DGC Asset Management Limited Analysis Report [DGCRESOURCES/BARv1.

0]
An analysis of the supply and demand fundamentals that underscore the global blueberry market, and an exploration of the potential market size.

David Garner Partner - Investments

Market Analysis
Blueberry Supply and Demand

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Contents
Executive Summary 1. Global Production (lbs.) Combined Wild and Cultivated World Blueberry Production Growth in Wild & Cultivated Blueberry Production Growth in Wild & Cultivated Blueberry Production (percentage) Global Cultivated Blueberry Production Global Wild Blueberry Production 2. Global Production (planted acreage) Global Cultivated Blueberry Acreage Cultivated Acreage Distribution by Region World Acreage Growth by Region Crop Yields in lbs. per Acre Top Ten Countries for Planted Acreage 3. Grower Prices Annual Price Appreciation for Blueberries Price per lb. Rolling 3-year Average Year-on-Year Grower Price Volatility Pricing Differential Fresh to Processed 4. Consumption and Utilisation Per Capita Consumption of Fresh Blueberries Global Market Size Potential United States Blueberry Exports United States Blueberry Imports 5. Projections & Conclusions Global Blueberry Production Forecast 2017 Production vs Potential Market Size by Region

Executive Summary

This Analysis Report; produced by DGC Asset Management Limited; is designed to provide interested parties with a brief introduction to the global supply and demand dynamics that drive prices for blueberry growers in the United States of America, as well as an insight into the potential for demand growth in emerging market economies where blueberries are only now becoming well-known as a superfood crop. DGC Asset Management Limited invests in small-scale, asset-backed agricultural business where significant capital value can be added to the underlying asset base of productive agricultural land, and where further value can be added through the establishment of commercial farming operations. For more information about current investment opportunities, contact the Management Team at DGC Asset Management Limited. Both production and consumption of blueberries is growing apace on a global scale. Production as measured in lbs. has grown by almost 50 per cent (50%) since 2008, and industry participants suggest that production could grow by the same margin by 2018. Planted acreage has also increased substantially, and the amount of land committed to cultivating blueberries on a global basis has more than doubled since 2005. Although North America remains the largest producer by some considerable margin, aggressive growth in the likes of China, Latin America and Europe has dented US market share as the market of affluent consumers in these markets continues to expand rapidly. There are now over 230,000 acres planted with blueberry bushes around the world, more than double that of 2005, and China has increased its acreage by an astonishing 4,500 per cent (4,500%) in the last 6 years. The Worlds largest producer the United States has grown its blueberry acreage steadily at 7.3 per cent (7.3%) per year since 2005, adding more than 37,000 new acres, with that addition to the existing asset base more than the total acreage in all of the top ten producers individually. Demand for blueberries is growing rapidly, especially in emerging market economies where the affluent middle classes are growing in size and appetite for quality produce. Should blueberry products reach the level of market penetration of the United States in markets such as China, Europe, South America and North America; then the size of the global blueberry market will expand by more than 500 per cent (500%). In terms of facilitated demand and product utilisation; more than 4,000 new products containing blueberries were introduced to global markets in 2012, with the majority being introduced in Europe which, with nearly 750 million residents, produces only the same amount of blueberries as the State of Oregon, which clearly demonstrates the potential for demand expansion in this and other markets. Grower prices for the crop have climbed steadily since the early 1990s when the first data is available, and despite declining by around 28 per cent (28%) during the global financial crisis of 2008, farm gate values continue to reach new highs and are currently at the highest level since records began, despite the huge increase in supply. Overall, the potential for blueberry growers is significant, especially as blueberries continue to gain traction as a superfood with supersize health benefits amongst the rising middle classes in emerging market economies, and those positioned with the expertise, infrastructure, and of course suitably productive agricultural assets, will be best positioned to profit from the growth in both supply and more importantly demand for this high value crop

