July 2015 November 19, 2015

AGENDA • Agricultural Economy in PEI

• Cavendish Farms’ Impact on PEI Potato Industry

• Potato Yields

• Irrigation and Cavendish Farms

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Potatoes

• Single largest agricultural commodity in terms of farm cash receipts

• 2014 - Harvested potatoes totaling 2.6 Billion pounds

• Value range of crop in last five years:$227 to $285 million (subject to market fluctuations)

• Approximately 89,500 acres of potatoes were planted in 2015

Prince Edward Island

• Currently there are 1,500 farms growing crops and raising livestock

• Of this, approximately 350 are potato farms

Prince Edward Island OVERVIEW

Agriculture is vital to PEI, especially potato farming.

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• $1.065 billion in direct and indirect economic benefit

• Representing 10.8% of PEI’s GDP ($512 million)

Prince Edward Island POTATO INDUSTRY CONTRIBUTION

PEI Potato Industry Employment (direct and indirect)

• 8,283 jobs

• 12% of total workforce

Total Annual Contribution

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Our plants are located in North America’s prime potato growing regions. Our appetizer plant is located in Southern Ontario’s key vegetable growing region.

Cavendish Farms is the 4th largest processor of frozen potato products.

Cavendish Farms Locations

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CAVENDISH TODAY – IMPACT ON PEI

Salaries & Benefits

Potato Purchases Other Spin-off

Effect Employment

$48,546,000 $127,354,000 $54,053,000 $115,000,000 Full Time: 749 Casual: 76

Total Contribution to Local Economy

$344,953,000

Cavendish Farms ECONOMIC CONTRIBUTION

Cavendish Farms is the largest private employer on the Island

(2014 data)

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CAVENDISH TODAY – IMPACT ON PEI

Cavendish Farms Supply Profile • 5% company grown • 95% from Island producers • Total irrigated potatoes: 8.7%

Cavendish Farms Acres

Pounds of Potatoes

Cavendish Produce Acres

Pounds of Potatoes

Total Pounds of Potatoes Used

43,000 1.3 billion 5,500 160 million 1.46 billion

Cavendish Farms ACRES AND VOLUME

(approximate split)

Combined, Cavendish Farms and Cavendish Produce are the largest

purchasers of raw potato on PEI: 53%

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CAVENDISH TODAY – IMPACT ON PEI

Attributes of Quality: • Consistent size • Less defects • Consistent shape • Good solids • Strong recoveries

Cavendish Farms, in order to have a future on PEI, requires consistent, cost competitive, quality supply of potatoes

Improving yields is essential

Cavendish Farms VITAL IMPORTANCE - RAW SUPPLY

ENERGY EFFICIENCY AND SUSTAINABILITY

• Cavendish Seed yielded 18.9% better/acre

• Less water and diesel fuel is used by tractors in planting, spraying and harvesting

PROSPECT POTATO

2009 2009-2011

• Opened largest bio-gas plant in North America: only one in the French fry world

2009

CAVENDISH CULINARY

CREATION CENTRE • Opened Cavendish

Culinary Creation Centre and merged culinary resources with Canada’s Smartest Kitchen

• New $5 million pilot processing line

APPETIZERS

2009

• Purchased Omstead Foods Appetizers

in Wheatley, ON

Investing for the Future

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• $13 Million

• New fryer

• New steam peeler

• New crinkle cut deck

2012

CAPITAL EXPANSION

2012

A FURTHER COMMITMENT

TO ENERGY EFFICIENCY &

SUSTAINABILITY • Converted from

bunker C to natural gas

• With biogas, reduces carbon footprint by more than 50%

2012

NEW POTATO SEED FARM

• Woodstock, NB

• 800 tillable acres (400 acres annually)

• Highest quality seed on the market

2009-2013

SAFE, QUALITY FOODS

• PEI Plants 1 & 2: SQF 2000 Level 3 certification

• 1st frozen potato products manufacturer in North America to achieve certification!

Investing for the Future

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2014 PEI Exports by Industry

0.0

50.0

100.0

150.0

200.0

250.0

300.0

$ (m

illio

ns)

Exports BY INDUSTRY (extract from PEI Economic Forum presentation March 16, 2015)

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Canada 24%

Other International

Export 12%

United States 64%

Cavendish Farms

SHIPPED FROM PEI 2014 Frozen potato products shipped in 2014: 737,758,224 lbs.

Value: Over $400 million

INTERNATIONAL EXPORTS FROM PEI 2014

84%

10%

3% 2% 1%

United States Caribbean Asia Central America Other

Frozen potato products exported internationally in 2014: 561,090,989 lbs.

