dgc blueberry report, april, 2013

DGC Asset Management Limited

Analysis Report

[DGCRESOURCES/BARv1.0]

An analysis of the supply and demand fundamentals

that underscore the global blueberry market, and an

exploration of the potential market size.

David Garner

Partner - Investments

Market Analysis

Blueberry Supply and Demand

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Contents

Executive Summary

1. Global Production (lbs.)

Combined Wild and Cultivated World Blueberry Production

Growth in Wild & Cultivated Blueberry Production

Growth in Wild & Cultivated Blueberry Production (percentage)

Global Cultivated Blueberry Production

Global Wild Blueberry Production

2. Global Production (planted acreage)

Global Cultivated Blueberry Acreage

Cultivated Acreage Distribution by Region

World Acreage Growth by Region

Crop Yields in lbs. per Acre

Top Ten Countries for Planted Acreage

3. Grower Prices

Annual Price Appreciation for Blueberries

Price per lb. Rolling 3-year Average

Year-on-Year Grower Price Volatility

Pricing Differential Fresh to Processed

4. Consumption and Utilisation

Per Capita Consumption of Fresh Blueberries

Global Market Size Potential

United States Blueberry Exports

United States Blueberry Imports

5. Projections & Conclusions

Global Blueberry Production Forecast

2017 Production vs Potential Market Size by Region

Executive Summary

This Analysis Report; produced by DGC Asset Management Limited; is designed to provide interested

parties with a brief introduction to the global supply and demand dynamics that drive prices for

blueberry growers in the United States of America, as well as an insight into the potential for demand

growth in emerging market economies where blueberries are only now becoming well-known as a

superfood crop.

DGC Asset Management Limited invests in small-scale, asset-backed agricultural business where

significant capital value can be added to the underlying asset base of productive agricultural land, and

where further value can be added through the establishment of commercial farming operations. For

more information about current investment opportunities, contact the Management Team at DGC

Asset Management Limited.

Both production and consumption of blueberries is growing apace on a global scale. Production as

measured in lbs. has grown by almost 50 per cent (50%) since 2008, and industry participants

suggest that production could grow by the same margin by 2018.

Planted acreage has also increased substantially, and the amount of land committed to cultivating

blueberries on a global basis has more than doubled since 2005. Although North America remains the

largest producer by some considerable margin, aggressive growth in the likes of China, Latin America

and Europe has dented US market share as the market of affluent consumers in these markets

continues to expand rapidly. There are now over 230,000 acres planted with blueberry bushes around

the world, more than double that of 2005, and China has increased its acreage by an astonishing

4,500 per cent (4,500%) in the last 6 years. The World’s largest producer – the United States – has

grown its blueberry acreage steadily at 7.3 per cent (7.3%) per year since 2005, adding more than

37,000 new acres, with that addition to the existing asset base more than the total acreage in all of

the top ten producers individually.

Demand for blueberries is growing rapidly, especially in emerging market economies where the

affluent middle classes are growing in size and appetite for quality produce. Should blueberry

products reach the level of market penetration of the United States in markets such as China, Europe,

South America and North America; then the size of the global blueberry market will expand by more

than 500 per cent (500%).

In terms of facilitated demand and product utilisation; more than 4,000 new products containing

blueberries were introduced to global markets in 2012, with the majority being introduced in Europe

which, with nearly 750 million residents, produces only the same amount of blueberries as the State

of Oregon, which clearly demonstrates the potential for demand expansion in this and other markets.

Grower prices for the crop have climbed steadily since the early 1990’s when the first data is

available, and despite declining by around 28 per cent (28%) during the global financial crisis of 2008,

farm gate values continue to reach new highs and are currently at the highest level since records

began, despite the huge increase in supply.

