Canadian Dairy Market An Overview Global Dairy World

Canadian Dairy Market - An Overview

Global Dairy

World Largest Producers - Million Tons - Calendar Year 2004

Canadian Dairy at a glance q Canadian milk renowned for excellence Quality Standards in farms & processing plants Canadian milk renowned q in 2005, dairy production generated farm receipts of $ 4. 8 Billion dairy production generated q Dairy industry ranks fourth in the agriculture sector Dairy industry fourth in the agriculture q About 81% of farms located in Ontario and Quebec, 13% Western, 6% Atlantic 81% of farms Ontario and Quebec q Dairy population 1, 546, 300 heads (approx. 1, 048, 600 dairy cows (Jan’ 06 est. ) 1, 546, 300 heads q Typical Canadian farm has 60 cows Canadian farm q Nearly 38, 000 people work on dairy farms, 38, 000 people dairy farms 26, 000 primary processing q Canadian dairy works under Supply Management System q Planned domestic production Planned q Administered pricing q Dairy product import controls q In 2005, approx. 463 dairy processing plants (295 Federally inspected plants) 463 dairy processing plants

…. At a glance 38 % 9% 8% 3% 4% 33 % 1% 2% 2% Production 2004/05 Dairy Cash Receipts (2005) Number of farms with shipments of milk or cream (Jul 05) Dairy Cows (Jan 05) Dairy Heifers (Jan 05) 75, 237, 235 Hectolitres $ 4, 841, 686, 000 16, 224 1, 006, 400 498, 600

…. At a glance q Canadian dairy famous for superior genetic quality of its cattle herd famous superior genetic quality q Live dairy cattle exports for breeding to NA, EU and Asia Pacific dairy cattle exports q Canadian cows enrolled on official milk recording cows enrolled milk recording q Produce average of Produce average 9, 442 Kg of 9, 442 Kg milk per cow (305 days lactation) milk q Canadian milk has an average content 3. 21% protein & 3. 76% fat q The Holstein is most common dairy breed (93% of dairy herd) Holstein common dairy breed q OIE standards are being put in place OIE standards Processing of Dairy Products q Fluid milk market (table & fresh cream ) represents 38% of milk production Fluid milk market represents 38% of milk production (28. 3 M Hect Ltr) q Manufactured dairy products butter, cheese, yogurt & IC accounts 62% Manufactured dairy products accounts 62% (6. 5 M hectolitres) q Processing sector is Processing sector concentrated q 16% plants owned by 3 large processors Saputo, Agropur, Parmalat q Process approx. 70% of the milk produced

…. At a glance Quality & Safety q Government & various partners closely coordinate movement - “Farm to consumer” Government & various partners q. Dairy Farmers of Canada (DFC), Dairy Processors Association of Canada (DPAC) (DFC), q. The Canadian dairy commission (CDC), Provincial Marketing Boards (CDC), Provincial q. Agriculture and Agri-Food Canada (AAFC) , Canadian dairy industry (AAFC) , industry q Canadian Dairy Commission ( Canadian Dairy Commission CDC) supports the industry CDC) q Implement National policies q Assessing changes in demand for milk and dairy products Assessing demand q Production of milk Production q Coordinating the pooling of milk revenue and market sharing system milk revenue q Canadian Food Inspection Agency (CFIA) responsible for Canadian Food Inspection Agency (CFIA) q Setting standards for dairy products Setting standards q Plant inspections q Regulating packaging and labelling Regulating q Enforces veterinary health programs veterinary health q Ensure safety of dairy products safety

International Trade q In 2005, Canada exported q Cheeses 27. 1% q Dairy spreads 18% q Ice cream 16 % q Major markets for dairy q United States 48. 1% q EU 12. 9% (UK 12. 9%) q Canadian dairy exports 2005 $ 242. 6 Million imports 597. 6 Million q Major Imports q Cheeses 29. 2% q. Casein and derivatives 18. 3% q Butter and fats & oils 11. 6% q Whole milk powder 10. 6 % q. Our major suppliers q EU-25 38. 6% q New Zealand 23. 9% q United States 22. 8%

Historical Production 2000 -2005 000 Hectolitres / Annum (Marketing Year)