Value: Over $300 million

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Cavendish Farms SHIPPED FROM PEI 2014 VERSUS 2015

0 100,000,000 200,000,000 300,000,000 400,000,000 500,000,000 600,000,000 700,000,000 800,000,000 900,000,000

2014 2015 Lbs. shipped 737,758,224 786,951,415

2015: A projected increase of nearly

50,000,000 lbs.

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PEI Potato Industry RISK TO COMPETITIVENESS

• In the Pacific Northwest, USA, they are producing as much as 63,000 pounds of potatoes per acre, to our average of 33,000.

• When our growers can’t produce yields, they are forced to increase their price to meet their revenue requirements.

• Increased costs threatens our competitiveness.

Lower yields resulting from a lack of irrigation is costing growers approximately $200-300 per acre.

The industry remains focused on driving improvement, but raw potato remains the single biggest cost.

A lack of quality and low yields are resulting in costs that are too high to remain competitive on the Island.

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330

440 430 480

430

630

0

100

200

300

400

500

600

700

PEI Wisconsin North Dakota Minnesota Idaho Washington

In CWT/Acres

Estimated Potato Yields FOR THE 2014 GROWING SEASON

When yields are low, our growers demand a higher price

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• Lack of irrigation can cause lower yields and lower quality. • Risk of drought and our ability to grow are concerns when there is a lack of

irrigation infrastructure, or ability to irrigate. • The availability of supplemental irrigation is key to maintaining a strong,

competitive potato industry. • Without irrigation to help improve yields and return/acre, the industry on PEI will

find it extremely difficult to compete with the rest of the industry in the US and Western Canada, where there is extensive growth and new irrigation being developed currently.

• Scab is becoming more and more of a problem especially as a result of the inconsistent summer rains. The extended dry spells at the wrong time of the season are exacerbating the scab problem.

Supplemental Irrigation WHY IS IT IMPORTANT?

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Thank You PEI Potato Industry

2001 DROUGHT EFFECT ON CROPS

“The drought of 2001 has caused a tremendous erosion of equity on many PEI potato farms.

The reduced yield and smaller size profile of our crop is devastating to many involved in the production, processing, sales and distribution of our crop.”

— PEI Potato Board report 2002

RISK OF DROUGHT

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Thank You

YEAR 2000 2001 2002

Seeded area, potatoes (acres) 109,000 107,000 109,000

Harvested area, potatoes (acres) 108,000 107,000 107,500

Average yield, potatoes (hundredweight per harvested acres) 270.0 172.0 280.0

Production, potatoes (hundredweight x 1,000) 29,160 18,404 30,100

Amount sold, consumed, seeded or fed to livestock, potatoes (hundredweight x 1,000) 22,543 18,306 29,794

PEI Potato Industry 2001 DROUGHT EFFECT ON CROPS

The 2001 drought cost Cavendish Farms $22 million due to the potato import costs.

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New Annan

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Why Supplemental Irrigation? IMPACT ON PEI POTATO INDUSTRY

• Less sugar ends • Less scab • More consistent size • More consistent shape • Increased specific gravity • Frying less – less energy, less oil • Higher saleable • Less rework • Higher recoveries

With supplemental irrigation comes a higher quality potato:

Consistent moisture enables a healthier plant, and produces

a better quality product.

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When more acres are irrigated, it will increase yield and decrease the overall number of acres needed to grow the required volume.

The fewer acres that are used means reduced chemical use, reduced fertilizer use, and more acres in rotation, which are all positive aspects for the environment, and for the Island.

Supplemental irrigation increases yield per acre which pays many dividends.

Why Supplemental Irrigation? IMPACT ON PEI POTATO INDUSTRY

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• 60% of groundwater used is for residential

• 30% of groundwater used is for commercial

• 8% is used for livestock

• Only 2% of groundwater is used for irrigation, of which 1% is for golf courses

GROUNDWATER

PEI Groundwater Use (by sector)

Prince Edward Island has substantial groundwater resources, with an average recharge rate double the rest of the Maritimes.

Sales

Residential Commerical Livestock Irrigation

Source: http://www.gov.pe.ca/

Over 2 billion cubic meters of water is recharged annually.

PEI uses a total of 7% of the recharge rate. 7% breaks into:

Alternative Irrigation Sources

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• 60% of 7% of 2 billion cubic meters • 84 million cubic meters used for residential use • Toilets use 40% of the 84 million cubic meters = 8.8 billion gallons • By saving just half of this volume = 4.4 billion gallons • At 25,000 gal/acre/application this saved water could irrigate 25,000 acres with 7 applications of 0.75” per application

Residential Use

Fact: The #1 use of water on PEI is a result of flushing toilets

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• PEI’s groundwater has a very high recharge rate and is barely used • Reducing reliance on surface water reduces burden on rivers and streams

PEI potato growers understand the need to be good stewards of the land and to implement environmentally

sustainable production practices.

