fonterra farmgate milk price statement€¦ · milk price for the milk season that ended on 31 may...

Fonterra Farmgate mILK PrICe statement

Fonterra Co-operative Group Limited

31 may 2012

2 FONTERRA FARMGATE MILK PRICE STATEMENT – 31 MAY 2012

thIs Farmgate mILK PrICe statement:

•outlinesthewaythatFonterraCo-operativeGroupLimited(‘Fonterra’)hascalculatedtheFonterraFarmgateMilkPriceforthemilkseasonthatendedon31May2012(2012Season);and

•setsoutinformationabouttheFonterraFarmgateMilkPrice.

AreportbyFonterra’sexternalauditorstoconfirmthattheFonterraFarmgateMilkPrice(FarmgateMilkPrice)forthe2012SeasonhasbeenderivedinaccordancewiththePrinciples,MethodologiesandDetailedRulesinFonterra’sFarmgateMilkPriceManualisattachedtothisStatementfollowingsection7.

ThepurposeofthisStatementistohelpfarmershareholdersandotherinterested

partiesbetterunderstandtheFarmgateMilkPrice.Thisstatementcoversthefollowing:

•Section2setsoutthefinalFarmgateMilkPriceforthe2012Season.ItalsodescribesthewaytheFarmgateMilkPricerelatestotheCo-operative’sfinancialyearended31July2012.

•Section3providesanoverviewoftheFarmgateMilkPrice.ItalsosetsouttherevenueandcostcomponentsoftheFarmgateMilkPriceforthelastthreeseasons.

•Section4describesthekeyfactorsthatinfluencerevenue.ThisisthemostsignificantfactorthataffectstheFarmgateMilkPricefromseasontoseason.

•Section5describesthecoststhatgointotheFarmgateMilkPrice.

•Section6describeshowadjustmentscanbemadetotheFarmgateMilkPriceManual,andsetsoutrecentlyapprovedadjustmentsthatwilltakeeffectfromthe2013Season.

•Section7containsaglossaryoftermsusedinthisStatement.

Therearefiveattachmentsthatprovidefurtherdetail,forthelastthreeseasons,onthemostsignificantfactorsthatimpacttheFarmgateMilkPrice.

NumbersinthisStatementhavebeenroundedand,asaresult,sometablesmaynotexactlytotalorsumto100%.

AFarmgateMilkPriceStatementwillbemadeavailableeachyearwiththeCo-operative’sannualresultsonwww.fonterra.comandFencepost.AhardcopycanberequestedbyphoningtheSupplierServicesTeamon0800656568.

IntroDUCtIon1

the Farmgate mILK PrICe For the 2012 season2

TheFarmgateMilkPriceManualsetsoutthewaytocalculatethetotalamounttobepaidbytheCo-operativeformilksuppliedtoFonterrainNewZealandinaseason.Fonterra’sMilkPricePaneladvisestheFonterraBoardonmattersconcerningtheFarmgateMilkPriceManual,includingthecalculationoftheFarmgateMilkPrice.Forthe2012Season,theFonterraBoardhasdeterminedthatthisamountisNZD9.082billion.

TheFarmgateMilkPriceisdescribedinthisStatementasthetotalamountcalculatedundertheFarmgateMilkPrice

ManualofNZD9.082billion.Forease,thistotalamountisdividedbyFonterra’stotalNewZealandmilksupply(1.493billionkgMS),toarriveatanaveragepriceofNZD6.08perkgMS.

ThetotalamountcalculatedundertheManualofNZD9.082billionisusedforpaymentsforNewZealandmilksuppliedinthe2012Season.Itincludespaymentsformilksuppliedbyfarmershareholders,milksuppliedoncontract,andaportionofthepremiumspaidforwintermilk.However,itexcludespremiumpaymentsforspecialtymilk,andtheremaining

portionofthepremiumspaidforwintermilk.1

ThecostofNewZealandsourcedmilksoldasdisclosedinFonterra’smostrecentfinancialstatementsisNZD9.033billion.TheNZD49milliondifferencebetweenthisamountandtheNZD9.082billioncalculatedundertheManualarisesbecausethefinancialstatementsreportthecostofmilkforthefinancialyearbeingthe12monthsended31July2012,whiletheFarmgateMilkPricefortheseasonisbasedonthe12monthsended31May2012.

Farmgate mILK PrICe overvIew3

3.1ratIonaLe For Farmgate mILK PrICe

TheCo-operativecurrentlycollectsaround89%ofNewZealand’smilkproduction.

BecauseFonterrapurchasessuchalargeproportionofNewZealand’stotalmilk,thereisn’ta‘marketprice’formilkthatisindependentofthepricepaidbyFonterra.Asaresult,sinceitsformationin2001,FonterrahascalculatedaFarmgateMilk

1AcommoditymanufacturerofmilkpowdersisunlikelytopaypremiumsforspecialtymilkortopaythelevelofpremiumsforwintermilkthatanintegratedprocessorsuchasFonterrawouldpay.ThesepaymentsarethereforenotfundedfromthetotalamountcalculatedundertheManualandarepaidoverandabovethistotalamount.Forthe2012Season,thisamountwasNZD22million.

Price.ThisenablestotalreturnstobeallocatedbetweenpaymentsformilkandreturnsonthesharecapitalinvestedbyfarmershareholdersintheCo-operative.

25 SEPTEMBER 2012 3

3.2Farmgate mILK PrICe methoDoLogy

Sincethefinancialyearended31July2009,theFarmgateMilkPricehasbeencalculatedinaccordancewiththeFarmgateMilkPriceManual.

TheFarmgateMilkPricedeterminestheamountpaidformilkdeliveredtothefarmgatebyfarmershareholders.ItiscalculatedinaccordancewiththeManualby:

•DeterminingtherevenuethattheCo-operativewouldearniftheequivalentofallthemilkFonterracollectswasconvertedintocommodityspecificationsofwholemilkpowder(WMP),skimmilkpowder(SMP)andtheirby-products,whicharebuttermilkpowder(BMP),butter,andanhydrousmilkfat(AMF).TheseproductsarereferredtointheManualas‘ReferenceCommodityProducts’.PricesprimarilyreflectUSdollarpricesachievedonthetwice-monthlyGlobalDairyTrade(GDT)tradingevents,convertedtoNewZealanddollarsusingFonterra’sactualaveragemonthlyforeign-exchangeconversionrate.2

•Deductingcosts,includingthecostoftransportingrawmilktofactories,andthecostofefficientlymanufacturingReferenceCommodityProductsandthentransportingthemtothepointofexportfromNewZealand,alongwithsellingandadministrationexpenses.Theyalsoincludeamounts

fordepreciationoffixedassetsandanappropriatereturnoninvestment,includinginvestmentinworkingcapital.

•Thebalancecomprisestheaggregateamountpayabletosuppliersformilk.Whilethisisanaggregateamount,itisusuallyreferredtoonthebasisofaFarmgateMilkPriceperkgMS.