Overall, the potential for blueberry growers is significant, especially as blueberries continue to gain

traction as a superfood with supersize health benefits amongst the rising middle classes in emerging

market economies, and those positioned with the expertise, infrastructure, and of course suitably

productive agricultural assets, will be best positioned to profit from the growth in both supply and more

importantly demand for this high value crop

1. Global Production (Million lbs.)

Global production of blueberries has increased significantly in recent years; driven by demand for

quality product, especially in Europe, Asia and Latin America, and all regions have added a

considerable amount of acreage to further production in order to keep pace with demand. This added

acreage is now starting to come to fruition, and as such global production has increased substantially

in the past 3 to 4 years

Production has increased at an annual rate of 10.6 per cent (10.6%) globally since 2008; as growers

recognise the potential and profitability of the crop and seek to meet demand for both fresh and

processed blueberry products. Overall; global production increased by 49.7 per cent (49.7%) between

2008 and 2012, from 893.4 million lbs. to 1,337 million lbs. with emerging markets in South America,

Africa and Asia expanding the most, both in terms of planted acreage and delivered product.

Combined Wild and Cultivated World Blueberry Production 2008 – 2012 (Million lbs.)

Source: U.S. Highbush Blueberry Council

Regions working from a low production base saw production increase the most when measured as a

percentage gain. The Mediterranean and North African region grew production from 0.8 million lbs. in

2008 to 5.5 million lbs. in 2012, an overall increase of 587.5 per cent (587.5%). The Asia Pacific

region saw production increase by 34.6 million lbs. from 23.6 million lbs. in 2008 to 58.2 million lbs. in

2012; an overall increase of 146.61 per cent (146.61%). Southern Africa saw production increase

from 1.5 to 3.6 million lbs. or 140 per cent (140%), and South America produced 136.58 per cent

(136.58%) more blueberries’ growing output from 115.1 to 272.3 million lbs.

Whilst the rate of growth in the world’s largest producer; North America, was much smaller at 27.59

per cent (27.59%), in real terms this region added more production than anywhere else, growing

output by 185.1 million lbs. from 671 to 859.1 million lbs. over the period.

The vast majority of production growth has been in cultivated (Highbush) blueberries. Whilst wild

blueberry production relies on a relatively static asset base of wild crops, yield increases and

increases in planted acreage saw cultivated production increase by 69.4 per cent (69.4%) between

2008 and 2012, whilst wild production fell by 35.8 per cent (35.8%) between ’08 and ’09, before

rebounding in to show an overall increase of 7.9 per cent for the period (7.9%) by 2012.

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2008 2010 2012

Asia & Pacific

Southern Africa

Med. & North Africa

Europe

South America

North America

49.7% Growth

893.4 936.8 1,337

Growth in Wild & Cultivated Blueberry Production 2008 – 2012 (Million lbs.)


Annual Growth in Wild & Cultivated Blueberry Production 2008 – 2012 (Percentage)


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North America South America Europe Med. & NorthAfrica

Southern Africa Asia & Pacific

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70.00%

North America SouthAmerica

Europe Med. & NorthAfrica

SouthernAfrica

Asia & Pacific World

185.1

157.2

59.9

34.6 4.7 2.1

Global Cultivated Blueberry Production 2008 – 2012 (Million lbs.)


Global Wild Blueberry Production 2008 – 2012 (Million lbs.)


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2008 2010 2012

Fresh

Processed

Total

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2008 2010 2012

Fresh

Processed

Total

7.9% Growth

69.4% Growth

2. Global Production (Planted Acreage)

In terms of cultivated blueberry production, world acreage has increased from 103,778 acres in 2005

to 231,235 in 2012; an overall uplift in the productive asset base of 127,457 or 122.8 per cent

(122.8%). This shows that acreage committed to blueberries has grown at a rate of 22.2 per cent

(22.2%) per year for the past 4 years.

North America added the most new acreage between 2005 and 2012 at 52,560 new acres, closely

followed by the Asia Pacific region at 33,427 new acres which represents a regional increase for Asia

of 798.2 per cent (798.2%). Both South America and Europe increased planted acreage by more than

140 per cent, whilst Southern Africa added 406 new acres representing a growth of 54.9 per cent

(54.9%).