1. Global Production (Million lbs.) Global production of blueberries has increased significantly in recent years; driven by demand for quality product, especially in Europe, Asia and Latin America, and all regions have added a considerable amount of acreage to further production in order to keep pace with demand. This added acreage is now starting to come to fruition, and as such global production has increased substantially in the past 3 to 4 years Production has increased at an annual rate of 10.6 per cent (10.6%) globally since 2008; as growers recognise the potential and profitability of the crop and seek to meet demand for both fresh and processed blueberry products. Overall; global production increased by 49.7 per cent (49.7%) between 2008 and 2012, from 893.4 million lbs. to 1,337 million lbs. with emerging markets in South America, Africa and Asia expanding the most, both in terms of planted acreage and delivered product. Combined Wild and Cultivated World Blueberry Production 2008 2012 (Million lbs.)
1600 1400 1200 1000 800 600 400 200 0 893.4 936.8 1,337 49.7% Growth

Asia & Pacific Southern Africa Med. & North Africa Europe South America North America

2008

2010

2012

Source: U.S. Highbush Blueberry Council

Regions working from a low production base saw production increase the most when measured as a percentage gain. The Mediterranean and North African region grew production from 0.8 million lbs. in 2008 to 5.5 million lbs. in 2012, an overall increase of 587.5 per cent (587.5%). The Asia Pacific region saw production increase by 34.6 million lbs. from 23.6 million lbs. in 2008 to 58.2 million lbs. in 2012; an overall increase of 146.61 per cent (146.61%). Southern Africa saw production increase from 1.5 to 3.6 million lbs. or 140 per cent (140%), and South America produced 136.58 per cent (136.58%) more blueberries growing output from 115.1 to 272.3 million lbs. Whilst the rate of growth in the worlds largest producer; North America, was much smaller at 27.59 per cent (27.59%), in real terms this region added more production than anywhere else, growing output by 185.1 million lbs. from 671 to 859.1 million lbs. over the period. The vast majority of production growth has been in cultivated (Highbush) blueberries. Whilst wild blueberry production relies on a relatively static asset base of wild crops, yield increases and increases in planted acreage saw cultivated production increase by 69.4 per cent (69.4%) between 2008 and 2012, whilst wild production fell by 35.8 per cent (35.8%) between 08 and 09, before rebounding in to show an overall increase of 7.9 per cent for the period (7.9%) by 2012.

Growth in Wild & Cultivated Blueberry Production 2008 2012 (Million lbs.)
200 180 160 140 120 100 80 60 40 20 0 North America South America Europe 59.9 4.7 Med. & North Africa 2.1 34.6 157.2 185.1

Southern Africa Asia & Pacific

Source: U.S. Highbush Blueberry Council

Annual Growth in Wild & Cultivated Blueberry Production 2008 2012 (Percentage)
70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% North America South America Europe Med. & North Africa Southern Africa Asia & Pacific World

Source: U.S. Highbush Blueberry Council

Global Cultivated Blueberry Production 2008 2012 (Million lbs.)

1200 1000 69.4% Growth 800 Fresh 600 400 200 0 2008 2010 2012 Source: U.S. Highbush Blueberry Council Processed Total

Global Wild Blueberry Production 2008 2012 (Million lbs.)

350 7.9% Growth 300 250 200 150 100 50 0 Fresh Processed Total

2008

2010

2012

Source: U.S. Highbush Blueberry Council

2. Global Production (Planted Acreage) In terms of cultivated blueberry production, world acreage has increased from 103,778 acres in 2005 to 231,235 in 2012; an overall uplift in the productive asset base of 127,457 or 122.8 per cent (122.8%). This shows that acreage committed to blueberries has grown at a rate of 22.2 per cent (22.2%) per year for the past 4 years. North America added the most new acreage between 2005 and 2012 at 52,560 new acres, closely followed by the Asia Pacific region at 33,427 new acres which represents a regional increase for Asia of 798.2 per cent (798.2%). Both South America and Europe increased planted acreage by more than 140 per cent, whilst Southern Africa added 406 new acres representing a growth of 54.9 per cent (54.9%).

