SUSTAINABILITY REPORT 2018 1 Contents

Sustainability Report

FOR THE YEAR ENDING 31 JULY 2018 FONTERRA CO-OPERATIVE GROUP LIMITED Working together, for tomorrow.

We are working together, for tomorrow.

By improving how we dairy, we can make a positive impact on the world. That means caring about nutrition, for our environment and for our communities.

FONTERRA SUSTAINABILITY REPORT 2018 1 Contents

04 04 10 14 18 20 Letter from Our approach About Fonterra Reporting what’s Our contribution Our Approach Chairman and CEO and progress and our value important to UN SDGs creation

22 28 34 36 37 Health and Food safety In-school Trusted Our Nutrition wellbeing and quality nutrition Goodness

38 48 54 62 66 Water Climate change Packaging Animal health Our Environment and waste and biosecurity

68 74 78 80 82 88 Doing what’s right Health, safety Human rights Responsible Supporting our Our Community by our people and wellbeing procurement communities

90 90 92 94 GRI standards Assurance Associations and Appendices statement memberships

About this report This report covers the activities of Fonterra Co-operative In certain sections throughout the report, we have included This report has been prepared in accordance with the An independent assurance of the report has been completed Group Limited and of joint ventures under Fonterra’s data relating to periods prior to FY18 where such data is Global Reporting Initiative (GRI) Standards: Core option. We have by Bureau Veritas. This provides assurance that the report management control. It covers economic, social and relevant to, or useful context for the reader. Where we have included an index of disclosures against the GRI standards on complies with GRI Standards and provides an accurate and environmental impacts for the year ending 31 July 2018 – done so, we have made it clear which year(s) the data page 90. fair representation of Fonterra’s sustainability performance. ‘FY18’. This report sits alongside our 2018 Annual Review relates to. Refer to the Assurance Statement on page 92. The GRI Standards are the world’s most widely used standards for which sets out our financial performance. This is our second stand-alone sustainability report (our first sustainability reporting, enabling organisations to measure and We understand the importance of understanding www.fonterra.com/annualreview2018 was in 2017) and we intend to continue this reporting on an report their most important sustainability topics. For more stakeholder perspectives so we’d appreciate your feedback on annual basis. information see: this report and our performance. Please email us at [email protected] www.globalreporting.org

2 FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 3 Letter from the Our Values We’re an organisation that spans many countries and cultures, and values are hugely important to us. But when you boil

Chairman and newspix.co.nz Credit: it down, there are just four simple things that guide us. And it doesn’t matter who or Chief Executive where we are within Fonterra, these are the values we all share.

John Monaghan, Chairman and Miles Hurrell, Chief Executive Officer

The Sustainable Co-operative is one External perspectives are invaluable, and we are looking forward We launched our Cared for Cows Standard, bringing an to both guidance and challenges from our newly formed independently verified certification to the way our farmers treat of three core platforms for Fonterra’s Sustainability Advisory Panel. We expect them to be part of our their herds every day. Consumers care about animal welfare as strategy and in many ways is the most conscience as well as a constructive critic. much as our farmers, so it is important we can verify our claims that we care. vital as well as the most challenging. This is our second independently assured sustainability report. It acknowledges that while we are making good progress across our Consumers can also be reassured that New Zealand has among Our Co-operative has a strong heritage of respecting environmental, social and economic goals, some of the progress the lowest greenhouse gas emissions per litre of milk collected our natural resources and working with them to produce 1 will be hard won. We have set industry-leading targets in many in the world at 0.87 kgCO2-e/kg FPCM. This too underlines our quality pasture-based milk. areas, and these need to be challenging, not easy. Where we have commitment to play a leading role in supporting New Zealand to We have changed as times have changed, recognising the tried, but not quite made the mark, we say so. Where we have reach our carbon reduction goals, while also reinforcing we have importance of sustainability and the role it plays in ensuring reached a milestone, we acknowledge it. more work to do to bring our manufacturing emissions down. our economic contribution, as well as our contribution to In many of our priority areas, such as nutrition, the environment Sustainability embraces environmental, economic, ethical and healthy lifestyles, can be both grown and maintained. and the community, we are proud to report good progress, as well community concerns and it can often be a difficult balancing act In some areas, such as the proactive steps taken from as the work yet to be completed. to align them all. In the year covered by this report, our farmers the early 2000s to fence waterways and better manage have weathered some very difficult climatic conditions, from For example, we now have 71% of our everyday and advanced nutrient losses, we have shown leadership from within drought to floods, and they have seen production and anticipated nutrition products meeting our Food and Nutrition Guidelines, Fonterra. In others, such as our alignment and commitment incomes fall. endorsed by the New Zealand Nutrition Foundation. This is to the United Nations Sustainable Development Goals significant progress towards our target of 75% by 2020 and Despite the tough year, they have continued to set their sights (SDGs), we are joining forces across sectors and society underlines our commitment to ensuring dairy remains an essential high and to carry a significant share of our sustainability workload. to contribute to a healthier planet and the lifestyles of the and affordable part of a healthy diet for all ages. It is especially They more than anyone recognise it is important to their families, people on it. pleasing that we can now electronically trace 92% of our products their community, our country and the planet. They deserve and back to the source of our milk – this is a level of reassurance have our thanks. We also appreciate the work of our Fonterra consumers expect and meets our Trusted Goodness promise. employees, our suppliers, partners and customers for their contribution to this year’s progress. Sustainability is not a long-term goal – it is an infinite one. Every year of work that we report represents a small step along the way.

John Monaghan Miles Hurrell Chairman Chief Executive Officer

1 FPCM – Fat-and-protein-corrected milk.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 4 5 Approach Our OUR APPROACH

Global Context

The Earth’s climate has experienced warming of approximately .°C during in the last century and ood-related disasters have increased by in the More than in adults last years. Not only does agricultural are obese, placing them food production need to help reduce A GROWING at much higher risk of greenhouse gas emissions, it must acute and long-term also adapt to the increased variability POPULATION health problems. in weather patterns. Around the world, the way food is produced and consumed is at the .°C centre of many of the sustainability ,,, challenges facing society. The future of food will be shaped It is estimated that by there by the global response to will be another one billion people, these challenges. placing the Earth’s resources under even more pressure.

