2012 Agribusiness Update

December 5, 2012

Agenda10:45 a.m. – 11:00 a.m. Welcome Time & Registration

11:00 a.m. – 11:05 a.m. Sikich LLP• Introduction

11:05 a.m. – 11:45 a.m. Brent Gloy, Director, Center for Commercial Agriculture, Purdue University and Kip Tom, CEO and President, Tom Farms LLC

• Boom or Bust? What Lies Ahead for Production Agriculture?

11:45 a.m. – 12:00 p.m. Break – Box Lunches

12:00 p.m. – 12:40 p.m. Beth Bechdol, Director of Agribusiness Strategies, Ice Miller LLP and President, Agribusiness Council of Indiana

• Post-Election Impacts on Agriculture – Agricultural Policy and The Farm Bill

12:40 p.m. – 1:20 p.m. Jim Schultz, Founder and Managing Partner, Open Prairie Ventures

• Early Stage Investment Opportunities in Food and Agriculture

1:20 p.m. – 1:30 p.m. Q & A

Industry Challenge

Agriculture is being asked to do more today than ever in the history of mankind……and do it with less.

1970 to 2010 world population doubles. From 2010 to 2050 the world's population grows from 6.8 billion people to 9.31 billion people.

Tom Farms Today

Our goal is to leverage each and every asset to maximize our returns.

We educate and empower employees and partners. Management delegation and operational guidelines. We look at out business as a manufacture and

embrace principals such as S.O.P.’s., lean manufacturing, and programs similar to Six Sigma and others.

We place a high value in long term relationships with business partners.

We invest in planning to assure a smooth multi-generational transition in leadership, succession, and asset transfer.

Factoid: 1970 to 2007 Farmers grew 40% more corn and 30% more Soybeans on the same amount of land.

Fundamental Forces Shaping Tom Farms Plans

Global Production Growing and Diversified Global Demand Consumer Expectations New Science and Technology Changes in Ag Business Model Government Policy

New Science and Technology

Simplify/automate processesSeed traitsRobotic or GPS guided machinery.Electronic measuring monitoring and

controls utilizing the internet. Implications

Labor productivityProduction skillsManagerial skills/span of controlBiological manufacturing

CORN SOYBEANS

New Science and Technology Results

Tom Farms Resources per Unit of OutputIndexed to Year 2000 Actual Values

Consequences of Government Policy decisions effecting agriculture production causing an adverse impact to the challenge we face to feed a growing world.

Risk Management in volatile markets. A divided Agriculture industry not working

collaboratively to tell our story or serve as an advocate.

Agriculture Industry image threats from special interest groups using emotion, not science and facts.

Major Threats

1

Thanks!

Kip Tom Tom Farms LLC 8542 North Harper Road Leesburg, IN 46538 574.453.3300 www.tomfarms.com www.cereservinc.com kiptom@tomfarms.com

““Hang On! There's Too Much Hang On! There's Too Much At Stake!” At Stake!”

Post-Election Impacts on Post-Election Impacts on Agriculture and the Farm BillAgriculture and the Farm Bill

2012 Agribusiness Update2012 Agribusiness Update

December 5, 2012December 5, 2012

Beth BechdolBeth BechdolDirector of Agribusiness StrategiesDirector of Agribusiness Strategies

Ice Miller LLPIce Miller LLP

OverviewOverview

• The World Around Us

• Post-Election Results – A Recap

• The Lame Duck Session

• The Farm Bill

• Think Bigger…Complex Policy Issues Remain

The World Around Us…The World Around Us…

• Global economic uncertainty – the growing "middle class"

• Currencies and the US dollar

• Market liberalization/trade agreements

• Biofuels production and policies

• Energy and agricultural input prices

• Regulatory climate

• Biotechnology developments

• Weather – climate change

• Politics and policy

Post-Election Results – A Recap…Post-Election Results – A Recap…

President Obama Re-elected62.1 mil. (51.4%) popular votes332 (61.7%) of electoral votes

Democrats Retain Senate MajorityDemocrats gain 2 seats13th Congress: 55 Expected in Democratic Caucus = 53 Democrats + 2 Independents. 45 Republicans.

Republicans Retain House Majority113th Congress: 234-R/201-D112th Congress (2010 Election): 242-R/193-DOver 1/3 of House members will be serving their first and/or second term in the 113th Congress

Urban O (70%) – R (28%)Suburbs R (50%) – O (48%)Rural R (60%) – O (38%)

So…Not Much ChangeSo…Not Much Change

But, Hopefully, Not A “Status Quo” Legislative and Budget Outcome in the Lame Duck.

