Walnut Round Table

Presentation Agenda

• Panel Introduction• INC Statistical Charts• Origin Presentations• California Marketing Initiatives• Chairman’s Comments• Questions

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Antitrust Statement: The fundamental purpose ofthis session is for the participants to discussdifferent aspects of the nut and dried fruit industry. Itis the policy and practice of the INC Foundation toconduct all its meetings and activities in strictcompliance with antitrust and competition laws.There shall be no discussions of competitivelysensitive information, including but not limited toprices, rates, coverage, market practices, claimssettlement practices, customers or any othercompetitive aspect of an individual company’soperation. INC participants to this meeting commitnot to enter into any agreements betweenundertakings, decisions by associations orundertakings and concerted practices which mayaffect trade and which have as their object or effectthe prevention, restriction or distortion of competitionwithin the internal market. Each participant isobligated to prevent any discussion from fallingoutside these bounds.

Copyright Notice: All images used in this presentation are for educational purposes only. They are either in the public domain and notsubject to copyright, or have been purchased. All images used in this presentation are the property of their respective copyright owners.

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Chair:Gary Ford Diamond Foods LLC, USA

Panelist:John Aguiar Mariani Nut Co, USAJinkui Zhou Fen Yang Reell Food Corp, ChinaBenjamin Herreros Pacific Nut Co., ChileSerkan Gorgulu Tiryaki Group, Turkey

Walnut Round Table

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XXXVII World Nut and Dried Fruit Congress. Sevilla, May 21-23, 2018ESTIMATED WORLD WALNUT PRODUCTIONIn-shell Basis · Metric Tons

COUNTRY BEG.STOCK CROP TOTAL

SUPPLYENDINGSTOCK

BEG.STOCK CROP TOTAL

SUPPLYENDINGSTOCK

CHINA 40,000 840,000 880,000 40,000 40,000 750,000 790,000 40,000USA 50,780 560,500 611,280 60,000 60,000 620,000 680,000 60,000UKRAINE 2,000 132,250 134,250 5,000 5,000 113,000 118,000 5,000CHILE 2,000 125,000 127,000 800 800 150,000 150,800 2,000IRAN 0 95,000 95,000 0 0 90,000 90,000MOLDOVA 0 39,000 39,000 0 0 36,000 36,000FRANCE 2,000 35,000 37,000 2,000 2,000 35,000 37,000 2,000INDIA 0 35,000 35,000 5,000 5,000 35,000 40,000 3,000TURKEY 3,000 26,500 29,500 0 0 25,000 25,000ROMANIA 0 33,000 33,000 0 0 31,000 31,000ITALY 0 18,000 18,000 0 0 20,000 20,000AUSTRALIA 0 10,500 10,500 200 200 10,500 10,700 200HUNGARY 0 12,000 12,000 0 0 10,000 10,000GEORGIA 0 6,000 6,000 0 0 6,000 6,000OTHERS 0 30,000 30,000 0 0 15,000 15,000WORLD TOTAL 99,780 1,997,750 2,097,530 113,000 113,000 1,946,500 2,059,500 112,200

WORLD CONSUMPTION (T. Supply - End. Stock) 1,984,530 1,947,300

2017/2018 2018/2019

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XXXVII World Nut and Dried Fruit Congress. Sevilla, May 21-23, 2018ESTIMATED WORLD WALNUT PRODUCTIONKernel Basis · Metric Tons