billion people are already suering from ‘hidden hunger.’ Micronutrient deciency or Over of children ‘hidden hunger’ is estimated under ve are still aected to aect two billion people. by stunting, which can The insucient intake of key impact cognitive micronutrients such as iron, development and iodine and vitamins can impact school achievement. development and exacerbate disease, and the impacts are not always visible. Severe food insecurity was higher in than it was in in every region except northern America and Europe.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 6 7 Approach Our OUR APPROACH The global population is expected Access to nutrition, education, to grow by one billion by 2030, employment and income continue food production overall is depleting to be significantly influenced by a natural resources and rural person’s social background, their communities are migrating to cities ethnicity and gender identity in search of better livelihoods. or expression. An inclusive and Our respectful world is essential for a How do we transform our food fairer and sustainable future. system to produce sufficient good Challenges nutrition, while regenerating the How do we eliminate social environment and returning decent inequity, not just directly in livelihoods to farmers?” our own workplace but through Carolyn Mortland our influence on the supply Director Social Responsibility chain and the wider society The world needs good nutrition to we interact with?” meet the demands of an expanding Susan Doughty global population and rising rates GM Diversity, Inclusion of malnutrition. and Talent The way the world is collectively producing food is depleting natural resources and creating waste faster than our planet can cope with. We believe the global food system must shift from compounding the problem to being part of the solution. With New Zealand’s natural environment and some of the Sustainable diets will involve world’s most effective farmers, we’re well positioned to lead different food sources fulfilling change. Dairy is a source of high-quality nutrition which, if different roles. Dairy is a source produced efficiently and responsibly, can help improve the of high-quality nutrition, but management of ecosystems while enhancing rural livelihoods. it’s being associated, often inappropriately, with negative Our ambition is to make the best nutrition in a way environmental impacts and that regenerates our farms, our country and the animal rights concerns. world. We have a long way to go to achieve this, How do we properly evaluate the with significant challenges. nutritional value of food sources against their environmental and Some of these challenges are: social impacts? What is the best •• Delivering sustainable nutrition balance of different nutrition sources and the role for dairy •• Optimising the role of dairy in sustainable diets within this?”

•• Transitioning manufacturing to net zero emissions Dr Jeremy Hill Chief Science and •• Transitioning to regenerative farming Technology Officer

•• Achieving social equity in our communities.

Using heat to pasteurise milk and Different farming practices dry it into powder is great for food have different impacts on the safety and for turning a short shelf- environment, animal welfare and life, seasonal product into long-life the quantity of high-quality nutrition valuable nutrition, but it requires that can be produced profitably. significant amounts of energy. How do we transition to farming How do we transition that regenerates nature and our manufacturing processes to net environment while ensuring zero emissions while maintaining farmers can make good financial a secure energy supply and safe returns with the highly-productive long-lasting nutrition?” pasture-based farming model that Robert Spurway consumers value?” Chief Operating Officer, Matt Bolger Global Operations Director Farm Services

FONTERRA SUSTAINABILITY REPORT 2018 8 9 Approach Our Our Approach

Nutrition Environment Community A sustainable future for our Co-operative is part of our core strategy – it’s how Address public health challenges by improving Improve the health and biodiversity of our land Support healthy sustainable livelihoods for our the nutritional profile of our products and promoting and waters by reducing the impacts of farming and farmers by returning the most value from every drop we create long-term value for healthy diets. manufacturing and working in partnership with others. of milk by moving more of our milk to higher value. future generations. Improve access to adequate nutrition by developing Lead the transition to a low-carbon future by Provide positive livelihoods for our people by investing in innovation and infrastructure to remove developing a diverse, skilled and agile workforce and We consider the long-term challenges and transitional affordable products tailored to specific nutritional needs greenhouse gas emissions from our supply chain. promoting a healthy and safe working environment. changes we face as a global food producer to ensure we are of communities. acting and planning today with a long-term view, managing Improve the wellbeing of individuals by leading Meet the growing nutritional demand through Invest in the future of our communities by sharing risks and identifying opportunities to deliver sustainable innovation in advanced dairy nutritional products to improvements in productivity and minimising waste what we do best and building farming capability in key business outcomes. address specific health needs. from farm to consumer. emerging dairy markets. To communicate our approach to sustainability we have grouped our priorities under three pillars: FY18 delivery FY18 delivery FY18 delivery Nutrition: • Launch a new affordable product. • Agree action plans for 50 catchments. • Agree target for diversity and inclusion. • Improving health and wellbeing through the products • Continue to reformulate products to nutritional guidelines. • Deliver 1,000 Farm Environment Plans (FEPs). • Introduce family violence support initiative in New Zealand. and services we deliver. • Pilot climate action plan on 100 farms. • Deliver 20+ million free portions of dairy nutrition for New Zealand children. Environment: • Achieving a healthy environment for farming and society. FY19 delivery FY19 delivery FY19 delivery • Launch a new affordable product. • Deliver another 1,000 FEPs. • Halve the gender pay gap for New Zealand employees from Community: • Continue to reformulate products to nutritional guidelines. • Commission biomass co-firing at Brightwater. 2% to 1%. • Delivering prosperity for our farmers and wider communities. • Continue to rollout electronic product traceability. • Establish global targets for waste reduction. • Continue to deliver free portions of dairy nutrition for New Zealand children. • Deliver earnings per share forecast.

Medium-term targets Medium-term targets Medium-term targets • 2019: 100% sites certified to leading Food Safety • 2025: All farms have FEP. • Continue to invest in community programmes in key markets. and Quality (FSQ) level. • 2026: All sites treating wastewater to leading • World-class injury prevention (total recordable injury • 2020: 75% product portfolio meeting endorsed industry standards. frequency rate). nutrition guidelines. • 2030: Climate neutral growth for farming. • World-class engagement. • 2025: 100% product portfolio meeting endorsed • 2030: 30% reduction in GHG emissions for • Return on capital above our weighted average cost of capital. nutrition guidelines. manufacturing operations. • 2050: Net zero emissions for manufacturing operations. Long-term contribution Long-term contribution Long-term contribution

On-track

Behind plan

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 10 11 Approach Our 12 Our Progress OUR APPROACH

FONTERRA SUSTAINABILITY REPORT 2018 REPORT SUSTAINABILITY FONTERRA Community Environment Nutrition 2 1 Return oncapital work hours permillion (TRIFR) Total recordable frequency injury rate Ethnic leadership representation insenior Female leadership representation insenior Employee engagement standards to leadingindustry Manufacturing sites are treating wastewater GHG emissionsfrom FY15baseline Reduction inabsolutemanufacturing Farm Environment Plans (FEPs) (NZ) (NZ) andbenchmarking reporting Farms innutrientmanagement participating water intakes (NZ) Farms withwater meters onsignificant since Net change inGHGemissionsfrom farming dairy supply finished product backto milk Total electronic traceability from safety management system (e.g. FSSC22000) by toleadingfood anindependentthird party Percentage of manufacturing sites certified guidelines. Fonterra consumer branded products. products nutritional that meetendorsed Percentage of everyday andadvanced nutrition Indicator

All targets are global unless stated otherwise (e.g. otherwise stated are unless global NZ). All targets All targets are byAll targets theendofyear thecalendar stated. 14/ 15 (NZ)(Pre-farm gate tCO 1 2 -e)

3 20% by 2022 50% by 2022 by 2020 All Fonterra products 100% by 2019 100% by 2025 75% Target World-class by 2030 30% reduction 85% by 2020 Neutral to2030 100% by 2025 average cost of capital Above ourweighted 100% by 30Nov 2015 World-class 100% by 2026

survey was moved to the start ofOur FY19 FY18survey was thestart moved to year continue to anditisexpected at thistiming. for increased participation by 2020 2 (<5)

