COVID-19 UPDATE

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No impact on processing tomatoes to date

To date, the coronavirus (COVID-19) has not had an impact on the processing tomato supply. Seeds were already purchased and transplanting has begun.

Morning Star has a Pandemic Virus Outbreak Plan already in place

The Morning Star Packing Company is dedicated to the protection of its employees, facilities, and resources and is committed to ensuring that our company can continue all aspects of its critical business processes during a Pandemic Virus Outbreak. To ensure supply chain continuity and prompt recovery in the event of an interruption, we have documented a contingency plan to address these concerns.

Should you have any questions, please reach out to your Morning Star sales colleague.

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2020 CROP FORECASTED AT 12,000,000 TONS

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California reservoirs are at above-average capacity despite the lack of rainfall

California processing tomato production is forecasted at 12 million tons. This forecast is down 100 thousand tons from last
year’s January initial forecast of 12.1 million tons following a 2019 harvested crop of slightly under 11.2 million tons. The 2020 production is to come from an estimated 235 thousand acres, generating an average yield of 51.1 tons per acre.

Planting began in the second half of February in the early harvesting areas of the southern part of the growing region. Obtaining the seed required for the early transplanting has been difficult as a result of regulations requiring testing for viroids before tomato seed is shipped to California.

Temperatures have been running above normal, and the lack of rainfall has resurfaced the dreaded “d-word” (drought) into the California climate discussion. While the lack of rain facilitates an early planting window, the California Department of Water Resources reported that as of February 24, statewide water content in the Sierras was just 41% of the April 1 average with current Northern Sierra precipitation at about 51% of season average. California is fortunate in that there was good wet weather and a significant snowpack in late 2019. The state’s reservoir levels are hovering above average.

On February 25, the Bureau of Reclamation announced an initial 2020 water supply allocation
for Central Valley Project (CVP) contractors of 15% of their contract supply and the San Joaquin River Exchange Contractors and San Joaquin Settlement Contractors 100% of supply. While 15% of contract supply for CVP contractors is not much, it at least gives growers an amount of water that they can expect. State Water Project users are also at 15% allocation. The Sustainable Groundwater Management Act (SGMA) plans were filed by January 31 and are posted for review.

Drought years often bring high leafhopper counts in the hills along the valley, and they pose a threat of transmitting the curly top virus to the tomato plants as the hills dry down and the leafhoppers migrate into the valley. Leafhoppers carrying the virus transmit it to the tomato plant as they feed. While the State Curly Top Virus Control Program is aggressive, its control measures are still limited by environmental restrictions and property owners’ rights. Treatment has already begun. The last bad year for the curly top virus in California was 2013.

Labor in California agriculture continues to be a hot topic. With the beginning of 2020, minimum wage has increased by $1.00 per hour, and the hours worked prior to overtime being paid has been reduced by a half hour. Not only are costs increasing, but availability of farm labor continues to be a problem.

Despite the challenges facing the processing industry in California, the potential for a good year still remains with resilient growers and processors linked with a drought year that normally produces above average yield

LOS BANOS TOMATO FESTIVAL

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Morning Star participated in the sixth annual Los Banos Tomato Festival held downtown at the Los Banos Fairgrounds. As the presenting sponsor of the event, we welcomed thousands of visitors to learn about our processes, products, and colleagues.

The Tomato Festival hosts upwards of 7,500 guests from local and neighboring communities, educating people on the nature of the tomato industry and the important role it plays in local, state, national, and global markets.

Activities sponsored during the day by local companies include a salsa competition, car show, live music, tug-of-war competition,
cross-fit competitions, and dance performances. With this year’s one-day event benefitting from perfect weather, crowds were out in full force enjoying all the activities.

Colleague Highlight: HANS YOUNCE

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Hans Younce has been a part of Morning Star since its inception 26 years ago. Even longer than that, he has known owner and founder Chris Rufer since his days at Ingomar Packing prior to Morning Star - Los Banos being built. He first learned about Morning Star while working at Ingomar but explains, “Chris was branching off to start something new and exciting, and I thought that sounded fun.”