PEI farmers have the highest level of Enhanced Environmental Farm Planning in Canada.

GROUNDWATER Alternative Irrigation Sources

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Thank You Alternative Irrigation Sources CANALS (used in Western Canada)

• Approximately a half million hectares of land receives irrigation

• In addition, more than 2,700 private irrigation projects have authorization to use Alberta's water resources • They vary in size from two hectares to more than 10,000 hectares, and together total more than 112,000 hectares of land • The Alberta government invests $20 million a year in irrigation infrastructure • Alberta’s irrigation vision is to increase irrigation capacity by 70,000 hectares by 2025

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IRRIGATION PONDS Alternative Irrigation Sources

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Thank You

• If deep water wells are not an option, then ponds are the next alternative.

IRRIGATION PONDS

• Construction of the ponds in some cases is taking up valuable potato land at $4,000 - $5,000/ac.

• If there is not suitable clay at the site, brick clay has to be hauled in or a commercial liner used at considerable expense.

• The cost of the pond construction runs at $1,000/ac up to $2,000/ac depending on the suitability and or availability of the brick clay.

• The limitation of only having 1 x 50 gpm well feeding the pond requires a much larger pond to irrigate the same amount of acres.

• The premium of the pond over a deep water well is approximately $1,000/ac - $2,000/ac irrigated.

• If not properly lined, can leak becoming inefficient and not environmentally good practice.

• Safety and liability become a potential problem with children, and or malicious contamination.

PROS: CONS:

Alternative Irrigation Sources

• Constructed in 2014

• Holds 2.2 million gallons

• Irrigates a total of 65 acres

Irrigation Pond: Shipyard Farm, Hamilton, PEI

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• 26% of annual recharge water runs off • Total recharge = 2 billion cubic meters • Total runoff = 520,000,000 cubic meters = 136 billion gallons If we could just capture 1% of this runoff it would equal 1.36 billion gallons of water. This could irrigate 7771 acres @ 25,000 gal/acre/application with 7 applications of 0.75” per application.

Spring Runoff

An option for filling irrigation ponds would be to capture spring runoff:

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Thank You

Understanding the sensitivity and caution around the deep water well topic, a compromise and workable solution could be a combination of some ponds and some spring run off capture and some low capacity wells, with a limitation to the number of wells in a certain geographic or watershed area. Cavendish Farms currently works with local watershed groups and will continue to work with these groups to determine the best location for irrigation ponds. Data collected from individual watershed areas will decide where/if ponds can be constructed. Find a reasonable middle ground to capacity out of a well, for example something in between the extremes of 50 gallons per minute (gpm) and 1000 gpm. Example 200 gpm–250 gpm. Allow more than one well to feed into a pond. Four adjoining properties could have one well on each feeding into the one pond. This would be far more environmentally friendly than having four ponds and naturally far more economical and efficient. It is imperative to stress that this irrigation is merely supplemental rather than full scale. Depending on the rainfall 6-8 inches of irrigation would suffice vs. 14–16 inches under full scale irrigation.

POINTS OF INTEREST OR CONSTRUCTIVE ALTERNATIVES Alternative Irrigation Sources

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Our Commitment TO SUSTAINABILITY

Cavendish Farms: Committed to the Environment

Cavendish Farms is committed to effective watershed management and will work with watershed groups to take environmentally sensitive land out of production. Cavendish Farms is committed to fish re-stocking and habitat restoration initiatives to ensure the future sustainability of our fish habitat. Cavendish Farms is committed to ensuring that all of our growers do their part to protect the environment and will only contract with growers that abide by environmental regulations. Cavendish Farms is committed to innovation and processing technologies which reduce the environmental footprint of our operations. Cavendish Farms is committed to being a world leader in producing potato products which have less of an impact on the environment, including those that require less fertilizers and pesticides.

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Cavendish Farms is committed to ensuring the safety and well being of our communities. The sustainable management of our farming lands is paramount.

Cavendish Farms RESPONSIBILITY

We are willing to work with the Standing Committee, Government, Scientists and members of the community to develop agreed upon governing standards and procedures to ensure our groundwater resources are never compromised.

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• Base decisions on good, sound science and individual watersheds • Construction of ponds to collect irrigation water

• Capture spring runoff to fill irrigation ponds

• Increase well capacity limits from 50 gpm to 200–250 gpm for

filling of irrigation ponds depending on watershed associations recommendations

• Continue to allow water to be pumped out of streams in acceptable times of the year(high spring run off periods or when flows are above the environmentally safe periods)

Recommendations

Thank You