OUTLOOK FOR MEXICO AS A SUPPLIER OF SUGAR TO THE U.S.

FEBRERO, 2012

2

INDEXI. Sugar Outlook

II. Mexico leading sugar producer with a large Sweetener Market

III. North American Regional Market a Reality:a) Mexican Sweetener Market b) U.S. Sweetener Marketc) U.S. and Mexico Sweetener Market

IV. Mexico: Sugar Balance 2010/11 marketing year, and Projection 2011/12

V. Striving for Competitiveness, changes in the Mexican Sugar Industry

VI. A sugar policy for México

DEMAND GROWTH

- Global sugar demand will increase to 257mmtrv by 2030. 90mmtrv - increase - Growth is driven primarily by the emerging economies. - Growth in consumption is around 1.3% higher than the growth in population and reflects that consumption per capita rises as countries develop.

SUPPLY GROWTH

- Over the last 20 years sugar production has risen by 44% to 157mmtrv - The sugar industry is becoming quite concentrated; 10 biggest suppliers account for 60% of production and exports. - Brazil alone accounts for 60% of global exports. Dependence on Brazilian sugar will continue to grow. - Improvements in productivity could result in growth of 45mmtrv and there will be a need on the supply side of 45mmtrv primarily from Brazil. - Sugar consumer will need to adjust to higher prices.

I. Sugar Outlook

Brazilian Case

- The operational cost of sugar production is forecast to rise to over 35c/lb over the next 20 years. An increase of mare than 85%. - Agricultural costs biggest cost component (60% of total) will double in the next 20 years as a result of higher land, input and labor costs. - Logistic cost will also double in the next 20 years.

CAPEX

- Total additional land requirements to meet the growth in global sugar and domestic ethanol demand is 9.17 m hectares. Land under cane cultivation will double. - Factory capacity will have to be upgraded and in addition, a total of 173 new Greenfield units will be required. - 1.4 bn tons of additional cane crushed will require an investment of approximately US$340bn over this period. - There is an optimistic growth target of 2.2bn tons of cane dependant on the ethanol market that would require US$490bn in CAPEX.

I. Sugar Outlook

5

II. Mexico leading sugar producer with a large Sweetener Market

25,540

16,140

13,200

9,950

5,978 5,5434,348 3,516 3,497 3,000

India China Brazil USA Russia Indonesia Pakistan Germany Mexico Thailand

Mexico: World's Ninth Leading Sugar ConsumerCycle 2010/2011

Metric tons, raw value

Total World Comsuption:167,635

Source: CZARNIIKOW SUGAR REVIEW, August 2011.

40,502

26,522

11,0057,949 7,113

4,971 4,083 3,967 3,913 3,527

Brazil India China Thailand USA Mexico Australia France Pakistan Germany

Mexico: World's Sixth Leading Sugar ProducerCycle 2010/2011

Metric tons, raw value

Total World Production:167,738

Source: CZARNIIKOW SUGAR REVIEW, August 2011.

462 503 501 560 590 341 176 241 463 657 708 774 665

1,41

8

1,63

5

1,71

7

3,83

8

4,02

5

4,06

8

4,21

4

4,53

5

4,57

8

4,92

0

4,89

7

4,82

3

5,03

2

4,67

2

4,56

8

4,95

8 4,35

4

3,95

0

3,90

4

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 Proj. 11/12

Mexican market: Sugar and HFCS Consumption Thousand Metric Tons

HFCS, dry weight Sugar

4,30

1

4,52

8

4,56

9

4,77

4

5,12

5

4,91

9

5,09

5

5,13

8

5,28

6

5,68

9

5,38

0

5,34

1

5,62

2

5,77

2

5,58

5

5,62

1

6Source: CNIAA

II. Mexico leading sugar producer with a large Sweetener Market

184

56 - -

181

607

837

1,111

579 477

290

552

155 91

290

947

174

712

1,281

751

1,499

1,338

1,518

126 47

- 13

167 151

0 - - - - - 70 93

- - 1 -

610

107

219

-

200

400

600

800

1,000

1,200

1,400

1,600 México: Export - Import

Exports Imports

3,55

9

3,26

6

4,07

7

3,52

9

4,27

5

4,40

6

4,54

3

5,17

4

4,69

9

4,69

6 4,92

4

4,87

2

4,92

8

5,02

4

5,79

6

5,28

2

5,31

4 5,52

1

4,96

2

4,82

6 5,18

4

5,09

9

4,03

4

3,95

1

3,91

0

4,03

7

4,04

8

3,98

4

3,83

8

4,02

5

4,06

8

4,21

4 4,53

5

4,57

8 4,92

0

4,89

7

4,82

3 5,03

2

4,67

2

4,56

8 4,95

8

4,35

4

3,95

0

3,90

4

3,000

3,500

4,000

4,500

5,000

5,500

6,000

Mexican Sugar: Production and Consumption Thousand, Metrics Tons

Production Consumption

III. North American Regional Market a Reality

63

Mochis

El Dorado

La Primavera

Puga

Tala

BellavistaEl Molino

A. Saenz

S. M. Naranjo

El Mante

Sn. Fco. Ameca

M. Ocampo

José Ma. Mor.