, amore suitable timeof reduction 9.2% 3.6% 3.6% FY16 50% 86% 25% 3.65 6.4 – – – – – – –

reduction 252,000 252,000 baseline 30.5% below 8.3% 4.7% 4.7% FY17 62% 95% 25% 81% 3.85 51% 5.2 – – –

reduction baseline 817 below 30.1% 4.00 3 6.3% , 90% 26% 92% 97% FY18 10% 000 53% . 71% 0 9% 6.1 % 3

FONTERRA SUSTAINABILITY REPORT 2018 REPORT SUSTAINABILITY FONTERRA Status See page Page Page Page Page Page Page Page Page Page Page Page Page Page Page 50 50 29 34 34 78 52 77 14 57 55 75 75 51 13

Our Approach OUR APPROACH

About UNITED STATES EUROPE CHINA NEW ZEALAND 92 136 1,697 12,298 EMPLOYEES EMPLOYEES EMPLOYEES EMPLOYEES Fonterra $793M $681M $3.98B $2.08B REVENUE REVENUE REVENUE REVENUE 1 7 30 MANUFACTURING FARMS MANUFACTURING Fonterra is a New Zealand-based dairy SITE SITES co-operative which brings together 10,000 farmers to care for people and the land through generations. Ine Koot Technical Innovation Lead Our New Zealand-based advantage is our pasture-based Europe, Amsterdam, The Netherlands farming model, with our farmers closely connected to the Jason Mercer Tao Wang natural environment and their local communities. National Account Manager FSQR and Health Chicago, and Safety Direct From our home in New Zealand, and from the farmers United States Shanghai, China we work with in a number of other markets, we make high-quality dairy ingredients, foodservice and consumer dairy products, which are sold into 138 countries around the world.

GLOBAL DATA Tara Josie McKerrow 22,358 ( FROM 22,269) EMPLOYEES Plant Manager EMPLOYEES Whareroa, New Zealand $20.4B ( FROM $19.2B) 22,358 REVENUE

51 MANUFACTURING SITES1 $20.4B Udara Harshana Abayawardana REVENUE 6.3% ( FROM 8.3%) Senior Engineering Assistant RETURN ON CAPITAL2 Leandro González P. Fonterra Brands Lanka (Pte) Corporate Manager Biyagama, Sri Lanka Health, Safety and Environment, Global revenue from sale of goods: Risk and Resilience Valencia, Venezuela $20.4B (up from $19.2B) REST OF ASIA AUSTRALIA Jane M Sugrue Regional Environmental Economic value distributed FY18 $ million FY17 $ million Manager West Victoria, Australia Payment to suppliers (farmers) 10,115 9,471 2,392 1,432 for NZ-sourced milk EMPLOYEES EMPLOYEES

Payment to suppliers (farmers) 1,245 932 $5.68B $1.84B for non-NZ sourced milk LATIN AMERICA REVENUE REVENUE (CHILE, BRAZIL, VENEZUELA) Tax expense3 42 20 4 7 MANUFACTURING MANUFACTURING SITES SITES Profit after tax attributable 221 loss 734 (earnings of to shareholders (earnings of $0.46 per share) 4,003 -$0.14 per share) EMPLOYEES REST OF WORLD

Dividend payment to equity 161 642 (dividend of $2.27B REVENUE holders of the Co-operative (dividend of $0.40 per share) 308 $3.12B $0.10 per share) 7 EMPLOYEES REVENUE MANUFACTURING SITES 2 For our full financial results, please refer to our Annual Review: 1 This is the number of manufacturing sites under Fonterra management control. MANUFACTURING www.fonterra.com/annualreview2018 2 Return on capital excluding brands, goodwill and equity-accounted investments SITES was 8.0% (down from 11.1%). 3 See www.fonterra.com/taxprinciples for details on our approach to tax.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 14 15 Approach Our OUR APPROACH Our Value Creation Inputs - Our dependencies Outcomes - Our value creation Social capital Social capital We rely on the social capital of our Co-operative as 10,000 New Zealand We exported to 138 countries and we are working to encourage farmer shareholders working together. international trade and increase common understanding through We rely on positive relationships with governments to enable trade and stakeholder engagement. collaboration with others, to efficiently and effectively deliver nutritional We partner with others to achieve positive social impact at scale products to the world. We source raw milk from farmers through programmes such as Fonterra Milk for Schools, KickStart Breakfast, Living Water, Sustainable Catchments and Fonterra Grass Roots Fund.

Intellectual capital Intellectual capital We rely on the know-how, systems and intellectual property Our people, processes and systems mean: that more than 170 years of dairying experience in New Zealand • 90% of our manufacturing sites are certified to leading food safety standards and more than 90 years of investment in research and development • 92% of our products can be electronically traced back to milk supply. has generated. We are working to deliver further innovations such as farming practices, methane reduction, improved nutrition and efficient manufacturing.

Financial capital Financial capital We rely on a strong financial base to operate and invest We create financial value for our investors and farmers by generating in infrastructure for the future. demand for their milk in higher-value products (up 3% to 45% in FY18). We employed capital of $9,552 million from our farmer •• Return on capital was 6.3% shareholders, unit holders and from debt during FY18. •• $10,115 million paid to farmers for New Zealand-sourced milk to make and distribute nutrition around the world •• $161 million paid as dividend. We are working to deliver a respectable return on capital and a strong payout to our farmers.

Physical capital Physical capital We rely on the property, plant and equipment that allow us to collect We manufactured 4 million tonnes of finished goods and commissioned milk, and make and distribute our products to the world. new infrastructure including: With a total net book value of $6,810 million at the end of FY18 •• New cream cheese, butter and UHT plants in New Zealand this included: •• New cheese plant in Australia. • 500+ milk collection tankers We are upgrading our assets to be more resource-efficient and meet • 51 manufacturing sites. the changing demands of our customers.

Human capital Human capital Over 22,000 talented employees directly contribute around We are working to improve health and wellbeing through the products the world. and to consumers. and services we deliver. We provide a workplace that delivers: Over 29,000 farmers and farm workers use their skills as ingredients, for foodservice and to consumers. •• A safe environment (TRIFR = 6.1 per million hrs) to provide us with milk. And thousands of people in our supply chain •• High staff engagement (MySay = 4.00) are vital to the provision of the goods and services we procure. •• Good development opportunities. We are working to increase our positive impact by developing a diverse and inclusive workforce and providing support services to our farmers. ENTRY

Natural capital Natural capital Our farmers and their 4.7 million milking cows rely on 1.8 million Our supplying farms emit 20 million tonnes of CO2-e and can impact hectares of pastoral land where rain, sunlight and soil grows natural local water quality. We are working with our farmers to achieve a healthy grass. Some additional inputs include fertiliser, irrigated water and environment for farming and for society.

animal nutrition. Our manufacturing sites emit 2 million tonnes of CO2-e and discharge Manufacturing processes farmers' milk, combining it with other ingredients 59 million cubic metres of water, which can impact local water quality. and materials to make our products. This includes 29PJ of energy and We are investing to improve resource efficiency, transition to renewable 54 million cubic metres of fresh water. energy and achieve leading standards of wastewater treatment.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 16 17 Approach Our OUR APPROACH