Global Cultivated Blueberry Acreage 2005 – 2012


Aggressive planting of new crops in Asia saw market share in the region increase from 4 per cent

(4%) in 2005 to 16.3 per cent (16.3%) by 2012, although most of the best quality land in China is

committed to strategically important food crops and as such the land planted to blueberries is less

than ideal in terms of soil quality, water availability and climate. Both South America and Europe saw

a nominal increase in market share of between 1 and 1.5 per cent (1 – 1.5%), whilst Southern Africa’s

market share fell by 0.2 per cent (0.2%). Due to the significant increase in planted acreage in Asia;

North America saw an overall decrease in market share of 15 per cent (15%) despite adding more

acreage than any other region.

Yields have also been rising steadily since the early 2000’s as new technologies and modern farming

practices add value for growers. According to figures taken from the United States Department of

Agriculture; yield per acre in the United States has increased from 3,310 lbs. in 1992, to 5,940 in

2011, a marked increase of 79.5 per cent (79.5%), or a compound annual growth rate (CAGR) of 3.1

per cent (3.1%).

0

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100000

150000

200000

250000

300000

350000

400000

450000

500000

2005 2007 2008 2010 2012

World

Asia & Pacific

Southern Africa

Med & North Africa

Europe

South America

North America

Cultivated Acreage Distribution by Region 2005 vs 2012

2005 2012

103,778 Acres 231,235 Acres


World Acreage Growth by Region 2005 - 2012


North America

South America

Europe

Med. & North Africa

Southern Africa

Asia & Pacific

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2005 2007 2008 2010 2012

Asia & Pacific

Southern Africa

Med. & North Africa

Europe

South America

North America

122.8% Growth

Yield in lbs. per Acre 1992 – 2011 (United States)

Source: United Sates Department of Agriculture (USDA)

Top Ten Countries for Planted Acreage 2005 vs 2012


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79.5% Growth

3.1% CAGR

3. Grower Prices

Whilst production has increased by the largest margin on record in the past few years, this has not

dampened prices. In the United States; prices peaked in 2007 at USD$1.85 per lb. (combined fresh

and processed) before dropping off to USD$1.33 in 2009 in line with the vast majority of asset values

due primarily to the global financial crisis. Prices have since experienced a strong recovery and

currently sit at around USD$1.84.

Overall, prices received by growers have increased at an annual rate of 4.4 per cent (4.4%) since the

early 1990’s, demonstrating that blueberries might be a good inflation hedge, and that rising incomes

from planted acreage will have a positive impact on underlying land values.

Annual Price Appreciation for Blueberries 1992 – 2011 (United States)


Rolling 3-Year Average Price per lb. 1992 – 2011 (United States)


0.0%

0.5%

1.0%

1.5%

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2.5%

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3.5%

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4.5%

5.0%

Fresh Processed All

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

Fresh

Processed

All

3.8% 3.7% 4.4%

In terms of the pricing volatility inherent to the business of agricultural production; the price of

processed blueberries has varied considerably from year to year, whilst the price for fresh produce

has been much more stable. For processed blueberries; prices have varied by as much as 89 per

cent (89%) year to year, whilst the maximum annual pricing volatility for fresh produce has been 24.5

per cent (24.5%). Overall for combined fresh/processed produce, the volatility band is 34.2 per cent

(34.2%).

Year-on-Year Grower Price Volatility 1992 – 2011 (United States)


Price Difference between Fresh and Processed Blueberries 1992 – 2011 (USD$ per lb.)


