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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
Page 3 Confidential to Fonterra Co-operative Group
The New Zealand Dairy
Industry, Fonterra and
International Trade
Page 4 Confidential to Fonterra Co-operative Group
Content
• The New Zealand Dairy Industry
• Introduction to Fonterra
• The New Zealand and Russia dairy relationship
Page 5 Confidential to Fonterra Co-operative Group
The New Zealand Dairy
Industry - Production
Page 6 Confidential to Fonterra Co-operative Group
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,
Page 7 Confidential to Fonterra Co-operative 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
Page 8 Confidential to Fonterra Co-operative Group
Improving productivity and scale have been
central to growth of New Zealand dairy production
Source: DairyNZ Economics Group,
Page 9 Confidential to Fonterra Co-operative 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
Page 10 Confidential to Fonterra Co-operative Group
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
Page 11 Confidential to Fonterra Co-operative Group
• 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
Page 12 Confidential to Fonterra Co-operative Group
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
Page 13 Confidential to Fonterra Co-operative Group
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
Page 14 Confidential to Fonterra Co-operative Group
An introduction to Fonterra
Page 15 Confidential to Fonterra Co-operative Group
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
pin
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.
Page 16 Confidential to Fonterra Co-operative Group
Global Ingredients – the worlds largest dairy
ingredients exporter
To
nn
es
Page 17 Confidential to Fonterra Co-operative Group
New Zealand
Processing Sites
Page 18 Confidential to Fonterra Co-operative Group
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.
Page 19 Confidential to Fonterra Co-operative Group
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
Page 20 Confidential to Fonterra Co-operative Group
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,
Page 21 Confidential to Fonterra Co-operative Group
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”.
Page 22 Confidential to Fonterra Co-operative Group
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
Page 23 Confidential to Fonterra Co-operative Group
The New Zealand and Russia
Dairy relationship
Page 24 Confidential to Fonterra Co-operative Group
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)
Page 25 Confidential to Fonterra Co-operative Group
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.
Page 26 Confidential to Fonterra Co-operative Group
© FONTERRA CO-OPERATIVE GROUP LTD
THANK YOU