3.3 ratIonaLe For reFerenCe CommoDIty ProDUCts

ManufactureoftheReferenceCommodityProductscomprisedaround75percentofFonterra’stotalNewZealandingredientsproductioninthe2012Season.

AlmostalladditionalmilkcollectedoverthelastdecadeinNewZealandbyFonterraanditscompetitorshasbeenusedtomakemilkpowders.Becausereturnsfromthesaleofmilkpowdersandtheirby-productsrepresentthe‘marginal’returnsthatwoulddrivethepriceofmilkinacompetitivemarketinNewZealand,theFarmgateMilkPriceisbasedontheseproducts.Returnsfromnon-powdercommodities,suchascheeseandcasein,havelargelybeenirrelevantindrivinginvestmentinthedairyindustryoverthelastdecadeandarethereforenottakenintoaccountindeterminingtheFarmgateMilkPrice.

TheFarmgateMilkPriceapproachdoesnotincludeanyreturnsearnedbytheCo-operativefromvalue-addproducts(suchasinfantformulaandspecialisedproteinproducts)andbrandedproducts.

Thesetypesofproductsearnpremiumsoverandabovethereturnstostandardcommodityingredients.ItisthereforeappropriatethatthesepremiumsarerecognisedinFonterra’searningsratherthanintheFarmgateMilkPrice.

3.4 DIra ‘DeFaULt’ PrICe

TheFarmgateMilkPriceisalsousedtodeterminethe‘default’pricepaidbyindependentprocessorsformilkobtainedfromFonterraunderDIRA.TheCo-operativeisrequiredunderDIRAtosupplyindependentprocessorsupto600millionlitresofrawmilkintotaleachseason(justunder5percentofthemilkcollectedbyFonterra).

TheDIRAregulatedpriceissetattheFarmgateMilkPrice,adjustedtoexcludetheportionofwintermilkpremiumspaidfromtheaggregateamountcalculatedundertheManual.IndependentProcessorstendtodemandproportionatelymoreoftheirmilkduring‘shoulder’earlyspringandautumnperiodscomparedtoFonterra’sactualseasonalpatternofmilksupplybecausetheirdemandprofiletendstobe‘flatter’thanFonterra’sactualmilkcollections.ThisimposesextracostsonFonterra,sinceiteffectivelypaysmoreformilkduringtheshoulderperiodsthanitdoesformilkcollectedduringpeakproductioninlatespring.3Fonterraisabletorecoveraportionoftheseadditionalcostsbychargingapremiumof10centsperkgMSontheadjustedFarmgateMilkPriceformilksuppliedundertheRegulations.

MILK PRICE PANEL

INTERNAL

• Responsible for forecast Farmgate Milk Price• In-depth knowledge of Farmgate Milk Price Manual• Co-ordination of Farmgate Milk Price related matters with Milk Price Group • Understand drivers of business performance against the Farmgate Milk Price• Delivery of Farmgate Milk Price inputs• Provide management input on issues / desirable amendments to the Manual

• Provide assurance over forecasting process controls and data integrity

MILK PRICE MANAGEMENTSTEERING COMMITTEE

INTERNALAUDIT

EXTERNAL

• Provide expert advice into various inputs & assurance over accuracy of financial models

• Participate in 4-yearly review

EXTERNALREVIEWERS

• Ensure the Farmgate Milk Price is calculated in accordance with the Milk Price Principles• Guardian of the Manual• Calculate actual Farmgate Milk Price • Calculate 10-year forecast Farmgate Milk Price• Provide assurance over forecast Farmgate Milk Price to Board• Provide assurance over inputs• Manage engagement with External Reviewers• The MPG Head is independent of Management and reports to Chair of Milk Price Panel• Functions of Group undertaken largely by Ernst & Young

MILK PRICEGROUP

• Ensures 10 year forecast Farmgate Milk Price used as input into valuation fully reflects Farmgate Milk Price Principles

VALUER EXTERNALAUDITOR

Provides assurance that the Farmgate Milk Price has been derived in accordance with the Principles, Methodologies and Detailed Rules of the Manual

•

FIgUre 1: Farmgate mILK PrICe governanCe

2ForWMP,SMPandAMF,whichcomprised89%ofrevenueinthe2012MilkPrice,allpricesweresourcedfromGDT.ButterisnotcurrentlysoldonGDT,andcomprises9%ofMilkPricerevenue.3HighereffectivepaymentsformilksuppliedinshoulderperiodsareaconsequenceoftheCapacityCharge,whichresultsinfarmerswithaboveaverageratiosofshouldermilktopeakmilkreceivingahigheraveragemilkprice.


3.5Farmgate mILK PrICe governanCe

TheFonterraBoardisaccountablefortheoverallsettingoftheFarmgateMilkPrice.However,asshowninFigure1onthepreviouspage,ithasputinplaceagovernancestructuretoensurerobustnessandtoprovidefarmershareholdersandotherinterestedpartieswithassurancearoundtheapplicationoftheManual.

TheMilkPricePanelplaysakeyrole.Ithasfivemembers-twoareFonterraappointeddirectors(oneofwhomistheChair),oneafarmer-electeddirectorandtwoareappropriatelyqualifiednomineesoftheFonterraShareholders’Council.ThecurrentmembersofthePanelare:JohnWaller(Chair)andDavidJacksonwhoareappointedFonterradirectors;JohnWilsonwhoisafarmer-electedFonterradirector;andRichardPunterandPaddyBoylewhoarenomineesoftheCouncil.

ThePaneloverseesthegovernanceoftheFarmgateMilkPriceandtheManual,includingchangestotheManualandverificationbyindependentexternal

expertsofkeyparameters(suchasresourceusagerates,productyieldsandfixedmanufacturingcosts).ThePanelisresponsibleforprovidingrecommendationstotheBoardonchangestotheManualandassurancetotheBoardthattheFarmgateMilkPriceeachyearhasbeencalculatedinaccordancewiththeManual.

TheMilkPriceGroupadministerstheManualdaytoday.TheheadofthisgroupisappointedbytheBoard,mustbeindependentofFonterra,andreportsdirectlytotheMilkPricePanel.ThegroupislargelyresourcedbyErnst&Young.AninternalFonterraunit,theMilkPriceManagementSteeringCommittee,co-ordinateswiththeMilkPriceGrouptoprovidemanagementinputonFarmgateMilkPricematters,whileFonterra’sInternalAuditfunctionprovidesassuranceovertheintegrityofdatasourcedfromFonterra’ssystems.TheFarmgateMilkPriceisalsoauditedeachyearbyFonterra’sexternalauditors,PwC.

