Executive Overview (Include mission/vision that led to this development, description of the development and the business opportunity.

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1 Cargill Tekne Award Application Category: Innovation From Field to Fuel Tank: A Proprietary Suite of Products and Services for Ethanol Producers Draft date: July 21, 2006 The Innovation Award honors a business, academic institution or business/academic collaboration that has demonstrated leadership, dedication and excellence in the development of an innovation. This award may be given to innovative or converging products or services. This award could also be given to an innovative program or collaborative partnership. Applicants must demonstrate the innovation s potential to contribute significantly to Minnesota s technology-based economy. Executive Overview (Include mission/vision that led to this development, description of the development and the business opportunity.) Regulatory, environmental and market factors are driving increased demand for ethanol at a rate never seen before. Minnesota s projected ethanol output of 550 million gallons this year will generate an estimated $1.72 billion in total economic impact and provide 6,400 jobs. In 2005, 12% of the state s corn crop went to ethanol production. However, Minnesota s ethanol producers and others in the Midwest eager to take advantage of expanding demand face an uphill struggle. Operating an ethanol plant is complex, demanding many technology-based services. Producers find access to those services to be fragmented and of uneven quality and reliability. Services include: Securing favorable financing such as identifying appropriate equity partners or understanding different financial scenarios Managing the many price risks associated with market volatility around corn, energy and the ethanol supply chain Assurance of a constant, reliable supply of quality grain and energy at prices that can be controlled A professional sales and distribution team that understands the end markets for fuel and distiller s grain (a by-product of the ethanol-making process used as animal feed). This Tekne application describes Cargill s innovative technology-driven solution to meet all these needs: an integrated package of products and services for ethanol producers unparalleled in the industry today. This innovation will also help Minnesota s rural economy. Cargill s new service allows corn farmers to become an integral part of the ethanol supply chain. Increasing ethanol production will allow farmers to participate in the more profitable end of agriculture. 245

2 Market Potential (Describe in more detail the market potential and how this development will capitalize on it.) Minnesota is the fourth largest ethanol producing state in the U.S. with 16 operating ethanol plants that will produce approximately 550 million gallons of ethanol in The 2005 Energy Policy Act requires that use of renewable fuel increase from 4 billion to 7.5 billion gallons by Petroleum refiners and blenders are removing MTBE (methyl tertiary-butyl ether) from the gasoline pool, creating more demand for ethanol as a replacement component and gasoline extender. The combination of these drivers is creating a significant increase in ethanol demand, and the subsequent need to build ethanol-manufacturing facilities in Minnesota and across the United States. With such an increase in demand, both new and existing plants could conceivably benefit from using Cargill s suite of products and services. Cargill s innovative offering will enable ethanol producers to: Minimize costs for raw materials and energy inputs (hedging, risk management tools, market knowledge) Maximize revenues from ethanol and feed byproducts (hedging, risk management tools, market knowledge) Secure a reliable supply of quality grain feedstock (grain origination and logistics services). Control overhead costs (marketing, sales and distribution services) This seamlessly-integrated suite of services frees ethanol producers from the need to be an expert in every area. What s more, ethanol producers gain a level of transparency allowing them to better estimate costs and profit margins each step of the way. This will help build ethanol capacity in the Midwest and allow for more effective expansion of the gasoline pool. 244

3 Impact (Describe how the Minnesota business economy has been or is being impacted by this development.) Nearly 10% of Minnesota gasoline is replaced by ethanol, helping to keep fuel emissions lower. The Twin Cities area has met the EPA s carbon monoxide standard and has achieved attainment status, allowing residents to enjoy cleaner air. The first Minnesota ethanol plant benefiting from Cargill s new offering will be able to produce 110 million gallons of ethanol annually. This plant alone will increase Minnesota s annual output of ethanol by 20 percent and increase the local market for Minnesota-grown corn by 40 million bushels a year. Along with the 60 high-paying jobs created, this plant may put an additional $760,000 to $1.9 million into the pockets of Minnesota corn farmers every year. In addition, each time a new ethanol plant is built: It increases local community income and adds indirect jobs. The corn these plants consume strengthens the local market for grain. Farmers typically are paid between two a five cents a bushel more for grain that is grown locally. According to the Minnesota Department of Agriculture, the overall value of corn to the Minnesota economy is more than doubled when it is processed into ethanol and animal feed, rather than simply exported as a raw material. As farmers participate in the more profitable end of agriculture, farming communities are strengthened Apart from producing ethanol fuel, each plant also produces high protein livestock feed and carbon dioxide. 244

