May 30 th , 2012

1. Roy Fujimoto, Amanda Hat, Diego Otarola, AgustinaSacerdoteHaas School of Business, University of California Berkeley May 30th, 2012 P.E.A.C.E. Foundation: Establishing a Secondary-Tier Agricultural Cooperative Model in South Africa Final PresentationInternational Business Development

2. Agenda for Today • Introductions • Project Objectives • Project Approach • Findings & Implications • Qualitative Research • Planning & Implementation • Financial Assessment • Q&A

3. Team Introductions Amanda Hat Diego Otárola AgustinaSacerdote Roy Fujimoto • Tokyo, Japan • Before Haas • 7 years in business development and project management, IT • Intercultural Studies, Kobe University, Japan • Central Valley, California • Before Haas • 5 years in business development, financial services • Business & Economics, University of Arizona • Santiago, Chile • Before Haas • 4 years in investment management • Assistant Professor at Catholic University of Chile Business School • Mexico City, Mexico • Before Haas • 5 years in marketing & brand strategy consulting • Marketing & Finance at The Wharton School, University of Pennsylvania

4. Project Objectives • P.E.A.C.E. oversees a number of agricultural primary cooperatives across different regions of South Africa. These cooperatives are currently struggling to achieve scale and lack a go-to-market strategy • Cooperatives’ ability to produce value-add goods is hindered by a lack of resources and limited access to processing facilities and distribution networks • P.E.A.C.E. would like to understand what services and functions can be pooled at a second-tier level in order to take advantage of scale opportunities across primary-tier cooperatives 1 2 3 PROJECT OBJECTIVES Create an implementation plan for a second-tier cooperative that: • Commercializes value-added products and/or services • Addresses institutional factors posed by the local social and political environment • Provides a sustainable source of economic growth for South African rural communities

5. Our aim is to create a plan for P.E.A.C.E. that leverages global best practices and addresses the challenges posed by the local context PROJECT APPROACH 1 QualitativeResearch 2 Planning & Implementation 3 Financial Assessment • Implementation Approach • Key issues • Primary activities • 4 – Stage Implementation Plan • Objectives • Key Activities • Estimated Timing • Current Status • Benchmarking Exercise • Qualitative Interviews • Farmers • Farm Managers • Agronomists • Academics • Local Government Officials • Financial Analysis & Conclusions • Assumptions • Net Income & Land Productivity Requirements • Break-Even • Cash Flow

6. We chose to study a number of cooperatives that represent a range of structures, operations and markets BENCHMARKING EXERCISE Multinational Reach MutVitz ZAHVAC Primary Tier Third Tier Local Reach Not Pictured: e-Choupal

7. At an overall level, the services provided by each structure increase in sophistication and scale Tertiary TERTIARY TIER SECONDARY TIER • Access to markets • Farm management training • Capital investments • Bulk purchasing • Improved access to technology • Access to credit • Market price data • Access / expansion to markets (often international) • Political representation and advocacy • Major capital investments • Transportation / access to distribution networks • Decision-making and governance • Social impact • Investments in large assets • Market research PRIMARY TIER • Land • Labor for planting, growing and harvesting • Investments in small assets • Access to basic funding FARMING OPERATIONS BUSINESS OPERATIONS STRATEGIC PLANNING

8. 6 Success Factors For Cooperative Development 1 2 3 Bottom-up Organization Farmers proactively recognize the need and believe in the benefits of cooperative structures Aligned Incentives Cooperative provides compelling reasons for members to join organization, and customers to buy from it Empowerment Through Education Cooperatives provide skill-building training in farming and business administration and disseminate best practices 4 5 6 Product MarketingCooperatives sell their products under strong consumer brands driven by a social mission Value Creation Cooperatives play a critical role in creating value along the supply chain and expanding markets Emphasis on Efficiency Cooperatives strive to maximize efficiency through geographic proximity, supply chain management, and economies of scale 7 Fair compensation and revenue sharing policies, organizational system of checks and balances Corporate Governance

9. We’ve identified four primary institutional factors that impact the development and success of agricultural cooperatives WAYS TO ADDRESS INSTITUTIONAL FACTOR 1 • Members forming cooperatives have significantly varied levels of productivity, assets and farming expertise • Inefficient cooperative operations • Difficulty in achieving economies of scale • Set minimum standards for potential productivity and infrastructure as requirements for membership 2 Perception of cooperatives as local organizations formed purely to serve the interests of the community • Overreliance on government funding • Lack of market orientation and business management • Position cooperatives as self-reliant, market-oriented enterprises 3 • Lack of awareness and education around rights and responsibilities associated with joining cooperatives • Lack of compliance to membership laws • Members join with wrong expectations • Proactively identify cooperative candidates • Provide mandatory trainings at time of enrollment 4 • Unclear public funding application processes and guidelines • Inefficient allocation of government grants • Wrong incentive for cooperative members • Perform preliminary data gathering and evaluation on potential members