3.6CommerCe CommIssIon mILK PrICe oversIght

UnderSubpart5ofDIRA,whichwaspassedintolawinJuly2012,theCommerceCommissionwillberequiredtoundertakeannualreviewsofboththeFarmgateMilkPriceManual,andthefinalFarmgateMilkPriceforaseason,commencingwiththe2012/2013Season.Priortopassageofthelegislation,theCommerceCommissionundertooka‘dryrun’reviewoftheFarmgateMilkPriceManualandoftheforecast2012FarmgateMilkPriceasat31January2012.ThepurposeofthereviewwastoassesstheextenttowhichtheCommerceCommissionconsideredtheMilkPricemethodologyandFonterra’sapplicationofthemethodologytobeconsistentwiththepurposeandprinciplesoftheMilkPriceregimenowcontainedinSubpart5ofDIRA.Asaconsequenceofthereview,twominoramendmentshavebeenmadetotheManual,andtwoadjustmentswillbemadetoinputsintotheFarmgateMilkPriceforthe2013Season.Thesechangesareoutlinedinsection6.

TheCommission’sfinalreportwasreleasedon27August2012,andisavailableathttp://www.comcom.govt.nz/review-of-fonterra-s-farm-gate-milk-price/.

tabLe 1: Farmgate mILK PrICe sUmmary

SeaSon 2012 2011 2010 2012/2011 2011/2010

NZD bN $/kgMS NZD bN $/kgMS NZD bN $/kgMS % ChaNge $/kgMS

% ChaNge $/kgMS

FARMGATEMILkPRICEREvENUE

12.4 8.29 13.1 9.76 10.5 8.17 (15.1) 19.5

LACToSE (0.6) (0.42) (0.3) (0.25) (0.3) (0.22) 68.0 13.6

net revenue 11.7 7.86 12.8 9.51 10.2 7.95 (17.4) 19.6

FARMGATEMILkPRICECASHCoSTS

(1.6) (1.10) (1.5) (1.13) (1.4) (1.08) (2.7) 4.6

FARMGATEMILkPRICECAPITALCoSTS*

(1.0) (0.68) (1.1) (0.78) (1.0) (0.77) (12.8) 1.3

totaL CoStS (2.7) (1.78) (2.6) (1.91) (2.4) (1.85) (6.8) 3.2

FarmGate miLk priCe 9.1 6.08 10.2 7.60 7.8 6.10 (20.0) 24.6

MILkCoLLECTIoNS(MILLIoNkgMS)

1,493 1,346 1,286 10.9 4.7

*Includesdepreciation,taxandcapitalcharge

Farmgate mILK PrICe overvIew ContInUeD

3

25 SEPTEMBER 2012 5

3.7sUmmary oF Farmgate mILK PrICe revenUe anD Cost

Table1summarisestheFarmgateMilkPriceforthemilksuppliedinthe2010,2011and2012Seasons.Table1onthepreviouspageandFigure2aboveshowthatchangesintheFarmgateMilkPriceoverthelastthreeseasonshavebeen

drivenalmostentirelybychangesincommoditypricesconvertedintoNewZealanddollars.keydeterminantsofthemovementsinaveragecostsbetweenthe2011andthe2012Seasonsareexplainedinsection5.

NET

REV

ENU

E

MIL

K PR

ICE

CA

SH C

OST

S

MIL

K PR

ICE

CA

PITA

L C

OST

S

MIL

K PR

ICE

MIL

K PR

ICE

CA

SH C

OST

S

MIL

K PR

ICE

CA

PITA

L C

OST

S

MIL

K PR

ICE

MIL

K PR

ICE

CA

SH C

OST

S

MIL

K PR

ICE

CA

PITA

L C

OST

S

MIL

K PR

ICE

NET

REV

ENU

E

NET

REV

ENU

E

7.95 (1.08)

(0.77)

6.10

9.51 (1.13)

(0.78)

7.60 7.86 (1.10)

(0.68)

6.08

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

NZD

/ k

gMS

2010 SEASON 2011 SEASON 2012 SEASON

FIgUre 2: Changes In the Farmgate mILK PrICe: seasons 2010-2012

4.1 sUPPLy, ProDUCtIon, saLes voLUmes

FarmgateMilkPriceRevenuereflectsacombinationofmilksuppliedduringtheseason,productmix,salesvolumesandpricesinNewZealanddollars.FarmgateMilkPriceRevenueisthemostsignificantdriveroftheFarmgateMilkPrice.

Figure3onthefollowingpageshowstherelationshipbetweenwhenmilkiscollectedduringaseason(thelightblueline),thevolumeofproductsmanufacturedfromthatmilk(thedarkblueline)andwhenthatproductis

shipped(thelightgreenline).Thekeypointstonoteareasfollows:

•Milksuppliedduringthe2012Seasonwas1.493billionkgMS.Attachment1providesinformationonmilkcollectedeachquarterforeachofthelastthreeseasons.

•ThisamountofmilkisthenconvertedintoReferenceCommodityProducts.ThemixbetweenthevariousproductsthatgoesintotheFarmgateMilkPricewasupdatedonaforward-lookingbasisduringtheSeasontoreflectFonterra’sprojectedmixbetweenWMPandSMP,andbetweenbutter

andAMF.(ProductionofBMPisaresidualamount.)Attachment1providesFarmgateMilkPriceproductionbyquarterforeachReferenceCommodityProductforthelastthreeseasons.

•ProductsalesreflectFonterra’sactualshipmentsofReferenceCommodityProductsmanufacturedfrommilksuppliedduringtheseason.Figure3showsthenormallagbetweenproductionandshipment,aswellasthefactthatminimalmilkissuppliedinJuneandJuly.Thesefactorsmeanthatshipmentsofproductsmanufacturedfrommilkcollectedinaseason(beginning1June)donotnormally

farMgate Milk priCe reveNue

4


commenceuntilAugustattheearliest.Shipmentsarenormallycompletebytheendofoctoberinthefollowingyear,againasillustratedinFigure3.Attachment2setsoutsalesvolumesbyquarterforeachofthelastthreeseasons.

Revenuesarerecognisedwhensalesareinvoiced,atthetimeofshipment.SalespricesincludedintheFarmgateMilkPricearealwayssetpriortothemonthofshipment(primarilyviaGDTevents).Figure4belowshowstheaveragelagbetweenwhenpricesarestruckand

whenproductisshipped.ThismatchesFonterra’sactualaveragelagforproductthatissoldontermsthataretypicalforthesaleofcommodityproductsfromNewZealand.Toensurethisisthecase,contractswithmorethaneightmonthsbetweenwhenapriceissetandshipment

FIgUre 3: tImIng oF sUPPLy, ProDUCtIon & saLes voLUmes

0

50

100

150

200

250

300

350

400

0

50

100

150

200

250

300

350

400

MET

RIC

TO

NN

ES '0

00

s

kgM

S M

ILLI

ON

S

MILK SOLIDS (kgMS) PRODUCTION (MT) SALES VOLUME (MT)

OCT 12SEP 12AUG 12JUL 12JUN 12NOV 11 DEC 11 JAN 12OCT 11SEP 11AUG 11JUL 11JUN 11 MAY 12APR 12MAR 12FEB 12

FIgUre 4: Lag between when PrICes are strUCK anD shIPments

0

500

1,000

1,500

2,000

2,500

3,000

MET

RIC

TO

NN

ES '0

00

s

CUMULATIVE CONTRACTED CUMULATIVE SHIPMENTS

OCT 12SEP 12AUG 12JUL 12JUN 12OCT 11 NOV 11 DEC 11SEP 11AUG 11JUL 11JUN 11 MAY 12APR 12MAR 12FEB 12JAN 12

farMgate Milk priCe reveNue CoNtiNueD

4

25 SEPTEMBER 2012 7

occursarenottakenintoaccountindeterminingshipmentprices.4

Attachment3setsouttheaveragenumberofmonthspriortoshipmentthatpriceswereestablishedforeachquarteroverthelastthreeseasons.Attachment3alsosetsouttheaveragepercentagesofsalescontractedineachmonthpriortoshipmentinthelastthreeseasons.