Farm Input Price Index 1999 -2003 1999 2000 Building & Fencing 123. 1 5. 1% 119. 8 -2. 7% 120. 00 0. 2% 122. 8 2. 3% 122. 4 -0. 3% Machinery & vehicles 125. 6 1. 3% 137. 7 9. 6% 143. 70 4. 4% 143. 5 -0. 1% 157. 0 9. 4% Crop production 121. 6 -2. 2% 121. 5 -0. 1% 137. 60 13. 3% 135. 7 -1. 4% 154. 7 14. 0% Seed 129. 4 -1. 2% 131. 2 1. 4% 134. 50 2. 5% 142. 5 5. 9% 149. 7 5. 1% Fertilizer 125. 5 -2. 5% 128. 1 2. 1% 159. 80 24. 7% 137. 2 -14. 1% 166. 7 21. 5% Pesticides 119. 5 2. 1% 120. 2 0. 6% 124. 70 3. 7% 127. 4 2. 2% 132. 8 4. 2% Crop insurance 102. 2 -9. 4% 87. 8 -14. 2% 102. 20 16. 5% 131. 7 28. 9% 171. 5 30. 2% Animal production 117. 5 0. 4% 127. 8 8. 8% 135. 10 5. 7% 132. 3 -2. 1% 127. 8 -3. 4% Feed 109. 7 -9. 3% 109. 2 -0. 5% 120. 20 10. 1% 132. 5 10. 2% 131. 2 -1. 0% Artificial insemination 131. 1 -2. 2% 133. 4 1. 8% 133. 60 0. 1% 138. 1 3. 4% 147. 0 6. 4% Veterinary Services 133. 1 3. 9% 133. 8 0. 5% 137. 70 2. 9% 155. 0 12. 6% 155. 8 0. 5% Supplies & Services 112. 0 0. 2% 118. 4 5. 7% 121. 10 2. 3% 120. 7 -0. 3% 127. 6 5. 7% Hired Farm Labor 113. 3 -1. 8% 119. 5 5. 5% 125. 40 4. 9% 128. 2 2. 2% 129. 0 0. 6% Property Tax 113. 8 2. 4% 114. 1 0. 3% 112. 60 -1. 3% 118. 9 5. 6% 126. 0 6. 3% Farm Rent 120. 5 -1. 5% 113. 8 -5. 6% 113. 80 0. 0% 121. 8 7. 0% 132. 1 8. 5% Tota Farm Inputs 1992 = 100 117 0. 3% 124. 1 % Change 6. 1% 129. 5 2003 % Change 2002 % Change 2001 % Change 4. 4% 128. 5 % Change -0. 8% 132. 7 3. 3%

Dairy Cows & Heifers by Key Provinces

Breeds & Average Production - Nationwide No. of Official Herds Animals on Test Milk (Kg) Fat % Protein (Kg) Protein % Milk Fat Prote in BCA Ayrshire 288 9, 828 7, 354 292 3. 98% 244 3. 32% 211 203 213 Brown Swiss 146 1, 397 7, 792 319 4. 12% 270 3. 48% 201 205 199 Canadienne 22 216 5, 377 225 4. 21% 191 3. 57% 190 177 196 Guernsey 38 468 6, 398 286 4. 50% 219 3. 43% 194 173 186 Holstein 5190 264, 762 9, 624 354 3. 71% 306 3. 19% 209 208 209 Jersey 518 8, 927 6, 279 303 4. 85% 236 3. 77% 210 187 208 Milking Shorthorn 27 217 6, 516 240 3. 70% 214 3. 30% 234 214 236 Yearly Production – 2005 basis

Average Raw Milk Yield per Cow Country Kgs / Year Canada United States Japan European Union Australia New Zealand Mexico 9, 500 8, 235 7, 400 6, 000 4, 906 3, 700 1, 397 2003 Comparison

Dairy Products Production Possibilities Raw Milk Fluid Milk Products Flavored Milk Whole Low fat, Non-fat milk Dairy Desserts Low Lactose Milk Liquid Infant Milk Recombined Products Milk Powder Anhydrous Milk Fat Enzyme Modified Dairy Products Cheese Whey Products Milk Protein Hydrolysates Milk Protein Products High Fat Low Fat Dairy Spreads Cultured Milk Fractionated Fat Butter Veg Fat mix Feed Modified Fat

Milk Utilization per Class Class 1 Fluid milk, Fluid cream & Milk-based beverages 2 Yogurt, Sour cream & Ice-cream 3 Speciality cheese & Cheddar 4 a, b, c, d Butter, Butteroil, Powders, Concentrated milk & unclassified products 4 m Marginal markets 5 a, b, c Special classes – Dairy ingredients 5 d Special classes – Planned exports and other exports

Milk Components Content kg / hl 04/0 5 03/0 4 02/0 3 01/0 2 ONTARIO Butterfat 3. 88 3. 87 3. 88 Protein 3. 31 3. 33 3. 36 Other Solids 5. 76 5. 72 5. 76 QUEBEC Butterfat 4. 02 3. 97 3. 98 Protein 3. 36 3. 35 3. 34 3. 33 Other Solids 5. 65 5. 71 5. 68 CANADA Butterfat 3. 88 3. 85 3. 87 3. 88 Protein 3. 31 3. 32 3. 33 Other Solids 5. 69 5. 7 5. 69

Fluid Milk Sales - Canada Year (Marketing) 3. 25% 2% 1% Skim Buttermil k Chocolate Milk Eggnog 000 Litres Total Sales 2004 / 05 407, 732 1, 251, 859 568, 047 279, 417 13, 612 173, 950 9, 619 2, 704, 236 2003 / 04 424, 603 1, 285, 770 569, 849 273, 831 14, 194 167, 736 10, 070 2, 746, 053 2002 / 03 422, 715 1, 270, 432 544, 597 272, 575 13, 240 156, 058 10, 392 2, 690, 009 2001 / 02 431, 014 1, 285, 277 536, 464 276, 181 12, 775 155, 857 10, 499 2, 708, 067 2000 / 01 435, 491 1, 310, 815 532, 740 265, 664 11, 996 145, 932 10, 635 2, 713, 273

Day to day Challenges to Dairy Purchasing q q q q q Closely Monitor Production Ensure Food safety Maintain a close tab on type of Cows & yields by type Support prices Other influencing factors to the dairy market Farm income Herds average – cows on feed Quality of milk – buying discount Milk processing costs etc An eye over the industry future developments Milk collection centers performance Seasonality impacts , weather Logistics / avoid transit losses Innovation support Environmental protection Long-term contracts Strategic partnering to ensure sustained supply and desired quality Industry regulations and developments Key competition for Nestle / Key players? ? ? Ø Stay on top to meet or beat above Challenges