NAVIGATING THE FUTURE • Pecan industry facing several challenges, and pain points exist for both growers & shellers

• Pecans lag other tree nuts on key dimensions – Pecan awareness is low, demand is flat… – …while other tree nuts are growing on back of nutrition and snacking trends Case for change – 'Adversarial' industry practices hinder industry's ability to grow

Key messages • Meanwhile, supply growth in other markets (e.g. South Africa, China) presents potential oversupply situation if no change in demand

• We have a great product and the potential to grow demand for it…

• ...but must work together collaboratively to solve challenges & move industry forward 2 There are many structural challenges grounded in the nature of the pecan market • Variations in growing costs both across & within regions • More costly to grow pecans than other tree nuts • Pressure from low-cost Mexican growers and shellers

3 Case for change 2 Growing costs: High variance by region, differing ability to bear price swings Profitability at market price of $3.00 per in-shell lb. Profitability at market price of $1.75 per in-shell lb. • Approx. 2017 max price1 • Approx. 10-year low (ex. recession; inflation-adjusted)2 Cost per acre ($) Cost per acre ($) 1800 1900 2000 2100 2200 2300 2400 2500 2600 2700 2800 2900 3000 1800 1900 2000 2100 2200 2300 2400 2500 2600 2700 2800 2900 3000 800 800 900 East 900 East 1000 1000 1100 1100 1200 Central 1200 Central 1300 1300 1400 1400 1500 1500 1600 1600 1700 1700 1800 1800 1900 1900 Yield per acre (in-shell lbs.) acreper Yield(in-shell Yield per acre (in-shell lbs.) acreper Yield(in-shell 2000 2000 … … 2800 2800 West3 Loss of China demand, increasing in-shell supply, and West3 — = Profitable cost/yield ratio other factors could lower in-shell prices — = Unprofitable cost/yield ratio Specific MX grower economics TBD, though structurally —— = Breakeven point advantaged given lower costs

1. Price / in-shell lb. paid by China of ~$2.93 in 2017 2.Inflation-adjusted price of US average in-shell of $1.73 in 2012 3. "West" includes West Texas Source: Nature's Finest Foods; USDA; UC Davis; UGA; Market interviews Case for change 2 Production expense: Pecans more expensive to grow than other tree nuts Regardless of region, pecans generally cost more to grow vs. other tree nuts given lower yield per acre

Pecans Almonds Walnuts Pistachios Representative Representative Representative Representative Representative Pistachio East West Almond cost Walnut cost cost Growing cost ~2,000 ~2,500 ~3,300 to 4,900 ~3,200 to 3,750 ~3,750 to 3,900 ($/acre)

In-shell yield (lbs/acre) ~1,000 ~2,000 - ~5,000 to 6,000 ~2,600 to 2,800

% meat ~45% ~55% - 43.5%1 50%

Meat yield ~450 ~1,100 ~2,200 to 3,000 ~2,200 to 2,600 ~1,300 to 1,400 (lbs/acre)

Meat growing cost ($/lb) ~$4.40 ~$2.30 ~$1.50 to $1.70 ~$1.40 to 1.45 ~$2.80 to 2.90 ~$3.10-$3.60 Weighted Average Cost per pound highly variable—both across and within regions—given differences in scale, yield, weather, alternate bearing seasons, etc.

1. Based on USDA ERS "Fruit and Nut Tree Yearbook" average walnut kernel yield Note: Growing cost per acre excludes amortization of land and tree/establishment investments. Almond figures reported in meat yield basis only. Source: Almond Board; UC Davis; USDA; market interviews Mexican shellers: US shellers Case for change 2 are under pressure & struggling to compete vs. Mexico Ranges of total shelling costs ($ / meat lb.) Mexican shellers benefit from lower costs

~$0.70-$1.80 US shellers With right processes / investments, and tailwind from lower transport costs, some ~$0.45-$0.85 Larger MX shellers US shellers competitive with MX shellers

0.00 0.50 1.00 1.50 2.00

Directional cost estimates; excludes carrying / transportation costs & mill loss

Source: Market interviews 6 Case for change 1 Consumer demand: US pecan demand significantly lags other tree nuts today 'Top of mind' awareness1 of pecans in US is Ten-year US pecan consumption stagnant while low relative to other mainstream tree nuts other tree nuts have experienced growth International markets account for majority of pecan % of respondents that consumption growth (4-5% annually) recalled each tree nut1