4.2 PrICes

Forthe2012Season,GDTwasthesolesourceofpricesforWMP,SMPandAMF,andwastheprimaryreferencepointfor

BMP.Non-GDTcontractsthatFonterraenteredintowereusedtoestablishpricesforallbuttershipments(asbutterisnotcurrentlysoldthroughGDT),andsomeshipmentsofBMP.

DetailedRulesintheManualdictatewhichcontractscanbetakenintoaccount.Contractsthatareexcluded,forexample,includesalestoFonterrasubsidiaries.

Attachment1highlightsthatWMP,SMPandAMF(2,517,000MT)accountedfor89%oftheFarmgateMilkPriceproductionofReferenceCommodityProducts(2,819,000MT)inthe2012Season.

Theaverageshipmentpricesincorporateprovisionsforthelowerpricesreceived

for‘downgradeproduct’.Theseareproductsthatdonotmeetmanufacturingspecifications,someofwhichmayonlybesuitableforuseasstockfeed.

Table2belowshowstheweightedaverageUSDcontractpricesofReferenceCommodityProductsforthelastthreeseasons.Table2showsthatpricesformilkpowdersdecreasedslightlybetweenthe2011Seasonandthe2012Season(5.4%onaweightedaveragebasis),butthatthedecreaseinpricesforcreamproducts(butterandAMF)wassignificantlyhigher(22.2%onaweightedaveragebasis).AverageUSDpricesperMTforeachReferenceCommodityProductbyquarterforeachofthelastthreeseasonsaresetoutinAttachment4.

tabLe 2: weIghteD average UsD PrICe 2010-2012 seasonsWeighted average price (uSd) per mt

SeaSon 2012 2011 2010 2012/2011 2011/2010

% ChaNge % ChaNge

WMP 3,359 3,606 2,905 (6.8) 24.1

SMP 3,285 3,321 2,658 (1.1) 24.9

BUTTER 3,546 4,344 3,033 (18.4) 43.2

AMF 3,825 5,258 3,368 (27.3) 56.1

BMP 3,163 3,259 2,234 (2.9) 45.9

TheManualprovidesfortheconversionofnotionalUSDMilkPricereceiptsforeachmonthtoNZDattheaveragerateatwhichFonterraactuallyconvertsitsUSD-equivalentforeigncurrencyreceiptsforthemonth,takingintoaccountthecostsandbenefitsofFonterra’shedgingactivities.Fonterra’spolicyistohedge100%ofthenetrecognisedforeigncurrencytradereceivablesandpayables.Italsorequireshedgingofupto100%offorecastcashreceiptsfromsalesforaperiodofupto18monthswithinlimits

approvedbyFonterra’sBoard.Fonterrausesbothforwardforeignexchangecontractsandcurrencyoptionstohedgeitsforeignexchangerisk.

Figure5onthenextpageshowstheaverageforeignexchangeconversionrate(USD:NZD)fortheFarmgateMilkPricerevenueforeachquarterinthe2012SeasonbasedonFonterra’sactualhedgingcontractsinplacecomparedtotheweightedaveragespotratethatprevailedinthequarter.Figure5,inconjunctionwithAttachment5,showsthatthe

Co-operative’shedgingpolicyresultedinanaverageforeignexchangeconversionrateforthe2012SeasonofUSD:NZDexchangerate0.7706againstaspotrateof0.7965.Attachment5alsoprovidesequivalentinformationbyquarterforthe2010and2011Seasons.Althoughthedataoverthelast3yearsshowsFonterraachievingabetterratethroughitshedging,theoppositesituationcanalsooccur.Thiswasthecaseinthe2009Season,thedataforwhichwaspublishedinthe2011FarmgateMilkPriceStatement.

4Fromthefinancialyearending31July2013,onlycontractswithpricessetnoearlierthan5monthspriortoshipmentwillbetakenintoaccount.


0.6800

0.7200

0.7600

0.8000

0.8400

AUG 11 TO OCT 11 NOV 11 TO JAN 12 FEB 12 TO APR 12 MAY 12 TO JUL 12 AUG 12 TO OCT 12

FONTERRA'S AVERAGE CONVERSION RATESPOT EXCHANGE RATE

FIgUre 5: average UsD:nZD ConversIon anD sPot rates by QUarter

Asat31July2012,Fonterrahadforeignexchangecontractsinplaceinrespectofapproximately60%oftheUSD-equivalentoperatingcashflowexposureexpectedtoimpactontheMilkPriceforthe2013Season.Ataspotexchangerateof0.8089,thesecontractswouldresultinanaverageUSD:NZDconversionrateof78.0cents.5

4.3LaCtose

LactoseisusedasaningredientinthemanufactureofWMP,SMPandBMPtoachieveastandardproteincompositionalignedtointernationallyrecognisedspecifications.MostofthelactosecontentofmilkpowdersisobtainedfrommilksuppliedtoFonterra.However,a

portionispurchasedatinternationalprices.Becausethecostofpurchasedlactosedependsonglobalpricesandtheexchangerate,itispresentedinTable1asadeductionfromFarmgateMilkPriceRevenue.

Table3belowprovidesthebasisforthecostofpurchasedlactoseinthe2012,2011and2010Seasons.

SeaSon 2012 2011 2010 2012/2011 2011/2010

% ChaNge % ChaNge

PURCHASEDLACToSE(’000METRICToNNES)

310 275 260 12.7 5.8

AvERAGEPRICE(USD)PERMT 1558 848 717 83.7 18.3

5Asnotedabove,Fonterrausescurrencyoptionsaswellasforwardexchangecontractstohedgeitsforeigncurrencyreceipts.Useofoptionsmeanstheaveragehedgedconversionratemayvarywiththespotexchangerate

tabLe 3: PUrChaseD LaCtose & PrICe

farMgate Milk priCe reveNue CoNtiNueD

4

25 SEPTEMBER 2012 9

5.1Farmgate mILK PrICe Cash Costs

FarmgateMilkPriceCashCostsreflect:

•Fonterra’sactualsupplychainandcollectioncosts.