COUNTRY BEG.STOCK CROP TOTAL

SUPPLYENDINGSTOCK

BEG.STOCK CROP TOTAL

SUPPLYENDINGSTOCK

CHINA 17,600 369,000 386,600 17,600 17,600 330,000 347,600 17,600USA 22,338 246,620 268,958 26,400 26,400 272,800 299,200 26,400UKRAINE 680 51,750 52,430 1,950 1,950 45,200 47,150 2,200CHILE 1,000 60,000 61,000 400 400 70,000 70,400 880IRAN 0 38,000 38,000 0 0 36,000 36,000MOLDOVA 0 13,500 13,500 0 0 14,000 14,000FRANCE 880 17,500 18,380 1,000 1,000 15,400 16,400 880INDIA 0 12,000 12,000 1,700 1,700 13,000 14,700 1,320TURKEY 1,320 11,660 12,980 0 0 11,000 11,000ROMANIA 0 11,500 11,500 0 0 12,400 12,400ITALY 0 8,100 8,100 0 0 8,800 8,800AUSTRALIA 0 5,250 5,250 100 100 4,600 4,700 88HUNGARY 0 4,200 4,200 0 0 4,400 4,400GEORGIA 0 2,000 2,000 0 0 2,600 2,600OTHERS 0 12,000 12,000 0 0 6,000 6,000WORLD TOTAL 43,818 863,080 906,898 49,150 49,150 846,200 895,350 49,368

WORLD CONSUMPTION (T. Supply - End. Stock) 857,748 845,982

2017/2018 2018/2019

CHILE – 2018 INC PRESENTATION

Benjamín Herreros F.Sales DirectorPacific Nut Company Chile S.A

About Chile …• Population: 17,91 million – small population, country focus in Export• 26 FREE TRADE AGREEMENTS, 64 countries.• Develop capital and good business capacity• Per capita GDP: 23.194 USD• Area: 756,096 km²• Length: 4.300 km

• Chile is a phytosanitary island• Mediterranean weather• Excellent soil and weather conditions• Year round availability• Peak of exports in counterseason to northern hemisphere

Peak season in Chile

•Approximately 45.600 hectares planted. Distribution by Region ( Hectares)

Region Surface % of TotalIV Region 2.260 5%V Region 7.233 16%

Metropolitana 17.180 38%VI Region 8.138 18%VII Region 6.330 14%VII Region 4.069 9%IX Region 390 1%

TOTAL 45.600 100%

Supply

Surface increase from 2010-2018

•Steady rate of 2.000 hectares every year

Varieties 2010 2011 2012 2013 2014 2015 2016 2017 2018Chandler (hec) 14.144 16.483 18.636 20.896 23.467 26.364 28.682 30.536 32.297

Serr (hec) 8.806 9.184 9.498 9.862 10.213 10.311 10.389 10.451 10.540Others (has) 2.104 2.207 2.341 2.408 2.456 2.546 2.617 2.675 2.763

Total HEC 25.054 27.875 30.475 33.166 36.136 39.221 41.688 43.662 45.600Increase 11,3% 11,3% 9,3% 8,9% 9,0% 8,5% 6,3% 4,7% 4,4%

25.054 27.875 30.475 33.166 36.136 39.221 41.688 43.662 45.600

2010 2011 2012 2013 2014 2015 2016 2017 2018

Walnut surface per year (hectare)

Distribution by variety

0%

20%

40%

60%

80%

-

20.000

40.000

60.000

80.000

100.000

Chandler Serr Others

Volume (MT) per variety

Metric Ton %

Variety Metric Ton %Chandler 90.000 72%

Serr 27.200 22%Others 8.000 6%

Total (tn) 125.200 100%

2018's Distribution

Production & Export

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

-

20.000

40.000

60.000

80.000

100.000

120.000

2010 2011 2012 2013 2014 2015 2016 2017

Production & Export

Total Production (MT) Total Export (MT) Export/Production (%)

2010 2011 2012 2013 2014 2015 2016 2017Total Production (MT) 32.944 37.149 46.000 45.000 49.000 71.500 72.000 106.747Total Export (MT) 31.500 36.200 43.600 42.595 48.423 70.118 71.534 103.398Export/Production (%) 96% 97% 95% 95% 99% 98% 99% 97%

Production 2018

Increasing production: 15% as average per year last 10 years

Projected increase: 5-10% next 10 years

Total production estimated for 2018: 125.200 MT

Country Beg. Stock (MT) 2018 Crop (MT) Total SuplyChile 800 125.200 126.000

Main destination of Chilean Walnuts in 2017

Destination Markets in 2017Volume in inshell

base (MT)Midle East & North Africa 48.000

European Union 47.000Center & South America 8.900

Asia & Oceania 3.050Others 50TOTAL 107.000

Midle East &North Africa

45%European

Union44%

Center & SouthAmerica

8%

Asia & Oceania3%

Others0,05%

Walnut Industry

New investments:

Drying and hulling capacity

Machine cracking capacity

Electronic sorting capacity

What product we sold in 2017 ?

