Annual Report International Milkprice Comparison 2012 - Milkprices.nl

Annual Report International Milkprice Comparison 2012 - Milkprices.nl

1 LTO International Milk Price Comparison 2012 COLOPHON Publisher LTO Nederland Vakgroep Melkveehouderij P.O. Box 29773, 2502 LT Den Haag The Nethe...

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1 LTO International Milk Price Comparison 2012

COLOPHON

Publisher LTO Nederland Vakgroep Melkveehouderij P.O. Box 29773, 2502 LT Den Haag The Netherlands www.lto.nl June 2013 In co-operation with European Dairy Farmers c/o German Agricultural Society DLG e.V. Eschborner Landstrasse 122, D-60489 Frankfurt a.M. Germany Telephone (+ 49) 69 24 788 312 e-mail [email protected] www.dairyfarmer.net Cover design Willemijn de Lint, Haarlem

Ordering The report can be downloaded at www.milkprices.nl (in English and in Dutch). Alternatively it can be ordered by: telephone: (+31) 79 3681506 e-mail: [email protected]

©

Copying the text is authorized subject to acknowledgement of source as follows: LTO-International Milk Price Comparison, www.milkprices.nl

2 LTO International Milk Price Comparison 2012

Table of contents Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.

Introduction and notes for readers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.2 Notes for readers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2.

Milk prices in 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Milk price comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Dairy market 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Development of milk prices and markets in 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Relationship European milk prices and world dairy product prices . . . . . . . . . . . . . . . . .

3.

Additional information per company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

6 6 8 8 9

Annex I.

Key figures dairy companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Annex II.

Milk prices 1999 to 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Annex III.

Average currency exchange rates 2012 and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

3 LTO International Milk Price Comparison 2012

Foreword Although 2012 was a year of relatively good milk prices most dairy farmers will look back on the past year with little pleasure. Owing to weather conditions ranging from poor to extreme in some countries yields of forage were quite disappointing with the result that costs were higher and milk production lower. Thus 2012 was not a good year for farmers’ income. Milk production made a poor start in 2013 owing to continued difficulties with the supply of feed and more disappointing weather. Fortunately the dairy market developed positively. After a steady start, milk prices began to rise considerably in the spring. It is expected that 2013 will be a year of good milk prices. For the Dutch Dairy Board, the outlook for the future is, regrettably, less positive. The Dutch government has decided to disband the commodity boards in the course of 2014. In consequence at this point in time we unfortunately cannot guarantee the continuation of this milk price comparison in coming years. However, given their support, I am convinced that we will be able to find a solution in cooperation with European Dairy Farmers (EDF). After all, the goal of this milk price comparison, namely, transparency about milk prices paid to dairy farmers, is still as relevant today as it was at the start in 1999.

Kees Romijn Chairman Dairy Committee Dutch Federation of Agriculture and Horticulture LTO Nederland

4 LTO International Milk Price Comparison 2012

1.

Introduction and notes for readers

1.1

Introduction

The LTO-International Milk Price Comparison is published every month at the request of the Dairy Committee of the Dutch Federation of Agriculture and Horticulture (LTO Nederland) at www.milkprices.nl. This is a comparison of prices paid for milk by large European companies and is done in co-operation with European Dairy Farmers (EDF). EDF collects the milk price data and makes them available. Calculations are undertaken by the Dutch Dairy Board (Productschap Zuivel, PZ). The method chosen for the calculations shows the price a dairy farmer would receive if milk of specific (standard) composition, quality and quantity were delivered to the different dairy companies. In this report the following characteristics of the standard milk are taken as a basis: - 4.2% fat; - 3.4% protein; - total bacterial count 24,999 per ml; - somatic cell count 249,999 per ml; - annual delivery 500,000 kg. The prices are exclusive of VAT, ex-farm and inclusive of supplementary payments. It must be emphasized that there is no comparison of the average milk prices paid. The average price paid by a dairy company for milk is dependent on the actual composition, quality, quantity et cetera of the milk delivered. Furthermore, no conclusions can be drawn about the performance of dairy companies on the basis of the milk prices paid. Many more factors play a role in assessing performance. After each calendar year has ended, a report is presented with the calculated milk prices paid for that year. This annual report appears when the supplementary payments of the preceding calendar/ financial year are known and can, thus, be incorporated into the milk prices. The present publication comprises the milk prices calculated for the calendar year 2012.

1.2

Notes for readers

Chapter 2 features the calculated milk prices for 2012 (paragraph 2.1), followed by a description of the developments of the dairy market in 2012 (2.2) and latest trends of milk prices and dairy markets in 2013 (paragraph 2.3). In paragraph 2.4 the development of European milk prices is compared with world market prices for dairy products. Chapter 3 gives additional information per dairy company. In the appendices certain basic data can be found about the dairy companies (Annex 1), milk prices per dairy company from 1999 to 2012 (Annex 2) and the average currency exchange rates in 2012 and 2011 (Annex 3).

