Dairying in Australia with Devondale

Dairying in Australia with Devondale

About this booklet Devondale has developed this booklet to help prospective farmers, dairy workers and investors understand the potential offered by Devondale and the Australian dairy industry. You should take your own independent advice before making any decisions as to whether you enter the Australian dairy industry. Who is Devondale? Contents Devondale (Murray Goulburn Co-operative Co. Ltd) is Australia s largest dairy company and is a co-operative of Australian dairy farmers. Accordingly, Devondale holds a unique leadership position in the Australian dairy industry across the supply chain. A rich mix of dairy ingredients, consumer products, food service and farm trading stores provides Devondale with a balanced portfolio of products that we can proudly sell to Australia and the world. In 2011-12, Devondale s dairy farmer-shareholders supplied 2.94 billion litres of milk, which is approximately a third of the milk produced in Australia annually. Sales revenue was $2.4 billion and 304,000 tonnes of product was exported, primarily to Asia, the Middle East/Africa and the Americas. Message from the Chairman 2 The Australian dairy industry 3 Devondale at a glance 5 Devondale products and businesses 7 Benefits of supplying Devondale 8 Milk payment system at a glance 9 Devondale in the regions 11 Northern Victoria and southern New South Wales 12 Gippsland 14 South-west Victoria 16 South Australia 18 Contact us 20 Dairying in Australia with Devondale 1

Message from the Chairman The Australian dairy industry The dairy industry in Australia offers a wide range of opportunities for investment and employment. The world demand for dairy products and the diversity of farming systems in Australia provides the opportunity to develop flexible and sustainable dairy enterprises. This booklet is designed to assist you in assessing your future dairy business potential in Australia. It will give you a range of ideas, illustrate the opportunities presented by our dairy industry, indicate issues to be considered, and reinforce the importance and value of a co-operative in the dairy industry. While we will endeavour to give you as much information as possible, we recommend that you also contact local service providers within the Australian dairy industry to gain as much knowledge as possible on your potential new home. Our field service team is a valuable resource with expertise in farm development and management and would be happy to assist you with your endeavours. Devondale is Australia s largest dairy company and is owned by its 2480 dairy farmer-suppliers. We welcome you to visit us in Australia at any time and look forward to discussing your prospects in more detail. Kind regards Philip Tracy Chairman, Devondale Dairying Dairying is the lifeblood of many Australian regional communities and the nation s third largest rural industry, behind beef and wheat. Australia Australia is a significant dairy exporter, accounting for about 7 per cent of world trade. Around 38 per cent ($2.76 billion) of Australian milk is exported. Source: Dairy Australia Dairy Farms There are 6770 dairy farms in Australia with 1.63 million cows producing 9.5 billion litres of milk annually, or an average 5926 litres per cow. Employment It is estimated that there are about 50,000 people directly employed on farms and in dairy manufacturing. On top of that, there are many people employed in associated industries, such as research and development and dairy transport. Value The dairy industry has a farm-gate value of production close to $4 billion annually. The Australian Bureau of Agricultural and Resource Economics and Sciences estimates that the value to the Australian economy is actually 2.5 times this amount. Dairying Australians enjoy dairy products, consuming a substantial 106 litres of milk and 13 kilograms of cheese per person each year. 2 Dairying in Australia with Devondale 3

