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Fonterra Capable Of Tapping Global Trend

Media Release
15 May 2008

Fonterra One Of Few Companies Capable Of Tapping Global Trend

Potential success and benefits on a “new scale” for New Zealand, says Chairman

New Zealand’s largest company, Fonterra, is one of this country’s few hopes for tapping a “rich vein” of economic opportunities opening up globally, says Chairman Henry van der Heyden.

Mr van der Heyden says major changes in wealth distribution, consumption and the globalisation of food and distribution services are driving consumer demand – particularly for dairy-related health and nutritional products.

“These mega trends are changing the rules of the game. They are also exposing huge opportunities around the world. I believe Fonterra is one of few companies which has the necessary scale, global footprint, credentials and strength to tap this rich vein for New Zealand.”

Speaking to a business breakfast of the Wairarapa Chamber of Commerce today, Mr van der Heyden said the potential dividends of success are enormous – for farmers, for rural economies and New Zealand.

“Protecting and growing Fonterra’s position as the world’s leading dairy ingredient supplier will create future success on a new scale.”

He said Fonterra was a “real backbone of the New Zealand economy”, this year putting more than $9 billion into farmers’ pockets, employing 10,000 local staff and creating many thousands more jobs and economic activity in the regions and urban centres.

Mr van der Heyden said the economic contribution and success of Fonterra today was something to celebrate, with the current record payout from the company injecting around $3.6 billion more into the economy compared with the 2006/07 year.

He warned that future success could not be taken for granted in an increasingly competitive global marketplace – where new milk supply is growing at the rate of one New Zealand dairy industry every year. “We need to put aside any perception that we are large in the global dairy space. We will have to earn our place in the market and fight to maintain it.”

But, he said Fonterra was capable of tapping the opportunities on offer.

Mr van der Heyden painted a picture of the Fonterra of the future, saying the company would need to grow and build on core strengths using its scale to offer growing customers new levels of service and innovative solutions globally. This would require investment in businesses which allowed New Zealand farmers to share in growth markets like China and increasing the use of milk from overseas, particularly to meet the demand for fresh and liquid formats.

He said, in 10 to 15 years time Fonterra could be marketing 3 million tonnes of product sourced from New Zealand and a similar amount or more from a combination of offshore partnerships, investments and alliances.

Mr van der Heyden said the company’s current joint venture investments in Chile, Latin America, US, Europe, China and Japan were performing well – with a strong outlook – and gave Fonterra’s farmers a foothold and local capability in these key strategic markets.

“Each of our investments are in markets which are key to the future. We have to strengthen and build on these positions. They provide the key to responding to our customers’ needs.”

Mr van der Heyden said Fonterra would have to evolve to “stay in the game”. And, it was inevitable that Fonterra’s capital structure would come under pressure with the required capital for growth.

“There’s an unfortunate fact of life for a co-operative. Where the capital is linked to milk supply, the faster the pace of growth the more difficult it becomes for suppliers to fund that growth.

“One thing’s for certain, we can’t do nothing. If we do nothing, we might as well write off the years of work which went into creating Fonterra and getting us where we are today.”

He said most of Fonterra’s farmer-shareholders already understand this. “They know the value that they have in Fonterra and we will work together to find the right ways to grow the business for future generations.”

“We have built what we have today on a solid co-operative base, with farmers working together. We have evolved and adapted with the times. We have taken some bold steps in the past and we will need to take some more bold steps if we are going to continue our success.”

“If we focus on our strengths and build on these, the fruits of dairying will continue to flow for our farmers and New Zealand as a whole.”

- ENDS -

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