5 LTO International Milk Price Comparison 2012

2.

Milk prices in 2012

2.1

Milk price comparison

After the sharp increases in the past two years, the calculated milk prices of the 17 European dairy companies fell in 2012 by 3.7%, to € 33.73 per 100 kg on average. Despite this decline, however, there is still talk of relatively good milk prices. The average milk price in 2012 was only surpassed in 2008 and the record year 2011. In fact for quite some time in 2012 it looked like milk prices would fall some more. After a good start milk prices began to decline firmly in the course of the year. After mid-year, however, milk prices began to bounce back. Lower milk production caused by adverse weather in combination with sustained demand ensured a recovery of the dairy market. Also, the marked increase in the milk prices of British dairy companies limited the decrease in the average of all milk prices. Table 1.

Milk prices 2012 and 2011 In € per 100 kg of standard milk (excluding VAT and including supplementary payments)

2012

Hämeenlinnan O. Granarolo (North) FrieslandCampina Dairy Crest (Davidstow) Arla Foods DK Danone (Pas de Calais) Bongrain (Basse Normandie) DOC Cheese Sodiaal Union Lactalis (Pays de la Loire) First Milk Alois Müller Humana Milchunion eG Nordmilch Glanbia Milcobel Kerry Agribusiness Average Emmi Fonterra USA class III

FI IT NL UK DK FR FR NL FR FR UK DE DE DE IE BE IE CH NZ US

44.06 40.73 35.19 35.15 34.21 33.66 33.48 33.42 33.38 32.82 31.92 31.22 31.20 31.04 30.90 30.63 30.45 33.73 46.64 29.87 33.36

national 2012-2011 2012/2011 currency

2011

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

43.28 40.40 37.15 31.76 35.13 34.55 34.34 36.86 34.34 34.17 28.83 35.04 34.08 33.75 34.14 34.18 33.61 35.04 48.56 30.21 32.70

1 2 3 16 5 7 9 4 8 11 17 6 13 14 12 10 15

0.77 0.33 -1.96 3.38 -0.92 -0.89 -0.86 -3.44 -0.97 -1.35 3.09 -3.82 -2.88 -2.71 -3.24 -3.54 -3.16 -1.30 -1.92 -0.35 0.67

1.8% 0.8% -5.3% 10.6% -2.6% -2.6% -2.5% -9.3% -2.8% -4.0% 10.7% -10.9% -8.5% -8.0% -9.5% -10.4% -9.4% -3.7% -4.0% -1.1% 2.0%

3.7% -2.7%

3.8%

-6.1% -12.0% -10.0%

There were no changes in the ranking of the top three dairy firms in the European Union. Again, the ranking were led by the Finnish Hämeenlinnan Osuusmeijeri and Italian Granarolo. The calculated milk prices of both companies increased. Moreover, the milk prices of the British dairy companies First Milk and Dairy Crest showed by far the largest increases. Aided by a rise of the British pound against the euro, the milk prices of the two companies expressed in euros increased by more than 10%. Dairy th Crest has even jumped to 4 place on the list. British milk prices have never been as high as in 2012, also when expressed in national currency. The British dairy market differs from the rest of Europe because more than half of the milk is processed into milk for consumption as liquid milk. As a result, British milk prices are relatively more dependent on domestic supply and contracts with supermarkets than with the development in the prices of other dairy products and overseas. As milk production was much lower than usual owing to 6 LTO International Milk Price Comparison 2012

the extreme weather British dairy processors had to secure a sufficient supply of milk from the dairy farmers by paying higher prices. Although FrieslandCampina (Netherlands) remains 3rd in the ranking like last year, the differences between it and Arla (Denmark) and French companies have become smaller. FrieslandCampina’s milk price decreased by more than 5%, while those of Arla was 2.6%. Unlike the milk prices earnings of the two biggest cooperatives, Arla Foods and FrieslandCampina increased in 2012. It is striking that both coops have important positions in markets outside Europe. The decrease of the milk prices of the French companies (with the exception of Lactalis) were limited to a fall of about 2.5%. The milk price recommendations used in France have a damping effect, making the decrease less than average. Other milk prices went down by 8 to 10%. Thus Aloïs Muller (Germany), DOC Cheese (Netherlands) 1 and Milcobel (Belgium) slid firmly down the ranking, and the German DMK Humana Milchunion and Nordmilch and the Irish companies remained near the bottom. The relatively strong decline in the DOC Cheese milk price in 2012 is due to lower revenues from cheese and cream. Milcobel’s milk price was never so low in the ranking as in 2012. The low milk price is mainly due to low prices for butter and milk powder and insufficient facilities for Milcobel to shift production, for example, to more cheese. The selling prices of liquid milk for consumption could not compensate for these setbacks. The relatively low Irish milk prices are in stark contrast to the good performance of Glanbia plc and Kerry Group plc. Annually both of these stock exchange listed dairy companies make a lot of profit and their share prices have risen much more in recent years than the stock market average. The dairy farmers supplying Glanbia and Kerry benefit too, because they possess shares individually or through their cooperatives. While the calculated milk price of the Swiss Emmi fell more than average, Emmi’s milk price at € 46.64 per 100 kg is the highest overall in the LTO International Milk Price Comparison. The slight decrease in the calculated milk prices in euros of Fonterra (New Zealand) and in the USA (Class III) was only 1 to 2%, this being due to the decline in value of the euro. The decline, expressed in New Zealand and U.S. Dollars, respectively, was 12 and 10%. Figure 1. Average milk prices from 1999 to 2012 36

