1. SUPPLY FONTERRA Our Path to a Sustainable Future 25 October 2012 AN OVERVIEW OF THE Sustainable Dairying Water Accord For the Waikato Regional Council Land and Water Committee

2. Page 2 Confidential to Fonterra Co-operative Group Fonterra’s Focus on Sustainability To maintain and grow milk supply, our Co-operative needs to manage our natural resources While farmers have made significant progress in producing the highest quality milk and driving on-farm environmental performance over the last 10 years, we need to continuously improve in order to: ‒ Meet customer demands ‒ Reduce the risk of restrictive regulations ‒ Meet local communities’ expectations of on-farm environmental performance ‒ Build a more respected brand – here at home and internationally We have a good base to work from with a tested, successful platform that includes the Farm Dairy Assessment, Milk Quality Service Model, Every Farm Every Year and the Mastitis Support Programme To promote and drive further environmental and food safety performance, we have formalised the Supply Fonterra programme

3. Page 3 Confidential to Fonterra Co-operative Group Supply Fonterra Education and Best Practice Support Mechanisms Minimum Standards Recognition SUPPLY FONTERRA Programme Elements

4. Page 4 Confidential to Fonterra Co-operative Group Supply Fonterra

5. Page 5 Confidential to Fonterra Co-operative Group The Environment Programme 2012/2013 Effluent Management Programme (formerly Every Farm, Every Year) ‒ Entering its third season ‒ Assessed during Farm Dairy and Environmental Assessment ‒ Support to ensure compliance year round Waterway Management Programme ‒ Launched this season ‒ Assessed during Farm Dairy and Environmental Assessment ‒ Support network available to offer advice on fencing options, riparian margins and cleaning out waterways Nitrogen Management Programme ‒ Measurements taking place this season, support module launched next season ‒ Suppliers now required to record environmental farm system information ‒ Discussed during Farm Dairy and Environmental Assessment

6. Page 6 Confidential to Fonterra Co-operative Group Effluent Management Programme Background: The Clean Streams Accord targeted 100% compliance with dairy shed effluent regulations Industry's initial attempts to improve compliance rates were largely ineffective The Every Farm Every Year (EFEY) programme was launched in 2010 to assist farmers achieve compliance 365 days of the year To date the programme has resulted in 2,400 effluent improvement plans being implemented with suppliers The Effluent Management Programme aims to: Assess every dairy shed effluent disposal system annually Identify farms with ‘at-risk’ effluent systems Provide one-to-one support to suppliers to develop more resilient effluent systems that are capable of compliance 365 days per year

7. Page 7 Confidential to Fonterra Co-operative Group Effluent Management Programme Programme delivery: The minimum standard: Every farm must have systems in place that manage all effluent sources in a manner that complies with the resource consent or permitted activity, 365 days a year Effluent system risk is assessed by an independent contractor during the annual Farm Dairy and Environment Assessment Changes to the programme this season: EFEY is now the Effluent Management Programme Effluent Improvement Plans (EIP) are now Environmental Improvement Plans Assessment has been streamlined to focus on key areas A greater focus on treatment ponds with discharge to water: ‒ All identified as risk ‒ Increases focus during the assessment ‒ Offer of sampling to assess compliance

8. Page 8 Confidential to Fonterra Co-operative Group Effluent Management Programme Further action required Issue resolved Sanction No issue Assessed during Annual Farm Dairy and Environmental Assessment Any issues identified are referred to Fonterra Environmental Improvement Plan developed with supplier Supplier actions Environmental Improvement Plan Fonterra re-visits farm to confirm actions completed

9. Page 9 Confidential to Fonterra Co-operative Group Waterway Management Programme Background: Our suppliers’ impacts on waterways are largely the result of losses of sediment, phosphorus and bacteria from the farm, predominantly as a result of: ‒ Stock access to waterways ‒ Stock wintering, fodder crops and effluent disposal ‒ ‘Hotspot’ areas on the farm Clean Streams Accord has made significant progress in the area of stock exclusion: ‒ 80% of Clean Stream Accord waterways are fenced ‒ Over half of all farms (57%) have total stock exclusion from all Accord waterways The Waterway Management Programme builds on this success by: ‒ Setting minimum standards that deal with stock exclusion and ‘hotspots’ ‒ Supporting suppliers to achieve these minimum standards ‒ Providing education to suppliers on best practice for stock wintering and fodder crops

10. Page 10 Confidential to Fonterra Co-operative Group Waterway Management Programme Programme delivery: The minimum standard: ‒ Stock must be excluded from all waterways (December 2013) ‒ Farm races must include bridges or culverts where stock regularly crosses a waterway (December 2013) ‒ Sediment and/or effluent shall not be discharged into any waterway where it is likely to result in a significant adverse effect on the environment (effective immediately) ‒ Fonterra recommends farmers consider their responsibilities for excluding stock from waterways when stock are being grazed off the dairy platform Compliance is assessed by an independent contractor during the annual Farm Dairy and Environmental Assessment Stock exclusion and crossings are recorded via mapping software and verified over time Support and follow up is delivered by SDAs and Area Managers

11. Page 11 Confidential to Fonterra Co-operative Group Waterway Management Programme Verification of waterways Further action required Issue resolved Sanction Issue resolved Assessed during annual Farm Dairy and Environmental Assessment Any issues identified are referred to Fonterra Environmental Improvement Plan developed with supplier Supplier actions Environmental Improvement Plan Fonterra re-visits farm to confirm actions completed

