ManageMent’s Discussion anD analysis USE OF FINANCIAL DERIVATIVES FOR HEDGING  Sugar The Company is fully committed to continuous quality improvement and to the competitive supply of quality and safe  products that meet or surpass customer and legislative requirements. Customer satisfaction is achieved and maintained by a  qualified and motivated workforce that is accountable and responsible for all aspects of quality assurance. By understanding  and responding to evolving needs and expectations we are well positioned with respect to ever changing requirements such  as the Global Food Safety Initiative, currently the universal benchmark for food safety and consumer protection which has  been implemented in the two cane refineries and the beet factory. We have made substantial progress in the blending operations. During the year, we obtained the Food Safety System  Certification (“FSSC 22000”) for our retail packaging line, which was purchased last year and installed this year. We  successfully delivered all of our sugar containing products quota, which increased our blending volume for the year. The  FSSC 22000 certification is a very positive step in continuous improvement and highlights our commitment to provide  quality products for our customers. We are fully committed to increase blending volume in both the industrial and retail  sector, including non-sugar containing blends. In order to protect itself against fluctuations in the world raw sugar market, the Company follows a rigorous hedging  program for all purchases of raw cane sugar and sales of refined sugar.  The world raw sugar market (#11) is only traded on the ICE, which trades in U.S. dollars. One can trade sugar futures  forward for a period of three years against four specific terminals per year (March, May, July and October).The terminal  values are used to determine the price settlement upon the receipt of a raw sugar vessel or the delivery of sugar to the  Company’s customers.The ICE rules are strict and are governed by the New York Board of Trade. Any amount owed, due to the movement of the commodity being traded, has to be settled by cash the following day (margin call payments/receipts).  For the purchasing of raw sugar, the Company enters into long-term supply contracts with reputable raw sugar suppliers  (the “Seller”). These long-term agreements will, amongst other things, specify the yearly volume (in metric tonnes) to be  purchased, the delivery period of each vessel, the terminal against which the sugar will be priced, and the freight rate to be  charged for each delivery.The price of raw sugar will be determined later by the Seller, based upon the delivery period.The  delivery period will correspond to the terminal against which the sugar will be priced.As an example, a vessel to be shipped  in January would be priced against the next terminal, being March of that year (each terminal expires on the last day of the  previous month). Therefore, the Seller has the ability to price throughout the duration of the contract any volume to be  shipped against a specific terminal.When the Seller wants to price a certain quantity he must immediately secure a futures  position for Lantic on the ICE (selling a future in this case) for the same volume and price.The futures contract value taken  will become the price the Company will pay the Seller for the raw sugar upon delivery. As an example, the Seller may want  to price on October 1, 2013, 1,000 metric tonnes for delivery in January 2014 against the March 2014 terminal.The price  as at October 1, 2013 for the March 2014 terminal is U.S.19.00 cents per pound, or U.S.$418.87 per metric tonne.This is  called “firming” the price of raw sugar. A vessel of 40,000 metric tonnes may have been priced on many different dates, but  for each transaction Lantic would have sold a futures position for the same price and volume on the ICE.  The selling of refined sugar by the Company is also done under the world raw sugar market (#11).When a sales contract  is negotiated with a customer, the sales contract will determine the period of the contract, the expected delivery period  against specific terminals and the refining margin and freight rate to be charged over and above the value of the sugar.The  price of the sugar is not yet determined but needs to be fixed by the customer prior to delivery. The customer will make  the decision to fix the price of the sugar when he feels the sugar market is favourable against the sugar terminal, as per the  anticipated delivery period. Rogers Sugar Inc. 10