35.04

35 34

33.73

€ per 100 kg

33

32 31 30 29 28 27

26

1

Deutsches Milchkontor 7

LTO International Milk Price Comparison 2012

2.2

Dairy market 2012

Despite the economic downturn worldwide the dairy market held up reasonably well in 2012. Prices of most dairy products were on average lower than in 2011, but remained at acceptable levels. Many dairy companies saw their turnover and profits rise. The high prices worldwide in 2011 led to increased supply in the first half of 2012 and this was combined with sluggish demand. The result was falling prices and buyers adopted a cautious approach so that this downward trend was reinforced. As of June a reduction in global milk production and high feed prices, caused by drought in several key regions, coincided with solid demand and prices recovered.

2.3

Development of milk prices and markets in 2013

In the first months of 2013 milk prices were steady owing to the tightness of supplies and only a modest increase in milk production. However, this situation changed quite dramatically when the world prices moved sharply upwards in late March. The main causes were drought and the approach of the end of the production season in New Zealand. Because in Europe the start of the new milk season was also disappointing owing to bad weather, there was an unprecedented price rise in just six weeks. Prices of butter and skimmed milk powder increased by about 25% and thus exceeded the rate at which prices had risen in the record year 2007. Cheese prices also rose sharply. After such a rapid increase a price correction is inevitable. Both in the EU and on the world market this occurred in May. The New Zealand Global Dairy Trade auction is an important indicator of developments in dairy prices on the world market and, in early June, the prices at this auction dropped by 5.3% on average. Milk prices usually follow market developments with a certain delay. This also applied in 2013. After a steady development in the first few months from April onwards milk prices really started to rise. In May and June milk prices will continue to rise. Figure 2. Development of average monthly milk prices from January 2010 until May 2013 37 36

€ per 100 kg

35 34 33

32 31

30 29 28

27 Jan

Feb Mar Apr May June July Aug Sep 2010

2011

2012

Oct Nov Dec 2013

It is difficult to predict the milk price development for the rest of the year, but an important signal are the positive expectations of Fonterra. For the new milk year, 2013/14, which starts in June in New Zealand, Fonterra has announced an opening milk price of 7 NZD per kg milk solids. A new season never started with such a high price previously. Because 90% of Fonterra’s milk sales are made on the world market, Fonterra's milk price gives a good indication of the development of prices on the world market. Given the increasing correlation between price movements in the global market and 8 LTO International Milk Price Comparison 2012

European milk prices, Fonterra’s price forecast is positive not only for its members, but is also good news for European dairy farmers.

2.4

Relationship European milk prices and world dairy product prices

A good indicator of the development of world market prices for dairy products is the results of the New Zealand Global Dairy Trade auction (GDT). In Figure 3 European milk prices (based on the averages in this series of milk price comparisons) are compared with the selling prices at the GDT auction from 1999 onwards. This shows from 2006 - after the reform of the EU dairy policy - a correlation between European milk prices and the prices on the GDT auction. However, there appears to be some delay in the European market in the development of prices and a damping of the fluctuations in the GDT auction prices. 2

Figure 3. Comparison average EU milk prices and GDT prices (index March 2010 = 100) 170

150 GDT

EU

130

110

90

70

50

30

2

Source: Global Dairy Trade The GDT-TWI™ is an index measure of price changes of different dairy products weighted by international trade volumes. Prior to those products were sold through the GDT platform historical index values for each product is derived from other data. 9 LTO International Milk Price Comparison 2012

3.