The 112th Congress: “The Least Productive Body In a Generation”

“The 112th Congress is set to enter the Congressional record books as the least productive body in a generation, passing a mere 173

public laws as of last month. That was well below the 906 enacted from January 1947 through December 1948 by the body President Harry S. Truman referred to as the “do-nothing” Congress, and far

fewer than even a single session of many prior Congresses.”

- Jennifer Steinhauer - New York Times. September 18, 2012 -

Will They Ever Rise Above "It"?Will They Ever Rise Above "It"?

"There is nothing which I dread so much as a division

of the republic into two great parties, each

arranged under its leader, and concerting measures in opposition to each other.

This, in my humble apprehension, is to be

dreaded as the greatest political evil under our

Constitution."

JOHN ADAMS - 1789

Lame Duck Session - Budget and Farm Lame Duck Session - Budget and Farm Bill?Bill?

An exhausting "to do" list•Sequestration•Tax cuts•AMT patch•Unemployment measures•Tax extenders•Debt ceiling•Farm Bill

Let's Look at the Unfinished Business…Let's Look at the Unfinished Business…

Sequestration cuts – begin Jan. 2, 2013•$110 bil cut in non-exempt programs for FY 2013 - half from Defense.

Bush Tax Cuts - expire Dec. 31, 2012•Income Tax Rates - increase from 10% - 35% to 15% - 39.6%•Capital Gains Rate - increase from 15% to 20%•Estate Tax - exemption decreases from $5 million to $1 million. Top rate increases from 35% to 55%. (Pre-2001 levels.)•Dividends - increase from 15% for most to top income tax rate•Other expiring provisions: Child tax credit (halved and no longer refundable), Marriage penalty relief, various tax benefits for education, retirement savings, and low-income individuals.

Let's Look at the Unfinished Business…Let's Look at the Unfinished Business…

Alternative Minimum Tax (AMT) annual patch – expired Dec. 31, 2011•Exemptions fall – without retroactive 2012 patch, 30 mil. will pay AMT--up from 4 mil.

Job / Unemployment Measures - expire Dec. 31, 2012•Payroll taxes rise from 4.2% to 6.2% on first $110,000 in income•Number of weeks of unemployment benefits reduced

Tax Extenders - expired Dec. 31, 2011

U.S. Debt Ceiling - will reach at end of 2012

Farm Bill - a number of provisions ALREADY expired Sep 30, 2012•Full Farm Bill as Budget Offset for Fiscal Cliff Costs?•If Extension only, how much deficit reduction will be required?

What About Spending?What About Spending?

• GOP Controls – net gain of 63 seats

• New approach in House– Committee chairs have more power

– House will go first on most issues

– Unlike last time GOP controlled House…GOP leaders in House and Senate work well together

• House Agriculture Committee – chaired by Frank Lucas (R-OK) – 23 new members

Where Do We Make the Cuts?Where Do We Make the Cuts?

Net Interest12%

Social Security21%

Medicare - Medicaid

24%

Defense18%

Discretionary and Other Spending

25%

Source: Congressional Budget Office – Aug. 2012

Federal Budget Outlays

• Still few specific plans on reductions to defense, Medicare & Medicaid, social security – nearly 2/3 of the budget

Agriculture is 4.5% of $3.6 trill budget ($162 bil)

78% goes to food/nutrition spending ($126 bil)

2012 Farm Bill Status

• S. 3240 – Agriculture Reform, Food

and Jobs Act of 2012

– Passed Senate June 21, 2012 by 64-35 vote

• H.R. 6083 – Federal Agriculture Reform and Risk Management (FARRM) Act

– Passed House Ag Committee July 11, 2012

by 35-11 vote

A Full Chronology of U.S. Farm BillsA Full Chronology of U.S. Farm Bills

• 2008 Food, Conservation and Energy Act

• 2002 Farm Security and Rural Investment Act

• 1996 Federal Agriculture Improvement and Reform Act

• 1990 Food, Agriculture, Conservation and Trade Act

• 1985 Food Security Act• 1981 Agriculture and Food

Act• 1977 Food and Agriculture

Act

• 1973 Agricultural and Consumer Protection Act

• 1970 Agricultural Act• 1965 Food and Agricultural

Act• 1956 Agriculture Act• 1954 Agriculture Act• 1949 Agriculture Act• 1948 Agriculture Act• 1938 Agricultural Adjustment