As a colleague charged with the mission of running the evaporators, Hans can typically be found in the control room at our Los Banos facility. Initially drawn to Morning Star by its environment that supports the opportunity to improve and grow personally and professionally, Hans has been a long-time colleague because of Morning Star’s ability to be “innovative, evolving, and cutting-edge.”

Before entering the tomato industry, Hans worked at the Little Poso Goat Dairy in Dos Palos, digging ditches, milking goats, hauling hay, and doing all kinds of work around the dairy. The perks? “The owners let me fill my ‘62 VW Bug with gas for free!”

Hans then joined the U.S. Navy after graduating from Dos Palos High School, much to the chagrin of his father. While in the Navy, he learned a great deal about steam plants while working in engineering. As Hans recalls, “I also had a hell of a lot of fun traveling around the world.”

He met his wife Sue and promptly left the Navy to join the tomato game. Hans and Sue have two daughters, Katie (25) and Kelly (21). Katie is a nurse in San Luis Obispo and is engaged to be married and Kelly is a senior at Cal Poly with plans to become a teacher. Hans proudly says, “We have two smart, beautiful daughters who know a lot about tomato processing and self- management. They grew up ‘Morning Star.’”

In his spare time, Hans enjoys duck hunting, fishing, and baseball. He’s a big Clint Eastwood fan, his favorites being “The Good, The Bad, and The Ugly,” “The Outlaw Josey Wales,” and “Dirty Harry.” He also loves chess strategy books and can beat his own computer at chess!

Always armed with a sharp wit, he also has his own, personal set of business cards that read “Hans the Magic Clown. And Taxidermist.” After 26 years at Morning Star, having a sense of humor is as essential as Hans’s favorite book, “Machinery Shaft Alignment.” Speaking candidly about his years at Morning Star, Hans explains, “It is challenging to always be the best. Good is not enough. Striving for perfection is a difficult road to travel.” Hans has witnessed remarkable growth in our Los Banos factory as well as expansions, new construction, and acquisitions that have led Morning Star to become the largest tomato processor in the world.

Hans plans on retiring in the next 5 or so years, at which point he’s looking forward to visiting most of the major league ballparks around the United States.

International Crop: GLOBAL PRODUCTION UPDATE

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Conversion Note: 1 metric ton = 1.102 short tons

As expected, global processed tomato production in 2016 decreased in volume from 2015 figures. According to the World Processing Tomato Congress, final quantities processed hit 38.047 million metric tonnes (mT), down from 2015 production of 41.374 mT.

The 8% decrease in production reflects the global industry’s recognition that inventories are still elevated.

The AMITOM region (Association Méditerranéenne Internationale de la Tomate) led production at 16.03 million mT in 2016. The region’s most notable countries, Spain, Italy, and Portugal, had lower production levels than 2015 but finished with 2.95, 5.18, and 1.5 million mT respectively. Both Spain and Portugal suffered from difficult starts to the season because of heavy rains.

Italy produced enough in 2015 to overtake China in volume, becoming the world’s second largest country for processing tomatoes. Even though production levels decreased overall, the dynamics within the country shifted, with the northern region increasing production by 6% and the south-central region reducing production by 13%.

NAFTA (North American Free Trade Agreement) countries produced 12.44 million mT, 92% of which was produced by California. California experienced average yields of 48.3 tons/acre (an equivalent of 108.3 tons per hectare). Organic production saw an increase in California, indicating consumers increased demand for organic product. Canada saw a small increase in production from 400 to 456 million mT in 2016.

Other AMITOM countries (the largest being Turkey at 2.1 and Iran at 1.15 million mT) saw an overall reduction this season. Turkey’s yields suffered due to rain, falling short of their 2.5 million mT initial forecast.

In the Asia Pacific, China’s final tonnage fell 8% to 5.15 million mT with an average field yield of 76.4 tons per hectare. Tomato prices in China fell 5% and 12% in Inner Mongolia. According to Tomato News, the losses farmers experienced in the last two years may lead to a decrease in incentive to grow tomatoes in 2017.