Additional information per company

Hämeenlinnan Osuusmeijeri (Finland) The milk price of Hämeenlinnan Osuusmeijeri of € 44.06 (plus 1.8%) in 2012 was the second highest ever paid. Only in 2008 was the calculated milk price (slightly) higher at € 44.34 per 100 kg milk. The member dairy farmers of this cooperative received a supplementary payment of € 2.90 per 100 litres of milk delivered in 2012. This supplementary payment is included in the calculated milk price. Hämeenlinnan Osuusmeijeri is a small cooperative with some 170 member farmers, which participates in the milk price comparison as an alternative to the larger Valio coop. Valio processes 85% of Finnish milk. Valio’s published an average milk price for 2012, including supplementary payment, of 46.7 cents per litre (€ 46.70 per 100 litres of milk), an increase of 2.6 cents compared to 2011. Because the calculated milk price of Hämeenlinnan Osuusmeijeri is based on the standard levels for fat and protein content and the published Valio milk price relates to average actual levels with higher fat and protein content it can be concluded that the milk prices of the two companies are at comparable levels. Granarolo (Italy) The calculated milk price of Granarolo increased in 2012 by 0.8% to € 40.73 per 100 kg. This relatively stable price received by dairy farmers is at the average level by Italian standards. Some other dairy companies pay a lower milk price in Italy, while prices for milk processed into Parmesan cheese (Parmigiano Reggiano) and Grana Padano are higher. The cooperative Granlatte has a majority holding (77.5%) in Granarolo, a private company. Granlatte collects the milk from the members, which subsequently is processed and marketed by Granarolo. FrieslandCampina (Netherlands) The calculated milk of FrieslandCampina price of € 35.19 per 100 kg includes a supplementary payment of € 2.32, based on a performance fee of 4.15% and a 2.77% fixed member bonds 3 (registered reserves), of the guaranteed price calculated and adjusted for the time of payment . From 2012 FrieslandCampina has introduced a new bonus of € 0.50 per 100 kg of milk for dairy farmers whose cows are given 6 hours of per day meadow grazing time for at least 120 days annually. Because some three-quarters of dairy farmers receive this premium, this charge is included in full in the calculated milk price. Dairy Crest en First Milk (United Kingdom) That Dairy Crest’s calculated milk price (€ 35.15) is higher than that of First Milk (€ 31.92) is due to relatively good cheese prices. The calculated milk price of Dairy Crest covers suppliers to the Davidstow Creamery, producer of cheese. In the British ranking the milk price of cooperative First Milk has been in the lower regions for years. First Milk does not process all of the milk of its members itself, but sells it on to third parties. In consequence, the market position of the cooperative is not as strong. However, First Milk seems clearly to be catching up. So the member dairy farmers, in addition to the milk price, received a dividend of 6% on the capital invested in recent years. This lump sum has not been included in the calculated milk price, because there is no direct relationship with the quantity of milk delivered and in the past capital retained has not been deducted from the calculated milk prices.

3

The supplementary payment is corrected for the time of payment by deducting a calculated loss of interest. This loss of interest is based on 1.72% (3-month interest rate 2012: source ECB) and the number of days between the time of delivery of the milk (mid-2012) and the time of payment of the supplement. 10 LTO International Milk Price Comparison 2012

Arla (Denmark) The milk price of Arla is based on the payment to Danish dairy farmer members and includes a calculated supplementary payment of € 2.49 per 100 kg for 2012 (in 2011: € 1.50). This supplementary payment is based on 7.8% of the so-called basic value plus a reserve in the name of the farmer of 4.1 DKK (€ 0.55) and adjusted for the time of payment. As in the case of FrieslandCampina, 2012 was a good year for Arla. Although the UK is Arla's most important market, it is mainly the emerging markets outside Europe that contributed to the positive company results. Danone, Bongrain, Sodiaal en Lactalis (France) The milk prices of the French companies Danone (€ 33.66), Bongrain (€ 33.48) and Sodiaal (€ 33.38) have fallen less than the average. The milk price of Lactalis decreased more than average with 4.0% to € 32.82. In France, milk prices are determined on the basis of national recommendations agreed between representatives of the dairy industry and dairy farmers. These recommendations are then further elaborated at regional level. Recommendations for the development of the basic price are made per quarter year - expressed in € per 1000 litres - for milk with 38 grams of fat and 32 grams of (true) protein per litre. This 4 recommendation is based on a market indicator computed by CNIEL and a correction depending on the difference from German milk prices. The market indicator and correction result in an amount more or less comparable to the average basic price for the same period in the previous year. The market indicator is determined on the basis of the selling prices of butter and skimmed milk powder (industrial products), consumption milk products and cheese. The basic price is valid for dairy companies with a particular product range. The more butter and skimmed milk powder are produced, the greater the discount applied to the basic price. Seasonal differences, fat and protein prices and payment for quality are determined at regional level. Sodiaal and Danone use a so-called dual pricing system. In this system the A-price, which is based on national recommendations, is applied for a limited amount of milk. For the remainder of the milk delivered the B-price is paid. The B-price is based on the selling prices of butter and skimmed milk powder. In the marketing year 2011/12 Sodiaal paid an A-price for a maximum of 96% of the milk delivered within the quota and for 4% the B price. Gradually the proportion A-milk is being reduced, so that in the last quota year, 2014/15, the volume of A-milk is a maximum of 85% and the B-milk volume15 %. In quota year 2012/13, the A-milk volume is a maximum of 92 %. In the months July to September the A-price is paid for all milk delivered. Danone’s dual pricing system differs from Sodiaal’s. Danone’s A-milk volume in 2012 was, for the months January to April and November and December, a maximum of 8.5% of the annual quota, while it was 9.5% for May and for June to October 12%. Because of the (still) relatively small-volume of B-milk and the relatively small difference between the A-price and the B-price, the consequences of both dual pricing systems on the average milk price remain limited. Given the limited impact of these systems, for the time being, the LTO International Milk Price Comparison is based only on A-prices. 5

