Fonterra: A view of the dairy market in Asia 2 March 2011 Confidential to Fonterra Go-operative Group Bruce Donnison General Manager, Sustainability About Fonterra Cooperative Group • Formed in 2001 with the merger of the New Zealand Dairy Board, New Zealand Dairy Group and Kiwi Co-operative Dairies • Largest milk processor and largest dairy exporter in the world • Annual revenues of NZ$16 billion • 15,000 employees • Sales network that reaches customers in more than 140 countries. • Cooperative structure – owned by 10,500 New Zealand dairy farmers • No matter where we are in the world, dairy is what makes us tick Page 2 Today’s presentation • The dynamics of the dairy market in Asia • How Fonterra operates in the Asian market • The importance of a sustainable approach – Nutritional innovation – Security of the supply chain • Delivering the nutritional needs of Asian consumers • The role of the Australian dairy supply chain Page 3 Fonterra Our Vision: To be the natural source of dairy nutrition for everybody, everywhere, every day Page 4 Total dairy market in Asia and Middle East • Total market AUD $9bn • Roughly twice the size of Australia • Growing at 4-5% per annum • Consumption will continue to rise Page 5 China also a major driver of growth Percentage of global imports – China – Mexico – US / Japan – Russia – EU Page 6 China on track to exceed 1 million tonnes of dairy imports Plenty of room for growth Per capita milk consumption 100 90 80 Litres per capita 70 60 Latam average = 57 lts/capita 50 40 30 Asia average = 11 lts/capita 20 10 0 Source: Euromonitor, powder converted to its rate of 1kg = 8.33 lts. 2005 data Page 7 • Low base per cap consumption • Huge populations with increasing incomes • Interest in healthy eating is growing • Milk is seen as a ‘gold standard food’ Fonterra’s approach in Asia Page 8 Sustainable cooperative performance • Investing in-market: “Behind Borders” • Disseminating knowledge to locals Grow lasting customer partnerships • Focus on specific customer needs • Develop value-added products to suit Build trusted brands • Anlene and Anmum – flagship brands • Backed by research and innovation Sustainability is key to success Climate change / carbon • Improve carbon footprint • Monitor international carbon change policy • Influence NZ’s climate change policy • Research on the nutritional value of foods given carbon impacts Water • Improve performance around Clean Streams Accord • Manage manufacturing site issues • Respond to regulatory changes • On-farm storage and irrigation technology Animal welfare • Address concerns around inductions, housed cows, and skinny cows Biodiversity • Develop a biodiversity strategy for Fonterra Nutrition • Develop understanding and improve the nutritional profile and nutrient density of Fonterra’s product portfolio Page 9 All underpinned by a safe, secure, integrated supply chain Delivering on nutritional needs in Asia • Leading adult dairy nutrition product in Asia • 286 million Chinese expected to suffer osteoporosis/low bone mass by 2020 • Anlene is high-calcium, clinically proven to prevent osteoporosis • Backed by continuous research and innovation • Leading product for pregnant women in Asia • Unique ingredient builds brain connections in infants • Supported by educational programs on maternity/infant nutrition • Science behind Anmum building broader paediatric product range Page 10 The role of the Australian dairy supply chain On-farm • 1,500 farmer suppliers; 300,000 cows • 20% share Australian industry Page 11 Milk Collection • 1.8 billion litres per annum • 50,000 on farm pick-ups p.a. Manufacturing • 12 sites nationally • Manufacture consumer and foodservice products ,and bulk ingredients Storage and handling Sales and marketing • 300,000 tonnes of Australian product per annum • Research • Innovation • Product development All underpinned by our principles of sustainability Summary • Fonterra is on a journey to deliver the nutritious dairy products the world needs in a sustainable way • Milk is a product of nature so this journey starts with clean water, green grass and healthy cows • Asian consumers have unique demands from dairy, the market is growing rapidly and is a key focus for us • We are committed to meeting demand from Asian consumers by: Investing in R&D so they can enjoy the best of dairy Ensuring a safe, secure supply chain to build confidence about where our products come from Page 12