Our Responding to Farmer shareholders and supplying Investors (including unit holders, farmers around the world bond holders and banks) Stakeholders We engage with our New Zealand farmers We engage with our investors on a what’s important shareholders at meetings and roadshows, and regular basis through updates, formal through the formal governance of our Co-operative. reporting and meetings coordinated We also engage with farmers on an ongoing basis through our Capital Markets team. directly through employees, such as Area Managers We also share information through this Taking into account the and Sustainable Dairying Advisors. report and the Carbon Disclosure Project. views and perspectives Topics of most importance: Topics of most importance: Nutrition and health – see page 28 At a governance level, the of our stakeholders, and • Financial performance • Financial performance Co-operative Relations • Food safety and quality • Biosecurity risks to animal, plant Improving the range and formulation of our nutrition portfolio to meet our building relationships, • Biosecurity risks to animals, plant and human health independently endorsed nutrition guidelines. Committee of the is critical to the and human health • Food safety and quality Fonterra Board provides • Organisational governance. • Climate change, including energy use Food safety and quality – see page 34 long-term success of • Water governance oversight our Co-operative. • Minimising waste. Working towards all manufacturing facilities being certified to benchmark standards, embedding a culture of food safety and investing in electronic of the management of Our stakeholders are the people and traceability and food defence mechanisms. Fonterra’s relationships organisations that we interact with and with key external influence along our value chain, both Water – see page 48 stakeholders including directly and indirectly. Reducing water use and improving wastewater quality at our manufacturing relationships with sites. Working with our farmers to minimise their impact on water quality. Over the past year we have strengthened governments, NGOs our stakeholder engagement around Working with our communities to improve the health of waterways at several specific sustainability topics. catchment scale. and community For example, for Sustainable Catchments, representatives. see section on page 48. Climate change – see page 54 Employees Improving energy efficiency in our operations and transitioning to low carbon This year, we directly surveyed We engage with our employees on an ongoing energy sources. Improving productivity on farm and investing in research and representatives of key stakeholder basis through our everyday interactions, regular groups to help us further understand engagement surveys and engagement with unions. development to help reduce animal emissions. the relative importance of Topics of most importance: sustainability topics for reporting. We • Food safety and quality Packaging and waste – see page 62 have also used previous materiality • Using water responsibly, including water quality Seeking opportunities to decrease materials used, increase reuse and recycling, and availability and reduce our solid waste to landfill. assessments, as published in 2017, to • Minimising waste inform our understanding. • Protecting the health and safety of people at work. Animal health and biosecurity – see page 66 Using the topics that we covered in the Working with government agencies to minimise the impact of M. Bovis and Sustainability Report 2017 as a starting supporting farmers to eliminate practices that contravene the five freedoms. point, we used the relative importance and non-importance indicated by this Customers and consumers Employment rights – see page 74 year’s stakeholder survey responses to inform the coverage in this report. We engage with our business-to-business Working with employees and unions to ensure we have a fair working customers on an ongoing basis through our The responses were assessed by environment, that encourages diversity and inclusion, and on-going learning account management teams and by sharing stakeholder group and the results for information through programmes such as and development. Central and regional governments SEDEX and the Carbon Disclosure Project. each stakeholder were treated on an equal basis. Topics of high importance We engage with central and regional governments Our engagement with customers Health, safety and wellbeing – see page 78 at many levels, coordinated through our provides us with insight on their consumers to many stakeholder groups have Government and Stakeholders Affairs team. We and we engage with our own direct Continuing to focus on getting employees, contractors and visitors home safe therefore been given priority in this also work in partnership on important issues consumers through our service teams, email every day and influencing our supply chain and wider society to do the same. report. Topics of lower importance to such as climate change (Pastoral Greenhouse Gas and social media, and consumer research. Research Consortium), NZ Water (Department of NGOs many stakeholder groups have been Conservation), and children’s wellbeing (KickStart We engage with non-governmental organisations Topics of most importance: Human rights – see page 80 omitted from this document, but may Breakfast programme). (NGOs) through collaboration and consultation on • Using water responsibly, including Continuing to assess the risk of human rights violations in our value be disclosed on our website or in other specific topics, e.g. The Forest Trust on palm products water quality and availability Topics of most importance: chain and providing specific support for highest areas of risk: bullying and reports or publications. sourcing and the New Zealand Nutrition Foundation • Food safety and quality • Climate change and mitigation on nutrition guidelines. • Biosecurity risks to animal, domestic violence. • Food safety and quality Topics of most importance: plant and human health • Protecting health and safety of people at work • Using water responsibly, including water quality • Climate change Responsible procurement – see page 82 • Human rights To determine the content for this report we applied the GRI’s and availability • Human rights • Using water responsibly, including Assessing and influencing our supply chain to reduce the risk of social and principles for defining report content including context, • Climate change and mitigation • Animal health and welfare. completeness, stakeholder inclusivity and materiality. water quality and availability. environmental abuses. • Nutrition and health The boundary for each material topic was defined on the basis of our materiality analysis. • Minimising waste.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 18 19 Approach Our OUR APPROACH

Sustainable Development Goals Our contribution Indicator Dairying Operations Consumption

Our Contribution End poverty in all its Create positive employment opportunities along our value chain 1.2 to United Nations forms everywhere

Sustainable End hunger, achieve food security Provide access to safe, affordable nutrition 2.1 and improved nutrition and promote Address malnutrition through products tailored to specific health needs 2.2 Development Goals sustainable agriculture Share our dairy expertise with small-scale producers 2.3

Lift dairy productivity to meet growing nutritional needs 2.4 3.1 Ensure healthy lives and promote Responsibly provide products to support wellbeing of mothers and infants 3.2 well-being for all at all ages Continue to improve the nutritional profile of our products 3.4

Promote healthy and informed consumer choices 3.4

Achieve gender equality and Ensure equal participation and opportunities for women in the workforce 5.5 empower all women and girls

Share our dairy expertise with female small-scale producers 5.5

Ensure access to sanitation and Reduce the impact of farming and manufacturing on water 6.3 water for all quality and ecosystems 14.1 15.1

Fonterra supports the United Nations Conserve and sustainably use the Increase water efficiency in areas of constrained supply 6.4 Sustainable Development Goals (SDGs) oceans, seas and marine resources and we are committed to playing our part, by working collaboratively to deliver change at scale. Sustainably manage forests, combat Protect and restore freshwater ecosystems 6.6 The Dairy Declaration of Rotterdam,1 recognises the SDGs desertification, halt and reverse land as the overarching framework for achieving sustainable degradation and halt biodiversity loss development to 2030 and the critical contribution the dairy sector will play. We understand that the SDGs and their underlying targets Promote inclusive and sustainable Provide positive and inclusive employment for all groups 8.5 can help us refine our sustainability approach, not only to economic growth, employment and 8.7 Address labour and human rights issues in our supply chain reduce risks, but also to identify opportunities for growth that decent work for all 8.8 contribute positively to their achievement. Provide a safe and secure working environment 8.8 We have analysed our business activities, material issues and value chain against the SDGs and their underlying 169 targets. Ensure sustainable consumption Manage and use natural resources efficiently 12.2 Here we identify the specific goals where we can make the and production patterns most material contribution, the objectives we have prioritised Reduce food waste throughout our supply chain 12.3 for specific indicators and where this occurs in our value chain. Reduce waste generation through our operations and product packaging 12.5

Take urgent action to combat Support farmers to build resilience to climate change 13.1 climate change and its impacts

1 A joint declaration of the UN Food and Agriculture Organization and the International Reduce emissions across our supply chain Dairy Federation signed in 2016.