Inshell 50%

Machinecracked 35%

Hand cracked 15%

Stable

Increasing

Decreasing

What about the future (challenges…)

• Move our volume in a short time (6 to 10 months)

• Grow in our sales of Machine cracked Walnuts

• Improve our competitive position against other origins

• Increase our budget in marketing (USD 2.000.000)

Share effort between exporters, growers and government

Investing in marketing our Walnuts in India

Main sponsor of INC Gala dinner

Promotion in main trade shows (Germany and China)

2019 2020 2021 2022Production (MT) 150.409 170.141 183.695 196.676

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EASTERN EUROPEP

EASTERN EUROPEAN WALNUTS

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Production, (MT) 2013 2014 2015 2016 2017 EST 2018

Walnut In Shell

Ukraine 55.000 108.000 116.000 80.000 132.250 113.000Moldova 32.000 38.000 46.000 34.000 39.000 36.000Romania 25.000 27.000 29.000 30.000 33.000 31.000Others* 15.000 16.000 19.000 11.000 12.000 13.000Total 127.000 189.000 210.000 155.000 216.250 193.000

*Others; Hungary,Poland,Bulgaria Sources: State fiscal service of Ukraine , National Institute of Statistics,Romania

• Eastern European walnuts are mainly consumed in the baking industry with the EU, Turkey andMiddle East.

• Eastern Europe organic walnuts are also shipped to the EU and US• The majority are naturally cultivated with low meat yields of 33-38%.• New cultivated planting average 45-50%, but remain a small part of the current production.

Export, (MT) MY 2013-14 MY 2014-15 MY 2015-16 MY 2016-17

Walnut Kernels

Ukraine 13.732 25.250 23.994 17.604Moldova - - 13.793 15.637Romania 7.109 9.001 6.404 4.379Others* 5.925 4.784 7.096 3.103Total 26.766 39.035 51.287 40.723

ROMANIA

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WALNUT TREES YEARS2012 2013 2014 2015 2016 2017

Number of Trees ‘000 1,818 1,810 1,838 1,840 1,846 1,850

• Second largest EU producer behind France.• EU funding has boosted plantings and interest.• Crop is consumed mostly in EU market.• Romania does impact some California product for domestic

consumption.

UKRAINE

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Export Kernel(mts) 2014-15 2015-16 2016-17

World 25.250 23.994 17.604Iran 8.410 6.545 5.709

EU - 28 3.244 6.591 1.302Iraq 3.239 5.655 3.617

Turkey 1.674 1.685 1.768Azerbaijan 878 2.135 773Lebanon 1.166 1.391 989

Syria 220 233 -Belarus 64 350 1.639Jordan 419 402 -

Vietnam 457 275 -UAE 89 172 185

Algeria 223 159 117Thailand 99 76 -

Export Inshell (mts) 2014-15 2015-16 2016-17World 5.640 10.272 6.376Turkey 2.703 6.368 3.730

Iraq 1.254 2.058 1.322EU - 28 1.203 258 162

Azerbaijan 143 198 591Vietnam - 45 -

Iran 131 45 -China - 21 22

• Ukraine is the biggest producer of Eastern European walnuts.

• According to data provided for marketing year (MY) 2017/18, Ukraine is expected to have 113.000 metrictons (inshell basis) as a normal year. MY 2017/2018 exports are forecasted be at 73.000 MT (inshell basis).

• Europe, Turkey and the Middle East countries are expected to remain major export markets.* Source: State fiscal service of Ukraine

MOLDOVA

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• Moldova is the second biggest walnut producer in the region with over 35thousand metric tons of production.