Global Cultivated Blueberry Acreage 2005 2012

500000 450000 400000 350000 300000 250000 200000 150000 100000 50000 0 2005 2007 2008 2010 2012 Source: U.S. Highbush Blueberry Council World Asia & Pacific Southern Africa Med & North Africa Europe South America North America

Aggressive planting of new crops in Asia saw market share in the region increase from 4 per cent (4%) in 2005 to 16.3 per cent (16.3%) by 2012, although most of the best quality land in China is committed to strategically important food crops and as such the land planted to blueberries is less than ideal in terms of soil quality, water availability and climate. Both South America and Europe saw a nominal increase in market share of between 1 and 1.5 per cent (1 1.5%), whilst Southern Africas market share fell by 0.2 per cent (0.2%). Due to the significant increase in planted acreage in Asia; North America saw an overall decrease in market share of 15 per cent (15%) despite adding more acreage than any other region. Yields have also been rising steadily since the early 2000s as new technologies and modern farming practices add value for growers. According to figures taken from the United States Department of Agriculture; yield per acre in the United States has increased from 3,310 lbs. in 1992, to 5,940 in 2011, a marked increase of 79.5 per cent (79.5%), or a compound annual growth rate (CAGR) of 3.1 per cent (3.1%).

Cultivated Acreage Distribution by Region 2005 vs 2012

2005

2012

North America South America Europe Med. & North Africa Southern Africa Asia & Pacific

103,778 Acres

231,235 Acres
Source: U.S. Highbush Blueberry Council

World Acreage Growth by Region 2005 - 2012

250000 122.8% Growth 200000 Asia & Pacific 150000 Southern Africa Med. & North Africa 100000 Europe South America North America 50000

0 2005 2007 2008 2010 2012 Source: U.S. Highbush Blueberry Council

Yield in lbs. per Acre 1992 2011 (United States)

7,000 6,000 5,000 79.5% Growth 4,000 3.1% CAGR 3,000 2,000 1,000 0

Source: United Sates Department of Agriculture (USDA)

Top Ten Countries for Planted Acreage 2005 vs 2012

100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2005 2012

Source: U.S. Highbush Blueberry Council

3. Grower Prices Whilst production has increased by the largest margin on record in the past few years, this has not dampened prices. In the United States; prices peaked in 2007 at USD$1.85 per lb. (combined fresh and processed) before dropping off to USD$1.33 in 2009 in line with the vast majority of asset values due primarily to the global financial crisis. Prices have since experienced a strong recovery and currently sit at around USD$1.84. Overall, prices received by growers have increased at an annual rate of 4.4 per cent (4.4%) since the early 1990s, demonstrating that blueberries might be a good inflation hedge, and that rising incomes from planted acreage will have a positive impact on underlying land values.

Annual Price Appreciation for Blueberries 1992 2011 (United States)

5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0%

3.8%

3.7%

4.4%

Fresh

Processed

All

Source: United Sates Department of Agriculture (USDA)

Rolling 3-Year Average Price per lb. 1992 2011 (United States)
$2.50

$2.00

$1.50 Fresh $1.00 Processed All $0.50

$0.00

Source: United Sates Department of Agriculture (USDA)

In terms of the pricing volatility inherent to the business of agricultural production; the price of processed blueberries has varied considerably from year to year, whilst the price for fresh produce has been much more stable. For processed blueberries; prices have varied by as much as 89 per cent (89%) year to year, whilst the maximum annual pricing volatility for fresh produce has been 24.5 per cent (24.5%). Overall for combined fresh/processed produce, the volatility band is 34.2 per cent (34.2%). Year-on-Year Grower Price Volatility 1992 2011 (United States)
100.0% 89% y-o-y variation for processed 80.0% 60.0% 40.0% Fresh 20.0% 0.0% -20.0% -40.0% -48% y-o-y variation for processed -60.0% Source: United Sates Department of Agriculture (USDA) Processed All 83.4% y-o-y variation for processed

Price Difference between Fresh and Processed Blueberries 1992 2011 (USD$ per lb.)
$1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00