60% 56% Almond 72%

43% Walnut 52% 40%

31% Cashew 25%

20% 18% 15% Pistachio 19%

Pecan -3%

0% Almond Cashew Walnut Pistachio Pecan -20% 0% 20% 40% 60% 80%

% volume consumption growth from '06-16 (kernel basis) 1. Unaided awareness question in July 2017 survey asks for top 3 nuts respondent recalled. Note: Pistachio consumption is in-shell Source: Exactcast APC Research July 2017, INC Statistical Yearbook Case for change 2 Transaction model: Many pain points from how growers & shellers transact today Recurring pain points from interviews and stakeholder survey

Growers Shellers

Pecans are the de- Tension between growers Significant upfront capital centralized, Wild West of and shellers on price and commitment and high nuts…I think pecan yield interest expenses growers over time would do better if they adopted a [new transaction] model.

Market risk, and Every time I look at the No ability to capture "sandwich position" pecan model and the adversarial relationship, upside if demand grows between in-shell price and pecan prices rise it’s like being in a increases and retail different world [relative negotiations to almonds & pistachios].

Source: Market interviews; quotes from interviews with almond and diversified tree nut growers The industry is at a crossroads and in need of a paradigm shift • Imminent global supply growth threatens to create pecan surplus • If we do nothing, 2018 may be a glimpse into our future • We must unite to address these challenges

9 Case for change 2 Significant supply coming online from S. Africa & China, and if no corresponding change to consumer demand, market will be hit with surplus Annual pecan production across top markets US South Africa Others Millions of pounds, in-shell Mexico China • China may produce up 16 to 5-10% of global pecan 116 ~1% supply; may affect U.S. 9 10% 91 imports ~1% 10% 145 403 36 88 • South Africa to 10 12% 34% 5% 9% 348 continue rapid growth, ~1% 37% 8 294 comprise >10% of world ~1% 44% supply in ten years – 949M lbs 1.2B lbs well suited to cater to 324 680M lbs 48% Chinese demand 411 • Must stimulate demand 43% 516 to capture new supply 43% and diversify global demand beyond China 20172022 2027 Base case estimate of supply; sources of supply growth may vary based on actual productivity of S. Africa, China, & others

Source: USDA FAS/GATS; USDA NASS/ERS; SIAP-SAGARPA; Comenuez; SAPPA; Industry Interviews; Stakeholder survey Forecasting does not account for cyclical nature of crop, or loss of production capacity due to Hurricane Michael; should be viewed as directional approximation Case for change 1 Fragmented industry groups must work together to address challenges Associations by tree nut

Pecans Almonds Walnuts Pistachios National • American Pecan Council • Almond Board of • California Walnut Board • Administrative Committee • National Pecan Shellers Association California • California Walnut for Pistachios • U.S. Pecan Growers Council, Inc. • Almond Alliance Commission • American Pistachio Growers • National Pecan Federation • American Pecan Board Industry's geographic Regional • Southeastern Pecan Growers Association dispersion and limited • Western Pecan Growers Association resources make State • Alabama Pecan Growers Association • Central California • Sacramento Valley • California Pistachio Research collaboration difficult, • Arkansas Pecan Growers Association Almond Growers Walnut Growers Board • Arizona Pecan Growers Association Association Association* • Arizona Pistachio Growers but not impossible • California Pecan Growers Association • Central Valley Almond Association • Georgia Pecan Growers Association Growers Association • Georgia Pecan Commission • Louisiana Pecan Growers Association Ex: Blueberry growers / • Mississippi Pecan Growers Association processors make decisions • New Mexico Pecan Growers Association as a united industry • North Carolina Pecan Growers Association despite having orgs. • Oklahoma Pecan Growers Association across 20+ states • Texas Pecan Growers Association • West Texas Pecan Growers Assoc. • Texas Pecan Board

Total No. 21 4 3 4

Indicates FMO Source: USDA • Today, more than ever, the pecan industry is in need of a long-term strategic plan

• Together, we've crafted that plan, with input from you and others across the industry

Vision and strategic • This strategic plan represents a shared vision priorities for industry – for both growers and shellers

• It's comprised of five intertwined and Key messages for reinforcing priorities to rally the industry today • Plan is not about mandating change