4 Team Members (Outline the major players in this development, and their specific and unique contributions.) As the idea took hold that Cargill could better serve the needs of the ethanol producer through integrating existing products and services into a single entity, a cross-functional team was assembled. The team developed this innovative offering to achieve outstanding results by: Aligning multiple highly-sophisticated technologies into a seamlessly-integrated suite of services Bringing Cargill s reputation, expertise and deep understanding of the agricultural sector to bear on the final offering Leveraging Cargill s financial strength to deliver it Combining the strengths of individual technologies to create value that as a whole is truly greater than the sum of the parts Capitalizing on each team member s extensive experience and complementary skills Team leaders include: Brian E. Silvey, Vice President of Biofuels. 27 years of grain risk management, facility operations and leadership. Dennis Inman, Vice President of AgHorizons. 27 years of grain risk management, operations, product development and leadership Todd C. Standbrook, Assistant Vice President of Biofuels. 21 years of risk management, trading, sales and marketing. Mike Etzel, Ethanol Business Development Manager of AgHorizons. 20 years of sales, project development and leadership. Christopher S. Muehling, National Account Manager and Business Analysis of Biofuels. Larry J. Holy, Cargill U.S. Distillers grain merchandising. Jean-Francois Muse, vice president of Cargill Commodity Services, Inc., and team manager, Cargill Energy Services. Clayton Weiby, risk manager and team leader for Cargill Direct. Jeff D. Zyskowski, feed merchandising manager for Horizon Milling 243

5 Status and Outlook (Describe where the development stands to date, what is needed to achieve its potential, and why team members are confident of success.) In the last 12 months, eight plants utilizing Cargill s offering have received favorable financial backing and are under construction. One will be located in Fairmont, Minnesota, while the others are in neighboring states. These eight facilities will produce 690 million gallons of ethanol and 2,025,000 tons of distiller s grain requiring 258 million bushels of corn. This is more than the current production of all 16 Minnesota ethanol plants combined. The reason the team is confident of success is that Cargill, the nation s third largest ethanol producer, has successfully pressure-tested these products and services over time. The technology and expertise is proven internally. However, to achieve its full potential, Cargill must ensure that the customer interface is transparent, reliable and efficient. Minnesota s corn production is projected to reach 1.25 billion bushels by 2012 of which 17% would be used for ethanol. If Cargill s customer and supply chain interface is efficient, adding value and competitive advantage, then Cargill could benefit from much of this increase in demand. In Minnesota alone, the longer-term impact of these developments could be staggering. If the Cargill offering were used exclusively to double current in-state production levels to meet the projected demand by 2012, an additional local market for more than 152 million bushels of corn annually and 240 new jobs would be created. This innovation may be key to the long-term viability of ethanol production in the Midwest, creating substantial quantities of a gasoline-blending component and thereby reducing our dependence on foreign oil. 247

6 Relationships (Illustrate, through recent up to two years examples, the nominee s productive working relationships with business, education, government and/or the technology community to advance this development in Minnesota, and describe the outcomes of these relationships.) Cargill brings its reputation for integrity and expertise in the agricultural sector to bear in relationships with the small ethanol producer and corn farmer. For example, Cargill has a number of unique and innovative programs for originating and purchasing corn that help ethanol producers and farmers manage their businesses more prosperously. Cargill s specific new offering benefits a multitude of business sectors and technologies. Cargill has established solid relationships with leading ethanol producers (e.g. Biofuels Energy) and oil refineries (e.g. Chevron, ExxonMobil). This allows Cargill to stay abreast of state-of-the-art ethanol production technology and marketing expertise that it can then provide back to the ethanol producers. Relationships in the supply chain also benefit. Cargill can facilitate transactions to acquire leased rail equipment for ethanol and distillers grain. Buyers of ethanol and distillers grain take advantage of the service offering concept by having Cargill accumulate and market these products under one umbrella versus having to contact numerous producers. Cargill is a world leader in animal nutrition and the production of livestock feed and can leverage its expertise to help develop new markets for distiller s grain. Cargill is involved in information exchanges with the University of Minnesota and the USDA to foster growth in this industry, both domestically and abroad. This adds value for both ethanol producers and farmers who benefit from a renewable-based feedstuff. Cargill s Renessen joint venture with Monsanto is working to develop new corn hybrids, which may enhance returns for ethanol producers. 242

7 Additional Facts (Evidence of success to date; e.g., industry recognition, investor interest, early test results, milestones achieved, objectives met, significant obstacles overcome and other pertinent information.) This initiative has only been in progress for a little more than three years, but industry has already taken notice. Cargill Biofuels Solutions, LLC has also demonstrated its support for the business model by purchasing an equity position in the seven new ethanol plants previously mentioned. The banking industry has recognized the value of Cargill s innovative products and services, allowing a debt-to-equity ratio that is substantially more investor-friendly for ethanol producers that take advantage of Cargill s suite of products and services. If 10% ethanol was blended into all US gasoline, this would require nearly 15 billion gallons a year be derived from 33% of the nation s current corn production. This would place a demand on corn never seen before, where big commodity price swings could become commonplace. The sophisticated risk management and hedging tools included in Cargill s new service may allow for better management over such volatility, helping ethanol producers manage growth and sustainability over the longer term. In addition to purchasing equity positions in ethanol plants, Cargill may continue to invest in selected projects. Cargill is planning both an equity and service stake in the Fairmont, Minnesota operation. With regards to developing new products and markets as a result of increased ethanol production, Cargill is exchanging information on promoting the use of distiller s grain with the University of Minnesota s Center for BioRefining, the IREE Bioenergy & Bioproducts Cluster, Biotechnology Services and Agricultural Energy Production and Use. 237