OPPORTUNITIES AND THREATS FOR STARCH EUROPE Jamie Fortescue – 4 November 2014, Istanbul

Introducing Starch Europe Starch Europe is the trade association which represents the interests of the EU starch industry both at European and international level Its membership comprises 24 EU starch producing companies, together representing more than 95% of the EU starch industry, and, in associate membership, 7 national starch industry associations Our mission Starch Europe is the European Starch Industry Association. Its membership comprises 24 starch companies producing from 21 of the 28 EU member states. 7 national starch associations are also associate members. The companies range from SMEs like my own to large multinationals operating worldwide like Cargill, Roquette and Tereos Syral. Some companies produce potato starch, some wheat starch, some maize starch and some all of the above and more. To promote and protect the interests of EU starch producers to EU and international institutions and stakeholders, in order to ensure a reliable and sustainable supply of safe starch based ingredients in a fair competitive environment

Production facilities in 21 out of 28 European Union Member States Member’s location Member’s location Production facilities in 21 out of 28 European Union Member States Production facilities in 21 out of 28 European Union Member States Starch producers Not starch producers

The first thing to understand about starch production is that it’s about a lot more than just starch. This chart attempts to explain as simply as possible the production process. Clearly not all starch plants produce all these products in one location but some do. In 2013 we used 22 million tonnes of, almost exclusively EU, agricultural raw materials and transformed them into approximately 10 million tonnes of starch and 5 million tonnes of co-products. The first step to separate the starch from the co-products. The 5 million tonnes of proteins, fibres and germs which are separated from the starch are sold primarily to the animal feed industry, but also in the case of wheat gluten, to the food industry. In some instances these co-products are more valuable than the starch itself. Of the 10 million tonnes of starch produced a small amount in some countries, less than 0.5 million tonnes, is transformed into bio-ethanol for both human consumption and industrial uses. 2 million tonnes is dried to become native starch to be sold primarily to the paper industry, but also to the food industry. A further 2.5 million tonnes is modified to improve its functionality and also dried to make modified starches. These are sold primarily to the food sector. The remaining 5 million tonnes goes to hydrolosis. The starch molecule is a long chain of glucose molecules. Through hydrolosis you can break that long glucose chain into smaller glucose chains. With a low level of hydrolosis you can produce maltodextrins, with a medium level of hydrolosis you can produce glucose syrups and other hydrolysates and with full hydrolosis you can produce glucose, or dextrose as it is also called. Maltodextrins are used primarily as an ingredient in the infant food industry and glucose syrups and dextrose have both food and non food industry uses. Using a separate process called isomerisation you can transform some or all of the glucose molecules into fructose to make glucose fructose syrups, isoglucose and fructose, all ingredients used widely in the food and drink industry. Finally, using a process called hydrogenation, the industry makes polyols, which are widely used in food and also increasingly industrial applications.

Starch production in the EU - 2013 Processed raw materials Starch products in starch equivalent Total : 22 Mio tonnes Total : 10 Mio tonnes

Starch production in the EU EU 25 FROM 2004 EU 27 FROM 2007 EU 28 FROM 2013

15 million tonnes of starch and co-products The markets we serve 15 million tonnes of starch and co-products Feed Food 5 million 6 million 4 million Industrial So we produce a total of around 15 million tonnes of starch and co-products every year. Approximately 5 million tonnes of, primarily, co-products are sold to the animal feed industry, including petfood and aquafeed. The products mainly provide protein in animal feed but also, for example, improve taste in petfood, stability in aqua feed, a milk powder replacement in calf milk and digestability in piglet feed. 6 million tonnes of, primarily, starch products are sold to the food and drink industry as sweeteners, preservatives, bulking agents, thickeners, and binding agents but also for more specialised functions like anti-crystallising in confectionery, mositening agents in bakery, freezing point depression in ice cream and the cooling effect in chewing gum. Finally 4 million tonnes are sold to other industries, primarily paper and board as a stengthener and adhesive, but also the healthcare and cosmetic industry and increasingly the chemical industry as a replacement for fossil fuel ingredients in for example plastics. The list of final uses for our products is endless and I have only given examples. I can guarantee you have all come across ingredients from our industry already today. It was in your toothpaste this morning, holding together your newspaper, in your yogurt at breakfast, it’s in the paint on these walls.

