NZ Cold Store Industry Conference Chris Greenough Our

NZ Cold Store Industry Conference Chris Greenough

Our Ambition: Making a difference in the lives of two billion people by 2025 $35 billion turnover No. 1 ingredients Top 3 reputation World-class engagement 30 billion litres 5 -6 milk pools No. 1 or 2 consumer business in our eight strategic markets To be the world’s most trusted source of dairy nutrition Confidential to Fonterra Co-operative Group - November 2015 Page 2

Global dairy market fundamentals New Zealand • Significant participant in tradable market 23 b L Globally Traded Dairy Market 1 • Global export/import market • Informs Milk Price Formal Dairy Market 2 • Reflects total dairy demand 69 b L 419 b L 25 bn L (1. 0% CAGR) 86 bn L (4. 4% CAGR) 2017 Baseline 2022 Projection 463 bn L (2. 0% CAGR) NOTE measured in LME SOURCE 1. IHS Maritime and Trade (GTA), International Farm Comparison Network (IFCN), Economist Intelligence Unit (EIU), Fonterra Analysis, Measured as total global imports. Global exports 12 months to Sept 17; 2017 global exports down slightly on prior year due reduced output from major exporters 2. Euromonitor retail and foodservice global sales, Fonterra model Confidential to Fonterra Co-operative Group Page 3

DEMAND: Consumption shifts Shifting consumer preferences have caused dairy fat prices to increase relative to protein GDT BASE PRICES USD/MT Butter = 2. 6 x SMP Butter WMP Butter = 0. 9 x SMP Jan-13 1) SNF = Solids Non-Fat Source: Global Dairy Trade Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Confidential to Fonterra Co-operative Group Page 4

BREXIT Resurgent nationalism brings uncertainty TURKEY CHINA RUSSIA USA Confidential to Fonterra Co-operative Group Page 5

More volume to higher value 1 billion LMEs shifted to Consumer, Foodservice and Advanced Ingredients 1 Optimise Consumer 3% NZ milk 2 Build and grow beyond our current consumer positions 3 Deliver Foodservice 27% 2% 20% FY 17 22. 9 b LME Grow our active living business 5 GDT 5% 10% on Foodservice potential 4 12% DIRA 7% Develop 19% leading positions in paediatric & maternal nutrition 6 Selectively invest in milk pools 7 Align our business and organisation Advanced Ingredients 9% 36% Base Ingredients 11% • GDT – Volumes aligned with lower production • Ingredients – Lower NZ milk collections and record low closing inventory – 473 m LMEs shifted to higher margin Advanced Ingredients • Consumer & Foodservice – Added 576 m more LMEs – Normalised EBIT up 6% % FY 17 sales volume growth over FY 16 Confidential to Fonterra Co-operative Group Note: Wheel shows percentage of total FY 17 external sales (LME); Consumer, Foodservice and Ingredients growth rates include intercompany sales Page 6

To achieve our ambition, we will need to make a number of big moves Pathway to our ambition Implied CAGRs, % Revenue 8. 4% 8. 1% NZD B 8. 2% 40 2025 Ambition 30. 0 bn LME @ $1. 17/L 35 30 -3. 5% Volume FY 19 Plan 22. 7 bn LME @ $0. 96/L 25 4. 8% 2. 7% 20 FY 16 23. 7 bn LME @ $0. 73/L 15 -1. 1% -1. 4% Price 10 9. 6% FY 12 24. 8 bn LME @ $0. 80/L 5 3. 4% 5. 4% 0 0 5 10 15 20 25 30 35 Volume LME B -2. 3% FY 12 - FY 16 - FY 19 FY 16 FY 19 FY 25 FY 16 FY 25 Confidential to Fonterra Co-operative Group Page 7

Cost leadership through scale has been pivotal to our success Extracting value across the supply chain through leveraging our uniqueness and driving efficiencies Confidential to Fonterra Co-operative Group Page 8

SUPPLY: NZ milk supply The NZ operating environment continues to evolve • Rise of precision agriculture • Digital experience becomes critical to farmer engagement and farmer value • New business models connect value chains end to end • Digital as a risk and an opportunity for retail Digital & Technology Revolution • Farmer base changing – wide spectrum of expectations and requests for different offerings from their processor • Larger split between on-farm operators and farm owners / shareholders • Millennial farmers and farm workers • Farm owner succession challenges • Changing rural retail environment driven by changing farmer expectations and digital revolution Milk Supply Growth slowing, Competitor Entry Changing operating environment Significant Shift in Farmer Demographics • New entrants likely to continue entering / expanding sites • Competitors target farmer segments with premium offerings, or low cost (no share) options • Capital flow into dairy constrained as banks look to de-leverage and older farmers planning industry exit • Slower NZ milk growth challenges fixed asset base • Need for global milk pools to meet ambition Increasing Sustainability Challenges to Farming • Consumer & stakeholder demands for environmental care • Media focus on dairy sustainability challenges • Environmental restrictions will restrict growth – water & nutrients are key focus • Some farm systems may de-intensify while others go more intensive • Growing Greenhouse Gas challenge for livestock based food production • Farm profitability & succession may impact land moving to other uses Confidential to Fonterra Co-operative Group Page 9

