1. Current & Long-term Prospects for US Dairy Trade Cooperative Network Dairy Policy Conference April 3, 2012 Jim Sleper Land O’Lakes, Inc.

2. Agenda 1.What are the fundamental trends & observations for U.S. Dairy Trade? 2.Why is the U.S. in a unique position for Dairy Trade? 3.What are the key challenges for US Dairy Trade?

3. Fundamental Trends & Observations

4. U.S. Dairy, Agriculture, Agribusiness and the Food Industry offer high-opportunity & high-growth platforms World population to grow from 7.0 billion to 9.5 billion by 2050 Global food production will have to increase 70% to meet higher demand Source: United Nations Food and Agricultural Organization

5. Growth = Opportunity SOURCE: FAO World Food and Agriculture to 2030/2050; FAO Expert Meeting on How to Feed the World in 2050 ~1.5 X more cereals ~2 X as much meat Primary Drivers Urbanization – 70% of 2050 population Higher calorie consumption and diet shifts – more protein, more wealth “Middle Class” income & population increasing substantially 1 On a per-day basis, global food consumption is ~17 trillion Kcal in 2000, ~18 trillion Kcal in 2005, and ~28 trillion Kcal in 2050 2 From ~475 to ~892 million tons of dairy, ~1 to ~1.44 billion tons of cereals, ~227 to ~464 million tons of meat, over the period of 2000 to 2050 ~2 X as much dairy

6. Meat Consumption Dynamics

7. Experts predict... “Middle Class” (Outside the U.S.) expected to double by 2020 – approaching 1 Billion households “Middle Class” in developing countries projected to increase 160% by 2020 versus only 15% in developed countries World Bank has estimated the number of people in developing countries in households with incomes >$16000/year will rise from 352 million in 2000 to 2.1 Billion by 2030 Source: OGA/FAS/USDA

8. U.S. Dairy Exports Grew in 2011 We export the equivalent of Wisconsin!

9. 2011 Record Year for U.S. Dairy Export Sales Mexico Canada China Philippines Japan South Korea $1.2 billion +41% $0.5 billion +14% $0.4 billion +53% $0.3 billion +55% $0.3 billion +36% $0.2 billion +70% Total Value of U.S. Dairy Exports in 2011 = $4.8 billion

10. 2. Why is U.S. in a unique position for Dairy Trade?

11. U.S. Dairy Tangibles & Intangibles…. Infrastructure Water Land Cost-of-Production efficiencies Technologies Feed Forages Capital Herd health management Food Safety Expertise Production capacity Irrigation Regulatory enforcement Manufacturing capabilities R&D Breeding/genetics Nutrition management

13. Developing Countries’ Policies Have Impeded Their Agricultural Development... Corruption and/or macroeconomic instability Lack of definition or enforcement of property rights and contract sanctity Underinvestment in public goods, such as rural infrastructure, education and R&D Cheap food policies to keep urban consumers quiescent – often reinforced by food aid or subsidized exports Lack of technology adapted to local agro-ecological conditions (soils, climate; slope)

19. 3. What are the key challenges for U.S. Dairy Trade?

20. Challenges for U.S. Dairy Trade 1.Need to modify U.S. Dairy Policy. Historically, U.S. Dairy Policy has impeded exports – For decades, Government has supported the price of milk by standing ready to buy any quantity of butter, cheese and powder offered at guaranteed prices. – Provided little incentive for U.S. dairy to invest in innovation or marketing. – It became “the easy way out” to simply produce “stuff”, sell to the government, and it was then the government’s problem to get rid of the surplus.

21. Challenges for U.S. Dairy Trade 2.Export products foreign customers & consumers want. For many years, the U.S. dairy industry viewed the world market as simply a place to dump surpluses. – Need to make appropriate investments – Understand what foreign consumers want to buy – Produce products they want to buy, not just what we always produced

22. Challenges for U.S. Dairy Trade 3.Recognize the window of opportunity is closing. Intense competition for economic globalization – More aggressive existing competition – New competitors entering our industries – Speculators seeking “quick” gains – Tremendous potential for growth … in volumes and margins … lie outside our boarders – Global markets bring global competition

31. 13% U.S. Milk estimated for exports in 2011 17% of Land O’Lakes’ Milk estimated for exports in 2011 25% of Land O’Lakes’ Milk projected for exports in 2012 Land O’Lakes global exposure and mindset