Main starch applications - 2013 Total Market: 9 mio tonnes * Excluding co-products amounting to about 5 million tonnes

EU consumption of starch & starch derivatives - 2013 Total Market: 9 mio tonnes

Opportunities and threats EU sugar regime Bio-economy Threats (aside from overall EU economic outlook) International trade Potato starch Compliance costs Health policy

EU Starch Industry – the opportunity 25 million tonnes of starch for 320 million consumers 10 million tonnes of starch for 500 million consumers - No isoglucose quota - Significant support to bio- economy (notably bio-fuels) - Restrictive isoglucose quotas - Limited support to bio-economy The EU starch industry has been producing a stable 10 million tonnes of starch for the past ten years. We believe it could be a lot more. The reason for this belief is best illustrated by a comparison with the US. We produce 10 million tonnes for 500 million consumers. They produce 25 million tonnes for 320 million consumers. There are a number of reasons for this huge difference but two very important ones are government policy linked. The US starch industry produces around 8 million tonnes per year of the starch based sweetener, isoglucose (or what they call High Fructose Corn Syrup)an alternative to sugar used widely in, for example, the soft drinks industry. In Europe we only produce 700,000 tonnes because the EU sugar regime restricts our production of isoglucose with a quota. In the US, the starch industry transforms 8 million tonnes of starch into bio-fuels because it has been subsidised. In the EU we transform less than 0.5 million tonnes because it seldom is. So two outlets which constitute 65% of starch consumption in the US constitute only about 10% of EU starch consumption. Those two outlets alone explain much of the reason for the huge difference in EU and US starch production. The good news is that they are being addressed. In the EU, sugar and isoglucose quotas will come to an end in 2017 and with the introduction of EU funding through public private partnerships adopted in June 2013, the EU’s bio-economy strategy is starting to provide concrete support to the continent’s fledgling bio-economy. The Opportunity: 2012 – EU bio-economy strategy 2017 – End to EU sugar and isoglucose quotas

Opportunity – EU sugar regime EU sugar regime limits isoglucose (HFCS) production to 5% of 14 million tonne EU sugar market (700,000 tonnes) EU sugar regime will end in October 2017 Potential EU isoglucose market of 2-3 million tonnes

Opportunity – Bio-economy Well established EU objective to reduce fossil fuel dependency Complicated by economic downturn and bio-fuels discussion Progress on tangible benefits slow but 1 billion Euros support announced in 2013, to be matched by 2.5 billion Euros from industry

Threat – International trade EU produces 10 million tonnes of starch in 72 million tonne world market EU starch market currently protected by quite high import duties EU/US FTA significant potential threat Also EU/Thailand, EU/Vietnam FTA and others

Threat - Potato starch End to EU coupled support in 2012 Predicted 40% decline in EU market But export opportunities still exist EU/Japan FTA End to anti-dumping / anti-subsidy duties in China

Threat – Food, feed and Environment law EU precautionary approach to food/feed safety issues e.g. mycotoxins, pesticide residues etc… Also other policies – Emission Trading Scheme, REACH Consumer attitudes also driving customer demands and policy approach e.g. GM, sustainability criteria As do unrealistic ideals e.g. origin labelling Increasing cost of energy (at least 15% of production cost) but increasingly understood (Ukraine, industrial renaissance)

Threat - Health policy Ongoing consumer mistrust of processed food WHO draft guideline to halve recommended daily sugars consumption Not yet adopted but likely before end 2014 More active/coordinated anti-sugar lobby Likely impact on national/EU legislation unclear but the message to consumers is Need for better international coordination, also with sugar industry and users