Industry information K Coetzee August 2013 Contents International

Industry information K Coetzee August 2013

Contents • • International economy International dairy situation SA economic situation SA dairy situation

Global growth 8 • Slight improvement in 2013/ 2014 • Developing countries grow at higher rate 7 % GDP growth/ BBP groei 6 5 4 3 2 1 0 2010 World 2011 2012 Developing economies 2013 Advanced economies South Africa Source: WEO update , July 2013 2014

FAO food price indices, Jan-10 – Jul-13 • Increase in grain prices in 2012 • Followed by dairy prices from mid 2012 and in the first quarter of 2013 300 Index (2002 - 2004 = 100) 250 200 150 100 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Food Meat Dairy Jul-12 Jan-13 Cereals Source: FAO, 2013 Jul-13

Global milk production Source: IDF, November 2012

Production growth 2013 vs 2012 • Europe – 3 months -1, 4% • USA – 4 months =0, 2% • Australia – 5 months – 7, 0% • New Zealand – 3 months -4, 2% • Argentina – 3 months -9, 6% Source: CNIEL July 2013

Global demand • Stable in spite of: – Economic conditions • Global exports up 6% on 2011 • China demand growth high Source: CNIEL, July 2013

Global. Dairytrade® Sale price index Dec 2012 – Aug 2013 1800 1700 Indeks (Maart 2010 = 1000) 1600 1500 1400 1300 1200 1100 Source: g. Dt Index, August 2013 4 - A ug -1 3 3 l-1 Ju 4 - 4 - Ju n- 13 3 ay -1 M -1 pr A 4 - 4 - 3 3 4 - M ar -1 13 b. Fe 4 - n. Ja 4 - 4 - D ec -1 2 13 1000 • Prices firmed from mid-2012 • Sharp increase since February 2013 • Reasons • Drought in NZ • Slow start to EU season • Low stock levels • Period of adjustment after sharp increase.

International prices, Jan-07 – Jul 13 55, 000 • Dairy prices at all -time record level • Fonterra sales prices showed slight decrease 50, 000 45, 000 Rand per ton 40, 000 35, 000 30, 000 25, 000 20, 000 15, 000 10, 000 Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Butter/ Botter SMP/ AMP Cheddar FMP/ VMP Source: USDA, July 2013; Reserve Bank, 2013

International producer prices, June 2013 • Higher producer prices in most countries • Subsidies still play major role • Price based on 4, 2% butterfat, 3, 4% protein. Finland Italy Belgium Ireland France Denmark Germany England Netherlands USA South Africa New Zealand 0 1 2 Producer price 3 4 5 6 7 Rand per litre Direct subsidies Source: LTO, August 2013; IFCN, 2012; MPO, 2013

SA economic activity • Co-incident indicator show continuing growth • Leading indicator recovered from July 2012 low 175 Index (2000 = 100) 165 155 145 135 125 Jan-10 Jul-10 Jan-11 Leading indicator Jul-11 Jan-12 Jul-12 Co-incident indicator Source: SA Reserve Bank, August 2013

Economic growth • 2012 growth varied between 1, 2% and 3, 1% • Weak growth in first quarter of 2013. 5 4. 5 Annualised growth rate (%) 4 3. 5 3 2. 5 2 1. 5 1 0. 5 0 10 -1 10 -2 10 -3 10 -4 11 -1 11 -2 11 -3 11 -4 12 -1 12 -2 12 -3 12 -4 13 -1 Source: Stats SA, June 2013

Consumer price inflation Jan 07 – June 13 • CPI inflation at or below 6% • Outlook for 2013 neutral 14. 0% 13. 0% 200 12. 0% 180 10. 0% 9. 0% 8. 0% 160 7. 0% 6. 0% 140 5. 0% 4. 0% 3. 0% 120 2. 0% 100 Jan- Jan- Jan- Jan 01 02 03 04 05 06 07 08 09 10 11 12 CPI% Source: Stats SA, July 2013 0. 0% Core inflation Consumer price index (2000 = 100) 11. 0%

Interest rates, Jan 98 – June 13 • Prime rate low • Real rate at lowest level since 2009 • Very little upwards pressure Source: Stats SA, July 2013

Household income and debt • Steady improvement in income • Lower consumer debt • More affordable debt • Unsecured debt ! Source: SA Reserve Bank, June 2013

Retail sales growth, Jan 08 – May 13 12. 0% • Positive since 2012 • Volatile growth • Between 2% and 6% 10. 0% Year on year growth (%) 8. 0% 6. 0% 4. 0% 2. 0% 0. 0% -2. 0% -4. 0% -6. 0% -8. 0% Jan- Jul- Jan- Jul- Jan 08 08 09 09 10 10 11 11 12 12 13 Source: Stats SA, May 2013

Monthly raw milk production trend, Jan 2011 – March 2013 • Milk production • 2011 = 2 639 Mil. L. • 2012 = 2 757 Mil. L. Jan – Jun 13 1274 Mil. L. (-0, 1%) • Jan – April 2013 – final • May – June 2013 preliminary. • Feb 2012 = 29 days Thousands 270 250 230 210 190 170 Jan Feb 2 010 Mar Apr May 2 011 Jun Jul 2012 Aug Sep 2013* Oct Nov 2013 Source: 2011, 2012, Jan – Apr 13 Milk SA returns; May – Jun 13, Milk SA estimate Dec

Dairy retail demand & prices Annual volume growth (%) Product To December 2012 To March 2013 Fresh milk -4, 8 -6, 5 UHT 7, 6 8, 3 Flavoured milk 16, 0 7, 9 Yoghurt 3, 9 2, 5 Maas 1, 5 18, 5 Prepacked cheese 21, 1 10. 9 Butter 4, 3 4, 5 Source: SAMPRO based on Nielsen report, June 2013

Cumulative net imports of dairy products Million litre milk equivalent 180 140 100 60 20 -20 Jan Feb Mar 2010 Apr May Jun Jul 2011 2012 Aug Sep Oct Nov Dec 2013 Source: SARS as supplied by SAMPRO

Milk: feed price ratio, Jan 03 – July 13 2. 2 • Historic low Jan 13 • Slight improvement since caused by lower grain prices 1. 8 1. 6 1. 4 1. 2 1 13 Ja n- 12 Ja n- 11 Ja n- 10 Ja n- 09 Ja n- 08 Ja n- 07 Ja n- 06 Ja n- 05 Ja n- 04 Ja n- 03 0. 8 Ja n- Milk: feed price ratio 2 Source: MPO calculations; Feed = 70% YM 1, 30% Soy, Safex nearest month prices, producer price MPO survey

Producer, processor and retail price indices, Jan 00 – Jun 13 350 Index (2000 = 100) 300 250 200 150 100 50 0 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Dairy products PPI Raw milk PPI Milk, cheese & eggs, CPI Headline PPI Headline CPI Source: Stats SA Jan-12

Retail price 2 litre milk, Jan 00 – Jun 13 10 9 Rand per litre 8 7 6 5 4 3 Jan- Jan- Jan- Jan 00 01 02 03 04 05 06 07 08 09 10 11 12 Retail price/Kleinhandelprys