Source: United Sates Department of Agriculture (USDA)

4. Consumption and Utilisation Consumption of blueberries is on the increase on a global scale, and over 4,000 new products containing blueberries enter the market every year. In the United States; the Worlds largest consumer of the crop; average per capita consumption of fresh blueberries has grown at an annual rate of 6.6 per cent (6.6%) since 1980, an overall increase in consumption of 616.3 per cent (616.3%) and now sits around 1.25 lb (567 g.) per person. Consumption of processed blueberries is estimated at 1.01 lb. (459 g.) with total US per capita annual blueberry consumption at 2.2 lb (1,026 g.) per person (North American Highbush Blueberry Market Situation, February, 2013) But it is the potential in developing markets in mainland Europe and China that are only just learning about blueberries; and the sheer scale of these markets; that adds most weight to future demand expectations, and industry experts believe supply may yet struggle to keep pace. According to Cort Brazelton of The North American Blueberry Council (NABC); around 80 per cent of global production is consumed in North America, yet around half of the remaining 7 billion people around the world can now afford, and more importantly want to consume blueberries in one form or another. The demand potential for this superfood crop is simply phenomenal.

Per Capita Consumption of Fresh Blueberries in lbs. 1980 2011 (United States)
1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011P Source: United Sates Department of Agriculture (USDA)

According to Brazelton, Latin America will be a huge market, with almost half of South Americas fruit production being consumed locally within the region within 15 years, with as much being exported to Asia as is currently shipped to Europe or North America. In 2011 for example; more than 4.7 million tonnes of blueberries were exported to Europe from Argentina, an increase of 691,461 or 17.1 per cent (17.1%) year-on-year. Locally in Mainland Europe; Poland had the most planted acreage at 8,645 in 2012, and more of the crop is consumed by the domestic middle classes year after year, and consumption is increasing across the rest of Europe too, especially German-speaking Europe, Scandinavia, Russia and Italy, with German consumers no longer considering blueberries to be a seasonal crop and demanding year-round availability. Currently Europe produces about the same volume of blueberries as the US State of Oregon, but with 750 million people; demand will certainly dwarf availability if current trends in consumption continue.

China has approximately the same acreage of cultivated blueberries as Europe, yet with 1.34 billion people, the potential market is huge and the red giant is set to become the Worlds largest consumer of blueberries within ten years, and whilst China is aggressively increasing planted acreage, most of the good land and water is used for strategically important food crops for food security, and as Brazelton states, much of the land being planted for blueberries in China is not the best blueberry ground. This indicates that although China will certainly continue to build its acreage, the majority of global production in the future will come from the same regions as today, and so exports to China could increase exponentially as demand for quality grows in line with demand for quantity. According to a report by the American Chamber of Commerce in Shanghai; The Chinese population is only just learning about the potential of blueberries and their antioxidant qualities. Companies are marketing blueberries as a medicinal product in teas and pills. What aloe does for the skin, they say blueberries can do for the eyes. (On the Blueberry Trail, Venessa Wong, American Chamber of Commerce in Shanghai, 2005) Taking into account only the populations of China, Europe, South America and North America (CESANA), demand for blueberries would increase by more than 500 per cent (500%) by the time market penetration reaches that of the Unites States; in fact the Chinese market alone has the potential to triple the size of the global market for blueberries at such penetration levels. Yet global production is projected to increase by just 10 per cent (10%) per year according to the North American Blueberry Council.

Global Market Size Potential at 51% Penetration

1400 Growth Potential - 529.7% 1200 1000 800 600 400 200 0 Current United States Global Market Size North America China South America Europe CESANA

Source: DGC Asset Management Limited

Both imports and exports of blueberries to and from the United States are rising. US manufacturers seeking low cost frozen produce may look to import blueberries from the likes of Chile which is fast becoming a significant trade partner, whilst exports of both fresh and frozen blueberries have risen from 35.7 million lbs. in 1993 to 114.6 million lbs. in 2011, an annual growth rate of 6.68 per cent (6.68%), or an overall increase of 220.5 per cent (220.5%).