In Sodiaal’s calculated milk price the so-called ASAP premium is not included. Sodiaal will pay this premium to dairy farmers who have made a good estimate in advance of how much milk they will deliver. The amount of the premium can reach up to € 5 per 1000 litres when the actual quantity of milk delivered differs from the declared estimate by less than 2%. It is not known how many dairy farmers receive this premium.

4 5

CNIEL is Centre National Interprofessionnel de l'Economie Laitière ASAP = Assurance Sécurité Approvisionnement Partagée 11

LTO International Milk Price Comparison 2012

DOC Cheese (Netherlands) The 2012 milk price of € 33.42 per 100 kg of milk includes a supplementary payment of € 1.94. At the end of the calendar year, the member dairy farmers received a supplementary payment of 4.1% of the monthly milk prices (excluding quality and quantity premiums) plus a sum of € 0.68 deposited in the member’s account with the company. Alois Müller, Humana Milchunion en Nordmilch (Germany) The German companies lie in the bottom half of the ranking. Alois Müller’s milk price (€ 31.22) fell more in 2012 than those of DMK companies Humana (€ 31.20) and Nordmilch (€ 31.04). From 2012 on, the monthly payment for farmers’ milk by Alois Müller has been made in a slightly different manner, so there is no supplementary payment. However, for 2011 a supplementary payment of € 0.387 per 100 kg was paid. From July 2012 Deutsches Milchkontor (DMK) has used exactly the same payment system and milk price for the former members of Humana and Nordmilch. No supplementary payment is expected to be made for 2012. However, Humana has already made an interim supplementary payment of € 0.47 per 100 kg for the quantity of milk delivered during the months of January to July. This supplementary payment is included in the monthly milk prices. DMK strives to pay a dividend of 4% of the capital invested by the members per annum. Assuming an annual supply of 500 000 kg, a member holds 500 certificates at € 40 each or € 20 000 in total. Assuming 4% the dividend is about € 800 or € 0.16 per 100 kg milk. This dividend payment is not included in the calculated milk price. Glanbia en Kerry (Ireland) Milk prices of Glanbia (€ 30.90) and Kerry (€ 30.45) fell with about 9.5% more than average. From 2012 on Glanbia introduced a new scheme regarding payment for milk supplied in October and November (late lactation) and in February. The calculation of Glanbia’s milk price in 2012 took into account payments of 5.58 cents per litre in February, 1.5 cents in October and 5.5 cents in November. As a result of these premiums Glanbia’s calculated milk price is higher than Kerry’s. From April 2012 Kerry introduced a so-called A (protein) + B (fat) - C (volume) payment system, as Glanbia had done previously. Through their coops but also individually Irish dairy farmers have shares of Glanbia plc and Kerry plc. In addition to the annual dividend, for dairy farmers there are sometimes windfalls when shares are transferred to the members of the cooperative. In this way, in 2013 the cooperatives with shares of Glanbia (Glanbia Cooperative Society) and Kerry (Kerry Co-op) have transferred a significant portion of their shares to the individual members. For example, the 12,000 members of Kerry Co-op received shares, assuming a price of € 45 per share, worth about € 270 million. When these shares are redeemed the amount received on average is € 21,000 per farmer shareholder. The result is that both cooperatives themselves hold fewer shares. After this transfer Kerry Co-op still possessed 13.7% of the shares of Kerry plc. Because there is no relationship between the volume of milk delivered and the milk price paid, on the one hand, and these windfalls and dividend payments, on the other, the latter are not included in the calculated milk prices. Glanbia Cooperative Society still owns 41.3% of the shares in Glanbia plc.