Act• 1933 Agricultural Adjustment

Act

Senate Bill Sets the Tone• Direct, counter-cyclical and ACRE payments eliminated –

Average Risk Coverage revenue program created – regional concerns

• Tinkering with crop insurance– Conservation compliance and income limits

• Consolidation of conservation and rural development programs

• Gradual scaling back of CRP acreage – 25 mil acres by 2017• Reduces SNAP benefits by $4.5 billion

TOTAL BUDGET SAVINGS - $24 billion

House Committee Offers Different Version

• Eliminates direct payments – increases target prices• Cuts nutrition programs more ($16 bil over 10 yrs from

$800 bil baseline)• CRP acreage cap reduced to 25 mil acres• No mandatory funding for energy programs• Eliminates unnecessary pesticide permit requirements –

opens up regulatory reform debate• Biotech expedited USDA approvals

TOTAL BUDGET SAVINGS - $35 billion

Two Must-Do's in the Lame Duck Session

The 2008 Farm Bill has expired…•Reauthorize the funding for programs that expired on September 30

– If not – they lose baseline funding. Most are trade and conservation programs.

•Continue suspensions of permanent law provisions for the 1938 and 1949 acts for dairy and other commodity programs.

– If not we are back to acreage allotments and marketing quotes – totally untenable in today's global markets

No Consensus on Outcome…

• Option #1 – pass a five-year bill during the lame duck – take the budget savings and wrap a Farm Bill into a larger "fiscal cliff" package – only 5 weeks left!– Two issues remain: cuts to nutrition spending (how big?)

and can target price supports be maintained in some form

• Option #2a - pass a short-term extension during the lame duck– 6 months– 1 year

• Option #2b – will need to start over with the new Congress on a multi-year bill – need to pass a new Senate and House version and then conference

Other Things to Watch…

• The Players – small change of change – but there's always speculation– Lucas/Petersen stay in House and Stabenow in Senate– Rumored challenge of Roberts by Cochran– Villsack to stay? Kent Conrad (ND), Blanche Lincoln (AR) in

the wings

• Is this the last "Farm Bill"?– Some political leaders view it as a "Food Bill"– Agriculture would have a tough time "going it alone"

though

Future Policy/Regulatory Challenges to Agriculture – More Diverse and Complex

• Regulatory issues – EPA, OSHA, DOL, DOT, FDA • Climate Policy • Energy Policy • Trade – FTAs, China, Cuba • Immigration Reform• Food Safety Policy• Infrastructure Policy• Financial Services Regulation• Anti-trust Review and Oversight• Tax Policy

Should We Just Give Up Now?Should We Just Give Up Now?

No…Hang On! There's Too Much at No…Hang On! There's Too Much at Stake!Stake!

Focus on our long-term competitiveness critical

Remember the world around us…big challenges require big solutions•Feeding the world

•Human health and nutrition

•Natural resource constraints

•Public understanding and perceptions

The next generation of agricultural leadership is inspiring and up to the task!

3434

Early-Stage Investment

Opportunities in Food and Agriculture

OpenPrairie.com

December 5, 2012

35

“By 2050, the global population will surpass 9 billion people and agricultural systems will be

increasingly challenged by water scarcity, climate change and volatility, raising the risk of

production shortfalls”

The Economist ConferenceFebruary 2012

Opening Thoughts…

36

About Open Prairie Ventures

• Midwest-based venture capital firm

• Team of entrepreneurs, operators, and

investors

• Brand with National Recognition

• Partnership that values our Midwest roots

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J.M. “Jim” Schultz

• 5th Generation Agricultural

Entrepreneur

• International Farmland

Developer

• Founder, Open Prairie Ventures

• Kellogg MBA, DePaul JD

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Open Prairie Investment Philosophy

• Efficient Innovation Model

• Proprietary Deal Flow

• Global Potential

• Platform Technologies with Multi-Channel

Distribution

• Syndicate Development for Optimal Growth

39

Where We Live…

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Disruptive Agricultural Technologies

Pres

ent

1990

’s

1960

’s –

1970

’s

1930

’s

Early

1900

’s Late

1800

’s

Mechanization

GMOPlant Protectio

n Chemical

s

Synthetic Fertilizer

s

Hybrid Seeds Biological

s

41

Agriculture Drivers

• Population

• Technology

• Globalization

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“100 - 30 - 70 - 32”

70% of this increase will be fulfilled with new agriculture related technologies;

Global food demand will increase 100% over the next 30 years;

Using 1/32nd of the world’s land mass (currently 1/20th).

