Fonterra Estimates Drought Could Cost $500 Million

Media Release
8 February 2008

Fonterra Estimates Drought Could Cost Its Farmers
As Much As $500 Million In Lost Milk Production

Fonterra said today that the worsening drought situation could cost its dairy farmers as much as $500 million by the time the season ends in May.

Chairman Henry van der Heyden says that the dry spell has already cost farmers about $60 million in milk payout, and on-farm losses would continue to mount unless there is significant rainfall.

"The weather is key. And every day without rain is hurting farmers, and will have a flow-on impact for local communities and the broader economy.

"This has really taken the shine off what should have been a fantastic season for our farmers, with a record payout," Mr van der Heyden says. "Farmers are facing up to some very real challenges, both in terms of lost cash flows and also in managing their farms with very little feed available."

Mr van der Heyden says Fonterra had forecast a 3% increase in milk supply for the 2007/08 season. However the record dry summer over much of the country means season-to-date milk production is now falling below last year.
"The dry spell is wide spread and is hitting farmers hard in most parts of the country. On a daily basis compared to the last year Waikato is down 27%, Bay of Plenty is down 21%, Taranaki is down 9% and Southland is down 1.5%."

"Clearly, we'll be right there with farmers hoping for rain. We have been looking into supplementary feed options and how we can support farmers and rural communities in other ways. But the stark reality is that there is a real feed shortage both in New Zealand and overseas."

"While Fonterra is now facing something of a double whammy of a drop in milk production and a Kiwi dollar close to US80 cents, we are holding to our forecast of a payout of $6.90 per kilogram of Milk Solids," he says.
Fonterra CEO Andrew Ferrier says: "At this stage, we are also confident we can meet all our customers' contracted orders but supply is tight.

"Given our expectations of significantly reduced supply in New Zealand, we now find ourselves effectively booked up for the season. This is forcing us to advise customers that we may not be in a position to take all new orders for New Zealand supply.

"Local market supplies of fresh milk, chilled product in New Zealand and products sourced outside of New Zealand supply will be unaffected," he says.

The Co-operative is continuing to monitor the situation on a daily basis and work with Government and other agencies on ways to support farmers and rural communities through the drought.

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About Fonterra
* Fonterra is the world's largest dairy exporter and the fifth largest dairy company in the world, with annual turnover of NZ$14 billion.
* As New Zealand's largest and truly multinational business, Fonterra trades in 140 countries.
* Our portfolio includes dairy ingredients, liquid and powdered milks, cultured foods and yoghurts, butter, cheese and specialty foodservices products.
* Our brands include Anchor, Anlene, Anmum, Fresh n' Fruity, Mainland, Peters & Brownes, Tip Top, Chesdale and Bega.

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