In South America, Brazil experienced an increase in production from 1.3 to 1.45 million mT. Weather was consistently good for their planting and processing season; however, similar to California, drought in certain growing regions created a reduction in yields.

South Africa represents a small percentage of total global production, with final volumes coming in at 145,000 mT. Dry weather conditions caused trouble with water quality and availability.

Developments in South Africa indicate some notable changes for the country’s production capabilities. Famous Brands (owner of over 2600 fast food outlets in South Africa) has purchased the Cape Concentrates factory and plans to reopen in 2017.

South Africa imports a significant portion of its own country’s demand for tomato products, making local production highly attractive. The country currently imports 25,000 mT of paste, 11,000 mT of canned tomatoes, and 2,300 mT of sauces and ketchup.

In an interview with Tomato News, Famous Brand’s strategic advisor Kevin Hedderwick explained that “The market is significant.” He also indicated that the new factory would supply all of Famous Brand’s tomato product needs, reducing the need for imports.

Looking forward, global production in 2017 will likely see another decrease in volumes in an effort to reduce inventories. Early estimated global production for 2017 is just over 38 million mT. Processors are currently finalizing their pack plans and growing intentions, keeping an eye on the current economic conditions.

California Crop: 2016 OVERALL PRODUCTION DECREASES

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Organic production on the rise, increasing by 57%

2016 OVERALL PRODUCTION DECREASES The California processed tomato market in 2016 saw a significant decrease in total production by over 1.7 million tons from 2015. Final production numbers came in at 12,646,979 tons being processed compared to 2015’s final number of 14,361,188.

While overall production decreased, organic production increased at an impressive rate of 57%, up from 469,864 tons in 2015 to 736,816 tons in 2016. The question is: will the trend in consumer demand for organics keep up with this level of increased production?

The 2016 growing season had some extremes in terms of weather, particularly in the southern growing regions where weather caused yields to be slightly lower than 2015. Northern California growing regions enjoyed moderate weather and fewer extreme weather events resulting in consistently good production. The increased use of drip irrigation has also allowed the California tomato growers to mitigate extreme heat conditions much better than in the past with furrow/flood irrigation.

Focus for the California agricultural community for 2017 will still be on water availability. Early precipitation in October has suggested a positive outlook with the major basins receiving ranges from 7% to 302% of typical rainfall to date.

Precipitation in the 8-Station Northern Sierra has been above normal and San Joaquin precipitation is close to normal. Due to regulations, rainfall would have to continue to increase in order for farmers south of the Delta area (in Federal Districts) to receive more than the 5% allocation that was distributed in 2016. Fresno, which supplies over 30% of the total California raw tonnage, is an area that received their 5% allocation.

Plenty of water has flowed through the Delta area this year, but unfortunately not much has been able to reach the farms. In the period from October 1, 2015 to October 24, 2016, 70.9% of the inflow to the Delta totaling 16,395,100 acre feet has gone out to the ocean rather than pumped into the California Aqueduct and Delta Mendota Canal to service cities and farms.

Pumping restrictions due to environmental concerns continue to affect growers in California. New attention is now being paid to groundwater as well. In compliance

with the Sustainable Groundwater Management Act of 2014 (SGMA), legislation that provides groundwater sustainability throughout California, local stakeholders will have until 2017 to organize themselves in Groundwater Sustainability Agencies. Groundwater Sustainability Plans will have to be in place and implementation initiated between 2020 and 2022 with groundwater sustainability achieved by 2040. This plan to lay out groundwater sustainability in California could greatly impact the number of acres currently farmed in California using groundwater supply.

Intentions for 2017 are not yet known, but with the global processed tomato market in a surplus inventory year, we may continue to see production levels decrease in order to balance the market.

Colleague Spotlight: RICK PALMER

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Rick Palmer is a new addition to the Morning Star colleague family, having just joined us last year. He originally met owner and founder Chris Rufer in 1995 when Rick was the Vice President of Operations for Authentic Specialty Foods and was looking for a co-packer.