The Australian dairy industry Devondale at a glance Figure 1: Australian dairy production. Source: Dairy Australia Milk utilisation Production of main commodities (tonnes) Cheese 34% SMP/butter 28% Drinking milk 25% WMP 11% Casein/butter 1% Other 1% Figure 2: Australian dairy regions. Source: Dairy Australia All states have dairy industries, but the bulk of milk production occurs in south eastern Australia. Dairy Farming Areas The national services body for dairy, Dairy Australia, operates Regional Development Programs across the major dairying regions. The programs are as follows: Dairy NSW DairySA DairyTAS GippsDairy Murray Dairy Subtropical Dairy WestVic Dairy Milk powders 371,000 Cheese 340,000 Butter (CBE) 120,000 Western Australia Value of dairy exports $2.76 billion 7% of world dairy trade Northern Territory South Australia Major markets for Australian dairy products (tonnes) Australia 2,825,700 (including 2,385,000 of drinking milk) Japan 115,000 China 109,000 Singapore 90,000 Indonesia 48,000 Malaysia 47,000 Queensland Victoria New South Wales Devondale (Murray Goulburn Co-operative Co. Ltd) is Australia s largest dairy company and is a Co-operative of Australian dairy farmers. Accordingly, Devondale holds a unique leadership position in the Australian dairy industry across the supply chain. A rich mix of dairy ingredients, consumer products, food service and farm trading stores provides Devondale with a balanced portfolio of products that we can proudly sell to Australia and the world. Each of our dairy farmersuppliers owns a part of our business, so their interests are paramount as we strive to maintain leadership in the dairy sector. In 2011-12, Devondale s 2497 dairy farmer-shareholders supplied 2.94 billion litres of milk, which is approximately a third of the milk produced in Australia annually. Sales revenue was $2.4 billion and 304,000 tonnes of product was exported, primarily to Asia, Middle East/Africa and the Americas. Devondale has established an exciting change agenda to return Devondale and the Australian dairy industry to growth, laying the foundations for a future built on profitable growth, operating excellence and innovation. 2011-12 Financial Year Results Farm-gate milk price $5.44 per kg milk solids (41 cents/litre) Export destinations All major markets particularly Asia, the Middle East and North Africa and the Americas. Employees 2100 employees across south east Australia Equity $759 million Percentage of Australian milk volume Approximately 31% Note: Australian milk volume was approximately 9.5 billion litres in 2011-12.* Production volume 740 thousand tonnes of dairy product Domestic revenue $1.2 billion Export revenue $1.2 billion Containers exported In 2011-12, we exported the equivalent of more than 21,000 20-foot containers, making us one of the largest container exporters from the Port of Melbourne and the largest dairy exporter from Australia. 20 Foot Equivalent Units * Source: Dairy Australia Western Dairy Tasmania 4 Dairying in Australia with Devondale 5

Devondale dairy regions and processing plants Devondale products and businesses WA NT SA QLD Ingredients Products: milk powders (full cream and skim), a range of cheese products, specialty ingredients, whey powders, lactose, anhydrous milk fats (AMF), cream, caseins and caseinates, whey and milk protein concentrates. NSW SA ADELAIDE NSW VIC TAS EDITH CREEK Retail and Food Service Products: UHT milk, daily pasteurised milk, butt ers, dairy spreads, cheese, lactose free dairy products, table cream. Brands: Devondale, LIDDELLS, Cobram Premium Cheese Range, Kiewa Country Melbourne 181 Rochester 244 138 Cobram 319 286 148 Kiewa 220 393 464 393 Maffra 132 313 376 451 130 Leongatha 281 366 504 600 500 413 Koroit DISTANCE BETWEEN PROCESSING PLANTS IN KILOMETRES Head office Freshwater Place, Level 15, 2 Southbank Boulevard, Southbank Victoria 3006 Phone: +61 3 9040 5000 Distribution centres Laverton: Integrated Logistics Centre (130,000 tonne capacity) Port of Melbourne: Global Distribution Centre (50,000 tonne capacity) KOROIT ROCHESTER LAVERTON MELBOURNE PORT OF MELBOURNE X 2 COBRAM LEONGATHA KIEWA MAFFRA Processing plant Head office Logistics centres Port of Melbourne: Global Frozen Distribution Centre (18,000 tonne capacity) Victoria Rochester: Cheese, milk powders Cobram: Cheese, milk powders, infant formula Kiewa: Daily pasteurised milk, yoghurt, cream cheese, cream Maffra: Milk powders, blends, butt er Leongatha: Milk powders, butt er and spreads, UHT products, cream Koroit: Butt er, milk powders and associated products Tasmania Edith Creek: UHT products MG milk collection areas Murray River Goulburn River MG Nutritionals MG Trading Products: whey protein isolates, lactoferrin, natural milk minerals, sports proteins, meal replacer / supplements, infant nutrition. Brands: Natra, Ascend, Proform Twenty-one stores and four fertiliser depots servicing rural communities with a range of products and services including hardware; farm needs and equipment; animal health; fodder; dairy hygiene; seed; fertiliser; farm chemicals; work and safety wear; milking machine sales and servicing; technical, and agronomy advice. Other subsidiaries and joint ventures: MG China (wholly owned) Danone/Murray Goulburn (yoghurt and some other fresh dairy) INTERMIX Australia (blended products) Australian Milk Products (dairy products to Central America) Dairy Technical Services (food and milk testing services) ProviCo (calf milk replacer) Tasmanian Dairy Products (milk processing in north-west Tasmania) 6 Dairying in Australia with Devondale 7

