Industry and fonterra overview

An introduction to

New Zealand’s dairy industry and

Fonterra

Russian Dairy News Delegation

23rd February 2015

Page 2 Confidential to Fonterra Co-operative Group

Overview of the day

• 09:45 Welcome and Morning Tea

• 10:00 Fonterra Overview – Introduction, NZ Dairy Industry, Fonterra and International Trade

• 10:50 Fonterra the co-operative, Matt Bolger

• 11:30 Global Dairy Trade, Michael Nolan

• 12:10 How the NZ Milk Price is set, Mark Hannagan

• 12:50 Lunch

• 13:20 Russian Dairy Industry, How do we operate in Russian/CIS Markets, Ivan Evodkimov/ Elena

Grishina

• 14:20 Discussion Group Facilitator: Nigel Jones,

• 15:40 Wrap up and close, Nigel Jones


The New Zealand Dairy

Industry, Fonterra and

International Trade


Content

• The New Zealand Dairy Industry

• Introduction to Fonterra

• The New Zealand and Russia dairy relationship


The New Zealand Dairy

Industry - Production


The New Zealand Dairy Industry

The dairy industry represents a

major part of New Zealand’s

economy, it is both a major

employer and exporter

• $12.7 billion export revenue

• 113% growth in dairy export

value in past 10 years

• 35,000 FTEs employed

• Hugh flow on effects in rural

regions

Source: DairyNZ Economics Group,


Historically North Island New Zealand

dominated the country’s dairy, this is changing

• Most growth is occurring in Southland

and Canterbury, with just 15% of the

arable land in these regions in dairy

farming, there is still much potential.

• Milksolids production in South Island

increase of 7.7% pa since 2000.

• In 2011-12 South Island 39% of total

milksolids production.

• South Island is forecast to produce

more milk than North Island by 2030

Source: DairyNZ Economics Group, New Zealand Dairy Statistics


Improving productivity and scale have been

central to growth of New Zealand dairy production

Source: DairyNZ Economics Group,


Growth in New Zealand milk solids

production

• Milk Growth has slowed

since the 1990’s but still

continues at a healthy rate:

– 6% growth per year in the

1990s,

– 3.3% growth per year from

2000-01 to 2012-13,

– overall 4.5% growth per

year since 1990.

• Forecast to 2020-21 is for

growth near 2.5% taking

production to 2.1 billion kg

milksolids.

Source: DairyNZ Economics Group, LIC Dairy Statistics


Farm numbers and herds have seen significant

change • The number of herds in New Zealand has

dropped steadily since the 1970’s

• During this period cow numbers have

increased dramatically from 2.4 million in

1990 to nearly 4.8m now

• In 2012-13 ownership of 11,891 herds was

split

– 65% owners

– 19% 50:50 sharemilkers

– 16% Variable order Sharemilker

• Holstein-Friesian/Jersey crossbreeds are now

the most common breed, this because of

various factors including:

– Milk solids produced

– Size

– Temperament


• Global milk prices have become increasingly volatile and are likely to continue to be in the future

• Volatility in international prices are reflected in farm changes to farm gate milk prices

• Farmers are having to increasingly manage their farm operating costs and investments to ensure

they remain profitable

Farm profitability and price volatility

New Zealand farm operating costs and farm gate milk price Global WMP price volatility


The industry places a strong emphasis upon

delivering against its responsibilities

• The industry has a major focus

upon maintaining a sustainable

competitive industry while

honouring its responsibilities

with respect

–Environmental stewardship

–Animal welfare

–Work environment

–Local communities

–National prosperity


Dairy company numbers have changed

dramatically over the last 100 years

• Today there are seven dairy

companies in New Zealand ,

these are:

– Westland

– Tatua

– Open Country Dairy

– Synlait

– NZDL

– Miraka

– Fonterra

• There are various ownership

models , three are

cooperative

Dairy company numbers 1920-2014


An introduction to Fonterra


Fonterra Global Ingredients

21.6

17.1

15.0 14.9

12.0 12.0

10.1

8.2 7.8 6.9

Fon

terr

a

Da

iry F

arm

ers

of

Am

eri

ca

La

cta

lis

Nestlé

Dea

n F

od

os

Arl

a F

oo

ds

Fre

isla

nd

Cam

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a

Dan

one

Kra

ft F

oo

ds

DM

K

Mil

k In

tak

e (

mil

lio

n t

on

ne

s)¹

21%

46%

28%

51%

Tota

l M

ark

et

Sh

are

Wh

ole

milk

po

wder

Skim

milk

po

wder

Bu

tte

r

% o

f G

lob

al D

air

y E

xp

ort

s

The world’s largest milk processor Fonterra’s share of global dairy exports²

Note: These figures are sourced from the TAF prospectus, issued in October 2012

1. Milk intake figures above are measured in millions of tons (not billions of litres) and represent milk volume collected and commodity purchases for the company and

its subsidiaries. 50% of Dairy Partners America milk intake has been allocated to each of Fonterra and Nestle. Source: IFCN Dairy Network. Analysis is based on

the IFCN Dairy Report 2012. Data represents in most cases the year 2011 (Nestlé data represents the year 2010).

2. Figures are for the 2011 / 2012 Season. Global Dairy Exports means the market for the cross-border trade of dairy products but excludes trade among countries

within the European Union. Source: Fonterra, Global Trade Information Services.


Global Ingredients – the worlds largest dairy

ingredients exporter

To

nn

es


New Zealand

Processing Sites


Quality and food safety is paramount

The Fonterra Quality System

ensures that wherever we

are located in the world, we

have a clear, consistent

framework to deliver quality

products and services.

We leave nothing to chance.


A strict regime ensures the highest quality

milk and ingredients

• Control of product quality from farm to

customer

• Manufacturing sites certified to

ISO9001:2008 standards or

FSSC22000

• Laboratory product testing –

ISO17025 accredited

• 6.7 million tests on milk and products

every year – 3.2m on milk alone

• 500,000 – 600,000 external tests

• More than 2,000 audits every year on

our plants and processes by, us,

regulators and customers


Continually driving innovation in dairy

• One of the world’s largest investors in dairy

innovation – approx NZ$100 million per year

• Research centre, pilot plant and four in-market

technical centres close to customers

• More than 350 scientists and support staff based

at the Fonterra Research & Development Centre

plus global technical centres.

• Examples of show

• Four of the largest milk powder driers in the

world

• First to develop high throughput continuous

cheese makers

• Developed a bulk powder bag packaging

format and handling to store and transport

product around the world at lowest supply

chain costs possible

• WPC, MPC and WPI’s process to scale,


Sustainability is an area of great importance

to Fonterra

• Fonterra’s Sustainability Strategy

defines where the company wants to

be in 2020, meeting demand growth

with sustainably produced high

quality safe milk.

• The strategy has three platforms:

– Nutrition for all

– Leading the way in sustainable

dairying

– Healthy resilient ecosystems

• To help deliver against its

sustainability goals Fonterra has

developed the “Supply Fonterra

Programme”.


Supply Fonterra Programme

• The “Supply Fonterra Programme”

enables the company to work with its

farmers to deliver sustainable dairying

• The programme delivers to this strategy

through

– setting clear standards and good

practice

– Providing practical advice and support

– measuring and reporting progress

– recognising

• Each element of the programme has

– Clearly defined objectives

– A process for assessment

– Support for farmers


The New Zealand and Russia

Dairy relationship


EU

New Zealand has a proud history of working with the

Russian dairy, exports 2000 to 2014.

-

20

40

60

80

100

120

140

160

180

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Valu

e (

US

D m

illi

on

)

Vo

lum

e (

ton

nes)

Volume (tonnes) Value (USD million)


EU

Current Relationship Status

• On 6 August 2014, Russia announced a ban on imports of agricultural products, including most

dairy, from the EU, US, Australia, Canada and Norway, in retaliation for economic sanctions

imposed by these countries on Russia.

• New Zealand is not on the list of banned countries and New Zealand law does not allow New

Zealand to introduce economic sanctions unless they are mandated by the UN Security Council.

• Following the precautionary recall in August 2013, Russian authorities imposed a temporary

restriction on the majority of Fonterra’s production facilities. These premises have not yet been

relisted.

• New Zealand is currently waiting on Russian officials to officials to relisting or audit of Fonterra’s

plants in New Zealand.


© FONTERRA CO-OPERATIVE GROUP LTD

THANK YOU

Food

Industry and fonterra overview