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responsible products. We will: We are focused on providing healthy and How Fonterra ismakingthishappen

• • • • KEY HIGHLIGHTS address specifichealthneeds. innovation nutritionalproducts inadvanced to dairy Improve thewellbeing of individualsby leading needs of communities affordable tailored products tospecific nutritional Improve access toadequate nutritionby developing healthy diets nutritional profile of ourproducts andpromoting Address publichealth challenges by improving the to where the milk was page to where –see themilk collected electronic traceability from thefinished product back Food safety andquality: 92%of ourproducts have page nutritiondivision–see medical Advanced nutrition:We launched anew dedicated under development page but itisstill –see affordable product this year hasbeendelayed toFY19 Affordable products:Our plannedlaunch of anew page nutrition guidelines –see nutrition products meetindependentlyendorsed Nutritional profile: 71%of oureveryday andadvanced

34 30 meet thebody’s needsfor: They muscles. help also helps grow andrepair high-quality protein which They provide and energy nutrient-dense foods Dairy products are (Riboflavin) whichhelps which supports normal normal which supports and immunefunction. which supports vision vision which supports reduce tiredness. brain function. Vitamin B12 Vitamin B12 Vitamin B2 Vitamin A Vitamin A

strong teeth and bones. build helps which Calcium function.muscle which supports Potassium fromenergy nutrients. which helps generate Phosphorus

FONTERRA SUSTAINABILITY REPORT 2018 REPORT SUSTAINABILITY FONTERRA SDGs from anutritionperspective. Fonterra’s contribution tothe infants (3.1 and3.2) wellbeing of mothersand support Responsibly provide products to nutritional needs(2.4) Lift productivity dairy tomeetgrowing needs (2.2) products tailored tospecifichealth Address malnutritionthrough nutrition (2.1) Provide access tosafe, affordable profile of ourproducts (3.4) Continue toimprove thenutritional consumer choices (3.4) Promote healthy andinformed 2 breast-milk substitutes. promotionthe responsible of page 28 See for our position on for on ourposition 2

Our Nutrition we sell Where 26 * as inrestaurants, cafés andbakeries. beverages that are consumed outof thehomesuch industries intheworld andencompassesfood and in over 50countries. Foodservice isoneof the largest Fonterra suppliesfoodservice products tocustomers Foodservice and Anmum.™ Our three globalbrands are Anchor,™ Anlene™ powders,butter andcheese. milk yoghurt, as milk, products directtoconsumers,branded sold such dairy own consumer products.products These include Fonterra manufactures, markets anddistributes our Consumer and extra-stretch cheese. powder grademedical lactose, wholemilk high-spec ingredients products includefunctional proteins, own research andprocess innovation. Advanced superior product by performance supported Fonterraʼs We produce also advanced ingredients, whichhave powder,as wholemilk butter andcheese. bulk leading food products such companies.includebulk These Fonterra ingredients tomany of suppliesdairy theworldʼs Global Ingredients OUR NUTRITION from internal sales of $3.26 billionand683,000MT.from of $3.26 sales internal and 22,000MT andtheelimination of andvolumes revenues Group includeChina totalsalso Farms billion revenue of $0.3 & FOODSERVICE* $7.12B 1,798 $16.3B 2,986 SOLD TO OTHER COMPANIES* TONNES, THOUSANDS) VOLUME (METRIC TONNES, THOUSANDS) VOLUME (METRIC REVENUE ($BILLION) REVENUE ($BILLION) TOTAL CONSUMER INGREDIENTS GLOBAL FONTERRA SUSTAINABILITY REPORT 2018 REPORT SUSTAINABILITY FONTERRA

(

( FROM 1,783) 1,783) FROM FROM 3,019) FROM FROM $6.52B) FROM $6.52B) FROM $15.3B) FROM $15.3B)

LATIN AMERICA $1,534M 578 TONNES, THOUSANDS) VOLUME (METRIC CONSUMER AND FOODSERVICE REVENUE ($MILLION)

( FROM 600) 600) FROM

( FROM $1,478M) $1,478M) FROM

138 COUNTRIES $1,865M 331 CONSUMER AND FOODSERVICE REVENUE ($MILLION) TONNES, THOUSANDS) VOLUME (METRIC ASIA

( FROM 310) 310) FROM

( FROM $1,810M) $1,810M) FROM

to 138countries thisyear. Our products were delivered $1,564M 266 CONSUMER AND FOODSERVICE REVENUE ($MILLION) TONNES, THOUSANDS) VOLUME (METRIC GREATER CHINA

( FROM 237) FROM

( FROM $1,277M) $1,277M) FROM

FONTERRA SUSTAINABILITY REPORT 2018 REPORT SUSTAINABILITY FONTERRA CONSUMER AND FOODSERVICE $2,159M

TONNES, THOUSANDS) REVENUE ($MILLION) 623

( VOLUME (METRIC FROM $1,952M) $1,952M) FROM OCEANIA

( FROM 636) 636) FROM

Our Nutrition wellbeing Health and 28 practices across branded consumer all products andingredients. criteria for thecomposition of products, andinform ourmarketing by issupported guidelines thatnutrition define The policy detailed the world. commitments todeliver products to highlynutritiousdairy The Fonterra Group Nutrition Policy outouroverarching sets Our approach the World The recently publishedState of Food Security andNutrition in Thereʼs work todoachieve this. to leadhealthy andfulfilling lives. forGood nutritionisessential people with new product innovations. ingredient products, by influencingandhelping ourcustomers but wetoaddvalueourrange seek also of foodservice and We focus onthebranded consumer products we control directly, and wellbeing. our globalapproach tonutritionanditscontribution tohealth and wellbeing for peoplearound theworld.covers Thissection playcan inaddressing indietsandimproving deficiencies health As afood company, we recognise thevaluable role products dairy than 22%of children underfive globally. overweight later inlife. Disturbingly, affects stunting still more orstunting,with lowbirthweight have ahigherchance of being andstunting inchildrenbirthweights increases.Inturn, children When pregnant women have pooraccess tofood, theriskof low triple burden of malnutrition–co-exist. obesity andmicronutrientundernourishment, –the deficiencies time, Inmany countries, adultobesity climbedto672million. reversingto 821million, alongdownward trend. At thesame nutrition. In2017, thenumberof undernourishedpeopleincreased OUR NUTRITION FONTERRA SUSTAINABILITY REPORT 2018 REPORT SUSTAINABILITY FONTERRA 1 highlights worrying health statistics related to poor related topoor highlightsworryinghealthstatistics