-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Fresh

Processed

All

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

83.4% y-o-y variation for processed 89% y-o-y variation for processed

-48% y-o-y variation for processed

4. Consumption and Utilisation

Consumption of blueberries is on the increase on a global scale, and over 4,000 new products

containing blueberries enter the market every year. In the United States; the World’s largest

consumer of the crop; average per capita consumption of fresh blueberries has grown at an annual

rate of 6.6 per cent (6.6%) since 1980, an overall increase in consumption of 616.3 per cent (616.3%)

and now sits around 1.25 lb (567 g.) per person. Consumption of processed blueberries is estimated

at 1.01 lb. (459 g.) with total US per capita annual blueberry consumption at 2.2 lb (1,026 g.) per

person (North American Highbush Blueberry Market Situation, February, 2013)

But it is the potential in developing markets in mainland Europe and China that are only just learning

about blueberries; and the sheer scale of these markets; that adds most weight to future demand

expectations, and industry experts believe supply may yet struggle to keep pace.

According to Cort Brazelton of The North American Blueberry Council (NABC); around 80 per cent of

global production is consumed in North America, yet around half of the remaining 7 billion people

around the world can now afford, and more importantly want to consume blueberries in one form or

another. The demand potential for this superfood crop is simply phenomenal.

Per Capita Consumption of Fresh Blueberries in lbs. 1980 – 2011 (United States)


According to Brazelton, Latin America will be a huge market, with almost half of South America’s fruit

production being consumed locally within the region within 15 years, with as much being exported to

Asia as is currently shipped to Europe or North America.

In 2011 for example; more than 4.7 million tonnes of blueberries were exported to Europe from

Argentina, an increase of 691,461 or 17.1 per cent (17.1%) year-on-year. Locally in Mainland Europe;

Poland had the most planted acreage at 8,645 in 2012, and more of the crop is consumed by the

domestic middle classes year after year, and consumption is increasing across the rest of Europe too,

especially German-speaking Europe, Scandinavia, Russia and Italy, with German consumers no

longer considering blueberries to be a seasonal crop and demanding year-round availability.

Currently Europe produces about the same volume of blueberries as the US State of Oregon, but with

750 million people; demand will certainly dwarf availability if current trends in consumption continue.

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China has approximately the same acreage of cultivated blueberries as Europe, yet with 1.34 billion

people, the potential market is huge and the red giant is set to become the World’s largest consumer

of blueberries within ten years, and whilst China is aggressively increasing planted acreage, most of

the good land and water is used for strategically important food crops for food security, and as

Brazelton states, “much of the land being planted for blueberries in China is not the best blueberry

ground.” This indicates that although China will certainly continue to build its acreage, the majority of

global production in the future will come from the same regions as today, and so exports to China

could increase exponentially as demand for quality grows in line with demand for quantity.

According to a report by the American Chamber of Commerce in Shanghai; The Chinese population

is only just learning about the potential of blueberries and their antioxidant qualities. Companies are

marketing blueberries as a medicinal product in teas and pills. What aloe does for the skin, they say

blueberries can do for the eyes. (On the Blueberry Trail, Venessa Wong, American Chamber of

Commerce in Shanghai, 2005)

Taking into account only the populations of China, Europe, South America and North America

(CESANA), demand for blueberries would increase by more than 500 per cent (500%) by the time

market penetration reaches that of the Unites States; in fact the Chinese market alone has the

potential to triple the size of the global market for blueberries at such penetration levels. Yet global

production is projected to increase by just 10 per cent (10%) per year according to the North

American Blueberry Council.

Global Market Size Potential at 51% Penetration

Source: DGC Asset Management Limited

Both imports and exports of blueberries to and from the United States are rising. US manufacturers

seeking low cost frozen produce may look to import blueberries from the likes of Chile which is fast

becoming a significant trade partner, whilst exports of both fresh and frozen blueberries have risen

from 35.7 million lbs. in 1993 to 114.6 million lbs. in 2011, an annual growth rate of 6.68 per cent

(6.68%), or an overall increase of 220.5 per cent (220.5%).

0

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1400

CurrentGlobal Market

Size

United States NorthAmerica

China SouthAmerica

Europe CESANA

Growth Potential - 529.7%

United States Blueberry Exports 1993 – 2011 (lbs.)

