## Security of Raw Sugar Supply 

There are over 180 million metric tonnes of sugar produced worldwide. Of this, approximately 50 million metric tonnes of raw cane sugar are traded on the world market. The Company, through its cane refining plants, buys approximately 0.6 million metric tonnes of raw sugar per year. Even though worldwide raw supply is much larger than the Company’s yearly requirements, concentration of supply in certain countries like Brazil, combined with an increase in cane refining operations in certain countries, may create tightness in raw sugar availability at certain times of the year. To prevent any raw sugar supply shortage, the Company normally enters into long-term supply contracts with reputable suppliers. For raw sugar supply not under contract, significant premiums may be paid on the purchase of raw sugar on a nearby basis, which may negatively impact adjusted gross margins. 

The availability of sugar beets to be processed in Taber, Alberta is dependent on a supply contract with the Growers, and on the Growers planting the necessary acreage every year. In the event that sufficient acreage is not planted in a certain year, or that the Company and the Growers cannot agree on a supply contract, sugar beets might not be available for processing, thus requiring transfer of products from the Company’s cane refineries to the Prairie market, normally supplied by Taber. 

This would increase the Company’s distribution costs and may have an impact on the adjusted gross margin rate per metric tonne sold. 

## Weather and Other Factors Related to Production 

Sugar beets, as is the case with most other crops, are affected by weather conditions during the growing season.Additionally, weather conditions during the processing season could affect the Company’s sugar extraction of beets stored for processing. 

A significant reduction in the quantity or quality of sugar beets harvested due to adverse weather conditions, disease or other factors could result in decreased production, with negative financial consequences to Lantic. 

## Competition 

The Company faces domestic competition from Redpath Sugar Ltd. and smaller regional distributors of both foreign and domestic refined sugar. Differences in proximity to various geographic areas within Canada and elsewhere result in differences in freight and shipping costs, which in turn affect pricing and competitiveness in general. 

In addition to sugar, the overall sweetener market also includes: corn-based sweeteners, such as HFCS, an alternative liquid sweetener, which can be substituted for liquid sugar in soft drinks and certain other applications; and non-nutritive, high intensity sweeteners such as aspartame, sucralose and stevia. Differences in functional properties and prices have tended to define the use of these various sweeteners. For example, HFCS is limited to certain applications where a liquid sweetener can be used. Non-nutritive sweeteners are not interchangeable in all applications.The substitution of other sweeteners for sugar has occurred in certain products, such as soft drinks.We are not able to predict the availability, development or potential use of these sweeteners and their possible impact on the operations of the Company. 

