Cane Supply and Processing Agreement - Tully Sugar

1 cane Supply and Processing Agreement 1. The Tully District has significant potential to grow the area that supplies the mill and Sugar per hectare productivity. A whole of district Strategic plan developed by growers and the mill could provide some parameters for agreed season length targets, production production area and milling capacity among other things, to ensure that future growth is sustainable and profitable. Question: Would you be prepared to partner in a whole of district common strategic plan with Canegrowers so that both Growers and Tully Sugar Sugar have a common agreed direction? COFCO is committed to delivering a long term whole of district strategic plan (plan) ( 10 years or more) in conjunction with the whole community.

2 COFCO has made a binding commitment to work with Canegrowers Tully to deliver this Plan for the Sugar ugar industry. We make the following comments: COFCO believes that the implementation of a coordinated plan will allow all stakeholders to align their interests for a common goal and provide greater security for the region. region It would enable COFCO to invest in a clear district-wide strategy that delivers real benefits to the cane growers, the Tully mill, the wider industry and the local community. COFCO believes that, assuming the Plan P identifies the key drivers of growth for the region, it would develop long term enforceable agreements with growers, harvesters and other industry stakeholders that build upon and improve existing arrangements including the existing incentive structures.

3 Structures The Plan lan would address seasonal planning and ensure that the Mill and growers work together to set each season's production path. COFCO believes that the Plan lan should co-ordinate ordinate the expansion of land under cane and milling capacity. Any ny acquisition of new cane land should be done in a structured manner, in conjunction with local growers, so as to not artificially increase land values and make it more more difficult for younger farmers to enter the market. The Plan would need to complement the existing local council economic plans and work within the constraints of State and Federal legislation. legislation It should recognise the social and economic impact on the region and the industry.

4 COFCO would support pport the setting up of a Planning Group comprising representatives of the Mill, local growers and other harvesting groups to assist in the delivery of objectives under the Plan (see response to question 4). Additional comments As part of our binding commitments, we will be assessing the financial merits of converting land currently under tree plantation back into cane production and have already undertaken some preliminary work with local growers and business community members to identify potential opportunities for the Mill's involvement. We believe it is important that this activity prioritises private ownership over corporate ownership. In the past month,, as part of our commitment, we have met with Federal, State and Local Government Govern representatives to seek their support for the development of a district strategic plan and too ensure that any plan provides for the development of a mechanism to attract the next generation of cane growers.

5 COFCO believes that this Planlan is critical to deliver security to all parties in the Tully region and ensures the region egion will be most effective if it has one goal and speaks with one voice. 1. 2. The current collective cane Supply contract is in place until 2013, and is currently due for renegotiation. Many growers are of the view that their negotiating position has weakened since the dispute resolution mechanism was removed from the Sugar Industry Act. Question: Are you prepared to commit to a form of arbitration as part of the contract renegotiations to ensure an outcome that is to the mutual benefit of Growers and the Mill? COFCO selected Australia as an ideal investment model because of its grower centric focus.

6 It has been COFCO's public position that without the grower's support the Mill is useless and our investment will be worthless. We understand the importance and respect the relationship between the Mill and growers. We make the following comments: Based on our understanding of the existing sugarcane Supply Agreement , COFCO believes that a key element of the Agreement is to ensure that both parties' rights are enforceable and protected. We strongly support the early renewal and extension of the existing agreements which maintain existing incentives to growers and which enhance the transparency on the commercial pricing and associated risks for both the grower and the Mill.

7 We understand the risk and the potential imbalance associated with individual growers negotiating commercial contracts with the Mill. We support Canegrowers Tully as the representative body of growers and are committed to working with you to deliver a strategic plan for the Tully District (see answer to question 1). In the context of any disagreement, we believe that the best way to resolve the dispute is initially through friendly consultation and consensus. If this approach cannot achieve consensus, we will support the reintroduction of an independent arbitration process that provides transparency and logical determinations between growers and the Mill. COFCO is committed to working with Canegrowers Tully to achieve a practical solution for both individual growers and the collective groups.

8 If our offer is successful, we would establish a working group consisting of the Canegrower's Tully representative, young grower representatives, larger and smaller grower representatives, current mill representatives and COFCO representatives to work through the proposed District Plan and associated underlying agreements including the process of appointing future grower directors to the Board of Tully . It is important to provide investment certainty to all parties. Assuming that the strategic plan will have a longer timeframe than that associated with the current cane Supply agreements, COFCO supports an early commencement of the negotiation process that takes into account past performance and future expected industry changes identified in the Plan.

9 It is imperative that ongoing cane Supply agreements are aligned to the success drivers of the Mill and the growers to support industry profitability and performance. We propose using the current Agreement as a base for ongoing improvement. We strongly support the development of negotiating protocols to govern future discussions which can be used to ensure that the agreements give both parties flexibility should market conditions change, while at the same time provide sufficient security to ensure that our joint commitments are delivered. While these protocols would allow the use of arbitration to ensure both parties reach consensus, we would prefer that this is seen as a last resort by both parties.

10 2. 3. Security of cane payment is an issue often raised by Growers. Question: Can you outline the mechanism that would ensure that the Growers share of Sugar proceeds is quarantined, particularly in the event that QSL is no longer marketing Sugar produced in Tully and protected against the Mills creditor's action to recover outstanding loans? COFCO has made a clear and binding commitment to maintaining current industry arrangements and to improve transparency in grower dealings with both the Mill and QSL. Our understanding is that no Australian milling company currently provides security to growers in relation to Sugar proceeds. We make the following comments: COFCO is a global Fortune 500 company with a strong financial balance sheet and currently holding in excess of US$4 billion in cash.