Source: United States Department of Agriculture

United States Blueberry Imports by Region 1993 – 2011 (lbs.)

Source: United States Department of Agriculture

-

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

Total

Fresh

Frozen

-

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

World

Chile

Canada

Argentina

Mexico

Uruguay

New Zealand

Rest of World

5. Projections and Conclusions

As blueberries continue to gain traction in emerging and developing markets in China, Europe and

South America; demand for both high quality fresh produce and lower quality processed and frozen

blueberries is likely to continue to increase consistently and steadily before reaching a point of

exponential growth and a potential 3 billion new consumers enter the market. That aside, the two

largest markets for blueberries; the United States and the United Kingdom, are still growing steadily

year on year as a plethora of new blueberry infused products hit the market annually, both in

emerging markets and developed markets alike.

In order to keep pace with this demand, especially in these key markets, further acreage with good

quality soil, water availability and a good climate is needed. Whilst China is expanding its acreage in

an attempt to meet the growing demand for the crop, soil quality, water and climate issues will limit

yield and quality, thus creating an exciting opportunity for exporters in the United States and South

America.

The following production forecast is taken directly from the North American Blueberry Council World

Blueberry Acreage & Production Report, February, 2013 authored by Cort Brazelton.

Global Blueberry Production Forecast 2009 – 2017 (Million lbs.)

Source: North American Blueberry Council

Overall production will increase by some 500 million lbs. through 2017, with the majority of that in

North America which is set to add a further 205 million lbs. to cultivated production during the next five

years. This is just less than the rest of the world combined which will add 220 million lbs. of

production, most of which will come from growers in South America which will deliver an extra 97.6

million lbs. per year by 2017.

Production will grow steadily at a rate of 7.2 per cent (7.2%) annually, and the biggest percentage

gain will be seen in the Southern African and North African/Mediterranean regions which will increase

productivity by 316 per cent (316%) and 227 per cent (227%) respectively.

As with any rapid expansion, there are likely to be a number of issues that impact the ability of

growers to expand production. Where crops have been hurriedly planted and poorly managed without

access to crop-specific expertise; yields are likely to be uncompetitive, and the availability of prime

growing sites in the best areas is thinning fast.

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2009 2010 2011 2012 2013 2014 2015 2016 2017

North America

South America

Europe

Med. & North Africa

Southern Africa

Asia & Pacific

World Total

2017 Production vs Potential Market Size by Region

In conclusion, growing pains aside, blueberries offer one of the best mid-term profit opportunities for

growers keen to increase revenue per acre and participate in a market that offers less volatility and

more consistent growth than traditional row crops.

The United States will remain the world’s largest producer and consumer of blueberries for the next

five years, although consumption in Asia, Europe and South America will at some point eclipse that of

the rest of the world as the increasingly affluent middle classes continue to demand a higher quality

diet and access to high quality fresh blueberries, as well as processed blueberries in value added

products.

Growers in control of prime agricultural assets that generate commodities where pricing displays a

positive correlation with inflation, demand is increasing and the availability of quality land assets

diminishing; will be best positioned to derive financial benefit from developing trends in basic

demographic and socio-economic fundamentals such as rising global incomes, globalisation and

organic population growth.

DGC Asset Management Limited invests in small-scale agricultural developments in developed and

emerging markets around the world. The company has participated in a range of transactions

involving the acquisition, development and operation of productive land assets in Latin America,

Australia, Asia and now the United States of America.

DGC also provides qualifying Investors with the opportunity to participate alongside the company in

asset-backed agricultural real estate projects, and Investors wishing to discuss current opportunities

should contact the Management Team directly.

David Garner

Partner

DGC Asset Management Limited

Tel: 08000 337 125

Int’l: 0044 (0) 207 043 2592

Email: [email protected]

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South America Europe Northern Africa Southern Africa Asia Pacific

Demand

Production

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