Fonterra: A view of the dairy market in Asia

Bruce DonnisonGeneral Manager, Sustainability

Confidential to Fonterra Go-operative Group

2 March 2011

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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

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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

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Fonterra

Our Vision:To be the natural source

of dairy nutrition for everybody, everywhere,

every day

Fonterra

Our Vision:To be the natural source

of dairy nutrition for everybody, everywhere,

every day

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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

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China also a major driver of growth

China on track to exceed 1 million tonnes of dairy imports

– China

– Mexico– US / Japan– Russia– EU

Percentage of global imports

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Plenty of room for growth

Source: Euromonitor, powder converted to its rate of 1kg = 8.33 lts. 2005 data

Latam average = 57 lts/capita

Asia average = 11 lts/capita

• Low base per cap consumption

• Huge populations with increasing incomes

• Interest in healthy eating is growing

• Milk is seen as a ‘gold standard food’

Per capita milk consumption

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Fonterra’s approach in Asia

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Sustainability is key to success

All underpinned by a safe, secure, integrated supply chain

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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

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On-farm

• 1,500 farmer suppliers;

300,000 cows

• 20% share Australian industry

The role of the Australian dairy supply chain

MilkCollection

• 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

Sales and marketing

• Research• Innovation

• Product development

Storage and handling

• 300,000 tonnes of Australian product per

annum

All underpinned by our principles of sustainability

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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