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Fonterra to Provide Services to Dexcel

Media Release
12 May, 2005

Fonterra to Provide Services to Dexcel

Dexcel and Fonterra today announced an agreement that will see the dairying Co-operative provide strategic assistance and management services to the Dexcel on-farm productivity business.

The Dexcel Board of Trustees and Fonterra have agreed in principle to enter into a Management Agreement for the next three years with an aim of leading the dairy industry’s drive for sustainable on-farm productivity gains.

“There is a high degree of alignment between the on farm goals of both organisations,” says Dexcel Director and spokesman John Luxton, one of the designers of the agreement.

"Dexcel was established with the strategic purpose of increasing sustainable productivity of New Zealand dairy farms at about 4 percent per year. For Fonterra an ongoing supply of low cost milk produced on a sustainable basis is a source of competitive advantage in international markets. It must protect that advantage while the Company also seeks consistent growth in its milk supply to maintain its market share and take advantage of growth opportunities. On farm productivity enhancements are a key to reaching those goals for Fonterra.

“The Dexcel Board of Trustees has looked at that close alignment between the two organisations, and the fact that Fonterra has the strategic and management skills available to assist us to achieve those goals, in signing this agreement.”

Under the new management agreement with Fonterra, Dexcel management will report into Fonterra’s Director Shareholder Services with Fonterra responsible for delivering on strategy to Dexcel’s Board of Trustees. The resources of Fonterra’s Shareholder Services group will also be available to Dexcel.

Dexcel will retain its standalone status, its name and brand remains unaffected and there is expected to be no impact on staff at either company. But Fonterra’s service network including strategic planning and support for Field Staff will be available to Dexcel.

“We believe this agreement will enhance Dexcel, help it to develop increased capabilities and assist in providing industry leadership to achieve a cohesive and coherent approach to sustainable on-farm productivity increases. I also believe this will benefit all New Zealand dairy farmers including those not supplying Fonterra,” said Mr Luxton.

Fonterra Chairman Henry van der Heyden said that current lack of cohesion had the potential to undermine the competitive strength of the New Zealand dairy industry.

“We see this agreement as providing the lead for the dairy industry in retaining that competitive strength,” says Mr van der Heyden. “What we have at the moment is a segmented approach by the industry towards initiatives aimed at driving production growth with no overall strategy to assist in maintaining our world leadership position,” said Mr Van der Heyden.

“That means we are not using the skills, knowledge and people within the industry to our full advantage and there are potentially significant business risks if we continue that approach.

“For example we need on-farm productivity gains to maintain our current low-cost position to ensure dairying continues to be the first choice competitive land use option and we need to ensure out use of that land is sustainable or we will have problems. Finally if we are no longer able to use New Zealand’s ‘clean, green’ image in marketing our products we also lose a competitive edge.

“Dexcel is at the forefront of initiatives keeping all of those things in sight but the industry needs leadership and a singular approach to achieving those goals. We also know we are losing good people and that successful projects aren’t always driven as hard as we would like, to implement those results among farmers. We see this agreement as bringing about that industry leadership and enhancing Dexcel’s abilities to deliver.”

Mr Luxton said the first task under the new agreement would be to draw up a comprehensive, industry-wide strategic plan for growth initiatives. Dexcel would then seek funding for research and implementation of that plan.

He said Dexcel welcomed this agreement as enhancing Dexcel’s ability to deliver on its strategic goals.

ENDS

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