Notes from Speakers 17 November 2007

Scott MacRae, General Manager:

2006 has proved to be one of most trying years in macadamias in our 30 year history.

Our Industry body & competitors skirted around what we’ve seen in marketplace.

We will try to provide you with alternatives to look at to weather the storm

I’ve spent a lot of time in the marketplace and I want to share the feedback

United States is the largest macadamia consumer worldwide, over 80% of world supply of macadamias.

In late 2005 crisis got passed into marketplace and on to supermarket place. Within a period of 6 weeks, consumption of snack macadamias declined by 40%. The Consumer had spoken. Macadamias became too expensive. Cookie and ice cream companies used macadamias as a blend and then started dialing it down (how much they used & blended with). The lower % of macadamias in the blend didn’t lose sales so they have no reason to raise the % back up.

Europe: South Africans have wiped us out of this market. South Africa came in with 35% lower than prices we were offering for macadamias and that continues to today. 200MT of business was lost this week to South Africa & Brazil, quoting prices 15% below prices we were quoting. The prices we quoted equate to $2 per kilo for NIS less or minus.

Japan is carrying large stocks from 2005 so sales are down 50%. They have also picked up South African macadamia kernel.

Domestic market has been good as Woolworth and Coles have been stocking retail lines. New lines appear nearly every week.

Why? NIS (ie kernel) price became too high. Over $3.00, then over $3.50 we hit a wall. Macadamias are still bundled up with almonds, hazelnuts, walnuts, they have come up over 50% in price. Slight changes in international diets. The Atkins supported nut consumption but with changing trends the dieting consumer moved elsewhere. A major reason is South Africa. A lot of Australian Processors tried to match their prices and to be undersold by 35%+ makes it difficult. South African Rand devalued over last few months making their price a lot more attractive without them having to lower their actual $$ amount.

A big problem is traders (Sydney)

Domestically & internationally the quality of product, whether Woolworths or Farmer Charlies, was rubbish. People buying those nuts have a bad experience – they will never purchase macadamias again. Internationally, people buying macadamias are having a bad experience, this also impacts us. The consumer is no longer spending big $$ on this prestigious/gourmet product.

Currently, all the processors are selling kernel under $2/kg NIS price. It is hard to achieve sales. Some processors are financially struggling. Every grower who got over $2/kg is lucky this year, as the kernel price equates to less than $2/kg NIS.

2007 tightening of Australian crop is fortuitous. Over the next 12 to 18 months the main dictator of price is what is in stock with our competitors. Some have 50% of what they bought in 2006, they haven’t been able to sell. It’s not something we didn’t warn everyone about at the beginning of 2006. We sent a flyer, be very careful with who you’re dealing with, address your cost. Look at who has really invested in our industry, we are, both now and in the future heavily invested in the macadamia industry.

Right now Pacific Plantations has paid growers for 80% of the total crop we’ve taken in, the only payments yet to be made are those on longer term selection of payment. We are strong and financially viable. We are the only processor in our industry that has honoured our contracts in 2006. Those who decided to take up our longer term contract, can be assured that we have no qualms honouring the longer term contracts we put our name to.

AMS meeting: I was disappointed. A large percentage of people here were not represented at the meeting. Now, more than ever, positive direction is essential. Most of all, you are members. We encourage you to become active. I predict dire ramifications for all of us for years to come. The wrong this being done.

1. A joint promotion with Australia and South Africa has been approved to operate in and target the United Kingdom market. We find this frightening because these are the people who came into the market with 35% lower kernel prices. We market Australian macadamias as point of difference. A Director of AMS, Andrew Pearce said there is no difference with Australian to South African macadamias. A Californian almond board member said this would never, ever happen in their industry. That concerns us greatly. We think potentially frightening ramifications like talking to largest Europe supplier we missed …MT said “you should sell at South African prices”. Our Operations Manager, Matt Colahan equated $1.20/kg for the NIS price that they’re offering for 2007 crop…we don’t like that direction. Growers said to me I should have said something, a few did, we will be encouraging through us or individually. You can have a say and direct things in a positive way. We will be talking to all our suppliers and becoming more active in that forum.