• • • 1 • products intofour categories: research anddevelopment processes, we have grouped our of ourconsumer productsAs part strategy, andtoguide our are sold. countries where ourproducts targeting infants andyoung children complying codes withtherelevantandlegislation inall industry Marketing of Breast Substitutes Milk andare committed to We theaimandintent of theWHOCode support for the sugar intake. (WHO) recommended guidelines for limitingdailyadded to help consumers achieve theWorld HealthOrganizationʼs criteria for addedsugarscarbohydrates andrefined are intended nutritioninhealthy,of dairy balanced diets.For example, our toraiseawareness andadvocacy activities education of thevalue national food standardsandregulations, aswell asourown directives guidelines complement onnutritionandhealth.These founded inrobust international nutritionalscience andreflecting reviewed guidelines asevidence-based, these and endorsed The New Zealand Nutrition Foundation hasindependently World 2018. Building resilience climate for food securityandnutrition. Rome, FAO. FAO, IFAD, UNICEF, WFPandWHO. 2018.TheState of Food Security andNutrition inthe Occasional andindulgent –Promoted asoccasional products Affordable nutrition–Products formulated onsound based Everyday nutrition–Daily nutrition, of serves dairy Advanced nutrition–Daily nutritionwithtargeted dairy (e.g. Tip Top ice cream). to beenjoyed of ahealthy, in moderation aspart balanced diet (e.g. Drinkin Anchor™Fortified Milk Ethiopia). access toaffordable nutritionto fightundernourishment science toaddress specificneeds of communities, providing (e.g. Anchor™Milk). the dailynutrientrequirements of ahealthy, balanced diet andflexible promoting theimportant inmeeting role of dairy Heart-Plus™, NZMPSkim SuperFortifiedInstant Milk Powder). on based specific healthbenefits robustevidence (e.g. Anlene science,sound on nutritional fortification based promoting

DR20™ can also help also DR20™ can reduce depression postnatal by 50%. during pregnancy, anew study published thisyear indicated that reducepotentially theriskof gestational diabetes whentaken DR20™, whichhasshowntohelp treat childrenʼs eczemaand Building onprevious research probiotic intoourproprietary strain bonedensity.maintained supplements improved Dlevels vitamin and andgripstrength, womenChinese livinginMalaysia, we showed that fortified milk in post-menopausal women. Similarly, for pre-menopausal Dimprovesfortifiedcalcium andvitamin with bonedensity Looking at womenʼs health, ourresearch hasshownthat milk positive protein onmuscle impact synthesis. products onmobility, protein demonstrating that dairy hasa This year, we continued our research intotheeffects of dairy nutritional needsandexpectations of society. benefits tomeetthe supported from dairy driving scientifically and technicalexperts. Itʼs here that we invest mostininnovation, of thelargest of itskindintheworld, withover 300scientific The Fonterra Research andDevelopment Centre isone (FRDC) Investment ininnovation this year. Improving Nutrition onpage Our(see Performance onpage section nutrition products andthisyear we have ourbaseline established We have ourselves set targets for oureveryday andadvanced fathealth, andlimitingtotal content. sodium inproducts limitingpositioned artificial), for nutritionand requirements perserve, minimisingaddedsweeteners (natural or carbohydratesand refined tolessthan2% dailyenergy of total content. We areminimisingtheadditionof also addedsugars riboflavin,calcium, B12,phosphorusandpotassium niacin,vitamin nutritioncriteria minimums Our define dairy protein, for dairy We continue toimprove thenutritionalbenefits of ourproducts. Improving thenutritionalprofile of our consumer products What weʼve beendoing 31 for examples of improvements

). See the Case Study32). SeetheCase on

malnourished, whenthey were admitted tohospital. study were found orwere tobeat riskof malnourishment, almost 75% of olderadultsinvolved inarecent Massey University home are malnourishedorat riskof malnutrition.InNew Zealand, of poornutrition.InEurope, about20%of olderadultswholive at including New Zealand, are at higher riskof healthissuesbecause function inpeopleover 70years. Olderpeopleinmany countries, to investigate therole ofnourishmentand dietinmaintaining international project with24scienceandnutritionorganisations of thisnew venture,As part we inamajor are participating for ourfarmers’ milk. delivering apositive onsociety anddelivering impact highervalue of ourstrategy tounlockthehealth benefits of dairy,This ispart preventative tohelp actions themlive longer andhealthierlives. stages offrom at all life, andillness disease orwhowant totake range for nutritionsolutions of dairy peoplewhoare recovering team istaskednutrition division.Thesmall withpioneeringa many years, thisyear wemedical aspecialised decidedtoestablish With NZMP ingredients positively contributing tothisarea for Established new nutritiondivision dedicated medical FONTERRA SUSTAINABILITY REPORT 2018 REPORT SUSTAINABILITY FONTERRA 29

Our Nutrition wellbeing Health and 30 year ahead. meals. We are nowinvestigating thenew product launch for the areas theirlife, tounderstand dailyhabitsand howthey prepared included theteam spendingtimelivingwithconsumers inremote them andadjustingtheproductontheirfeedback. based This consumers toco-create testing with suchaproduct –undertaking nutrientdeficiencies. important We’ve beenwith closely working andteachersdoctors inkey markets todetermine themost estimated. We’ve engaged withgovernment officials, NGOs, this year, butthedevelopment hastaken phase longer thanwe We hadplannedtolaunch anew affordable nutritionproduct channels toreach ourtarget audience. in remote andrural areas, anddesigninnovative communication is asuccess. We needtoconsider also access for consumers living of ensure aspects theproduct it that will nutritional anddietary families livingonlessthanUS$10 aday. It’s notjustthetaste, to fightmalnutritionthroughtargeted new products that nourish We have tocreate recognised theopportunity valueby helping ofproportion thepopulation survivesonlessthanUS$10 aday. In countries withemerging markets suchasEthiopia, asignificant Developing affordable nutrition OUR NUTRITION FONTERRA SUSTAINABILITY REPORT 2018 REPORT SUSTAINABILITY FONTERRA continued.

2 1 health outcomes for Australians. all food increasedphysical groups, activitytoimprove andsupport promote theconsumption products of asoneof dairy thecore for government, andcommunity-based initiatives industry that into theobesity Our epidemic. submission reinforced oursupport In 2018,we madeasubmissiontotheAustralian Federal Inquiry deliver nutritionprogrammes ourin-school page (see 1 applicable page the formulation of oureveryday products inNew Zealand (see for children inNew all Zealand. Thisyear, we continued toimprove and contributing that aimtohelp solutions reduce rates of obesity Healthy Kids Pledge. Industry We are committed toidentifying In 2017, we signeduptotheNew Zealand of Ministry Health’s onhealth action Supporting business, givingmore optionstocustomersandconsumers.dairy ingredients may play arole ourcore inourbusinessalongside as plantandfermentation-produced nutrition.Over timethese investigate thepotential nutritionsources of such complementary organisations, includingresearch institutes andstart-ups, to We’re therefore working withawiderange of world-leading traditional andalternative nutritionalsources. protein, we involve believe dietwill asustainable acombination of To help meettheworld’s increasing needfor food, especially continue topurchase itasapremium source of nutrition. value thenatural goodness andwe of dairy are confident they will by governments andhealthexperts around theworld. Consumers to play afundamental role inhealthy, balanced dietsasrecognised fats, lactose, minerals andothermicro-nutrients withtheflexibility Dairy isaunique source of nutrition: a complex mixof proteins, Investigating nutrition complementary regulations for the category. Excluding infant formula follow-on comply isaddedto withthe milkwhere lactose is not accepted. where is not for thepackaging used also regions to export where theHealth Star Rating for are intended those everyday consumption products Applicable inNew Zealand and

