Outlook for Dairy Industry, New Zealand

Dairy exports make up around 36% of New Zealands primary sector exports. Price volatility, driven by
both exchange rate movements and global commodity prices continue to affect dairy export revenue.
World dairy prices will take time to recover from current low levels, which have been driven by excess
global supply from dairy exporting countries (mostly the EU and New Zealand). Combined with low
demand from China, the largest dairy export market. As a result of these low prices, total dairy export
revenue is expected to fall to $13.2 billion for the year ending June 2016, down 5.8% from the previous
year.

*Dairy revival likely to lift export returns and counteract meat and wool decline

MPI director of sector policy Jarred Mair said the latest outlook for the next few years indicated that
primary sector export earnings would increase by an average of 5.4% per year, reaching $47.9b by the
year ending June 2021.

"This highlights again the strength of our primary industries, and the benefits of our diversified primary
sector. However, lower economic growth in trade partners creates headwinds for New Zealand primary
industry export growth," he said.

Dairy export revenue is forecasted in MPI's Situation and Outlook for Primary Industries report to rise
3% next year and increase 24% to $17b in 2018 as milk production likely returns to previous levels after
two years of decline. Global dairy price hikes are forecast to be sustained into 2018.

Westpac analyst Anne Boniface said Prices had now risen an impressive 56% since July, led by a 74%
surge in whole milk powder prices.

Dairy export prices are expected to gradually rise from the December 2016 quarter onwards as global
demand and supply begin to rebalance

Key Pointers / Highlights

Global demand and supply are beginning to show signs of stabilizing, with average prices traded
at the Global Dairy Trade auctions at their highest level since March 2015.
New Zealands all company average farmgate milk solids price (including Fonterras forecast
dividend of $0.50 to $0.60) is forecast to rise to $6.41 per kilogram of milk solids for the year
ending May 2017.
Opening dairy cow numbers are expected to fall for the second year in a row, down 1.7% for the
2016/17 season, following a 2.3% fall in the previous season.
New Zealands milk solid production is expected to fall 1.7% in the 2016/17 season before
rebounding in the following season.

Production Fall
Lower cow numbers have driven milk production down 1.6% compared to the June 2015 year, with
production increasing in future years.
Dairy Export Revenue, 2013 2021 ($NZ Million)

Exchange Rate Sensitivity

The export revenue forecasts are based on exchange rate assumptions provided by the Treasury.
Forecasts for dairy exports, New Zealands largest export sector, are particularly susceptible to exchange
rate fluctuations. The graph below illustrates there is a $3.6 billion variation in potential dairy exports by
2020 if we include a 10 percent variation in baseline exchange rate assumptions (shaded area).

Planned Capex expenditure

Upcoming Projects in NZL for Dairy
Challenges for Dairy in NZL
Technological innovation in Dairy for NZL region
Dairy Productivity figures
Automation of Dairy proceses
Dairy Products business overview