Rick earned degrees from Biola University in Organizational Leadership, Chapman University in Food Science, and graduated from Azusa Pacific with his MBA. He also attended classes at Stanford, Cal Tech, and Talbot Seminary.

Rick’s mission at Morning Star is to create and realize ultimate value across people, processes, technology, markets and products to optimize Return on Assets for the Morning Star enterprise, with a primary focus on the Liberty Packing Company, while satisfying all stakeholders in an admirably ethical manner through a commitment to excellence.

Rick is excited to be a part of Morning Star and hopes to help the organization reach even greater heights in the future. He believes Morning Star’s Commitment to Excellence is paramount - and one of the distinguishing characteristics of the company.

Having worked for many established companies in the past, Rick explains that the most challenging aspect of working for a unique company like Morning Star is operating in an environment where you do not have the power to dictate to others - rather, you must rely on voluntary agreements. While it’s an adjustment, and certainly different from the way

a lot of companies operate, Rick is quickly adapting to the self-managed environment.

Rick is very involved in his family and personal life as well. He and his wife, Christina, have three children, Jordan, Eden, and Cana. All three were homeschooled and his eldest, Jordan, is a music producer in Hollywood working with Sony while his other two children attend Fresno State.

In Rick’s spare time, he likes to remain active. An avid outdoorsman, he enjoys hiking, skiing (water and snow), jet skiing, and working out. You’d be surprised to find out that he was once a professional bowler and even participated in a bodybuilding contest when he turned 50!

International Crop: GLOBAL CROP UPDATE

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Conversion Note: 1 metric ton = 1.102 short tons

Estimates for the 2016 AMITOM processed tomato crop were originally expected to be 300,000 metric tons less than last year with planned tonnage at 17.1 million metric tons (18.8 million short tons) in February. Due to adverse weather conditions, new estimates for the 15 AMITOM countries look to be closer to 16.3 million metric tons (mT).

Growing areas around the world have been affected in one way or another by weather issues. The EU, which includes some AMITOM countries, is expecting 9.9 million mT in 2016, an 11% drop in their processing compared to 2015.

Italy, the largest of the AMITOM countries, experienced some cool weather accompanied by numerous rainstorms in May that caused issues with planting in the North. Total planting areas have been reduced by 5%, but Italy still supports their estimate of 2.5 million mT for Northern production. Southern Italy has had better luck with planting and, while planting areas have been reduced by amitom 2016 production forecast 10%, forecasts for the Southern region is 2.5 million mT as well.

Spain has also fought with weather, getting significant rainfall in April and May that interrupted planting for 15 days. Spain expects a late crop as well as gaps in raw tomato harvesting. The volumes estimated for Spain are around 2.6 million mT.

Turkey has been fortunate with weather; however, crop estimates are 15-20% lower than last year at approximately 2.3 million mT.

Portugal, while experiencing a wet and cold spring, has fought through and finished half of their planting around May 25th.

China is expected to contribute 5 million mT of production this year, marginally lower than the original 5.4 million mT forecast.

Including the AMITOM, total global forecast is 38.1 million mT for 2016.

California Crop: CALIFORNIA TO DECREASE PRODUCTION BY 9.1%

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Processors contract for 13 million tons according to May intentions

CALIFORNIA TO DECREASE PRODUCTION BY 9.1% May intentions, recently released by the California Department of Agriculture, show that California’s tomato processors reported that they intend to contract 13 million tons from 262,000 acres this season. This number represents an 11.8% decrease from last year’s final contracted acreage. Contracted production per acre is 49.6 tons/acre, a 1.5 tons/acre increase over the 5-year average and 1.1 tons/acre higher than the prior two years.

Water and Curly Top virus concerns continue to be the most prominent obstacles to reaching contracted tonnage goals.

In northern California, transplanting in wetter conditions impacts yields negatively due to soil compaction. While rains helped fill northern reservoirs and provide water flow for rivers, the southern part of the growing region still has reduced water supply in areas where Federal districts control supply. In these areas, farmers are relying on groundwater pumping.