•CostsassociatedwithFonterra’sactualsitefootprint,whichincludesmorethan20manufacturingsites(someofwhichcontainmultipleplants)with

associatedoverheadcosts.ThecostsofoperatingtheseplantsarebasedondailyprocessingcapacitiesthatmatchFonterra’saverages,andwithoperatingparametersthatreflectmanufacturers’specificationsandFonterra’sperunitcosts.

•overheadandsellingcoststhataretypicalofacommodity-onlybusinessthatsellsproductfromNewZealand.overheadcostsarecalculatedby

referencetoFonterra’sactualcosts,butexcludecoststhatareattributabletothemuchbroaderscopeofFonterra’sbusiness.SellingcostsreflectthesaleofproductsthroughanequivalentplatformtoGDTwithanoffshoresupportingnetwork.

Table4andFigure6summarisethemajorcategoriesofcashcosts,andthesourcesofmovementsineachcategorybetweenthe2011and2012Seasons.

farMgate Milk priCe CoStS

5

tabLe 4: sUmmary oF movements In Cash Costs

nZd miLLion F11

voLume/ produCt mix

eFFeCtCoSt

movementSStruCturaL

ChanGeSone-oFF

CharGeS F12

% ChanGe due to

CoSttotaL % ChanGe

SALESCoST 145 7 – (35) 117 0.0 (19.3)

vARIABLEMANUFACTURING&SUPPLYCHAINCoSTS

618 66 20 – 704 2.9 13.9

FIxEDMANUFACTURING/SITEovERHEADS&SUPPLYCHAINCoSTS

191 – 6 – 197 3.3 3.3

oTHERCoSTSINCLUDINGCoLLECTIoN

563 20 21 22 (4) 622 3.7 10.5

totaL CaSh CoStS 1,517 94 47 (13) (4) 1,640 2.9 8.1

F11 ADJUSTEDF11 FINAL VOLUME COSTMOVEMENTS

ONE OFFCHARGES

F12 FINALSTRUCTURALCHANGES

$1.13$0.03 ($0.01) $0.00 $1.10

$1.08

($0.05)

$0.70

$0.90

$1.10


Themovementsincostsshownonthepreviouspagereflectthefollowing:

•Thevolume-relatedimpactonfixedcostrecoveriesofthe10%increaseinmilksupplyoverthe2011Season.(Averagecostsinthe2011Seasonwouldhavebeen5clower,at$1.08perkgMS,ifthehigher2012volumeofmilkhadbeensupplied.)

•Anaverageincreaseof3.1%duetocostinflation.

•Achangeintheapproachtocalculatingsalescostsforthe2012Season.Previously,salescostswerecalculatedonabasisthatassumedtheNotionalMilkPriceBusinesspaidacommissiontoathirdpartysalesagent,andthattheagent’scostsreflectedFonterra’scoststructureplusaprofitmargin.ThisapproachwasbecomingincreasinglyinconsistentwiththeincreasingrelianceplacedonpricesachievedonGDT,andwasthereforeadjustedatthebeginningofthe2012SeasontobeconsistentwithanassumptionthatmostMilkPriceproductissoldonGDT.TherevisedapproachreflectsanassumptionthattheNotionalMilkPriceBusinesssells90%ofitsproductonGDT,atthecommissionrateschargedbyGDTtothirdpartysellers,andthatitalsomaintainsanin-marketstructuretoserviceitscustomers.

•Thereclassificationasfarmtofactorymilkcollectioncostsofcertaincostspreviouslyclassifiedasinter-sitediversioncosts.

•AnetdecreaseofNZD4millionin‘one-off’costsin2012relativetothe2011Season.one-offcostsinrespectoftheChristchurchearthquakewereincorporatedin2011.In2012aprovisionwasincludedforone-offcoststhatcouldreasonablybeexpectedtohavebeenincurredasaconsequenceofhigher-than-forecastpeakmilksupplyandthefailureinoctober2011oftheMauigaspipeline.

5.2Farmgate mILK PrICe CaPItaL Costs

TheCo-operativeoperatesarangeof

powderplantswithcapacitiesfrommorethan25tonnesperhourtoapproximatelyonetonneperhour.Notwooftheseplantsareexactlyalike.Somemakeonlyafewproducts,whileothersareusedtomanufacturearangeofproducts,includinghigher-valueproducts.

Itwouldbeamajorexercisetoadjustthecostsactuallyincurredinalltheseplantstoexcludethecostsrelatingtotheproductionofhighervalueproducts.Also,thecapitalcostsassociatedwithsomeofFonterra’ssmallerandolderplantsarenotrepresentativeofthefullcostsofusingmodernplantstomanufacturecommoditymilkpowders.

Toaddresstheseissues,bothoperatingandplant-relatedcapitalcostsarecalculatedbyreferenceto‘standard’plantswithcapacitiesequaltoFonterra’sactualaveragedailycapacitiesforeachtypeofplant,andwhichreflectcurrenttechnologyofthetypetypicallyemployedacrosstheindustry.6These‘standard’plantsarelessefficientthanFonterra’snewestmanufacturingplants,suchastheED4drierinstalledatFonterra’sEdendalemanufacturingsiteinSouthlandin2009,andthenewly-commissionedplantatDarfieldinCanterbury,butaremoreefficientthanFonterra’solder,smallerplants.

Thebasisforderivingthebenchmarkdepreciation,taxcostsandcapitalchargeissetoutindetailintheManual.Inbroadterms:

•Thecapitalchargeonfixedassetsisdesignedtorecoverthefullcost(throughadepreciationcharge)ofthemanufacturingandotherassetsrequiredtomanufactureReferenceCommodityProductsovertheassets’economiclives,andtogenerateareturnatthebenchmarkWeightedAverageCostofCapital(WACC,seebelow)ontheundepreciatedbalanceeachyear.

•Thecapitalchargeisalsocalculatedinamannerthatresultsinitsaggregateamountgrowingeachyearapproximatelyinlinewithmilksupplyandcapitalgoodsinflation,solongastheWACCdoesnotchange.Thismeansthatchangesintheaverageageoftheassetbasedonotresultinmaterialyearonyearmovementsinthecapitalcharge,

andthereforeintheFarmgateMilkPrice.

•TheFarmgateMilkPricecostbasealsoincludesaprovisionforacapitalchargeonthemonthlynetworkingcapitalbalancesimpliedbythesaleandmanufactureoftheReferenceCommodityProducts,andbythephasingofFonterra’spaymentsformilktoitssuppliers.Eachoftheseitemsvariessomewhatbetweenyears,resultinginsomeannualvariationinthiselementofthecapitalcharge.However,thisvariationdidnotexceed2centsperkgMSbetweenthe2010and2012Seasons.

•TheWACCusedtodeterminethecapitalchargeisspecifiedonanafter-taxbasis,sotheFarmgateMilkPricecostbaseincludesaseparateprovisionforcorporatetax.ThisamountisarelativelyconstantproportioneachyearoftheWACCchargesonfixedassetsandnetworkingcapital.