United States Blueberry Exports 1993 2011 (lbs.)

140,000,000 120,000,000 100,000,000 80,000,000 Total 60,000,000 40,000,000 20,000,000 Fresh Frozen

Source: United States Department of Agriculture

United States Blueberry Imports by Region 1993 2011 (lbs.)

250,000,000

200,000,000 World 150,000,000 Chile Canada Argentina 100,000,000 Mexico Uruguay New Zealand 50,000,000 Rest of World

Source: United States Department of Agriculture

5. Projections and Conclusions As blueberries continue to gain traction in emerging and developing markets in China, Europe and South America; demand for both high quality fresh produce and lower quality processed and frozen blueberries is likely to continue to increase consistently and steadily before reaching a point of exponential growth and a potential 3 billion new consumers enter the market. That aside, the two largest markets for blueberries; the United States and the United Kingdom, are still growing steadily year on year as a plethora of new blueberry infused products hit the market annually, both in emerging markets and developed markets alike. In order to keep pace with this demand, especially in these key markets, further acreage with good quality soil, water availability and a good climate is needed. Whilst China is expanding its acreage in an attempt to meet the growing demand for the crop, soil quality, water and climate issues will limit yield and quality, thus creating an exciting opportunity for exporters in the United States and South America. The following production forecast is taken directly from the North American Blueberry Council World Blueberry Acreage & Production Report, February, 2013 authored by Cort Brazelton.

Global Blueberry Production Forecast 2009 2017 (Million lbs.)

1600 1400 1200 1000 800 600 400 200 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: North American Blueberry Council North America South America Europe Med. & North Africa Southern Africa Asia & Pacific World Total

Overall production will increase by some 500 million lbs. through 2017, with the majority of that in North America which is set to add a further 205 million lbs. to cultivated production during the next five years. This is just less than the rest of the world combined which will add 220 million lbs. of production, most of which will come from growers in South America which will deliver an extra 97.6 million lbs. per year by 2017. Production will grow steadily at a rate of 7.2 per cent (7.2%) annually, and the biggest percentage gain will be seen in the Southern African and North African/Mediterranean regions which will increase productivity by 316 per cent (316%) and 227 per cent (227%) respectively. As with any rapid expansion, there are likely to be a number of issues that impact the ability of growers to expand production. Where crops have been hurriedly planted and poorly managed without access to crop-specific expertise; yields are likely to be uncompetitive, and the availability of prime growing sites in the best areas is thinning fast.

2017 Production vs Potential Market Size by Region

2000 1800 1600 1400 1200 1000 800 600 400 200 0 South America Europe Northern Africa Southern Africa Asia Pacific Demand Production

In conclusion, growing pains aside, blueberries offer one of the best mid-term profit opportunities for growers keen to increase revenue per acre and participate in a market that offers less volatility and more consistent growth than traditional row crops. The United States will remain the worlds largest producer and consumer of blueberries for the next five years, although consumption in Asia, Europe and South America will at some point eclipse that of the rest of the world as the increasingly affluent middle classes continue to demand a higher quality diet and access to high quality fresh blueberries, as well as processed blueberries in value added products. Growers in control of prime agricultural assets that generate commodities where pricing displays a positive correlation with inflation, demand is increasing and the availability of quality land assets diminishing; will be best positioned to derive financial benefit from developing trends in basic demographic and socio-economic fundamentals such as rising global incomes, globalisation and organic population growth. DGC Asset Management Limited invests in small-scale agricultural developments in developed and emerging markets around the world. The company has participated in a range of transactions involving the acquisition, development and operation of productive land assets in Latin America, Australia, Asia and now the United States of America. DGC also provides qualifying Investors with the opportunity to participate alongside the company in asset-backed agricultural real estate projects, and Investors wishing to discuss current opportunities should contact the Management Team directly. David Garner Partner DGC Asset Management Limited Tel: 08000 337 125 Intl: 0044 (0) 207 043 2592 Email: dg@dgcassetmanagement.com