2007 - Crop Update - Europe

We believe it is important to advise you in detail of the key difficult conditions the European vegetable processing industry has to deal with and the impact these conditions have on availability of raw material for Sensient Dehydrated Flavors. The emergence of crops for bio-fuel has increased the demand for land, significantly increasing grower costs. It has been calculated that to replace 20% of the current oil use for mobility, up to 65% of current agricultural land might be required! Without political intervention and the removal of subsidies, it is expected that farmers will continue to choose to produce subsidised bio-fuel crops over food crops escalating costs further in subsequent years.

As a result of these pressures in Europe, Sensient has had to accept significantly increased grower costs of 10-15% higher then previous season to secure land necessary to meet demand. In addition to the increased grower costs we continue to experience increased costs for energy, fuel, fertilizer, water and waste treatment. Combined, we see supply cost increases between 15-20% in Europe. Consequently, we are projecting that dehydrated vegetable pricing for this contract period will need to increase by 10-20%, depending on vegetable. We kindly ask your understanding for these developments. If you require more information do not hesitate to contact us for additional detail. For your information we have attached a press release from the OEITFL (www.oeitfl.org) the European vegetable processing branch organisation on the issues.

Moving production to alternative growing regions is not always the solution because afore mentioned developments are global and not isolated to Europe! China and other countries are increasing corn production to produce ethanol. In addition, imports from other growing regions cannot cover all demand for the following reasons:

Many markets are simply not meeting standards of safety, traceability, and consistency of supply that is required by the market. With the ongoing consolidation of production in Western Europe and the limited availability of quality supply from other parts of the world we see availability of key items remaining tight over the coming years.

Sensient has successfully managed through the shortages of last year by managing contracts and inventories closely and we will continue to do so to ensure continuity of supply to our customers. Sensient Dehydrated Flavors is working hard to create awareness across the globe for these issues. Our global production position in 3 continents allows us to manage availability of our products based on full supply chain control, we continue to work hard to control the impact of the cost pressures and limited availability. Our goal is to ensure availability of supply.

At this stage it is too early to give detailed crop information. The recent record dry spell in Europe has impacted crop timing. The need for irrigation has never come so early in the year, pushing up costs for the growers. Consequently it is difficult to say how germination proceeds and how the crops will recover. We will update you further as we learn more information.

Overall, based on the above information, we advise you to secure your volume requirements with us at the earliest opportunity.

We thank you for your business and look forward to servicing your dehydrated vegetable needs.

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