Table5rightshowscapitalcostsandtheaggregatebookvalueoftheFarmgateMilkPricefixedassetbaseandmonthlyaveragenetworkingcapitalforthe2010,2011and2012Seasons.TheprimarydeterminantofthevariationinaveragenetworkingcapitalbalancesbetweenyearsisdifferencesinthepercentagesofthefinalFarmgateMilkPricepaidtosuppliersineachmonthduringtheyear.

Threemattersarerelevanttoacomparisonofcapitalcostsbetween2012and2011:

•Theimprovementinassetutilisationresultingfromthesignificantincreaseinmilksupplyinthe2012SeasonbyitselfresultedinareductionincapitalcostswhenexpressedonadollarsperkgMSbasis.

•Asexplainedbelow,theWACCreducedfrom8.5%in2011to7.7%in2012.Byitself,thischangeresultedinareductionofNZD48millionintheWACCchargeonfixedassets,areductionofNZD15millionintheWACCchargeonnetworkingcapital,andareductionofNZD6millioninthetaxcharge.

•Thecompanytaxratereducedfrom30%to28%,resultinginafurtherreductionofNZD20millioninthetaxcharge.

6TheaveragedailyprocessingcapacityofthestandardWMPandSMPplantsisapproximately1.9millionlitres.Asaconsequenceofthereviewyearupdates(seesection6),incrementalandreplacementplantsincorporatedintheassetbasefromthe2013SeasonwillhaveanaveragedailyprocessingcapacityofapproximatelyNZD2.4millionlitres.

farMgate Milk priCe CoStS CoNtiNueD

5

25 SEPTEMBER 2012 11

tabLe 5: aGGreGate book vaLue oF Fixed aSSet baSe and monthLy averaGe net WorkinG CapitaL

Inaggregatetheimprovementinassetutilisationresultedinareductionof4centsperkgMSinaveragecapitalcosts,andthechangeinWACCandtaxrateresultedinafurtherreductionof6centsperkgMS.

5.3CaLCULatIon oF benChmarK weIghteD average Cost oF CaPItaL (waCC)

TheWACCusedtodeterminetheFixedAssetCapitalChargesandtheNet

WorkingCapitalChargeiscalculatedusingthe‘simplifiedBrennanLally’methodologyemployedbytheCommerceCommission.7Themethodologyappliedthroughtothe2012SeasonprovidedforinputparametersintotheWACCtobeupdatedeveryfouryears.Consequently,theWACCwasheldconstantat8.5%betweenthe2009and2011Seasons,andreflectedmarketinterestratesasofmid2008.Fromthe2012Season,themethodologyhasbeenrevisedtobebasedonrollingfiveyearaveragesofmarketinterestrates,includingthefiveyearNewZealandgovernmentstockrate,resultinginareductionintheWACCto

7.7%.ThepurposeofthischangewastoavoidpotentiallysignificantstepchangeseachfouryearsintheFarmgateMilkPricecapitalcharge(whichcouldbeeitherpositiveornegative,dependingonmarketconditions).

Applicationofthesameapproachemployedinthe2012SeasonwouldhaveresultedinaWACCof7.3%beingusedforthe2013Season.Asaconsequence,however,ofaddressingmattersraisedbytheCommerceCommissioninits‘dryrun’reviewrelatingtothecalculationoftheassumedcostofdebt,aWACCof7.5%willbeusedforthe2013Season.

farMgate Milk priCe MaNual6

SincetheManualwasintroducedinthe2009Season,variousminorrefinementshavebeenmadeaspracticalissueswereidentifiedandaddressed.SuchrefinementsweretobeexpectedgiventheimportancetoFonterraofensuringtheFarmgateMilkPriceapproachisrobust.AnyrefinementtotheManualisrequiredtobeconsistentwiththePrincipleswhicharesetoutintheFonterraConstitution.

TheManualallowsforadjustmentstobemadewherecircumstanceschange.AnexampleofthisistheDetailedRulethatallowsfortheadditionofnewReferenceCommodityProductsifcertainconditionsestablishedintheManualaremet.TheManualalsoprovidesfor

reviewsofcertainaspectsoftheManualtobecarriedoutatleastonceeveryfouryears.ThesereviewscanresultinchangestotheapplicationofrulesintheManualorinputsintotheFarmgateMilkPrice.Thefirstofthesefour-yearlyreviewshasrecentlybeencompleted.Thereviewhasresultedinanumberofminoramendments,noneofwhich,eitheronitsownorinaggregate,willhaveamaterialimpactontheFarmgateMilkPriceforthe2013Season.

AmaterialimpactontheFarmgateMilkPriceisconsideredtobe2.4centsperkgMS(inaggregateorforanyindividualchange).

TheBoardapprovedanumberofminor

amendmentstotheManualinJuly2012,andanupdatedversionoftheManualisnowavailableonFonterra.com.Twoamendments–theincorporationinPartCofaprovisiontoallowforadditionalcostsincalculatingthecostofdebt,andanamendmenttoclarifythat‘salesphasings’cannotbeadjustedretrospectively–addressmattersraisedbytheCommerceCommissioninits‘dryrun’reviewoftheFarmgateMilkPrice.TheadjustmenttothecostofdebtisreflectedintheWACCforthe2013Seasonof7.5%,asreportedabove,andwillresultinareductionintheFarmgateMilkPriceof1centperkgMSinthe2013Season.NoneoftheotheramendmentswillresultinasubstantivechangeintheFarmgateMilkPrice.

7Seeforexamplethevariouspapersathttp://www.comcom.govt.nz/cost-of-capital/

SeaSon nZd miLLion 2012 2011 2010

DEPRECIATIoN 218 203 200

WACCCHARGE-FIxEDASSETS 469 498 455

WACCCHARGE-NETWoRkINGCAPITAL 138 130 132

TAx 193 225 209

ToTALFIxEDASSETS(BookvALUE) 6,121 5,915 5,357

AvERAGENETWoRkINGCAPITAL 2,244 1,570 1,301


InthisStatement,unlessthecontextotherwiserequires,thetermssetoutbelowhavethemeaningssetoutnexttothem:

amFmeansanhydrousmilkfat.

bmpmeansbuttermilkpowder.

detailed rulesmeansthedetailedrulesforcalculatingtheFarmgateMilkPriceassetoutintheManual.

dirameanstheDairyIndustryRestructuringAct2001,whichauthorisedFonterra’sformationandregulatesitsactivities.

Farmgate milk pricemeansFonterra’sFarmgateMilkPriceasdeterminedundertheManual.

Farmgate milk price Capital CostsaredefinedintheManual.

Farmgate milk price Cash CostsaredefinedintheManual.

Farmgate milk price manualormanualmeansFonterra’sFarmgateMilkPriceManualdated21September2011.

Fonterraorthe Co-operativemeansFonterraCo-operativeGroupLimited.

Financial yearmeansFonterra’sfinancialyearwhichrunsfrom1Augusttothefollowing31July.