• Moldova is a net walnut exporter with over 10 thousand metric tons annualexport.

• The major market is EU countries (France, Austria, Germany, Netherlandand Italy are the main market), USA and Turkey. These exports including re-exported French walnut kernels after hand-cracking process.

POLAND, HUNGARY AND BULGARIA

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• Poland and Hungary has total crop between 4-6mt thousands ofmetric tons per year.

• These two walnut grower countries are exporting both in shelland kernel base but mostly inside EU. Especially Hungary,exports around 2 thousand tons of kernels and 1.5 thousandtons in shell mainly to EU.

• Bulgaria is the 4th largest Eastern Europe producer at around10,000 mt.

• Total planting are expanding stimulated by EU subsidies.

• Export market are EU, Turkey, Albania and Iraq

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CHINAP

Chinese Walnut Production

310 320

380

450 450490

440 450480 460

530580

900

840

750

0

100

200

300

400

500

600

700

800

900

1000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

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Metric Tons 1 x 1000

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• Cultivation are scattered across as much as 25 provinces and regions.

• Over 60% trees are grown on the hills and mountains.

• The current crop is approaching one million metric tons with annual growth of 5-10%

• The planted area is about 300,000 hectares including bearing and non-bearing

• The principal origins are Xinjiang, Yunnan, Shanxi, Shaanxi, Hebei and Gansu.

Unencouraging 2018 Crop

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• Frost and snow in Northern China inApril

• Heavy impact on walnut and apricots• Bloom was 7 – 10 days early• Impacted area 20-50% loss

26

8270

45326207

37082

0

5000

10000

15000

20000

25000

30000

35000

40000

2015 2016 2017 2018

Chinese inshell Equivalent Walnuts Export(Sept. – March, 2014-2018, metric tons)

Source: China Tree Nut Association

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The Future and Challenges

• Sharp increase in production for premiumvarieties

• Good prospect to be back to the world market

• What is really crop size expected from Chinaand the price will remain competitive?

• What kind of impact on the dried nut and fruitmarket resulting from increased tariff?

• The market will be full if the world productionis too large in future?

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CALIFORNIA

USA - 2017

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• 2017 final production totaled 569,526 M.T.• 3.4% below USDA estimate of 589,667 M.T.• 8.3% below the 2016 production of 620,818 M.T.

• Heavy winter rains, spring flooding, and above average summer temperatures decreased expected supplyby an estimated 40-60,000 M.T.

• On average, the 2017 Harvest ran approximately 7 days behind an early 2016 harvest

• Quality of early harvesting varieties was poor, while later season varieties improved from 2016 levels

• When combined with prior year's carry over inventory, the 2017 total US supply was down 8.8%

• Total ISE shipments through April 30, 2018 are down 13%

• May through September 2018 shipments will be lapping weak 2017 shipments

USA - 2018

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• The 2018 bloom period has experienced significantly less rainfall and windyconditions than 2017 season

• Cool, early season temperatures have extended the bloom window and potentiallydelayed crop maturity compared to 2017

• Increased production is expected from the continued expansion of the Californiaacreage base in addition to an expected rebound of early variety production

• Growers continue to plant walnuts in favor of other tree fruit and row crops• The Chandler variety remains the preferred variety, representing a majority of newly

planted acres• The California Walnut Industry will continue to invest heavily in demand generating

activities

California Bearing & Non-Bearing Acreage

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• 2017 bearing acrestotaled 335,000, a6.3% increase from2016

• Non-bearing acresare estimated at 60-65,000

• 2018 bearing acresare expected to be350,000

125.000

150.000

175.000

200.000

225.000

250.000

275.000

300.000

325.000

350.000

375.000

400.000

425.000

Plan

ted

Acre

s

Bearing acres non bearing acres (e)Source: USDA

US Domestic Shipment - Historical & YTD April 30

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100.000

125.000

150.000

175.000

200.000

225.000

250.000

275.000

300.000

325.000

350.000

375.000

400.000

425.000

2011 2012 2013 2014 2015 2016 2016 YTD 2017 ytd

Insh

ell E

quiv

alen

t (M

etric

Ton

s)

