1. ETHANOL PRODUCTION IN SOUTH AFRICA

2.  World leader in agricultural processing, including ethanol  Looking to expand and diversify bioenergy product portfolio  Market capitalization of $18.2B and earnings of $1.7B in 2009  Positioned for growth opportunities ◦ Invested $6.7B in the construction and maintenance of manufacturing plants ◦ Low WACC (6.7%) versus high ROIC (11.9%) indicates strategic capital investments add value to the firm

3. Current Oil Demand – 86 million barrels PER DAY 2030 Projected Oil Demand – 116 million barrels PER DAY Oil supply is dwindling Ethanol displaces more than 1 million barrels PER DAY Demand for ethanol expected to double by 2015 Reduces global dependence on dwindling oil supply and address climate concerns

4. Factors influencing ethanol demand:  Oil prices  Government mandates on ethanol blend levels Current platforms:  U.S. is the leading ethanol producer in the world  Brazil is 2 nd largest producer and leading exporter of ethanol in the world  U.S. and EU have been primary markets for imports as consumption increases due to energy demands and biofuel targets  Asia and India are emerging as major import market targets As a diversified agribusiness, with existing scale and expertise in corn processing and a global transportation and distribution network, ADM has become a market leader in ethanol production.

5.  ADM is an industry leader in dry-mill corn- based ethanol production technologies ◦ 7 corn-based mills in the U.S. ◦ 1 sugarcane-based mill in Brazil  Technology improvements include advanced water treatment techniques and improved fermentation processes

6. Strategy includes expanding ethanol production and developing business in emerging African markets  FDI in South Africa meets both of these needs o Provides new trade platform o Allows better access to meet growing ethanol demand in Europe and emerging Asian markets

7.  Location provides easy access to shipping routes to Europe and Asia  Access to a surplus of corn  Modern transportation infrastructure mitigates the need to develop transportation routes  Buying stations located throughout South Africa make transport of imports easy

8.  Costs of Investing in South Africa: ◦ $165M for manufacturing plant ◦ $97.6M in production costs with $176M in sales annually (based on 110M gallons of output) ◦ 21 days to establish business entity ◦ 1.75 years for construction ◦ 5 years to breakeven  ADM’s strong cash position makes acquiring financing for greenfield FDI in South Africa relatively straightforward

9.  Opportunity Cost of Investment ◦ Risk-free return on government treasury bills ◦ Short-term Brazilian (9% yield) or other government bonds ◦ Investment in other market segments  Must evaluate whether the return on investment is greater than the risk premium of the project R ISK AREAS INCLUDE FINANCIAL, TECHNOLOGICAL, POLITICAL, AND CURRENCY

10.  Price sensitivity to inputs and outputs ◦ Rising grain prices ◦ Labor rates and relationships  Unions exist but high unemployment rate (24%) reduces their influence  Abundance of low-skilled labor and relative shortage of high-skilled labor ◦ Energy shortfalls as a result of economic growth relative to electricity generating capacity ◦ Water shortage predicted to continue ◦ Fluctuating fuel prices

11.  Risk of power shift to leftist parties in 2014 o In favor of state owned industrial centers, especially in mining sector o Call for stricter land expropriation laws  Impact of public health issues (e.g. HIV rate) on future market conditions and health care implications for ADM  Effect of external political environment o Expansion of Somali piracy o Decline in Zimbabwe’s political situation  Rand projected to increase value placing pressure on input costs  Further decline in US$ values would increase dollar denominated input costs  Change in SAF macroeconomic policies leading to increased current account deficits  Inflation

12. Does SA possess a competitive advantage in ethanol?  Brazil and US combined dominate world ethanol production – 89% of global total United StatesBrazilSouth Africa Corn based ethanol Corn subsidies for farmers and tax credits for ethanol producers Sugar cane based ethanol Ethanol production no longer subsidized by the government Non-existent No subsidies for farmers or ethanol producers Corn production surplus Ad Valorem duty of 2.5% on ethanol imports Secondary duty of $0.54 per gallon of ethanol Recently eliminated tariffs on ethanol imports No existing tariffs on ethanol imports Labor rates 30% higher than Brazil Labor rates 30% cheaper than US High level of unemployment

13.  Is it possible to establish a competitive advantage through a change in macroeconomic policy? ◦ High taxes on ethanol or other energy imports would hurt low and middle class  South Africa imports 67% of oil consumed  Per Capita income is only $10,100 – population can’t afford to pay more for oil and gasoline ◦ Corn-based ethanol is more expensive to produce and cannot compete with sugar cane-based ethanol without subsidies

14.  South Africa does not possess a competitive advantage in corn-based ethanol  Financial, technological, political, and currency risk factors increase the risk premium  Best alternative is expansion of current manufacturing efforts in the U.S. and Brazil ADM SHOULD NOT MAKE A FDI IN SOUTH AFRICA ADM SHOULD NOT MAKE A FDI IN SOUTH AFRICA