L. Cárdenas

Santa Clara

Pedernales

Tamazula

Quesería

E. Zapata

Casasano

A. L. Mateos

P. Machado

Pujiltic

Huixtla

El Higo

Zapoapita

Plan de San Luis

04

Azsuremex

La Joya.

Sta. Rosalía

B. JuárezEl Refugio

Calipam

Independencia

Atencingo

US SWEETENER INDUSTRY

MEXICANSUGAR INDUSTRY

7

North American Sweetener market fully integrated.

Since the market opened:

Mexico has exported more than 2,9 millions sugar tons to U.S.

Mexico has imported around 2,6 millions tons dry of HFCS from U.S.

Good Coordination and cooperation between Mexican and U.S. Governments regarding sweeteners:

The Administration in each country sugar program consistent with NAFTA obligations.

Mexico is a reliable supplier in the integrated North American Regional Market.

8

III. North American Regional Market a Reality a) Mexican Sweetener Market

Source: CNIAA

Mexico: Production, imports and national consumption of HFCS, Marketing years 1991/92 to 2011/12 (projected) (Metric Tons, dry weight)

0 0 0 0 0168,546

278,935 304,

476

340,

484

357,

215

258,

758

169,

651

235,

416

349,423

391,

042

407,

075

341,

934

361,

667

463,

120

466,

795

467,

000

22,2

18

34,7

94

72,7

04

96,0

61

144,

558

293,

786

224,080 196,030 219,997

232,

886

82,6

79

5,91

55,658

118,207

272,077

306,

866

442,

551

303,

111

954,

590

1,19

2,26

1

1,275,000

22,2

18

34,7

94

72,7

04

96,0

61

144,

558

462,

332

503,

015

500,

507

560,

481

590,

100

341,

437

175,

566

241,

074

467,

630 663,

119

713,

940

784,

485

664,

778

1,41

7,71

0 1,63

5,11

4

1,717,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

Domestic Production Imports National Consumption

Period without domestic production

Antidumping investigation against

HFCS

20% tax to soft drinks sweetened with sweeteners

different to cane sugar.

Substitution of sugar due to lower HFCS

prices

9

III. North American Regional Market a Realitya) Mexican Sweetener Market

09/10 10/11 Proj. 11/12

463,120 466,795 467,000

975,0341,192,261 1,275,000

ImportsProduction

HFCS Imports and Production, cycles 2009/2010, 2010/2011 and 2011/12

Metric tons, dry weight

1,417,710 Metric tons

1,635,114 Metric tons Domestic

ConsumptionDomestic

Consumption

1,717,000 Metric tons

In the cycle 2010/2011 Mexico imported 1,192,261 metric tons dry weight, 22% up that in the same period last cycle. In this cycle 2011/2012 will remain the same levels of imports. The production

estimated of HFCS in cycle 2011/2012, will

increase less 1%.

10

Source: CNIAA

III. North American Regional Market a Realitya) Mexican Sweetener Market

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

96,1

24

123,

239

97,8

79

130,

328

108,

644 121,

838

92,7

61

113,

526

95,5

96

108,

028

119,

152

153,

934

142,

128

143,

011

120,

651

157,

882

144,

640 16

3,07

6

151,

740

125,

905

114,

456

157,

417

133,

939

136,

931

123,

239 136,

099

130,

328 14

4,29

0

121,

838

128,

262

113,

526

136,

741

HFCS consumption, from Oct-09 to Jan-12 Metric tons, dry weight

11

Source: USDA, 2010/2011 forecast

III. North American Regional Market a Reality b) USA Sweetener Market

14,037

13,113

13,699

14,025 14,078

13,045

14,13114,059

12,84113,126

13,38313,600

15,314

14,271

14,90915,326 15,586 15,633

15,75515,414

14,248

15,633

15,19115,34215,349

14,985

15,278 15,41215,703 15,854

15,324

15,794 16,048 15,977 15,772 15,754

12,000

12,500

13,000

13,500

14,000

14,500

15,000

15,500

16,000

16,500

00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 Proj. 11/12

U.S and Mexico Sugar: Combined Production plus Minimum of U.S. Imports and combined Consumption Thousand Metric Tons, raw value

