1. Fig 4.2 – ABARES farm performance (avg per farm) Agribusiness Breakfast Unilever Sustainable Sourcing Meeting 27 August 2012

2. Retail Export Milk production Food service Dist’n Marketing Import Inputs supplements water Rising grain prices Limited supply of cows and heifers Consumers value focussed Retailers competing on price Processing/ manufacturing Rebalancing the supply chain Clearing stocks for exporters as prices weaken Strong competition for milk in southern region remains Pressure on domestic profit margins “Two speed” industry – export vs domestic regions Weaker pricing due to commodity price falls Demand led by China and south-east Asia Strong supply response from ALL exporting regions

3. Commodity prices finding new level

4. Increased supply for all exporters

5. Slowing US production growth

6. US more susceptible to rising grain prices

7. Major importers by volume (‘000 tonnes)

8. Chinese imports remain strong

9. Changes required from major exporters 2011 to 2021 (meq mill litres)

10. Sensitivity of long term market “balance” Growth assumptions underlying forecast NZ production averages 2.5% p.a. Chinese liquid milk demand 6.5% p.a. Chinese production grows 8% p.a. EU production grows 0.4% p.a. US grows 1.4% p.a.

11. Current Australian market settings Dairy market Highlights Per capita consumption 297 litres p.a. Wholesale value $6.4 billion Key influences Retailer activity More at home eating Less premium and discretionary food spending Health and “naturalness” Supermarket activity Private label milk price Promotions Margin pressures remain Cautious consumers Competitive retailers Weekly printed promotions of dairy products by grocery chains

12. Retailers under pressure

13. Australian market trends - volume sales until end of June 2012

14. Supermarket trends - volume and value until end of June 2012

15. Farmgate market outlook for 2012/13 Southern Opening announcements $4.50 kg MS (34cpl) Full year range $4.70-$5.00 kg MS (35-38cpl) Down 8 to 10% on 2011/12 Competition remains strong Assumptions underlying DA forecast were Commodity prices to trade in range US$3,000-$4,200 per tonne AUD between 100 and 105 US cents Fresh milk regions Farmgate prices under pressure Supply chain profitability New contracts Changed retailer contracts affecting access Range of impacts Reductions in Tier 1 access Tier 2 milk 15-18 cpl Regional differences Challenge of aligning supply Cost of year round production Seasonal shortages Value and usage of “excess” milk

16. National Dairy Farmer Survey 2012 1002 farmers interviewed nationally Fieldwork conducted from 6 to 29 February Flooding in Northern Victoria Response rate rose to 72% 63% in 2011 Follow-up survey planned for August

17. Attitude to the future of the national industry

18. Significant differences between regions Positive attitude to industry future by region (% farms) Source: National Dairy Farmer Survey 2005-2012

19. % farms intending to invest in next 12 months (comparing 2009 - 2012 surveys)

20. Little change in 3 yr growth outlook

21. Situation & Outlook for dairy markets In the short term international market needs to rebalance Solid demand Surging supply Economic uncertainty Long term outlook remains positive but Tight balance = volatility Australia’s relevance? Changes in EU and US policy and international engagement Domestic margins will remain under pressure Cautious consumers Price-focussed retailers

22. Situation & Outlook for Australian dairy farmers Southern prices down 8-10% in 2012/13 Any upside for the price outlook? Competition for milk Weaker Nth Hemisphere supply Strong demand In domestic regions (NSW, Qld) Downward pressure on prices Impact highly variable Milk production forecast for 2012/13 up around 2% 9.6 to 9.65 billion litres 3 year milk production outlook Surveyed intentions – based on 2011/12 production 9.8 to 10.1 billion litres in 2014/15

23. Thank you! Download the full report at www.dairyaustralia.com.au www.dairyaustralia.com.au Next update: 12 September