2. New Zealand’s dairy industry Hon. John Luxton Chairman DairyNZ

3. DairyNZ tvc Introducing NZ dairy farming

4. New Zealand is 1/10 th the size of Argentina

5. Source: IBGE, SAGyPA Indicator Series, ODEPA, OPYPA, LIC, FAO Notes: 1) NZ base year is 2000/01 season. Mercosul & NZ milk production

6. Brazil Dairy Industry Background Source: LIC,USDA, ODEPA, OPYPA, ESALQ International milk prices

7. 1.46 million ha used >85% grazed pasture 16.5 billion litres 8 th largest producer Only 2.3% of world production Dairying in New Zealand

8. Dairy Industry comprises ~25% of NZ’s export receipts Milk price = international price… no tariffs and support

9. NZ dairying statistics Dairy herds11,691 No of cows milked4.4m Volume of milk produced16.5 billion litres Average herd size (cows)376 Average stocking rate (cows/ha) 2.8 Average milksolids per cow (kg) 318 Milksolids per herd (kg)123,000

10. How we compare New ZealandArgentina Milk production18.5 m tonnes9.5 m tonnes Milk price2% above world market-11% below world market Milk consumption (ME per capita & per year) >350 kg187 kg Milk processing into tradeable products >90%58% Export>90% of production~22% of production Import~3% of local consumption ~1% of local consumption IFCN 2010 Dairy Report

11. NZ dairy farms vs Brazilian (Goiás) farms Performance Indices New Zealand GO - 2009 (average) GO - 2009 (>1,000 l/day) Age at First Calving (months) 24 3429 Cows in Lactation (% of total) 73% 59%66% Machine milking (% of herds)100%24.2%94.7% Production (litres/ha/year) 12.960 1.9813,579 Production (litres/man-day) 2.730 124411 Production (litres/cow/year)4,5501,9933,459 Use of artificial insemination75%12%68% Cost of Labour (R$/man-day)R$125R$14R$26

12. Calving is seasonal 50 100 75 25 Pasture (kg DM/ha per d) Demand Supplement required Conservation required Spring Feed supply

13. The farming structure is evolving towards bigger farms and fewer farmers Source: LIC Dairy Statistics, DairyNZ Economics Group

14. Production by herd size 2009-10 Source: DairyNZ Economics Group

15. 6% 28% 7% 9% 11% 4% 18% 17% Production trends 199020002010 North Island 93%77%61% South Island 7%23%39% Milksolids production

16. NZ Export Markets Source: Statistics New Zealand, DairyNZ Economics Group

17. Major processing companies Fonterra Cooperative Group: –90 percent of milk supply and exports –40 percent of the domestic consumer market 2 other co-operatives: –Tatua –Westland 5 other processing companies: –Open Country Dairies –Synlait –New Zealand Dairies –Goodman Fielder Farmers own 95%+ of processing capacity

18. Regulatory framework

19. DIRA Open entry and exit Contracting rules 20% rule Raw milk regulations

20. Fonterra milk price model Calculates revenue if all milk was processed into basic commodities & sold overseas Deducts shipping, processing & freight costs Balance paid to farmers as milk price Value add – eg selling premium ingredients/ investment in consumer brands – treated as profit Farmers receive profit as dividends on their Fonterra shares, plus price paid for raw milk

21. Looking ahead 1.Dairy making large & growing contribution 2.Global supply/demand supports NZ growth 3.On-farm business success $83/ha/yr 4.Erosion of NZ’s low cost base poses threat 5.Imperatives for productivity improve remain 6.Public & consumers driving sustainability 7.Public perceptions about dairy are mixed 8.Skilled people increasingly important 9.Unified approach to innovation & adoption

22. Improving productivity Questions?