GlobaldairytradeorGdtmeanstheelectronicauctionplatformthatisusedtosellcommoditydairyproducts.

independent processorsmeansentitieswhoareindependentofFonterraandprocessrawmilk.

kgmSmeanskilogramsofmilksolids.

manualmeansFonterra’sFarmgateMilkPriceManual.

methodologiesmeansthemethodologiesforcalculatingtheFarmgateMilkPriceassetoutintheManual.

milk price principlesorprinciplesmeanstheMilkPricePrinciplessetoutinFonterra’sConstitution.

mtmeansmetrictonnes.

nZdmeansNewZealanddollars.

Seasonmeansthe12-monthperiodfrom1Junetothefollowing31May.

Smpmeansskimmilkpowder.

Specialty milkmeansmilkthathasspecialpropertiessuchasorganicmilk.

reference Commodity productsaredefinedintheManual.

uSdmeansUnitedStatesdollars.

WaCCmeansweightedaveragecostofcapital.

Winter milkmeansmilksuppliedbyfarmersinthemonthsofMay,JuneandJuly.

Wmpmeanswholemilkpowder.

othercapitalisedtermsusedinthisStatementhavethemeaningsgiventothemintheManual.

gloSSary7


InDePenDent assUranCe rePortto the DIreCtors oF Fonterra Co-oPeratIve groUP LImIteD

Scope WehaveauditedtheapplicationofthePrinciples,MethodologiesandDetailedRulesasdefinedintheFarmgateMilkPriceManualof21September2011(the‘Manual’)bytheMilkPriceGroup(‘MPG’)inestablishingtheF12Season’sMilkPriceof$6.08(the‘FonterraFarmgateMilkPrice’).WehaveconfirmedthebalancescontainedintheFonterraFarmgateMilkPriceStatementarecorrectlyextractedfromthecalculationoftheFonterraFarmgateMilkPrice.

Milk Price Group’s Responsibilities TheMPGisresponsibleforthecalculationoftheFonterraFarmgateMilkPricebasedupontheManual,ensuringtheFonterraFarmgateMilkPricehasbeenderivedinaccordancewiththePrinciples,MethodologiesandDetailedRulessetoutintheManual.TheMPGisalsoresponsibleforthepreparationoftheFonterraFarmgateMilkPriceStatement.

Independent Auditors’ Responsibilities WeareresponsibleforexpressinganindependentopiniononwhethertheFonterraFarmgateMilkPricehasbeenderivedinaccordancewiththeManualandthattheFonterraFarmgateMilkPriceStatementincludesinformationthathasbeencorrectlyextracted,inallmaterialrespects,fromthecalculationoftheFonterraFarmgateMilkPriceandreportingouropiniontoyou.

WeconductedourindependentassuranceengagementinaccordancewithInternationalStandardsonAssuranceEngagements(NZ)andStandardsonAssuranceEngagements.Thosestandardsrequirethatwecomplywithethicalrequirementsandplanandperformourprocedurestoobtainreasonableassuranceaboutwhether,inallmaterialrespects,thecalculationoftheFonterraFarmgateMilkPriceisfairlystatedinaccordancewiththePrinciples,MethodologiesandDetailedRulessetoutintheManual,andthatthebalancescontainedintheFonterraFarmgateMilkPriceStatementarecorrectlyextractedfromthecalculationoftheFonterraFarmgateMilkPrice.

Inherent Limitationsourengagementincludesexamining,onatestbasis,evidencerelevanttotheamountsusedtoderivetheFonterraFarmgateMilkPrice.Italsoincludesassessingthesignificantassumptions,estimatesandjudgementsmadebytheMPGinthecalculationoftheFonterraFarmgateMilkPriceandensuringthePrinciples,MethodologiesandDetailedRulesappliedareconsistentwiththosesetoutintheManual.Astheproceduresperformedareundertakenonatestbasis,ourassuranceengagementcannotbereliedontodetectallinstanceswherethePrinciples,MethodologiesandDetailedRulessetoutintheManualhavenotbeencompliedwith.ouropinionexpressedinthisreporthasbeenformedonthatbasis.

WecarryoutotherassignmentsonbehalfofFonterraintheareasofotherauditrelatedservicesandtransactionandotheradvisoryservices.PartnersandemployeesofourfirmmaydealwithFonterraonnormaltermswithintheordinarycourseoftradingactivitiesofFonterra.WearenotawareofanyrelationshipsbetweenourfirmandFonterraCo-operativeGroupLimited,theMilkPricePanelandtheMPGthat,inourprofessionaljudgement,mayreasonablybethoughttoimpairourindependence.

Independent Assurance Opinion InouropiniontheMPGhascomplied,inallmaterialrespects,withthePrinciples,MethodologiesandDetailedRulesintheManualinderivingtheFonterraFarmgateMilkPriceof$6.08.WehaveconfirmedthebalancescontainedinthisFonterraFarmgateMilkPriceStatementarecorrectlyextractedfromtheFonterraFarmgateMilkPricecalculation.

Restriction on Distribution or UseThisreportismadesolelytothemembersoftheBoard.ourreporthasbeenpreparedattherequestofFonterraCo-operativeGroupLimitedandfornootherpurpose.TothefullestextentpermittedbylawwedonotacceptorassumeresponsibilitytoanyoneotherthantheGroupforthisreport,orfortheopinionswehaveformed.

CharteredAccountants Auckland25September2012


NumbersinthisStatement(includinginthefollowingAttachments)havebeenroundedand,asaresult,sometablesmaynotexactlytotalorsumto100%.

2012 SeaSon miLk CoLLeCted (miLLion kgmS)

produCtion (‘000 mt) FiniShed produCt

Wmp Smp butter amF bmp

JUN2011ToAUG2011 103 141 29 11 10 3

SEPT2011ToNov2011 567 562 305 112 69 26

DEC2011ToFEB2012 487 578 186 80 55 20

MAR2012ToMAY2012 336 487 65 39 30 12

totaL 1,493 1,768 585 242 164 60




JUN2010ToAUG2010 95 139 20 6 11 3

SEPT2010ToNov2010 522 547 262 105 58 23

DEC2010ToFEB2011 434 468 199 88 47 19

MAR2011ToMAY2011 296 409 70 32 33 11

totaL 1,346 1,563 551 232 149 56




JUN2009ToAUG2009 91 119 29 8 12 3

SEPT2009ToNov2009 515 514 280 116 54 23

DEC2009ToFEB2010 438 439 226 88 57 20

MAR2010ToMAY2010 242 329 59 29 28 9

totaL 1,286 1,401 593 241 150 55

Milk ColleCteD & proDuCtioN voluMeSattaChMeNt 1:


