Financial adviser and banker preso

1. Sugar Price Risk ManagementHow recent changes benefit cane growers - What financial advisers need to know

2. Growers own cane but are paid on the basis of its sugar value • Sugar cane contains sucrose (amongst other things) • During processing, sucrose (in the form of juice) is extracted, clarified and crystalised to form raw sugar • Raw sugar is a globally traded commodity for which there is a world price (USD) Sugar cane value and hence price depends on the world sugar price, AUD:USD FX rate and sucrose content of the cane.

3. The exchange rate coupled with volatile world sugar prices have created a roller coaster effect for Australian producer returns

4. Movements in market fundamentals drive sugar price volatility World indicator price Mt 2007-08 USc/lb Change in stocks Source: ABARE

5. Speculator (fund) activity has an amplification effect on sugar price volatility

6. Hedging timeline Pricing timeline Australian producer returns are governed by price risk management (PRM) decisions and market volatility interaction Pricing Current Season Focused Hedging Future Season Focused

7. Socialised (historical) PRM arrangements are not compatible with sustainability in a volatile environment • collective pool (PRM policy developed and executed by QSL) • all QLD producers (millers and growers) receive the same price regardless of risk profiles and business needs • pricingactivities largely restricted to the current season • decision making hampered by red tape and need for consensus (long lead times) • Significant year-to-year price volatility Pricing Current Season Focused

8. Hedging Future Season Focused Customised PRM arrangements provide a platform for viability and further investment – Step 1 • Separate mill and grower pools (PRM policies developed and executed by MSF) • Grower Pricing Committee set price targets and assoc. quantities • Needs of 2 distinctly different business types accommodated • Hedging permissible up to 3 years beyond current season • Independent, localised decision making cuts lead time to action • Reduced year-to-year volatility

9. 345 370 405 420 70% 65% 35% 20% Grower Pool – Final Sugar Price (MTM $/t) and % Hedged

10. Customised PRM arrangements provide a platform for viability and further investment – A case in point • Socialised PRM arrangements • Significant year-to-year price volatility • Pricing for current season only • Rigid and unrelated to the individual’s risk appetite and business needs • High uncertainty and risk Farmer A • 45 years old • Committed to the industry • Wants to expand production Farmer B • 70 years old • Neighbour to Farmer A • Wants to retire • Customised PRM arrangements • Reduced year-to-year price volatility • Pricing for current season + 3 (or more) • Flexibility and choice • Reduced uncertainty and risk

11. Customised PRM arrangements provide a platform for viability and further investment – Next Step • The goal is to evolve beyond pools by making available a range of PRM instruments • These instruments must be:- • Appropriate • Simple • Flexible • Competitively priced • Provide for known outcomes (certainty) • Adopted

12. Take home messages • As a result of PRM changes the risk profile of the local sugar cane industry has changed significantly • Separate grower pool • Target prices are set by a Grower Pricing Committee • Hedging up to 3 seasons into the future • Reduced year-to-year price volatility • Customised PRM arrangements provide a platform for viability and further investment • As MSF evolves PRM offerings beyond pools, further changes will follow • Opportunity to tailor PRM for individuals depending on risk appetite, business needs, stage of life etc. • Many growers will need help to understand how the changes can benefit their business and personal circumstances

13. There are risks and costs to a program of action but they are far less than the long range risks and costs of comfortable inaction. JFK Thank you