29), rolling outHealthStar Ratings 46%of onafurther our products (achieving a total of 93%) and continuing to productsof 93%)andcontinuing (achievingatotal to

36).

excessive sugar intake. induced diabetes dueto and theriskof pregnancy as excessive weight gain pregnancy concerns such to help address common flavour. are These intended version for thechocolate flavour, anda reduced sugar the Anmum™Materna plain added sugars formulation for This year, we launched ano of breastfeeding mothers. the nutritionalrequirements formulated specially tomeet is children. Anmum™Lacta or women planningtohave needs of pregnant women thenutritional support formulated specially to Anmum™ Materna is in Malaysia Healthier optionsfor mothers CASE STUDY FONTERRA SUSTAINABILITY REPORT 2018 REPORT SUSTAINABILITY FONTERRA range the entire Anmum™ no addedsugars across complete ourrollout of releases These Anmum™ Lacta. Anmum™ Lacta. added sugars version of we releasedanew no At time, thesame gut health. good DR10™ tosupport fortifiedalso withprobiotic The new formulation is 2 inMalaysia.

Our Nutrition wellbeing Health and 32 Our performance INFORMAS. Zealand andAustralia developed usingamethodology by were thisyear independentlyassessed by universities inNew Our commitments topopulation nutritionandobesity prevention magazine andReaders’ Choice Award 2018. Anmum™ Materna was awarded theMalaysian Parenthood of 2017, awarded by TheNew Zealand Healthy Food Guide. Anchor™ Protein+ PlainYoghurt won the bestDairy Product Awards andrecognition ensuring we meetourcompliance obligations. guidelines. Nofinancialpenalty was imposed. We are on focused In thepastyear, we hadoneperceived breach of marketing Compliance withregulations commitments andouroverall results inany future studies. toimprovein bothjurisdictions, transparency around ournutrition welcome tocontinue engaging theopportunity withresearchers population nutritionstrategy, andwe ranked ninthinAustralia. We overall inNew Zealand, awarded withtopmarks for ourcorporate that ispubliclyavailable andwe were toberanked pleased second OUR NUTRITION Indicator Our targets products globally) (Fonterra consumer branded nutritional guidelines products that meetendorsed and advanced nutrition Percentage of everyday FONTERRA SUSTAINABILITY REPORT 2018 REPORT SUSTAINABILITY FONTERRA 2 The assessment is primarily based oninformation isprimarilybased Theassessment continued. 1

Target 100% by 2025 75% by 2020 FY16 – Performance 2 1 30 countries worldwide.30 countries inover network foodAn international that benchmarks environments of researchers against allguideline criteria. are assessed All new products andinformationof theportfolio theguidelines predates on other isnot criteria available. most onprotein onlybecause criteria isbased and calcium of existing products Assessment • • • WHATʼS NEXT

launch at leastonenew affordable nutritionproduct. We complete will ournew product development and sugars,carbohydrates. andrefined salt our consumer branded productsadded andminimise We continue toimprove will thenutritionalvalueof and new innovations for ourentire product range. We continue toinvest will inresearch anddevelopment FY17 – 71% FY18 Commentary to achieve thetargets. improvements butwe are ontrack deliver of some theremaining Innovation berequired will to withthebaseline.pleased new target we inFY17andwe set are We ourportfolio assessed for the

a healthy diet. make informed choices for role of protein indietsand consumers the understand tohelp of nutritionarticles Anchor website withasuite This year, we relaunched our evening meal. of theirprotein intheir many consumers get most health.However,muscle optimal day tosupport be spread throughout the that protein intake should Scientific evidence suggests their protein intake across theday Helping consumers spread CASE STUDY FONTERRA SUSTAINABILITY REPORT 2018 REPORT SUSTAINABILITY FONTERRA FONTERRA SUSTAINABILITY REPORT 2018 REPORT SUSTAINABILITY FONTERRA

intake across theday. spread theirprotein to help consumers boosters, are designed yoghurts andsmoothie high-protein milks, products, whichinclude Anchor™ Protein+ Our range of

33 33

Our Nutrition and quality Food safety 34 China have achieved thisbenchmark. achieving thislevel. Inaddition, ourownfarming operations in This year, we have progressed manufacturing to90%of all sites independently certified to benchmark tobenchmark qualityindependently certified standards We are working towards ourmanufacturing all facilities being Trust inSource What weʼve beendoing key bodies. account customersandcertification toregular fromis subject scrutiny audits by third-party regulators, embedded across Fonterra. Our Food Safety andQuality System model, includingtheFood Safety andQuality Council, hasbeen Safety, Quality andRegulatory (FSQR)organisation andoperating of approach andcontinuous improvement, theGroup Food sites andproviders of goodsTo andservices. ensure consistency to individualmanagers, workers, contractors working onFonterra the Board of Directors, through theFonterra Management Team, around theworld. Accountability for performance extends from – from ourfarms theway all toourcustomersandconsumers At Fonterra, food safety andquality iseveryoneʼs responsibility requirements, andourfood safety andquality behaviours. our Food Safety Policy, businessunitrequirements, partner Safety and Quality System ismadeupof four key components: framework todeliver safe, quality Our products Food andservices. whereverthat, we are intheworld, we have aclear, consistent Fonterra operates aFood Safety andQuality System toensure Our approach launch andonanongoing basis. forassessed healthandfood safety priortoinitial impacts world-class quality. That’s ourfood why all products are our food tostandardsof uncompromising food safety and We make apromise toourcustomersandconsumers tomake Itʼs our promise. World classquality. Safe food. Safe people. OUR NUTRITION FONTERRA SUSTAINABILITY REPORT 2018 REPORT SUSTAINABILITY FONTERRA

by 2019.