Benefits of supplying Devondale Devondale remains 100 per cent controlled by its dairy farmer-shareholders. The co-operative plays a vital part in the daily lives of dairy farming families through milk pricing, on-farm collection, on-farm services, MG Trading Stores, information services, finance and the share office. Regionally-located field service teams maintain strong relationships with dairy farmer suppliers and support queries relating to farm income estimates, finance, milk quality and share matters. Share equity As members of Devondale, dairy-farmer suppliers contribute to a share equity scheme based on the volume of milk supplied. This equity assists Devondale to make capital investments. It also aids in the research and development of new products in order for the co-operative to grow its position in the international and domestic markets. Shares are valued at $1 per share and may be sold (on exiting) for $1. The co-op manages a monthly share offtake scheme in which suppliers are paid the equivalent of $0.065 per litre in shares. All suppliers contribute to the scheme which allows them to develop a considerable shareholding over their time with the co-operative. Dividends may be paid annually on all ordinary class shares and suppliers may elect for this dividend to be paid in cash or reinvested into more shares. Next Generation initiatives Devondale s Next Generation package is designed to assist new and established Devondale dairy farmersuppliers tackle key challenges and make the most of business opportunities. It helps suppliers realise their goals, from getting established as a dairy operator and developing their workforce, through to managing a sustainable business and succession of the family farm. Exclusive to Devondale suppliers, the Next Generation package includes: A significant financial support offering (paid as an investment rebate) for young farmers, farming families and new entrants seeking to grow their business, proactively manage succession or enter the dairy industry Access to employment and immigration resources to address labour market shortages, including immigration advice to assist Devondale suppliers recruit farm employees Leasing partnerships to offer Devondale suppliers or new entrants an alternative to bank debt for business opportunities or industry entry Medium and short-term finance to assist with cash flow management and business sustainability, as well as upgrades to milk vats for improved farm and supply chain efficiency The option to open up longer-term credit lines at Devondale s MG Trading stores for purchases such as seed, fodder and fertiliser Milk payment system at a glance Devondale offers its dairy farmer-suppliers a single base milk price structure, complemented by a series of incentives that reward off-peak milk production, milk production growth and efficiency improvements. The main elements are as follows: Single base price: A single base price tailored to each month of the year will be announced at the start of the financial year. Suppliers can also take up incentives to reflect the different value of milk across the year. Flat milk incentive: The flat milk incentive (formerly the domestic incentive) recognises the value of committed milk during the off-peak period. Growth incentive: The growth incentive recognises the value of additional milk supplied to Devondale. Part of this additional value is distributed back to those suppliershareholders who provide the growth milk to Devondale. Productivity incentive: The productivity incentive recognises scale efficiencies in milk collection for Devondale. Volume and collection charges: The volume charge reflects cost to Devondale in haulage and processing milk of varying composition, while the collection charge reflects the costs associated with each milk collection. * The incentive payments are calculated and paid on only qualifying milk solids that are of Premium 1, Premium 2 and Base quality. They are loyalty-based payments and require the supplier-shareholder to be actively supplying Devondale at the time of payment or deemed by Devondale to have legitimately retired. 8 Dairying in Australia with Devondale 9

Devondale in the regions Devondale dairy farmer-suppliers are located across south eastern Australia. In this section, we provide a snapshot of the four key regions: Northern Victoria and southern New South Wales Gippsland South-west Victoria South Australia 10 Dairying in Australia with Devondale 11