Onto more positive things: the reason we’ve gathered a forum here, is because we believe it is important to be forewarned and therefore forearmed. The purpose of these discussions is to talk about positives to increase quality, yield, lower costs, what we’re doing in China to become more competitive internationally. If we run out of time for your questions today, we are available and will be advising people as to significant occurrences in the industry.

I planted 15000 young trees on my farm. The industry is going through a tough time and we want you to be prepared.

Ian Wilson, Technical Representative:

• What do I monitor?

ü The health of trees both young and old.

ü Insects that feed on the flowers, young nutlets, older nuts, leaves and the trees themselves.

ü Monitor the stages of flowering and nutset.

ü Nutshed, how much and what is the cause.

ü Diseases, what and how and when to contain them.

ü Rodents, where they are active and to what extent.

ü Beneficials, range from predators being either insects

birds, snakes. Also release programs for nutborer.

• How do I monitor?

On a fortnightly basis. Insects are rapid movers and shakers in orchards.

Consistency is the key to monitoring as without a close watch on activity, crops can be lost in very short periods.

• Why is it so important? Because it is your income.

The quality and quantity of your income determines the dollars received.

The decision to monitor is an insurance of your income.

The decision to monitor maximizes your income.

The decision to monitor enables you contain insect activity effectively and economically and manage cost effectiveness in farm practices.

Monitoring the orchard regularly gives you peace of mind as you are informed what is happening in your orchard.

With prices lowering can you afford to monitor? You can’t afford not to monitor. What would you prefer? A quality, quantity crop or no crop?

• Regular monitoring ensures you can pay the living expenses.

• There are 2 types of damage:

1. the unseen damage that doesn’t reach the sorting table.

Any excuse can be made here explaining the woes.

Some cannot be helped eg: storm damage.

Most problems can be arrested if monitored early.

Example: Lacebug.

2. Damage at the sorting table. This also can be reduced by regular monitoring, eg: Fruit spotting bug

• Quality and quantity is achieved by IPM consistency. The bottom line is your kernel recovery.

Conclusion: Regular monitoring ensures maximum quality and quantity of your crop, enabling the grower (you) to ride the lows in the industry.

Kerry Sparke, Farm Management Services:

Services. Transport, skips, dehusking and sorting. Offering to come to your farm and quote for services. The services we offer will alleviate some extra work that macadamia growers end up doing themselves.

2006 was a difficult year, not just price but for intake as well. Many experienced times when we were not able to have skip bins available when you wanted them. We have never experienced a nut drop so heavy and so early. March 2006 exceeded our previous largest March intake by 2 times. April 2006 by 3 times. April this year exceeded the highest months intake from 2004, 700MT.

Pacific Plantations are committed to continuing contracting services. We have invested a lot of time and money. Now we have grown to the point where 80% of our total NIS intake utilises our contracting services. We have invested in the extensive infrastructure to offer services efficiently and in a timely manner.

Why would you contract?

Wheat Industry: When I was a child everyone in the wheat industry had their own harvester. Now people do not own tractors, the whole operation is contracted.

Tea tree Industry: A few years ago the industry was doing well. People had their own processing plants. Then prices took a serious dive, most growers could not keep their plant to the standard they needed to achieve. They went to contractors for distilling, transport, harvesting.

Macadamia Industry contracting will become a larger part of industry as returns diminish. With declining income we need to identify where costs are. At Pacific Plantations we are focused on this. It is important to be focused on where costs are able to be reduced and doing things an alternative way to maintain a profitable farm.

Charges next year will vary. Grower who invested in infield dehusking achieved better production & through put. This helps us out and they get a better deal. Harvesting technology is changing. Contracting can benefit absentee owners and add to the value of your farm. If you intend to sell, a broader base of people could potentially buy your farm. People with other businesses and absentee owners, want a profitable business. They want to live in the country environment but don’t want to be involved in the running of a farm.