SUPPLY: NZ milk supply Both the NZ milk pool and Fonterra’s share of collections have declined Total NZ Milk Produced, bn LMEs 24 23 Actuals FY 17 planning -1% FY 17 milk output declined § Output was 0. 6 bn LME less than FY 17 forecast 22 21 +x% +5% CAGR 2015 to 2017 Underlying production drivers have declined Decreased cows & land -1. 6% Cows -0. 5% Hectares 20 Partially offset by productivity 19 +0. 5% 18 kg. MS per cow Challenges are set to continue 17 NZ production -0. 6% to -2. 5%1 § Introduction of PKE restrictions 16 § Unpredictable weather 15 Drought frequency doubles by 2040 § Expansion of regional environmental regulation 0 Fonterra’s Share 89. 4% 88. 9% 88. 6% 88. 3% 86. 8% 85. 4% 84. 1% 82. 4% of Collections 1. Impact of PKE restrictions is variable as PKE use varies with climatic conditions. Estimate for FY 17 with PKE restrictions in force is that production would have declined 0. 6% allowing for 80% substitution of PKE for other supplemental feeds and 2. 5% allowing for 20% substitution SOURCE: Dairy. NZ Industry statistics, Fonterra model of PKE restrictions, NIWA ‘Climate Change Projections for New Zealand’ (2016) § Potential entry of Agriculture into an Emissions Trading Scheme (ETS) § Potential review of land use suitability by Central Government Confidential to Fonterra Co-operative Group Page 10

Our strategy is anchored by our beliefs and assessed through commercial filters Beliefs Dairy industry is demand-led Filters Economic Value Add Strategic Relevance Cost leadership Volume and Value now Sustainability NZ milk can sustainably grow at 0. 5%-1. 0% p. a. Long term value protection Shareholder wealth Global milk is needed to maximise co-op value Market Potential Ability to Win Likelihood of success Confidential to Fonterra Co-operative Group Page 11

Our journey to becoming a global leader in nutrition and making a difference to the lives of 2 billion people Value SUSTAINABLE CO-OP INNOVATIVE CO-OP 3 years Investment in technology and people for the future Demand-led optimisation of NZ milk, supported by milk pools STRONG V 3 CO-OP NOW Creation of sustainable value for all stakeholders 5 years 10+ years Confidential to Fonterra Co-operative Group Page 12

3 2 Innovative co-op We are embracing tomorrow’s innovation in what we do today AGTECH ENERGY & CLEAN TECH PRECISION FARMING SUSTAINABLE FARMS ENERGY & WATER EFFICIENCY FOOD SAFETY & TRACEABILITY BLOCKCHAIN SUSTAINABLE OPERATIONS ROBOTICS DIGITAL MANUFACTURING HYPERDIGITAL LIVING CONSUMERS OF THE FUTURE PERSONALISATION NEW RETAIL GAMIFICATION DIGITAL CONSUMERS CONNECTED LIFE SOIL & CROP TECH 3 D PRINTING SHARING ECONOMY AR/VR GENOMICS ENABLERS DIGITAL ARTIFICIAL INTELLIGENCE BIG DATA BEHAVIOUR ECONOMICS Confidential to Fonterra Co-operative Group Page 13

The growing role of partnerships and collaboration SUPPLIERS EXPORTERS Value Sharing IMPORTERS DEMAND &SUPPLY COORDINATION Value Sharing COMPETITORS Value Sharing INFRASTRUCTURE Standalone Scale Collaborative Scale Today Confidential to Fonterra Co-operative Group Page 14

Enterprise Value Chain vs. Ecosystem Value Chain Enterprise Value Chain Cash Burn Optimised Silo Player 1 Cash Burn Optimised Silo Player 2 Cash Burn Optimised Silo Player 3 Optimised Silo Player N Base Infrastructure Eco. System Value Chain 1. No single NZ supply chain player is big enough or stable enough to affect structural change to the NZ Inc. value chain working independently. 2. No single supply chain player can realise an optimised ecosystem in isolation Confidential to Fonterra Co-operative Group Page 15

Supply Side Collaboration Cost to Serve vs. Price to Serve – Creating and sharing value sustainably Adversarial Model Collaborative Model • Focus on minimise price to serve • Focus on minimising cost to serve through mutual efficiencies • Limited, if any, focus on cost to serve • • Procurement Wisdom Using scale to create operational efficiencies for supplier e. g. demand smoothing, shared risk models etc • – Maintain options • Value identification models – Maximise competitive tension • – Leverage scale and option value Being able to collectively measure value created from baseline performance – Minimise price to serve • Methodologies to share value of efficiencies equitably between customer and supplier • Hardest part Most successful where: – Ongoing availability of competing supply is certain • Scale helps – Capacity is unlimited or at least in over supply • Requires selectivity – Suppliers are interchangeable Benefit Life Span dependent on availability of competing supply options Sustainable - Put Value In to Get Value Out Confidential to Fonterra Co-operative Group Page 16

Summary 1. Bold ambition 2. Constrained Milk growth 3. Focused growth of the reefer product range to maximise value 4. What has worked in the past may not work in the future 5. Innovation will be key 6. Increasing recognition that we’re stronger together 7. Increasing recognition that sustainability requires balancing the distribution of value Confidential to Fonterra Co-operative Group Page 17

Questions? Confidential to Fonterra Co-operative Group Page 18