12 LTO International Milk Price Comparison 2012

Milcobel (Belgium) Milcobel will make no supplementary payment for 2012, in contrast to 2011 (€ 0.10 per 100 kg). It was decided at the end of 2012 to incorporate the rising selling prices of dairy products in the monthly milk prices paid and thereby waiving any subsequent supplementary payment. Emmi (Switzerland) Emmi’s calculated milk price fell in 2012 more than the EU average. Nevertheless, the milk price of € 46.64 means Emmi has the highest milk price in this year’s comparison of prices. In Swiss francs the milk price decline was 6%. Fonterra (New Zealand) The calculated milk price of Fonterra for the 2012/13 season is based on a price of 5.80 NZD per kg of milk solids plus an expected dividend payment of 0.32 NZD per kg. In the 2011/12 season the final milk price including dividend was 6.40 NZD per kg of milk solids. The expected price for milk for 2012/13 is thus about 5% lower than in the previous season. Fonterra’s calculated milk price for calendar year 2012 was € 29.87 per 100 kg. It is striking that the difference from European milk prices has declined in recent years. In the last 3 years, the calculated milk price for Fonterra was around € 30 less or about 10% lower than the European average. Figure 4. Fonterra milk prices 1998/99 to 2012/13 (NZD per kg fat and protein (milk solids)) 8

NZD per kg MS

7 6 5 4 3 2

USA The calculated milk price in the United States at € 33.36 lies only slightly below the European average. However, this is largely due to the rise of the dollar against the euro. As an indication of the milk price in the United States, the price of so-called Class III milk is converted to standard milk. The prices for Class III milk and the individual components, fat, protein and lactose are published by the U.S. Department of Agriculture (USDA). Class III applies to milk with 3.5% fat that is to be made into cheese. The graph below is the milk price expressed in U.S. dollars per hundredweight (45.36 kg).

13 LTO International Milk Price Comparison 2012

Figure 5. USA Class III prices 6 ($ per cwt ) 20 18

$ per cwt

16 14 12 10

8

Although the past year was an average year as regards milk prices, American dairy farmers have a difficult year behind them because of soaring feed costs resulting from drought, among other factors. In the "dairy state" California this problem was felt the most because of the many large dairy farms that are entirely dependent on purchases for the supply of feed.

6

1 cwt (hundredweight)= 45,36 kg 14

LTO International Milk Price Comparison 2012

Annex I

Key figures dairy companies

Source: Annual reports of dairy companies Milcobel In 2011, Milcobel achieved a turnover of € 885 million. Milk supply of the 3,096 members was 1.1 billion litres milk in 2011, which is an increase of 1.4% compared to 2011. In 2011, the average milk delivery per farmer amounted to 359,759 litres, which is an increase of 20% over the past 4 years. Turnover share Milcobel 2011 (in %) 17.0% Dairy Icecream 21.0% 62.0%

Distribution and cheese packaging

FrieslandCampina The net revenue grew by 7.1% to € 10.3 billion in 2012. In 2012, FrieslandCampina achieved 26% of the total turnover in The Netherlands. Milk was supplied by 19,487 Dutch, German and Belgian members. In 2012, total milk deliveries increased very slightly to 8.9 billion kilo's of milk. Turnover by country FC 2012 (in %)

Turnover per division FC 2012 (in %)

4.0%

19.1%

The Netherlands

11.0%

26.5%

23.0%

Consumerproducts Western Europe Consumer products International

Germany Rest of Europe 26.0% Asia and Australia

Cheese & Butter 12.0%

Ingredients

24.1%

30.3%

Africa and the Middle East North and South America

24.0%

Marketrevenue by country FC 2012 (in %) 4.0%

The Netherlands

11.0%

23.0% Germany Rest of Europe

26.0% Asia and Australia 12.0%

24.0%

Africa and the Middle East North and South America

15 LTO International Milk Price Comparison 2012

Alois Müller Alois Müller is part of the Theo Müller Gruppe. The turnover of the company amounted to € 4.7 billion in 2011. In 2012 the company took over the British Robert Wiseman Dairies. Turnover per country Alois Müller (estimate in %)

35.0% Germany

UK, Italy, The Netherlands & international

65.0%

DMK Turnover of DMK amounted € 4.6 billion in 2011. DMK processed 6.9 billion kilos of milk and milkproducts. In 2010 Humana Milchunion and Nordmilch have joined to become Deutsches Milchkontor GmbH, one of the biggest players on the German dairy market. Turnover DMK per region 2011 (in %)

Production share DMK 2011 ( estimate in %) 10.0%

50.0%

Milkproducts

38.0%

Germany

Cheese

Other

Milkpowder

40.0%

62.0%

Arla Foods 12,256 milk producers in Denmark, Sweden, Germany, The UK, Luxemburg and Belgium are joint owners of Arla Foods. Milk supply from the dairy farmers amounted to 10,410 million kilos of milk. Product share Arla 2012 (in %)

Market share Arla per country 2012 (in %)

18.7%

UK

14,3% 25,0%

Fresh dairy products 42.4% 14.0%

Denmark

Cheese Butter and spreads

Other

7,4%

Finland

The Netherlands

2,4%

3,8%

18,7%

Growth markets Value markets

10,8%

24.9%

Sweden Germany

6,7%

10,9%

Other

16 LTO International Milk Price Comparison 2012

Hämeenlinnan Osuusmeijeri Turnover of Hämeenlinnan Osuusmeijeri is around € 60 million. The company processes 111 million litres of milk. Hämeenlinnan Osuusmeijeri has 81 employees. Product share Hämeenlinnan Osuusmeijeri (estimate in %) 2.0%