• Goal is to provide options and tools we can use to resolve long-standing challenges, with the hope these will be adopted as benefits are realized

12 APC Vision To increase demand for American pecans and provide industry with a path to sustainably grow profitability across the value chain Overall strategic plan Strategic priorities comprised of four elements

Win fair share Lead amongst Strengthen our Modernize the Unite pecan of tree nuts global suppliers infrastructure industry stakeholders Vision Key initiatives Strategic priorities Refine marketing strategy and agency ways-of-working

Influence the development of priority export markets

Key initiatives Update methods of data analysis & pecan evaluation

Educate industry on ways to modernize transactions

Harmonize the industry through active communication Implementation plan Implementation plan

Initiative roadmaps & Supporting APC Comprehensive teaming structure operating model communications plan Vision & strategic priorities 3

STRATEGIC PRIORITIES

Win fair share of tree nuts

Lead amongst Five priorities underpin APC's strategic vision global suppliers To increase demand for American pecans and Strengthen our infrastructure provide industry with a path to sustainably grow profitability across the value chain Modernize the industry

Unite pecan stakeholders

14 A CLOSER LOOK AT PECAN-A-THON 600% MORE SITE USERS THAN DURING THE LAST CAMPAIGN (BRAND LAUNCH) 89% INTENT TO PURCHASE AMONG SITE VISITORS WHEN ASKED IF THEY’LL BUY PECANS; 95% SAID THEY’LL CONSIDER USING THEM OUTSDIE THE PIE 11M CONSUMER PLEDGES MADE ACROSS SOCIAL MEDIA, PARTNERSHIPS AND APC.COM

4 BREAK-THROUGHRESULTS 582.9MM IMPRESSIONS SURPASSING GOAL BY 94% ACHIEVING MORE IMPRESSIONS THAN THE PREVIOUS YEAR (JULY ‘17-AUG. ’18) IN HALF THE TIME #2 SHARE OF VOICE AMONG TREE NUTS AT 18% BEHIND ALMONDS IN #1 SPOT

3 Unaided awareness: When asked to write in all tree nuts that come to mind, pecan recall was lower than peanuts, almonds, cashews, and walnuts Percent of respondents that recalled the following tree nuts1

Recent walnut ads likely driving higher Survey December 2018 unaided awareness and awareness level close to almonds & cashews Survey July 2017

Recent holidays may have skewed pecan results, 66% leading to greater recall 56% than pistachios 577% 43% 43% 33% 33% 453% 434% 428% 31% 31% 19% 15% 18% 10% 239% 4% 3% 5% N/A 4% N/A Peanuts Almonds Cashews Walnuts Pecans Pistachios Hazelnuts Macadamia Brazil nuts

1. Unaided awareness question slightly differed in Survey December 2018 and Survey July 2017. Survey December 2018 asked for all nuts a respondent can recall, whereas Survey July 2017 only asked for the top 3 nuts. To compare results, data above for Survey December 2018 only includes the first three nuts a respondent responded with 17 Source: Exactcast APC Research July 2017, 2018 Pecan Consumer Survey; n = 2058 Vision & strategic priorities 3 Together we can achieve our future-state aspiration for the industry From – Current State To – Future State

Win fair share Seasonally-consumed, indulgent ingredient …a differentiated, nutrition-oriented, everyday snacking nut of tree nuts nut lagging growth of other tree nuts… capturing fair share of market growth

Lead amongst Trade show-based, "push" export strategy …a consumer-driven export marketing strategy focused on global suppliers with resources spread across many markets… few highest potential markets

Strengthen our Limited, unreliable data and non-uniform standards …improved data availability to support decision making & infrastructure enforced inconsistently… objective implementation of uniform standards

Modernize the Transaction model that prevents value chain …researched best practices that educate industry on industry partnerships and inhibits market growth… sharing risk & upside to promote stability & efficiency

Unite pecan Fragmented stakeholders acting in individual …a unified stakeholder base with a common strategy, stakeholders interest with limited collaboration… working together to benefit American pecan industry Vision & strategic priorities 3 Change is a journey: Your role as leaders is to help industry stay the course

APC established We are here THANK YOU • AMERICAN PECAN COUNCIL • 3880 HULEN STREET, SUITE 105 • FORT WORTH, TEXAS 76107 • (817) 916-0020 (ph) • (866) 232 – 0085 (fax) • [email protected] • www.Americanpecan.com

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