Canadian Dairy Market - An Overview

Global Dairy

- Million Tons - Calendar Year 2004 World Largest Producers

Canadian milk renownedQuality Standards in farms & processing plants  Canadian milk renowned for excellence Quality Standards in farms & processing plants dairy production generated$ 4.8 Billion  in 2005, dairy production generated farm receipts of $ 4.8 Billion Dairy industryfourth in the agriculture  Dairy industry ranks fourth in the agriculture sector 81% of farmsOntario and Quebec  About 81% of farms located in Ontario and Quebec, 13% Western, 6% Atlantic 1,546,300 heads  Dairy population 1,546,300 heads (approx. 1,048,600 dairy cows (Jan’06 est.) Canadian farm60 cows  Typical Canadian farm has 60 cows 38,000 peopledairy farms26,000 primary processing  Nearly 38,000 people work on dairy farms, 26,000 primary processing works under Supply Management System  Canadian dairy works under Supply Management System Plannedproduction  Planned domestic production Administered pricing  Administered pricing import controls  Dairy product import controls 463 dairy processing plants  In 2005, approx. 463 dairy processing plants (295 Federally inspected plants) Canadian Dairy at a glance

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

famoussuperior genetic quality  Canadian dairy famous for superior genetic quality of its cattle herd dairy cattle exports  Live dairy cattle exports for breeding to NA, EU and Asia Pacific cows enrolledmilk recording  Canadian cows enrolled on official milk recording Produce average9,442 Kgmilk  Produce average of 9,442 Kg of milk per cow (305 days lactation) average content 3.21% protein & 3.76% fat  Canadian milk has an average content 3.21% protein & 3.76% fat Holstein common dairy breed  The Holstein is most common dairy breed (93% of dairy herd) OIE standards  OIE standards are being put in place Processing of Dairy Products Fluid milk marketrepresents 38% of milk production  Fluid milk market (table & fresh cream ) represents 38% of milk production (28.3 M Hect Ltr) Manufactured dairy productsaccounts 62%  Manufactured dairy products butter,cheese, yogurt & IC accounts 62% (6.5 M hectolitres) Processing sectorconcentrated  Processing sector is concentrated  16% plants owned by 3 large processors Saputo, Agropur, Parmalat  Process approx. 70% of the milk produced

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

International Trade Canada exported  In 2005, Canada exported  Cheeses 27.1%  Dairy spreads 18%  Ice cream 16 % Major markets for dairy  Major markets for dairy  United States 48.1%  EU 12.9% (UK 12.9%) Canadian dairy exports 2005 $ Million imports Million  Canadian dairy exports 2005 $ Million imports Million Major Imports  Major Imports  Cheeses 29.2%  Casein and derivatives 18.3%  Butter and fats & oils 11.6%  Whole milk powder 10.6 %  Our major suppliers  EU %  New Zealand 23.9%  United States 22.8%

000 Hectolitres / Annum Historical Production (Marketing Year)

Farm Input Price Index = % Change Building & Fencing % % % % % Machinery & vehicles % % % % % Crop production % % % % % Seed % % % % % Fertilizer % % % % % Pesticides % % % % % Crop insurance % % % % % Animal production % % % % % Feed % % % % % Artificial insemination % % % % % Veterinary Services % % % % % Supplies & Services % % % % % Hired Farm Labor % % % % % Property Tax % % % % % Farm Rent % % % % % Tota Farm Inputs % % % % %

Dairy Cows & Heifers by Key Provinces

No. of Official Herds Animals on Test Milk (Kg)Fat (Kg) Fat % Protein (Kg) Protein % BCA MilkFat Prote in Ayrshire 288 9,828 7, % % Brown Swiss 146 1,397 7, % % Canadienne , % % Guernsey , % % Holstein ,762 9, % % Jersey 518 8,927 6, % % Milking Shorthorn , % % Breeds & Average Production - Nationwide Yearly Production – 2005 basis

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

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

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

Milk Components Content 04/05 03/04 02/03 01/02 ONTARIO Butterfat Protein Other Solids QUEBEC Butterfat Protein Other Solids CANADA Butterfat Protein Other Solids kg / hl

Fluid Milk Sales - Canada 000 Litres Year (Marketing) 3.25%2%1%Skim Buttermil k Chocolate Milk EggnogTotal Sales 2004 / ,732 1,251, , ,417 13, ,950 9,619 2,704, / ,603 1,285, , ,831 14, ,736 10,070 2,746, / ,715 1,270, , ,575 13, ,058 10,392 2,690, / ,014 1,285, , ,181 12, ,857 10,499 2,708, / ,491 1,310, , ,664 11, ,932 10,635 2,713,273

Day to day Challenges to Dairy Purchasing  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 age – 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???  Stay on top to meet or beat above Challenges