Northern Victoria and southern New South Wales This region is the third largest dairying region in Australia, straddling the Murray River from the Victorian Alps to Swan Hill. It covers the Northern Irrigation and north-east regions of Victoria, and the Riverina and Upper Murray region of New South Wales. Agriculture Agriculture and associated value-adding processing industries are the key drivers of the regional economy with dairy being the biggest player. The region has sufficient economic mass to support a large industry network allowing for easy access to the key services required for the operation of dairy farms. Climate The southern Riverina and northern Victorian regions enjoy a true Mediterranean climate, with low humidity and high sunlight hours. Recent drier than normal seasonal conditions, have led to a focus on high water use to feed conversion crops or pasture. Other strategies include irrigating annual pasture or crops in autumn and spring to maximise rain-assisted growth and also growing high-producing summer crops such as sorghum, millet and maize to fill the feed gap in summer. Cereals such as oats, barley, wheat and vetch are commonly grown for grazing and fodder conservation along with lucerne, ryegrass and clover. Irrigation Northern Victoria is reliant on irrigation to grow the high quality pastures for which the region is renowned. There are two main irrigation schemes in the region Murray and Goulburn and several smaller schemes. Each irrigation scheme is given an allocation as a percentage of the water entitlement. The irrigation season typically extends from 15 August to 15 May. While flood irrigation is the predominant method of watering, there are also travelling irrigators, pivots and subsurface drip in use. Key facts 2012 2011 Milk production (ml)* 2167 1866 Average farm output (ml) 1.792 1.615 Average herd size 253 287 Expected % change in herd next year 48 58 Expected % plan more output in 3 years 4.3 5.2 % positive about dairy 77 74 % plan investment next year 43 54 Source: Dairy Australia Situation and Outlook 2012. Based on the 2012 National Dairy Farmer Survey. 12 Dairying in Australia with Devondale 13

Gippsland The Gippsland dairy region is located in south-east Victoria, extending west towards Melbourne and north to the New South Wales border. The region produces about 20% of Australia s milk from a mixture of rainfall and irrigated dairy systems. Agriculture Climate Irrigation Gippsland s economy is based on primary production and secondary processing. Dairy is the largest agribusiness industry in Gippsland, with milk production accounting for half the value of Gippsland s agricultural commodities. Beef farming is also a large industry in Gippsland, producing about quarter of Victoria s beef. Gippsland is well suited to dairying with a mild temperature and a rainfall variation of 500mm to over 1200mm annually. The Strzelecki Ranges and south Gippsland have reliable high rainfall. Towards east Gippsland the rainfall reduces and irrigation becomes a key part of the dairying system. East Gippsland requires some irrigation to supplement summer and autumn rainfall. Average water use is approximately 6.5 megalitres per hectare using flood irrigation. The only irrigation system in Gippsland is the Macalister Irrigation District which is fed from the reliable water supply of Glenmaggie Reservoir. Farms are entitled to the announced percentage of their water entitlement. The irrigation season typically extends from 15 August to 15 May. Key facts 2012 2011 Milk production (ml)* 2115 2149 Average farm output (ml) 1.918 1.820 Average herd size 284 267 Expected % change in herd next year 1.0 4.5 Expected % plan more output in 3 years 49 42 % positive about dairy 71 80 % plan investment next year 40 53 Source: Dairy Australia Situation and Outlook 2012. Based on the 2012 National Dairy Farmer Survey. 14 Dairying in Australia with Devondale 15