10. Our aim is to create a plan for P.E.A.C.E. that leverages global best practices and addresses the challenges posed by the local context PROJECT APPROACH 1 QualitativeResearch 2 Planning & Implementation 3 Financial Assessment • Implementation Approach • Key issues • Primary activities • 4 – Stage Implementation Plan • Objectives • Key Activities • Estimated Timing • Current Status • Benchmarking Exercise • Qualitative Interviews • Farmers • Farm Managers • Agronomists • Academics • Local Government Officials • Financial Analysis & Conclusions • Assumptions • Net Income & Land Productivity Requirements • Break-Even • Cash Flow

11. Leveraging Global Best Practices FROM SUCCESS FACTORS TO ACTIONS 1 2 3 • Bottom-up Organization • Proactive identification of potential cooperative members • Productivity assessment • Aligned Incentives • Compensation / revenue sharing structure • Pricing strategy • Empowerment Through Education • Comprehensive education curriculum • Mandatory training as part of membership agreement 4 5 6 • Product Marketing • Branding and packaging initiative • Marketing communications plan • Value Creation • Secondary cooperative mission • Bulk purchasing • Marketing communications plan • Emphasis on Efficiency • Crop planting program and other standard procedures • Bulk purchasing • Financial management 7 • Organizational structure • Roles and responsibilities • Revenue sharing policy Corporate Governance

12. Implementation PlanPhases & Objectives IMPLEMENTATION PLAN OVERVIEW 1 2 3 4

13. ILLUSTRATIVE Phase 1: Feasibility and StandardizationData Gathering and Definition of Standards Not started In progress Complete

14. Our aim is to create a plan for P.E.A.C.E. that leverages global best practices and addresses the challenges posed by the local context PROJECT APPROACH 1 QualitativeResearch 2 Planning & Implementation 3 Financial Assessment • Implementation Approach • Key issues • Primary activities • 4 – Stage Implementation Plan • Objectives • Key Activities • Estimated Timing • Current Status • Benchmarking Exercise • Qualitative Interviews • Farmers • Farm Managers • Agronomists • Academics • Local Government Officials • Financial Analysis & Conclusions • Assumptions • Net Income & Land Productivity Requirements • Break-Even • Cash Flow

15. Our financial analysis is focused on assessing profitability across the different tiers that form the cooperative system COOPERATIVE SYSTEM ANALYSES • FOR 10-YEAR PERIOD • Break-Even Analysis • Productivity • Required hectares • Cash Flows • Funding Requirements • Economic Profit Secondary Cooperative Primary Cooperative Individual Farmers

16. We leveraged internal and external data sources to model the financial performance of a secondary-tier agricultural cooperative in South Africa DATA SOURCES KEY ASSUMPTIONS 1 • Crops Produced / Yields • Investments Made • Primary Cooperative Cost Structures • Average Prices SicabaziniProjections 2 ECIAfricaMarket Data 3 • Services Provided • Investments Made • Secondary Cooperative Cost Structures • Value Added GlobalBest Practices MutVitz ZAHVAC

17. For a cooperative system to be sustainable in the long term, a secondary-tier organization must increase productivity by 28 - 30% 1st-TIER INVESMENTS& EXPENSES • Land clearing • Fencing • Irrigation • Other investments and expenses 2nd-TIER INVESMENTS& EXPENSES • Trucks • Warehouse • Office management • Salaries, training and investments in 1st tier cooperatives % Increase in Land Productivity

18. There is a minimum combination of productivity and hectares managed to ensure the viability of the secondary tier INDIVIDUAL FARMER LEVEL SECONDARY TIER COOPERATIVE LEVEL 1 1 Calculate RANDS earned per farmer Calculate fixed expenses and investments per hectare Productivity x Farm Size RANDS earnedper farmer Fixed Expenses / Inv = Expenses per Hectare = Number of Farmers Total Hectares 2 2 Compare to opportunity cost (farming alternative) Compare to incremental value generated by secondary tier cooperative 3 2 Break-even productivity per hectare per farmer Break-even productivity per hectare

19. Cash flows both at the secondary and system-wide levels will be negative for the first 8 years, stressing the need for a long-term view

20. Negative cash positions illustrate the need for funding, primarily in the form of long-term debt Margin (Value Added) - • Expenses • Salaries • Training • Marketing • Other admin Expenses • Net Working Capital • Secondary Cooperative Investments Price of Goods Sold - • Cost of Goods Sold • Irrigation, clearing and fencing Investments

21. Although the secondary tier cooperative does not become profitable for 8 years, member primary cooperatives begin to turn a profit earlier Cooperative 1 Cooperative 3 Cooperative 5 Cooperative 2 Cooperative 4

22. Financial Analysis: Key Takeaways • In order for a secondary cooperative to be financially sound, all farms it serves should have a) access to irrigation b) cleared land and c) fencingbefore joining • Beyond basic infrastructure investments, land productivity and the creation of value (i.e. margins) are critical to long-term sustainability • Break-even levels at the primary and secondary level may be achieved through either a) larger farms or b) increased productivity per hectare. These break-even figures are not the same for primary and secondary cooperatives • The secondary tier cooperative will incur negativecash flows for 8 years, 5 years for primary cooperatives; consequently funding will be required at both levels • Assuming an adequate combination of investment, farm size and land productivity, secondary cooperatives represent a sustainable structure for farming and economic development in the longer term 1 2 3 4 5

23. GEESE STORY

24. Thank you