Source: CWB

International Shipments: YTD April 30

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-

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

45.000

50.000

55.000

60.000

Turkey Japan Korea China* Germany Spain Italy UAE India

Insh

ell E

quiv

alen

t (M

etric

Ton

s)

2016 Inshell Equivalent (M.T.) 2017 Inshell Equivalent (M.T.)Source: CWB

* China, Hong Kong & Vietnam

Total US ISE Shipments- Historical & Projected

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100.000

150.000

200.000

250.000

300.000

350.000

400.000

450.000

500.000

550.000

600.000

650.000

2010 2011 2012 2013 2014 2015 2016 2017 ytd 2017 proj.

Met

ric T

ons

2017 utilization assumesprojected carryout of 60,000 MT

California Walnut Production & Carry-In

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• California walnutproduction continuesto increase

• Yearly carryoverinventories remain inline

250.000

300.000

350.000

400.000

450.000

500.000

550.000

600.000

650.000

700.000

Met

ric T

ons

Production (M.T.) Carry In (M.T.)Source: CWB

Global Consumption

•Since 2011,world walnut consumption

has increased over 28%with per capita consumption growing 25%

to 0.10kg/year

Data From: International Nut & Dried Fruit Council; Statistical Yearbook 2016/17

Global Trends

Consumers worldwide wanting healthy choices & ingredients

Increasing awareness of health and the role of how foods contribute to it

Innovation in flavors and textures

Food is scheduled around life rather than mealtimes

This year Millennials will surpass Baby Boomers as the generation withthe highest spending power

retailers expanding their prepared foods/takeout offerings

Sources: Alliance Bernstein; Euromonitor International; Progressive Grocer Market Research 2017; Mintel’s Plant-Based Proteins US 2018 Report; Mintel Global Food & Drink Trends 2018

Global Trends

Plant-based eating is on the rise with 65% saying taste is the driving factor, followed byhealth attributes.*** 66% say they are most likely to eat plant-based proteins in prepared meals

46% of Americans believe that proteins from plants are healthier thanwhen they come from animals.

Plant-based meat and dairy alternatives growing rapidly

Sources: Alliance Bernstein; Euromonitor International; Progressive Grocer Market Research 2017; Mintel’s Plant-Based Proteins US 2018 Report; Mintel Global Food & Drink Trends 2018

Health Research

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Walnut Marketing BoardKey Market Investments

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• China• Japan• South Korea• India• Germany• Spain• United Kingdom• Turkey• USA

Total Investment 2018: $35,000,000

Marketing Initiatives

• Change walnut perception to snack. Increase snack consumption through:• Awareness – digital, social• Innovation

• Engaging consumers, customers, and third party subject matterexperts.

• Mattson - Working with the CA Walnut Board / Commission onWalnut innovation since 2015

Initiatives In-Process• Plant Based Alternative Concepts• Spread Concepts• Snacking concepts• New Snack Concepts

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Plant Based Alternatives

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• Nielsen reports:• $3.1 billion in sales• 8.1% growth (Vs. 0.2% for all food)

• Growth in Flexitarian consumer behavior• Those actively trying to eat less

beef, pork, chicken, and dairy• Not about vegans/vegetarians!

• 50% of consumers say they plan to eatMORE plant based food in the year ahead

• Categories of interest:- Milks- Burgers- Ground beef- Sausage- Chicken nuggets- Cheese- Yogurt- Eggs

Nut Butter

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Nut Butters

• $6.5 Billion in nut butters by end of year

• Indulgent, flavored + claims drivinggrowth

Refrigerated Spreads (Hummus, etc)

• Hummus almost $1 Billion alone!- Much innovation happening here!

• Refrigerated yogurt dips growing~100% (small base)

Plant Based Alternative

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Chairman’s Comments

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• Key Takeaways

• Closing / Concluding Thoughts

• Questions