Environmental restrictions did not allow for the 2016 year to see adequate pumping levels. While total inflows between October 1, 2015 and May 31, 2016 reached over 11 million acre feet, only 1.5 million acre feet were allowed to be pumped by the Federal and State pumps. Approximately 85% of the water is flowing out to the ocean, a number that continues to increase.

Curtailed pumping remains the primary reason for low water levels in the San Luis Reservoir, despite a good rainfall season. Fresno County, the largest processing tomato county in California is serviced by the Federal Westland Water District. The State Water Project allocation at 60% has improved over the prior year allocation of 20% and Exchange Contractors located in the Los Banos/Firebaugh area are now receiving a 100% allocation this year.

Generally speaking, the 2016 crop looks promising. Heat, cold, disease, rain, water availability, transplant quality, and a multitude of other factors affect the final production and subsequent yields.

While rainfall was promising in recent months, California has also experienced some extreme weather. Some areas in early May were damaged by a storm that brought hail and nearly 5 inches of rain. Heat presented another challenge, hitting higher marks and indicating a potential early season.

Transplanting concluded in May with only a few isolated fields planted in June. Finishing transplanting early this year was positive due to the high heat encountered during the last week of May and first week of June. This almost record-breaking heat would have made it very difficult to establish a tomato stand due to high soil temperatures.

The question remains: will California reach its goal of 13 million tons? With higher heat forecasted for the summer, farmers will be challenged to meet yield targets of nearly 50 tons/acre.

Organic tonnage has grown as a percentage of the total 2016 crop as a result of increased demand for finished organic products. Yields for organic tomatoes are normally 20% below that of conventional tomatoes and will put additional pressure on the tons per acre target.

The positive indicator for yield is a September finish for processors. While the planting season was interrupted by rain, wind, and heat, this did not extend into late plantings.

Few diseases were present this planting season; however, the Curly Top virus did make an appearance with a grower alert issued in early May by the Control Program. Some fields were affected but appear to be the exception rather than the rule.

All things considered, the 2016 season will be yet another challenge for our highly productive and resilient processed tomato growers; however, we are off to a pretty good start with a successful transplanting period and a better supply of water this year.

MORNING STAR PREPARES FOR 2016 SEASON

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Vertical integration aids in the preparation

Since the end of the 2015 season, Morning Star Colleagues have worked hard preparing for what challenges 2016 has in store for us. Other than standard factory repairs and maintenance, our Colleagues are deeply involved in decisions at each stage of the production process.

The beginning of the 2016 season starts with the greenhouse, where we evaluate how many seedlings will be needed for the upcoming season. We supply the majority of the plants our growers require and the majority of those come from our greenhouses.

From the greenhouses, our Cal Sun Grower Services takes over and transplants the young tomatoes into the field. Using large transplanters, we transfer the seedlings from their trays into the prepared fields. With a mix of automatic and manual transplanters, we are constantly looking at new technology to improve the speed and reliability of the transplanting process.

Having a feel for the plants and the fields so early on in the season helps us plan efficiently for our harvesting and trucking needs down the road when the tomatoes are ready to be picked.

Morning Star’s unique position in the industry is partially due to our involvement in each step of the process - from the greenhouse to the factory, we strive to ensure quality by having a stake in each stage of the tomato’s development.

Seedlings take about 40-50 days to mature and be ready for harvest. During this time, our farming partners work hard to maintain the health of the plants in their respective fields. Using drip irrigation, tomato crops are actually one of the most water-efficient crops in California. Given that water has become an increasingly important issue in the state, Morning Star is constantly learning how to better use scarce resources.

At this time, our Colleagues are now in the final stages of preparing for the season. Harvesting is scheduled to begin in the coming weeks and will kick off another exciting season in the tomato industry.

Our harvesting Colleagues will be busy deploying our over 70 harvesters to fields as far north as Glenn County and as far south as Kern County. Our trucking Colleagues are also organized to be ready to deliver the harvested tomatoes to the factories. Timing is everything once the season starts and we are happy to have an exceptional feel for each step of the process leading up to the production at the factories.