CombinedProduction

CombinedConsumption

Combined Production + Imports

Sources: U.S., USDA and México,CONADESUCA

12

III. North American Regional Market a Realityb) USA Sweetener Market

7.57.77.98.18.38.58.78.99.19.39.59.79.9

10.1

Equi

vale

nt in

mill

ion

shor

t ton

s, ra

w va

lue

Fiscal Year

From its peak in 2002, total HFCS domestic

demand through 2011 fell 18.8 percent

HFCS domestic demand

Source: USDA

13

III. North American Regional Market a Reality c) U.S. and Mexico Sweetener Market

Price C-16 EUA,460.25

Midwest Beet EUA,

726.78

Price SNIIM Estándar

Sugar, 540.21

Price SNIIM Refined Sugar, 583.86

300.00

350.00

400.00

450.00

500.00

550.00

600.00

650.00

700.00

750.00

800.00

850.00

900.00

950.00

1000.00

México and U.S.: Behaviour of prices under NAFTA FOB Sugar mill price Oct'09 - Feb'12: México (SNIIM satandard and refined) and U.S. (C-16 and Sugar Beet Midwest)

(Equivalence in mexican for 50 Kg bag)

Ciomercial Year 09/10 Comercial Year 10/11 C. Year 11/12

Source: Sugar Beet Midwest Milling and Baking News C-16 ICE (IntercontinentalExchange): https://www.theice.coml and Sugar Mexican Prices standard and refined SNIIM www.economia-sniim.gob.mx

14

IV. Mexico: Sweeteners Balance

Source: CNIAA

Commercial year2009/2010 2010/11 2011/12

(Estimate)Begining Stocks (sugar) 588 918 760 Sugar Production 4,826 5,184 5,099 Import quota 610 107 219 HFCS production 463 467 467 HFCS imports 975 1,192 1,275 Total Sweeteners Supply 7,462 7,868 7,820

Sugar Exports 751 1,499 1,338 NAFTA 664 1,370 1,193 World Market 5 18 21 IMMEX 82 111 124 HFCS exports 20 24 25 Total Sugar Consumption 4,354 3,950 3,904 Sugar Mills Domestic Sales 3,744 3,843 3,685 Import Consumption 610 107 219 HFCS Consumption 1,418 1,635 1,717 Total Sweeteners Demand 6,544 7,108 6,983 Sugar Ending Stocks 918 760 836

Strategic ReserveSweeteners Consumption = Domestic

Sugar sales plus sugar import and HFCS Consumption

5,772 5,585 5,620

Estimated Sweetener Balance (thousands of metric tons.)

Concept

15

Prices

Demand

Sugarcane price

Land

Energy

High volatility

Internal demand and insignificant exports to the U.S.

Exports to the world market Limited use of HSCF

Annual negotiations to determine price Based on past price differential Governmental “referee” between parties

No agreements to incentivize vertical integration into sugarcane land

Ambiguity in land ownership/leasing

No alternative energy generation allowed for sale to third parties

Unlimited access to US market Increased usage of HSCF Investments in higher production capacity in mills and fields

Price based on current year sugar market prices Aligned interests between growers & producers Well defined and transparent formula

Agreement with government and sugarcane growers creates incentives to invest in land

Sugarcane land projects increase mills capacity utilization Land operation clearly stated in agreements with sugarcane

growers

Sugarcane considered renewal and intermittent source Alternative energy allowed through cogeneration

−For auto consumption and sale to thirdparties through CFE gridClear rules for transmission costs

Ethanol Bio Energy Law in place; mid to long term reality

Before Now NAFTA market opened since January 2008 Sugar prices in line with US prices Effective price floor based on the US Farm Bill Expected stability in prices going forward

Labor Inflexible labor contracts−70 strikes in 80 years

Flexible labor contract−New labor relationship in place

V Striving for Competitiveness, changes in the Mexican Sugar Industry

16

VI A sugar policy for México

Date of publication 06-agu-09 07-sep-09 18-sep-09 09-feb-10 07-oct-10 29-jun-11 20-oct-11Validity of the quota 31-dec-09 31-dec-09 31-dec-09 30-jun-10 15-apr-11 31-dec-11 31-jan-12

Allocation scheme Public Bid Public Bid Direct allocation

Public Bid

Public Bid Public Bid Public Bid

Posted amount ( TM ) 393,000 207,000 300,000 900,000 250,000 100,000 350,000 150,000 150,000 300,000 Assigned amount ( TM ) 550,000 186,478 100,000 286,478 105,800 150,000 255,800 % of allocation 61% 75% 100% 82% 71% 100% 85%Imported volume 395,489 185,359 68,778 254,137 84,971 150,000 234,971 % import 44% 74% 69% 73% 57% 100% 78%Weighted cost of quota 1,467.34 806.00 530.78

Total imported sugar

884,597

Total Total Total