This year upgrades should be only efficiency focused upgrades. We can potentially achieve another 10 or 15% in dehusker throughput, and have 20 skips available for use this year. The skips have been very successful. Next year we will be sending out a questionnaire. To find out the number of trees, ages and potential yields so that we can plan for the future. We need this information, so please complete the questionnaire and send it back to us when you receive it. Matt (Operations Manager) has a huge amount of information so if you are a bit below the benchmark, see us so we can help you increase your yields. We need to predict the future infrastructure needed.

Each year at Pacific Plantations we get better & better by looking for ways to improve efficiencies. Some things do work, some don’t work. We want to improve everything we do. Excellent staff want to help you get the most out of your farms, that’s our commitment at Pacific Plantations.

Matt Colahan Operations Manager: briefly on China and what we’re doing over there.

We have just moved into a new facility as of 2 weeks ago. Together with our existing facility, this brings us to a capacity of 15000 tonnes per year. One hectare under roof.

The major benefit at Pacific Plantations is quality. We are believers in the ‘KISS’ principal: Keep It Simple Scott. (fill this in later)

We dry down to optimum cracking MC (moisture content) for better kernel characteristics. Bad nut shell & kernel is separated at cracking to eliminate cross contamination. Then dried to customers mc requirements allowing a lot more control. Kernel then goes to quality inspection rooms where over 50 girls with a minimum of 5 years experience sorting macadamias. Our micro levels are 100 times less than mechanical plants, no kernel damage or impregnated kernel.

One of our major benefits is production flexibility. Separated wholes and halves at cracking, sized and mixed to customers specifications. Our plant enjoys a much tighter control on all specifications. Kernel is batch processed so 100% traceability is maintained in the system and increases our reign on quality and production expectations.

Less dependence on mechanical equipment, allows us to plan & forecast our production providing better delivery performance for customers.

Modular production means we are able to ramp it up & down to fit intake of NIS overseas, which links into next benefit: Cost

We can take a lot of the fixed cost component out of processing.

Other benefit: Our production staff work on piece rate basis so significantly reduces fixed cost of processing

We employ over 2000 people at the facility. Average worker gets 1.5 to 2 x minimum wage, so this is a good job in China. We started processing in the late 1980s with 15 girls, 10 of which are still with us today. The major benefit of China is distribution. Located in the Pearl River Delta 2 hours out of Hong Kong. Most of our market is export so Hong Kong is the perfect hub for distribution. We are also on the doorstep of what will be the biggest macadamia market in China. Because of the sheer volume we are shipping through Hong Kong, we access better flexibility to Europe and us.

Why doesn’t everyone do it? Hurdles to be overcome: one is financial risk, horror stories of setting up business in china, need good partners. PP are in 2^nd generation of our relationship with Chinese partners. David started doing business with Mr Tang 25 years ago. Both Scott & David invested a lot of time & resources in investing in that relationship.

Next major hurdle: Control \ Strong relationship so trust in partners to allow us full control in process. Nuts processed to our specifications.

Visibility: We have access to live production & quality information allowing full details of our system. Our system is fully automated enabling easy detection of any anomalies.

It comes down to why we’ve decided to process in China. Kenneth Rogers said “you gotta know when to hold them, know when to fold then etc….”. We had two factories running: China & Australian and in the end it was a no brainer, we were never going to be able to compete against the cost and ease of Chinese production. It was our responsibility to provide best processing for growers no matter where in the world that was going to be. It was perceived as sending jobs offshore, but we have been able to develop a farm services department which employs more than double the staff our production facility had, even quadruple if you consider harvesting & other staff.

We are a long term, continuously developing, focused company. We have been in business 28 years. We have honoured all contracts. We have been processing since late 1980s. We have built up China to the 15000 MT state of the art facility it is today. From day one we focused on a long term approach. Marketing strategies; building long term relationships with solid business partners, which helps us all. We started farm services in 2002 and now over 80% of our intake utilizes some or all of the services we offer. We believe it’s the future of the industry so we will continue to develop that side of the business.

We wanted to give growers the time they need to add value to their businesses. We hope it gives you time to continuously improve your farm. Thank you for your long term support of our company. With that approach we can continuously improve the industry all together.

Questions from the floor:

Is there a product difference between Australian & South African kernel?