Source: Steinfoeld et al

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Value-Added Food Consumption

As the Developing World Becomes More Affluent Food Demand Will Grow Dramatically

Germany 375.39 Euros or $500.07/week

Mongolia 41,985.85 togrogs

or $40.02/week

Source: MacroGain Partners, Steinfoeld et al

44

Agriculture Today

• World Bank puts the food and agriculture sector at 10% of global GDP or $4.8 trillion

• World food prices are at all time highs and experts predict they may double again by 2030

• The underlying cause of soaring food prices is the lack of investment in agricultural and food productionSource: FAO Food Price Index; www.forbes.com; UN Secretary General Ban Ki-Moon, June 4, 2008

45

Global Population Projections

1999: 6B people 2011: 7B people 2030: 9B people

Pop

ula

tion

(m

illi

on

s)

Africa Asia Latin America

Oceania North America

Europe

Source: UN Report – World Population to 2030

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The Dilemma

Can we feed the world without destroying it?

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Where Will Food Be Produced…

Arable land per capita: .08

Chinese Farmland U.S. Farmland

Source: The World Bank (figures in hectares)

Arable land per capita: .53

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Global Prospects for Future Food Production

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U.S. Farms – Timeline and Consolidation

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Farm Bifurcation

51

U.S. Target Yield Projections

Source: Monsanto’s Yield Targets 3/10

52

Midwest Region is Breadbasket of Innovation

• Home to World-Class Universities in

Agriculture

• Vibrant Research Environment

• Global Headquarters for Premier Ag

Companies

53

Ag Productivity Convergence

Crop Nutrition

Crop Protection

Equipment and Cultural Practices

Seeds & Biotechnolog

y

Integrated

Agricultural

Productivity

Precision

Mechanics

Micronutrition

Microfarming

IPM

Precision Decisions

(DDM)

Seed Treatmen

t

Cloud Computing

Data Convergence

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Keys to Success in Early-Stage Investments

People Strong Management Team

ProductDisruptive, Proprietary Technology

Production

Scalable and Executable Go-to-Market Strategy

Pricing Value Proposition to End Users

Promotion

Multi-Channels of Distribution

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Midwest Value Proposition

Top Venture Markets

Midwest

VC Dollars Invested per Company (million)

$15.7 $9.8

Average Acquisition Value (million) $134.9 $125.4

Multiple: Acquisition Value / VC Invested

8.6x 12.8x

• Convergence of science, capital, infrastructure and talent Strong agricultural presence and output C-level talent and management teams Thriving deal flow pipeline

• Capital efficiency is the Midwest’s competitive advantage to deliver superior venture returns

Source: VentureXpert; 2007-2011; Seed, Early, Growth and Later Stage. Top Venture Markets: CA, MA, NY, TX. Midwest: IL, IN, MI, OH, WI

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Case Study for Disruptive Ag Technologies

Industry: Ag Biotechnology Vestaron is developing a new generation of insecticides derived from peptides produced by spiders.  These peptides are potent insecticides, yet are environmentally benign, making them ideally suited for the environmentally conscious, twenty-first century

Stage: Early (pre-revenue)

Market Size: $21 billion

People ProductProductio

nPricing

Promotion

• Expert team with strong advisory board

• Disruptive technology with broad IP

• Demonstrated scale-up from bench to pilot scale

• Less use of toxic insecticides

• Increased grower flexibility

• Four market channels exceeding $20 billion

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Case Study for Disruptive Ag Technologies

Industry: Ag Biotechnology Patented product that uses PPPMs (Pink Pigmented Facultative Methylotrophs) to improve plant health and crop yield.

Stage: Early (pre-revenue)

Market Size: $5 billion

People ProductProductio

nPricing Promotion

• Highly qualified team

• Patented bacterial seed and leaf inoculant

• Scalable manufacturing process

• Increased yields

• Ease of adoption

• Applicable to multiple crops

• Low regulatory requirements

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Open Prairie “In the Field” Strategy

• Agriculture Sector is Expanding Globally

• Midwest Region is Epicenter of Agriculture Innovation

• Increasing Deal Flow and Exit Opportunities as Global Ag Companies Look to Enhance their Research and Development Pipelines

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OpenPrairie.com

J.M. “Jim” SchultzManaging Partner

Jim@OpenPrairie.com

Direct:217.347.1017

Mobile:217.821.9000

Office:217.347.1000

“Harvesting Efficient Innovation in The

Field”

Questions?