5.0%

Milk Cream

Butter milk

93.0%

Bongrain In 2012 net sales of Bongrain amounted to € 4.2 billion euro. Bongrain processes around 3.5 billion litres milk a year. Product share Bongrain 2012 (in %)

36.0%

Net sales per country Bongrain 2012 (in %)

29.7%

31.4% France

Cheese products

Other European countries

Other dairy products

Rest of world

64.0%

38.9%

Danone Danone claims to be the largest dairy producer word wide. Sales of baby nutrition products rose by 11.8% in 2012. The total turnover of 2012 was € 20.9 billion. Product share Danone 2012 (in %)

Market share Danone 2012 (in %)

6.0% 24.0%

18.0% Fresh dairy products

47.0%

Europe excl CIS

Baby food

CIS & North America

Water Medical nutrition 20.0%

56.0%

ALMA 10.0%

Group

18.0%

17 LTO International Milk Price Comparison 2012

Lactalis In 2012, Lactalis achieved a turnover of € 15.7 billion. Total milk intake amounted to 15 billion litres in 2012. Product share Lactalis 2012 (in %)

Market share Lactalis 2012 (in %)

Cheese

7.0% 11.0%

24.0%

Liquid Milk

60.0%

34.0% Europe (incl. France)

Chilled products

10.0%

North America

Fats

Rest of world 16.0%

Nutrition and ingredients

13.0%

Other

25.0%

Sodiaal The French dairy Sodiaal mainly has its market shares in the area of Western Europe, with France as its main base market. In 2009 8,572 milk suppliers delivered an average of 257,705 litres of milk. Total milk delivery amounted to 2,213 billion litres in 2009. Product revenue Sodiaal 2011 (in %)

Product share Sodiaal 2011 (in %) 19.0% 30.0%

Cheese

Frankrijk

26.0%

Consumption milk and Fats

14.0%

Internationaal

Whey and Ingredients Other

74.0% 37.0%

Dairy Crest Dairy Crest is the largest milkprocessor in the United Kingdom. In 2011/12, Dairy Crest's revenues amounted to 1,632 million pounds. The company processes 2.1 billion litres of milk into cheese, milk, butter and spreads. Turnover by product Dairy Crest 2010 (in %) 20.0%

Spreads

66.0%

14.0%

Cheese

Fresh milk

18 LTO International Milk Price Comparison 2012

DOC Cheese The turnover of DOC Cheese amounted to € 455 million in 2012. The Netherlands is the most important market, market share is 87%, while 13% is destined for exports. Product share DOC Kaas 2011 (in %) 8.0% 12.0% Cheese Whey- and whey products Sales of milk and cream

80.0%

First Milk First Milk is the largest dairy cooperative in the United Kingdom. Turnover amounted to £ 579 million in 2012, an increase of 1% compared to 2011. Product share First Milk (estimate) (in %) 12.0%

Milk Cheese

28.0%

Ingredients 60.0%

Glanbia Glanbia processes around 6.0 billion litres milk world wide. Glanbia is Ireland’s largest dairy company. company. Glanbia collects approximately 1.6 billion litres of milk from over 4,800 farmer suppliers. This represents 30% of Ireland’s milk pool, which is processed into a wide range of dairy ingredients. Turnover by operation Glanbia Group 2012 (in %)

27,0% 52.0%

US Cheese & Global Nutritions

Dairy Ireland Joint ventures & associates 21,0%

19 LTO International Milk Price Comparison 2012

Kerry In 2012 Kerry achieved turnover of € 5.8 billion. Kerry Foods is a supplier of the largest supermarket chains in Ireland and the UK. Product share Kerry 2012 (in %)

Group Revenue Kerry 2012 (in %) 12,0%

29,0%

31.0%

EMEA

Consumer foods Amerika

Food ingredients

Azie

69.0% 71,0%

Granarolo In Italy, Granarolo is the largest producer of fresh milk. In the first half year of 2012, Granarolo's group revenues amounted to € 463 million. Revenue Granarolo per region, 1st half of 2012 4%

2%

Italy

EU countries Third countries 94%

Fonterra The total milk production of the New Zealand dairy company Fonterra was in season 2012/2013 19 billion kg milk solids. The milk is supplied by 10,578 dairy farmers, resulting in over 17 billion litres of milk per year. The annual turnover of Fonterra is New Zealand 20 billion NZ dollars. Turnover by region Fonterra 2012 (in %) 6,0% 7,0%

10,0%

Other Asia 29.0%

ROW Australia China

10.0% New Zealand USA Europe

12.0% 26.0%

20 LTO International Milk Price Comparison 2012

Emmi In 2012 the Swiss company Emmi achieved a turnover of 2.981 billion Swiss francs, an increase of 9.6% as compared to the previous year. Emmi processed in 2012 1,220 million kg of milk. Product share Emmi, 2012

Turnover share Emmi per region, 2011 8%

1%

14% 33%

Switzerland 21%

Cheese Europe (excl Switzerland)

Fresh dairy products

28%

Other dairy products

North and South America

Other

Asia / Pacific 70%

25%

21 LTO International Milk Price Comparison 2012

Annex II

Milk prices 1999 to 2012 (€ per 100 kg of standardmilk) av.08-12

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Hämeenlinnan O.

