Fig 4.2 – ABARES farm performance (avg per farm)

1. Unilever Sustainable Sourcing Meeting 27 August 2012 Agribusiness Breakfast Fig 4.2 – ABARES farm performance (avg per farm)

2. Rebalancing the supply chain • “Two speed” industry – export vs domestic regions • Weaker pricing due to commodity price falls • Demand led by China and south-east Asia • Strong supply response from ALL exporting regions water Inputs Milk production Export Processing/ manufacturing Marketing Retail supplements Dist’n Import Food service • Rising grain prices • Limited supply of cows and heifers • Clearing stocks for exporters as prices weaken • Strong competition for milk in southern region remains • Pressure on domestic profit margins • Consumers value focussed • Retailers competing on price

3. Commodity prices finding new level

4. Increased supply for all exporters

5. Slowing US production growth

6. US more susceptible to rising grain prices

7. Major importers by volume (‘000 tonnes)

8. Chinese imports remain strong

9. Changes required from major exporters 2011 to 2021(meq mill litres)

10. Sensitivity of long term market “balance”

11. Dairy market • Highlights • Per capita consumption 297 litres p.a. • Wholesale value $6.4 billion • Key influences • Retailer activity • More at home eating • Less premium and discretionary food spending • Health and “naturalness” • Supermarket activity • Private label milk price • Promotions • Margin pressures remain • Cautious consumers • Competitive retailers Current Australian market settings Weekly printed promotions of dairy products by grocery chains

12. Retailers under pressure

13. Australian market trends- volume sales until end of June 2012

14. Supermarket trends- volume and value until end of June 2012

15. Southern • Opening announcements $4.50 kg MS (34cpl) • Full year range $4.70-$5.00 kg MS (35-38cpl) • Down 8 to 10% on 2011/12 • Competition remains strong • Assumptions underlying DA forecast were • Commodity prices to trade in range US$3,000-$4,200 per tonne • AUD between 100 and 105 US cents Fresh milk regions • Farmgate prices under pressure • Supply chain profitability • New contracts • Changed retailer contracts affecting access • Range of impacts • Reductions in Tier 1 access • Tier 2 milk 15-18 cpl • Regional differences • Challenge of aligning supply • Cost of year round production • Seasonal shortages • Value and usage of “excess” milk Farmgate market outlook for 2012/13

16. National Dairy Farmer Survey 2012 • 1002 farmers interviewed nationally • Fieldwork conducted from 6 to 29 February • Flooding in Northern Victoria • Response rate rose to 72% • 63% in 2011 • Follow-up survey planned for August

17. Attitude to the future of the national industry

18. Significant differences between regions Positive attitude to industry future by region (% farms) Source: National Dairy Farmer Survey 2005-2012

19. % farms intending to invest in next 12 months (comparing 2009 - 2012 surveys)

20. Little change in 3 yr growth outlook

21. Situation & Outlook for dairy markets • In the short term international market needs to rebalance • Solid demand • Surging supply • Economic uncertainty • Long term outlook remains positive but • Tight balance = volatility • Australia’s relevance? • Changes in EU and US policy and international engagement • Domestic margins will remain under pressure • Cautious consumers • Price-focussed retailers

22. Situation & Outlook for Australian dairy farmers • Southern prices down 8-10% in 2012/13 • Any upside for the price outlook? • Competition for milk • Weaker Nth Hemisphere supply • Strong demand • In domestic regions (NSW, Qld) • Downward pressure on prices • Impact highly variable • Milk production forecast for 2012/13 up around 2% • 9.6 to 9.65 billion litres • 3 year milk production outlook • Surveyed intentions – based on 2011/12 production • 9.8 to 10.1 billion litres in 2014/15

23. Thank you! Download the full report at www.dairyaustralia.com.au Next update: 12 September