2012 SeaSon ShipmentS (‘000 mt) oF FiniShed produCt

Shipment period Wmp Smp butter amF bmp

AUG2011TooCT2011 188 58 7 12 3

Nov2011ToJAN2012 512 187 79 52 24

FEB2012ToAPR2012 442 139 65 43 15

MAY2012ToJUL2012 500 131 54 41 11

AUG2012TooCT2012 126 69 37 16 7

totaL 1,768 585 242 164 60



AUG2010TooCT2010 223 50 18 30 9

Nov2010ToJAN2011 418 171 65 37 18

FEB2011ToAPR2011 506 159 61 33 14

MAY2011ToJUL2011 320 121 46 32 9

AUG2011TooCT2011 96 50 42 16 5

totaL 1,563 551 232 149 56



AUG2009TooCT2009 203 92 21 34 11

Nov2009ToJAN2010 384 197 77 50 20

FEB2010ToAPR2010 373 155 59 37 12

MAY2010ToJUL2010 365 100 50 25 8

AUG2010TooCT2010 76 49 34 4 3

totaL 1,401 593 241 150 55

SaleS voluMeSattaChMeNt 2:


average NuMber of MoNthS prior to ShipMeNt that priCeS were StruCk

attaChMeNt 3:

2012 SeaSon averaGe number oF monthS prior to Shipment


AUG2011TooCT2011 3.3 2.7 2.1 3.1 2.5

Nov2011ToJAN2012 3.5 3.0 2.8 3.2 2.8

FEB2012ToAPR2012 3.5 3.2 3.5 3.6 3.0

MAY2012ToJUL2012 3.2 2.9 2.9 3.1 2.6

AUG2012TooCT2012 3.4 3.3 2.7 3.1 3.1

voLume-WeiGhted annuaL averaGe 3.4 3.0 3.0 3.2 2.8



AUG2010TooCT2010 3.6 2.9 2.4 4.2 3.0

Nov2010ToJAN2011 3.6 3.3 2.5 3.7 2.7

FEB2011ToAPR2011 3.8 3.6 2.6 3.5 3.0

MAY2011ToJUL2011 4.0 3.5 3.0 3.4 2.6

AUG2011TooCT2011 3.1 4.4 2.3 3.1 3.1




AUG2009TooCT2009 3.5 3.7 2.1 3.1 4.2

Nov2009ToJAN2010 3.8 3.7 3.6 3.7 4.2

FEB2010ToAPR2010 3.7 3.2 2.4 3.1 4.0

MAY2010ToJUL2010 4.1 2.9 2.6 3.2 3.2

AUG2010TooCT2010 3.5 3.0 2.1 4.2 3.6


Thetablesonthefollowingpagesupplementthatabovebyprovidinginformationontheaveragepercentagesofsalescontractedineachofmonths1to8priortoshipmentinthe2012Season.


Thecontracttenorcalculatedusingthe“Average%ofSalesContractedineachofMonths1–8priortoShipment”tablesmaynotreconcilewiththoseinthe“AverageNumberofMonthsPriorto

Shipment”tables,duetothedifferenceinvolumesusedtocalculateweightings.

In2011themethodofcalculationwasrevisedtoexcludeallsalescontractedin

themonthofshipment,onthebasisthatthesesalesinalmostallinstanceswerenotcontractedontermsthatwouldbeachievablebyabusinessthatdidnothaveoffshorewarehouses.

2012 SeaSon: averaGe % oF SaLeS ContraCted in eaCh oF monthS 1 – 8 prior to Shipment

monthS beFore Shipment Wmp Smp butter amF bmp

1 11% 6% 9% 7% 4%

2 33% 33% 35% 38% 35%

3 26% 28% 26% 33% 23%

4 19% 15% 16% 17% 15%

5 7% 11% 6% 5% 11%

6 2% 4% 4% 1% 5%

7 2% 2% 2% 0% 4%

8 0% 2% 2% 0% 3%



1 3% 6% 12% 4% 8%

2 22% 28% 40% 27% 40%

3 26% 28% 33% 25% 28%

4 20% 19% 10% 16% 13%

5 16% 7% 4% 10% 6%

6 6% 7% 1% 6% 2%

7 4% 3% 0% 9% 0%

8 4% 2% 0% 3% 3%



0 1% 1% 3% 1% 0%

1 6% 6% 14% 5% 1%

2 28% 27% 31% 26% 20%

3 20% 25% 23% 28% 23%

4 14% 19% 15% 21% 21%

5 9% 10% 8% 13% 16%

6 9% 6% 2% 5% 10%

7 8% 2% 2% 2% 5%

8 5% 3% 1% 1% 3%


average uSD priCeSattaChMeNt 4:

2012 SeaSon uSd per mt oF FiniShed produCt


AUG2011TooCT2011 3,663 3,594 4,081 4,837 3,430

Nov2011ToJAN2012 3,436 3,376 3,829 4,115 3,176

FEB2012ToAPR2012 3,503 3,386 3,728 3,867 3,330

MAY2012ToJUL2012 3,147 3,085 3,337 3,376 3,107

AUG2012TooCT2012 2,925 2,957 2,836 3,167 2,683

annuaL WeiGhted averaGe( INCLUD ING DoWNGRADE ADJUSTMENT ) 3,359 3,285 3,546 3,825 3,163



AUG2010TooCT2010 3,513 3,003 3,943 4,548 2,902

Nov2010ToJAN2011 3,346 3,034 4,104 4,821 3,010

FEB2011ToAPR2011 3,579 3,290 4,449 5,529 3,323

MAY2011ToJUL2011 3,992 3,700 4,677 6,022 3,738

AUG2011TooCT2011 3,803 3,800 4,365 5,507 3,702




AUG2009TooCT2009 1,999 1,965 1,850 2,178 1,482

Nov2009ToJAN2010 2,553 2,415 2,248 2,812 1,930

FEB2010ToAPR2010 3,091 2,885 3,526 4,291 2,659

MAY2010ToJUL2010 3,433 3,136 3,724 4,494 3,035

AUG2010TooCT2010 3,654 3,246 3,691 4,694 3,228



average uSD: NZD CoNverSioNaND Spot rate

attaChMeNt 5:

8ThespotrateforAugust–october2012istheaveragedailyratebetween1August2012and7September2012,whentheFarmgateMilkPriceStatementwasfinalised.

2012 SeaSon averaGe uSd : nZd rate

Shipment period aChieved ConverSion Spot

AUG2011TooCT2011 0.7391 0.7956

Nov2011ToJAN2012 0.7690 0.7805

FEB2012ToAPR2012 0.7742 0.8253

MAY2012ToJUL2012 0.7804 0.7852

AUG2012TooCT20128 0.7781 0.8019

revenue-WeiGhted annuaL averaGe 0.7706 0.7965



AUG2010TooCT2010 0.6927 0.7414

Nov2010ToJAN2011 0.7041 0.7623

FEB2011ToAPR2011 0.7231 0.7630

MAY2011ToJUL2011 0.7308 0.8169

AUG2011TooCT2011 0.7519 0.8269




AUG2009TooCT2009 0.6330 0.7258

Nov2009ToJAN2010 0.6531 0.7239

FEB2010ToAPR2010 0.6682 0.7047

MAY2010ToJUL2010 0.6835 0.7007

AUG2010TooCT2010 0.6887 0.7178


fonterra farmgate milk price statement€¦ · milk price for the milk season that ended on 31 may...

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