South-west Victoria The south-west region is dominated by primary industry and represents about one third of Victoria s dairy industry. The region stretches from Geelong in the east through to the South Australian border and from the rugged southern coastline up to Ballarat and Hamilton in western Victoria. Agriculture Climate Irrigation Agriculture and associated value-adding processing industries are the key drivers of the regional economy and dairy is the biggest player. The industry has sufficient economic mass to support a large service industry which allows for easy access to the key services required for the operation of dairy farms. The climate of south-west Victoria is mild with warm summers and cool winters. Rainfall is higher in the winter months. South-west Victoria is based predominantly on dryland (rain fed) pasture. Rainfall across the region varies from 625mm to over 1250mm. Approximately 10 per cent of farms are irrigated by spray irrigators from underground aquifers with an estimated average water use of 6 megalitres per hectare. Key facts 2012 2011 Milk production (ml)* 2094 2084 Average farm output (ml) 2.353 2.135 Average herd size 312 300 Expected % change in herd next year 2.3 0.3 Expected % plan more output in 3 years 44 42 % positive about dairy 63 74 % plan investment next year 33 52 Source: Dairy Australia Situation and Outlook 2012. Based on the 2012 National Dairy Farmer Survey. 16 Dairying in Australia with Devondale 17

South Australia The dairy regions of South Australia are the most diverse in Australia. From north of Adelaide to the Fleurieu Peninsula in the south, most dairy farmers operate in a dryland environment. In the expanding southeast dairy area, pasture growth relies on use of spray irrigation. The south east of South- Australia is one of Australia s highest producing dairying areas on a milk solids per cow and per hectare basis. Agriculture Climate Irrigation Agriculture, forestry and associated value-adding processing industries are the key drivers of the regional economy. Dairy, grapes and grazing are all big agricultural players. South Australia enjoys generally lower rainfall, with low humidity and high sunlight hours. Many areas in South Australia utilise irrigation to grow high quality pastures. Spray irrigation is used in most areas using the centre pivot system. Some fl ood irrigation occurs on the Murray swamps around Murray Bridge/Tailem Bend. In the south east, water allocation has been based on a per hectare per farm basis. Key facts 2012 2011 Milk production (ml)* 568 572 Average farm output (ml) 2.285 2.126 Average herd size 315 288 Expected % change in herd next year 2.5 3.8 Expected % plan more output in 3 years 44 50 % positive about dairy 62 45 % plan investment next year 33 37 Source: Dairy Australia Situation and Outlook 2012. Based on the 2012 National Dairy Farmer Survey 18 Dairying in Australia with Devondale 19

Contact us COBRAM Phone: +61 (0) 3 5871 0222 John Furphy (Field Services Manager - Northeast) Phone: + 61 (0)417 343 361 Email: john.furphy@mgc.com.au KIEWA Phone: +61 (0) 2 6027 9200 Rodney Petering (Field Services Officer) Phone: +61 (0)428 993 395 Email: rodney.petering@mgc.com.au KOROIT Phone: +61 (0) 3 5561 9700 Meaghan Johnston (Field Services Manager - Koroit West Region) Phone: +61 (0)408 995 142 Email: meaghan.johnston@mgc.com.au Matthew Morrow (Field Services Manager - Koroit East Region) Phone: +61 (0) 418 589 758 Email: matthew.morrow@mgc.com.au Peter Haynes (Field Services Manager - Support Services) Phone: +61 (0)417 554 772 Email: peter.haynes@mgc.com.au LEITCHVILLE Phone: +61 (0) 3 5451 7111 Neil Ennis (Field Services Officer) Phone: +61 (0)417 862 185 Email: neil.ennis@mgc.com.au Kristen Murphy (Field Services Officer) Phone: +61 (0)417 397 953 Email: kristen.murphy@mgc.com.au LEONGATHA Phone: +61 (0) 3 5662 9666 Tim Cross (Field Services Manager - Leongatha) Phone: +61 (0)408 522 856 Email: tim.cross@mgc.com.au MAFFRA Phone: +61 (0) 3 5147 0777 Gregor Allen (Field Services Manager - Maffra) Phone: +61 (0)417 017 705 Email: gregor.allen@mgc.com.au ROCHESTER Phone: 61 (0) 3 5484 0222 Scott Wells (Field Services Manager - Northwest) Phone: +61 (0) 417 861 260 Email: scott.wells@mgc.com.au Copyright: Murray Goulburn Co-operative Co. Limited 2013 Murray Goulburn Co-operative Co. Limited. Freshwater Place Level 15, 2 Southbank Boulevard Southbank Victoria 3006 Australia Ph: +61 (03) 9040 5000 www.mgc.com.au 20