Fonterra Shareholders' Fund Prospectus and Investment Statement

SECTION 1
About
Fonterra continued
Fonterra in a
global context
Globally-traded dairy products account for
approximately 8% or 54 billion litres of global
dairy production. The remaining production is
consumed in market (i.e. domestically within
overseas markets). Commodity products such
as milk powders, butter and cheese comprise
almost all globally-traded dairy products.
Whole milk powder and skim milk powder
together account for more than half of all
globally-traded dairy products. Fonterra’s
market share of Global Dairy Exports for
the 2011 / 2012 Season was 46% for whole
milk powder, 51% for butter and 28% for
skim milk powder.
Between now and 2020, Fonterra expects the
volume of global trade in dairy products to
increase at an annual rate of approximately
4 to 6%. This reflects an expectation that
demand growth will exceed local supply
growth in major emerging markets, such as
China, India, South East Asia, the Middle East
and North Africa. It is anticipated that this
demand growth will be driven by a growing
population, rising incomes, urbanisation and
the westernisation of diets.
Fonterra is well placed to respond to this
demand growth with dairy nutrition products
that have the broad characteristics outlined
below. Fonterra is also developing secure
sources of quality milk in overseas jurisdictions
such as China. The establishment of a local
milk supply will assist Fonterra to meet this
demand growth and the needs of customers
in the relevant overseas market.
World prices for dairy products
World prices for dairy products tend to be
volatile, as illustrated on the following page.
Prices reached record highs in late 2007,
driven by a number of factors including
strong Asian demand, reduced European
Union subsidies, low global inventories and
droughts in the milk producing regions of
Europe, Australia and New Zealand. Following
the onset of the global financial crisis in
2008, global demand for dairy products fell,
while global milk production increased
strongly. This resulted in a sharp decline in
prices through 2008 and the first half of
2009. Since 2009, prices have generally
remained above their pre-2007 levels.
OUTLOOK TO 2020 1
Demand Growth
Supply Growth
Demand Volume
Supply Volume
7%
10%
4%
< 1% 1%
Europe
4%
India 2 7%
4%
China
2–3%
< 1%
1%
North
America
2%
ASEAN
MENA
1%
2%
2% 2%
ANZ
Latam
Source: Fonterra estimate
1 Current volumes are represented by the area of the circles displayed. Growth rates represent forecast compound annual growth rates.
2 Although strong growth in demand is expected in India, the ability to supply this market is likely to remain limited. In the 12 months to May 2012, Fonterra exported 22,300 MT of product to
India and total imports represented approximately 0.2% of consumption.
40