12. Page 12 Confidential to Fonterra Co-operative Group Waterway Management Programme

13. Page 13 Confidential to Fonterra Co-operative Group Background: Nutrient budgeting is now common in the dairy industry using the Overseer model, however: To date there has not been a universal protocol for the use of the model It is predominantly used for predicative purposes The nitrogen outputs from the model are not displayed in a manner that is meaningful to suppliers The Nitrogen Management Programme aims to: Model each suppliers’ nitrogen loss and efficiency at year end, using actual farm data, and in accordance with the new industry-approved Overseer Input Data Protocol Present this information graphically with comparison to the regional distribution Provide an audited record of nitrogen loss that allows farmers to easily participate in audited self management schemes, or demonstrate compliance with regulatory requirements Implement a support model to assist farmers to reduce losses while increasing efficiency Nitrogen Management Programme

14. Page 14 Confidential to Fonterra Co-operative Group Programme delivery: The minimum standard: ‒ All suppliers must record the relevant information about their farm system between 1 June and 31 May and provide it to Fonterra by 30 June to enable the modelling to be undertaken ‒ Provide evidence to support the accuracy of this information upon request ‒ Complete the agreed actions of a Environmental Improvement Plan where applicable (from the 2013/2014 season) This programme will be delivered in partnership with the fertiliser industry Random audits of the data processing (fertiliser companies) and the accuracy of the data inputs (supplier) will be undertaken Nitrogen Management Programme

15. Page 15 Confidential to Fonterra Co-operative Group Fertiliser specialists set- up nutrient budget during the season Farmer maintains relevant data throughout the season Data submitted at season end and nutrient budget updated with actual data Reports produced and sent to suppliers showing performance against benchmarks Fonterra works with farmers to drive improved nitrogen management practices Nitrogen Management Programme Information is used to develop nutrient management plan and budget for coming season RegulatorAudit

16. Page 16 Confidential to Fonterra Co-operative Group Nitrogen Management Programme Your nitrogen leaching loss for the 2012/2013 season was: 26 kg/ha The average nitrogen leaching loss in the wider region in the 2012/2013 season was: 29 kg/ha

17. Page 17 Confidential to Fonterra Co-operative Group Continuing Work and Communications Waterway Management Training for all Area Managers, Sustainable Dairying Advisors and Farm Dairy and Environmental Assessors complete Updated Supply Fonterra Mastitis Support Programme complete Communications to remind suppliers to record nitrogen input data throughout the season underway Ongoing Farmlink articles to recognise suppliers’ demonstration of best practice and best improvement Full media and public launch targeted for March 2013 Nitrogen Loss/Efficiency Support Model introduced for 2013/2014 season Future priorities for measurement and support: milk collection temperature, water use, animal welfare, greenhouse gas, biodiversity

18. Page 18 Confidential to Fonterra Co-operative Group Relationship between Supply Fonterra, LAWF and Accord 2 (Sustainable Dairying Water Accord) Accord 2: Sustainable Dairy Water Accord: Dairy sector commitment to achieve targets and programmes on effluent, riparian planting, nutrients, water use and sensitive catchments National Policy Statement for Freshwater Management: Requirement to set minimum standards in regional plans Supply Fonterra: Programme to deliver clear standards, good practice guidance and one-to-one support to farmers. Relevant programmes include effluent, waterway and nitrogen management Land and Water Forum (LAWF) framework for: Setting water quality standards/minimums Collaborative decision making Regional Council and Community Water Management Expectations

19. Page 19 Confidential to Fonterra Co-operative Group Will cover: ‒ The Approach ‒ Process for developing the Accord 2 ‒ Proposed content of the Accord 2 ‒ Key differences between the Dairying and Clean Streams Accord and the Sustainable Dairying Water Accord ‒ Next Steps The Sustainable Dairying Water Accord – An Update

20. Page 20 Confidential to Fonterra Co-operative Group Vision – Our waterways continue to provide for the full range of values and interests enjoyed by New Zealanders The vision will be promoted by managing land and water use to contribute to achieving the water quality desired by New Zealanders and profitable, competitive and sustainable agriculture. For the dairy sector this will be delivered by a commitment to: ‒ Build a culture of continuous improvement in on-farm performance relating to natural resource use ‒ Develop partnerships with iwi ‒ Develop partnerships with other stakeholders, including communities ‒ Reduce the impact of existing dairy farms in identified catchments ‒ Promote immediate best practice in environmental management by new dairying The Approach

21. Page 21 Confidential to Fonterra Co-operative Group Process – 4 stages

22. Page 22 Confidential to Fonterra Co-operative Group Proposed content Effluent Managemen t FDE system design and construction FDE operation Regulatory compliance Nutrient Managemen t Improving information Reducing N loss Riparian Managemen t Stock exclusion Planting Water use managemen t Water use efficiency Conversions New conversions 3. Administrative matters Monitoring and reporting, audit, five yearly reviews etc Purpose. Vision. Expectations. Commitments. Regional Partnerships. Relationship to RMA. 1. Up- front context etc 2. The detail

23. Page 23 Confidential to Fonterra Co-operative Group Key Differences How will the Sustainable Dairying Water Accord differ from the Dairying and Clean Streams Accord preceding it? ‒ All dairy companies will be included – not just Fonterra ‒ Two levels of signatory – “accountable” and “supporting” ‒ DairyNZ makes specific industry capacity building commitments ‒ Government and regional councils not equal partners ‒ A broad sweep of supportive organisations ‒ Potential to grow to other core dairy sustainability issues down the track

24. Page 24 Confidential to Fonterra Co-operative Group Next Steps To ensure continuity and demonstrate on-going commitment there is an expectation that parties will agree the Accord before the end of the calendar year. The Dairy Environmental Leaders Group met on Friday 12 October to give further direction on outstanding issues. From now, the project team will prepare a penultimate draft of the Accord before seeking sign-up from intended signatories.