Turkey/MENA) or have unique needs for agri-products (peas to China) and pulses are the source of economical protein & essential nutrients.

• Economical downtrodden can not afford meat and thus consume vegetable protein/pulses/grains

• Highly affluent section is also turning to vegetable protein due to health reasons

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Transportation, Corridors and Gateways• “Gateways” are major convergence points for the

international flow of people and cargo that serve as points of entry to and exit from Canada. – Marine ports– Airports, – Border crossings (by land, international bridges, or

waters)

• “Trade and transport corridor,” is a coordinated bundle of transport and logistics infrastructure and services that facilitates trade and transport flows between major centers of economic activity.

• May include transfer points, such as intermodal and distribution centres, where goods are changing hands or being transferred from one transport mode to another.

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Natural Resources Corridor : Arctic Gateway • The strategic advantage of Churchill, have not been

fully realized as Churchill is North Americas only rail serviced Arctic port

• Canada’s Arctic neighbors have started to make investments to try and defend against the natural advantages available to Canada. (e.g. Russia, they benefit from eight rail-linked Arctic ports generating approximately 20% of their GDP)

• With the opening of the Arctic, goods travelling from the Churchill port get to markets 40% faster increasing economic activity and reduces the impact on our environment

• Broadens Canada’s connections with the rest of the world to the benefit of those seeking markets for Canada’s incredible natural resources, and those seeking to bring the resources of the world to Canada in a more efficient way.

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AGT – Transportation and Logistics

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Practical Solutions• Need to use all modes and all ports and smooth

seasonality– Container is a surge for the future

• Commercial solutions amongst supply chain stakeholders• Government to ensure the regulatory environment

encourages commercial solutions without overregulation– e.g. Service Level Agreements (SLAs), effective dispute

resolution– Modernization of the MRE

• CTA Legislative Review has been a key exercise • True Focus on Gateways: infrastructure is KEY!!!!• Balanced accountability leads to Predictability

“Predictability is central to the overall costs that companies incur in logistics and thus to their competitiveness in global

supply chains.”– World Bank, “Connecting to Compete

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Canada - Natural Partner for Global Agri-Food Sector• Global protein race: goal to feed a growing

population • Canadian brand is strong in Agri-food• Fundamental demand growth through

population and income growth• Innovation/scaling food processing critical• Canada is natural partner for many

destinations with long term cooperation, FTA’s and other trade agreements

• New market opportunities for Canadian agri-food products exist – we just need to capitalize on them

• Value creation in companies who play in multiple links in the global value chain

Origination Handling Processing Transportation

and LogisticsFood

ProcessingDistribution

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