USDA Outlook ForumSugar Outlook: HFCS – The Wildcard in the

US/Mexico Sweetener Market

February 25, 2011

Paul BratleySr. 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 ServiceSource: 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)

Source: Corn Refiners Association (CRA)

Obesity and US Sweetener Deliveries per Capita

Source: Behavioral Risk Factor Surveillance System,CDCand USDAERS

2000

2009

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

Date State/Municipality Action Result1/26/2011 Hawaii Governor has proposed a tax on sodas No legislation filed yet

2010 City of Baltimore 2 cent container tax Passed and signed into law2010 District of Columbia Proposed 1 cent per ounce excise tax on sodas Became sales tax on sodas, passed and signed2010 Hawaii Several bills proposed an excise tax on sodas. All were defeated2010 Kansas Proposed 1 cent per ounce excise tax on sodas Narrowly defeated2010 Mississippi Proposed excise tax on sodas. Tabled- Did not make it out of committee2010 New Hampshire Proposed excise tax on sodas. Not acted upon2010 New Mexico Proposed excise tax on sodas. Defeated2010 City of Philadelphia Proposed soda tax Defeated in City Council2010 Rhode Island Proposed soda tax Defeated in the House2010 Washington State 1 cent per ounce excise tax Passed and signed into law

1/2010 - 4/2010

New York StateVarious tax proposals for sodas to outright bans on HFCS

Did not pass/No action

2/9/2010 Hawaii Legislature Surcharge on all soft drinks sold in the state Measure was deferred.12/14/2008 New Jersey Govenor proposes Obesity Tax, ~15% on soda Not acted upon12/17/2007 City of San Francisco Mayor of the City of San Francisco proposed a fee on drinks

sweetened with HFCSNot acted upon

DefeatedNot Acted UponPassed

U.S. & Mexico Total Number of HFCS New Product Launches

2007-2010

0

200

400

600

800

1,000

1,200

2007 2008 2009 2010

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. 1997 - 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. 1996 was the period of the investigation.

– Provisional antidumping duties were imposed in June 1997.

• Jan. 2002 - 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. 2004 - Coca Cola Femsa wins appeal against SHCP to use HFCS.

• Oct. 2005 - TRQ for exports of Mexican sugar and US HFCS up to 250 K tons (dry bases).

• Jul. 2006 - 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. 2008 - 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)

1015202530354045505560

2004 2005 2006 2007 2008 2009 2010US MW Beet Mexican Refined Mexican Estándar

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

0

200

400

600

800

1,000

1,200

1,400

2006 2007 2008 2009 2010 2011E

MM

MT

0%

5%

10%

15%

20%

25%

30%

35%

40%

HFCS Mex. Stocks:Use US Stocks:US

Mexico Soft Drink Per Capita Consumption Rates

0.0

20.0

40.0

60.0

80.0

100.0

120.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Co

ns

um

pti

on

Ra

te

( pe

r C

ap

ita

l P

er

Pe

rso

n)

MEX Regular Cola Carbonates MEX Low Calorie Cola Carbonates

USA Regular Cola Carbonates USA Low Calorie Cola Carbonates

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 2015. 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 Syrup26 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 2003. Shipments are estimated to increase by just over 1% per year

since 2008

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2003 2004 2005 2006 2007 2008 2009 2010 2011E

MM

MT

d.b

.

HFCS - Dom HFCS - Exp

Source: USDA, Connell Commodities

Industry finding new uses for CWM feedstocks

Del Monte Fresh ProduceWith 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 bottlesnow 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 2011.

0.00

2.00

4.00

6.00

8.00

10.00

12.00

2006 2007 2008 2009 2010 2011

HF

CS

$/c

wt

0.00

2.00

4.00

6.00

8.00

10.00

12.00

Co

rn $

/bu

HFCS 42 HFCS 55 Corn Futures

Corn Futures (absolute value)

HFCS Price(cumulative change)

U.S. Corn Utilization 1980-2017

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