Auscan Melaleuca Ltd. - November 2002

NEWSLETTER #5
NOVEMBER 2002

On October 14, 2002, Dr. David Nicolson, Chairman of ATTIA Ltd., the Australian Tea Tree industry governing body, released facts and figures from their audit conducted for the financial year ending June 2002. The following is a summary of that report.

PRODUCTION:

Key Observations:

. Production has declined from 387 tonne (financial year ending June 30, 2001) to 294 tonne (financial year ending June 30, 2002).

. The estimated production of 517 tonne for the financial year ending June 30, 2002 obtained from growers in the previous audit considerably exceeded the actual production of 294 tonne.

. The forward production estimate of 387 tonne shows producer optimism regarding this financial years harvest.

Comments:

The production figures obtained from the current and previous audits show the steady decline in Australian production. The forward estimate of 387 tonne for this financial year would indicate a reversal in the trend. It should be noted that previous production estimates provided to growers have been very optimistic. For example, production for last financial year fell 223 tonne short of the forecast.

Historic Production Figures

(In tonnes – 1000 kg.)

Year 2000 Year 2001 Year 2002 Year 2003 (estimate)

834 387 294 387

The steady decline in production has been caused by producers exiting the industry, electing not to harvest and the impact of low levels of agricultural inputs. The impact of frosts, lack of agricultural inputs and the current severe drought conditions in most growing regions early this year will make the forecast production of 387 tonne this year a challenging target for growers. Agronomists are saying, that due to the low soil moisture levels when compared to this time last year, the production this financial year should be less than last years production. Long range forecasts suggest that the el-Nino drought may continue until August 2003. It is possible that some of the forecast production will be phased into the next financial year due to low growth rates caused by the severe dry conditions.

STOCK LEVELS:

Stock levels have fallen from an estimate of 324 tonne at the end of June 2000 to 234 tonne at the end of June 2002.

We, at AUSCAN, believe that what this report is telling us is that the supply of high quality Australian tea tree oil is declining and that the estimates originally given for the coming year may be quite optimistic. We also feel that the Plantations will find it necessary to increase their prices over the next 6-9 months due to lesser yields as a result of the adverse growing conditions being experienced.