80 to 90% of our nuts send to clients who roast, etc, they receive tighter spec which only Australian macadamias have to reduce post-roast losses. We have statistics to prove there is a difference. Secondly, shelf life: we are doing studies with Hershey on shelf life with different origin nuts. Taste profile issues for large multinationals. Tasting boards. Reliability: Africans have defaulted on contracts in Europe. Multinationals require nuts over a period of time and they need to know that product will be there.

For many years we haven’t been involved in mechanics of the AMS and have tried to direct message to our suppliers. People supplying us 100% are more important to us than people supplying 50%.

Do you think the South Africans can maintain their low price or is it artificial?

Depends on how cash strapped processing system is. Correlation of currencies; rand/aud. We have learned lessons from other industries. The AMS mentioned the Auatrslian citrus board, re collaboration between citrus Australia & South Africa industries. We rang them and had interesting discussions. They said it never happened, and South Africans undercut Australia in all markets. South Africa will be a continual thorn in our side. Australia needs to differentiate ourselves and build more sophisticated markets, marry up with multinationals like Hersehey. We put together $125M supply contract with Hershey. Not one word said by people representing industry. That’s appalling. Front page of paper showed Agrimac deal $3M, 1/50^th of the deal we put together. We shouldn’t join South Africa, we should stay separate. They get preferential duties.

(Morag Page supports what Scott was saying.) Morag elected to the AMS board, new director, prior to election board of directors voted they would support the generic marketing campaign to South Africa and would jointly fund advertising campaign. Morag supports what Scott is saying, our industry, let’s say we get involved and tell the AMS what we really thought. Put to the floor of 900 members, less than 200 people at that meeting voted to support the generic marketing campaign. Morag is keen to hear what we think here. Not saying right or wrong, she abstained from the vote. If anyone thinks that’s good put your hand up now. That AMS vote was engineered. When you get the AMS General manager to say how great things are with the South African promotion then you have suppliers trying to say things and being shot down, I don’t blame people for being scared to put hand up. Morag remains open, we should talk. People here have legitimate concerns and we should make sure your say is effected at an industry level. It is 4 or 5 people with 3000 trees walking around saying they represent the industry.

Given the industries cycle and we’re heading to bottom of the cycle, what’s a way to improve future of industry?

Initiatives we’ve been pushing and the reason I’ve been traveling is to approach larger end users and supermarket buyers as to why macadamias are not succeeding. That will yield good results in the future. Supermarket chain Cosco uses quite substantial whack of macadamias, working with buyers to create products they want. They will be long lived, and be more reactive to their feedback and consumers conceptions of their products. A buyer said the almond market collapsed but the markets still there for it, it will be harder for macadamias to rebound.

There is talk that naturopaths are recommending macadamias.

We acquired oil crushing line and are working with cosmetics users to use macadamias. With naturopath & massage oil, this is best extender oil, great oil to carry whatever you want to get under the epidermis so huge potential exists, we’re quite advanced with the work we’re doing with it.

The approach the AMS has taken with genetic marketing with South Africa, is there an option for growers to market their own product?

We are carefully examining. Scott is on the promotions committee: there’s 2 ways to skin a cat: one, try to change the direction of the industry to more positively benefit people here, alternatively, seek alternative means to make sure growers are getting effective bang for their buck. I said to the committee that spending $5m this year has anyone looked at the return on that investment? Commercially we need to approach problems that way. Farms pay huge amount in levies and you need to feel you’re getting value for that investment, otherwise you’d invest elsewhere. Will try to do through the AMS, if not we’ll see what happens.

Kerry Spark : Pacific Plantations is an innovative company. During the 2006 harvest period, the Macrae family said they would stop all harvesters from working on their farms for 2 weeks to give us breathing space to catch up on the intake. This amounted to 2 to 4 skips per day; they are spending a lot of money to move the industry forward, people probably don’t realize how much they’ve spent speculating on things that might not work. Other processors copy what they do. Others processors would be in China tomorrow if they could find a partner like we have. We cop negative feed back from other processors, I can’t understand why, perhaps the reason is because we’re innovative and they are trying to play catch up. Analogy: sled dogs, the view is all the same unless you’re the lead dog. Perhaps that’s why they don’t like us.