FI

42.10 33.94 34.27 35.62 36.20 36.03 36.07 34.95 36.03 37.61 44.43 39.52 39.22 43.28 44.06

Granarolo (North)

IT

38.37

FrieslandCampina

NL

33.35 30.64 31.94 34.03 32.10 30.80 30.03 29.25 28.73 33.61 35.36 26.22 32.82 37.15 35.19

Danone (Pas de Calais)

FR

33.19 31.05 31.82 33.00 32.00 31.57 30.66 30.06 29.02 30.79 35.91 29.65 32.20 34.55 33.66

Arla Foods DK

DK

33.13 31.80 32.27 33.05 33.08 32.09 30.13 29.39 28.80 31.70 36.42 27.51 32.38 35.13 34.21

Bongrain (Basse Normandie)

FR

32.93 30.95 31.71 32.90 31.79 31.38 30.46 29.72 28.81 30.68 35.47 29.58 31.81 34.34 33.48

Sodiaal Union

FR

32.93 30.55 32.07 33.19 31.71 31.12 29.97 29.11 28.13 30.49 35.58 29.66 31.71 34.34 33.38

Lactalis (Pays de la Loire)

FR

32.65 31.02 31.75 33.08 31.87 31.61 30.70 29.77 28.70 30.48 35.27 29.34 31.65 34.17 32.82

DOC Cheese

NL

31.43

Dairy Crest (Davidstow)/Arla UK

UK

31.25 28.13 27.13 30.66 28.22 26.48 27.53 27.32 27.97 29.70 32.73 27.88 28.75 31.76 35.15

Alois Müller

DE

31.19

Humana MilcHunion eG

DE

31.11 29.49 30.76 33.42 31.35 29.87 29.08 27.99 27.76 33.54 35.20 25.06 30.02 34.08 31.20

Milcobel

BE

30.93 28.82 32.05 32.91 30.29 30.30 30.73 29.18 28.33 35.37 32.65 25.25 31.96 34.18 30.63

Glanbia

IE

30.19 30.32 30.89 31.77 29.40 28.89 28.88 27.39 26.54 32.95 33.54 22.67 29.72 34.14 30.90

Nordmilch

DE

30.01 29.00 30.19 33.09 28.99 27.67 27.98 27.61 27.15 32.15 31.42 23.43 30.39 33.75 31.04

Kerry Agribusiness

IE

29.76 28.74 29.44 30.49 28.58 28.11 27.75 27.15 26.14 32.70 33.03 22.71 29.00 33.61 30.45

First Milk

UK

28.25 25.93 25.95 29.39 25.80 24.77 25.52 25.39 24.40 27.34 31.03 24.24 25.26 28.83 31.92

Campina

NL

Average1)

41.05 34.75 34.92 40.40 40.73

35.68 30.97 23.47 32.41 36.86 33.42 34.92 34.34 24.56 30.79 35.04 31.22

30.90 30.94 33.39 33.00 30.76 29.96 29.52 28.56 33.16 32.52 30.09 30.88 32.67 30.96 30.10 29.70 28.92 28.34 32.52 34.96 27.38 31.47 35.04 33.73

Emmi

CH

46.74

45.03 48.56 46.64

Fonterra

NZ

26.80 13.74 16.75 18.45 15.96 15.74 18.19 18.49 17.28 25.67 22.75 20.80 30.37 30.21 29.87

USA class III

US

28.58 29.00 26.61 36.89 27.72 25.04 31.33 28.16 23.47 32.12 29.37 20.24 27.23 32.70 33.36

Ranking based on average 2008 to 2012 1) From 2007 onwards including Alois Müller en DOC Cheese and from 2009 excluding Campina 2) Emmi May - December 2010

22 LTO International Milk Price Comparison 2012

Annex III

Average currency exchange rates 2012 en 2011

Foreign currency in euro 2012

2011 2012/2011

British pound

1.2346

1.1542

7.0%

Danish crown

0.1344

0.1342

0.1%

US dollar

0.8065

0.7196

12.1%

New Zealand dollar

0.6306

0.5689

10.8%

Swiss franc

0.8300

0.8122

2.2%

23 LTO International Milk Price Comparison 2012