1 paediatric products inChinaandHongKong. China. During FY18thishasbeenextended of toretailssales and maternal products inNew Zealand in andviaonlinesales was This service launched inFY17across ourAnmum™paediatric them up-to-date information status too. provenance. theproduct Scanning after give purchasing itwill find outadditionalinformationit isauthentic andalso aboutits on theproduct they are abouttobuy, consumerscheckthat can traceability for services consumers. Byaunique scanning QRcode ustoprovide allows This underlyingtechnology new, external our globalmanufacturing plants. visible inonesystem for trace-enabled sites, whichisnow92%of inputsare nowbecompletedcan theimportant inminutes. All consumer. totake that used Someactivities more thantwo hours from theraw we andprocess milk collect rightthrough tothe ingredients that wentpackaging, intothemandtheprimary ustoveryefficiently track now allows batches the of product, and enhance ourelectronic around capabilities traceability. This We have beeninvesting tointegrate significantly our systems Product traceability the organisation. conversation aboutfood safety from themomentthey join operational andnon-operational employees, the whichstarts programmes. programmes induction These applytoboth initiatives, including thepreparation ofinduction standardised this year we have builtonthat success withanumberof global independent research showed thesuccess ofefforts and these culture hasbeenourfocus over thepastfour years. InFY17, Strengthening food safety andquality asacornerstone of our thinking andlivingquality iswhat makes thebiggest difference. Having systems andprocesses inplace but isessential, A standard recognised by recognised A standard Food Safety theGlobal Initiative, currently FSSC22000 orBRC.

product for safety reasons. During theyear, there were of noconsumer recalls No recalls Our performance product supply backtomilk Total electronic traceability from finished Indicator Our targets safety management system (e.g. FSSC22000) by toleadingfood anindependentthird party Percentage of manufacturing sites certified Packaging andingredients Milk

their hand. the specificitem in information about access toprovenance gives consumers rapid Full electronic traceability QR Codes

Manufacturing by theendof 2020 All Fonterra products Target end of 2019 100% by the

Total electronic product traceability

• • • • WHATʼS NEXT Performance products, customersandconsumers. prevention technologiesprotect tofurther our We beexpanding also will of ouruse food crime that they are buyingauthentic, safe products. practices andgive consumers even more confidence increasefoodand customerstofurther safety to provide toemployees services new complementary forbeen established traceability, we are nowlooking Making of use theunderlyingtechnologies that have coded Anmum™andMaterna products duringFY19. Indonesia, Singapore for andThailandscheduled QR available toconsumers,services withVietnam, We continue toexpand will theexternal traceability of foodsites abouttheimportance safety culture. webuilding onthelessons have learnedfrom ourown manufacturersthird-party whoprovide tous, services We the are nowlookingtoinfluence and support 62% 81% FY17 Distribution 90% 92% FY18 FONTERRA SUSTAINABILITY REPORT 2018 REPORT SUSTAINABILITY FONTERRA and ontrack toachieve target. Good progress madeduringtheyear achieve target ontime. Good progress andexpected to Commentary Consumers 35

Our Nutrition 36 Nutrition In-School Richie McCaw inahelicopter. gettingschools avisitfrom New Zealand rugby legend a competition for withfive schools, winning participating of We milk. and delivering portion our100millionth held We hadalotof fun thisyear celebrating ourfifthbirthday that they improved hadsignificantly bonehealth. rate asthecontrol group, interms of heightandweight,but University found children grew that participating at thesame fromhad risen 72%to84%.Anotherstudy by Massey of children consuming therecommended minimumamount that over thefirst two years of theprogramme thepercentage inFonterrachildren participating for Milk Schoolsshowed have positive seen results. AUniversity of Auckland study of programme children andwe onthehealthof participating working withresearchers toevaluate of theimpact Since theintroduction of theprogramme, we have been across New participating Zealand. around 1,420 farmers with withschools, anddelivered inpartnership every day. Theprogramme isfunded by Fonterra andour kidsaged140,000 school 5-11 get access tonutritiousmilk Fonterra’s for Milk Schoolsinitiative ishelping more than Fonterra Milk for Schools OUR NUTRITION FONTERRA SUSTAINABILITY REPORT 2018 REPORT SUSTAINABILITY FONTERRA

every school day.every school to nutritiousmilk kidsgetschool access more than140,000 This initiative ishelping for Schools Fonterra Milk

than five million portions of milk of milk than five portions for the million year. more than125,000breakfasts week. every school Thatʼs more This year, KickStart grew to976 breakfast clubsandserved responsible for runningtheKickStart Breakfast club. Sanitarium provides theWeet-Bix, are schools andlocal Fonterra missout. provides otherwise theAnchormilk, volunteers, ishelping provide thistoKiwi kidswhomight of community SocialDevelopment, Sanitarium, andlocal programme, whichwe withtheMinistry deliver inpartnership help kidsachieve theirpotential. TheKickStart Breakfast A nutritiousbreakfast environment andanurturing can KickStart Breakfast start to their school day. totheirschool start to get thebestpossible environment for children a safe andnurturing fosterthe clubsalso a healthy breakfast, As well asproviding Breakfast Clubs KickStart

are accredited by JAS-ANZ. suchasAsureQualitycertified by anindependentparty who verification is requiredbe andourspecific processes must claim, ourfarmers provide information eachyear. Additional customers andconsumers confidence. For eachspecific way togive isanimportant our Independent certification supplying farmers. specific attributes of ourproducts andthe good work by our and on-farm claimsasaway toindependentlydemonstrate In FY17, we launched theTrusted Goodness™quality seal way.and ethical that thecompany behindthat food inaresponsible acts topayare apremium willing whenthere are assurances food comes from, andhowitʼs made, they inmany cases are becoming increasingly concerned aboutwhere their farmersʼ raw intohighervalueproducts. Asconsumers milk Fonterraʼs commercial strategy istoturn more of our biosecurity andtheenvironment. for nutrition,animalwelfare, sustainable humanhealth, Such advances could offer potentially benefits significant emerging life science technologies suchasgene editing. of andthepossibilitiesoffered technology by new and We optionality valueinmaintaining around see theuse Non-GMO Project Standard arethehighestratesThese amongst intheworld. • • outlines therequirements for ourgrass-fed dairy: Pasture-Fed Standard verified. that isthird-party Thisstandard To ourgrass-fed support claim,we developed aGrass and and consumers. non-GMO are status increasingly valuedby ourcustomers New Zealandʼs natural, grass-fed advantage and Grass andPasture-Fed Standard Goodness Trusted a minimumof 90%timeonpasture. a minimumannualaverage of 80%grass feeding and

page For more information AnimalHealthandWelfare see on on-farm assessment. welfare performanceof our andadditionalverification aspart from farmers covering key of indicators animalhealthand The programme involves extra some collection annualdata beabletoreinforcewill thegood work done by ourfarmers. by against having thisstandard independentcertification we we already hadhighstandards of animalhealthandwelfare, This year, we launched ourCared for Cows Standard. While Cared for Cows Standard sites. manufacturing verification of our organic supplyandassociated milk market.American We completed also Non-GMO Project products underourNZMP sold brand intotheNorth Project manufacture, to37ingredient thetotal taking This year, 19products afurther were verified for Non-GMO the specificsite where theproduct ismanufactured. fromincluding everything thecows’ feed, at totheactivities into anindividualproduct mustbeevaluated for compliance, the United States retail sector. To become verified, inputs all Standard isoneof thefastest growing labelsin voluntary GMO foodItsNon-GMO Project America. supplyinNorth organisation dedicated tobuildingandprotecting anon- The Non-GMO Project isamission-driven non-profit cowson dairy isprohibited. New Zealand, of andtheuse recombinant growth hormones modifiedplantsoranimalshave genetically been in released the current New Zealand framework. regulatory To date, no modifiedorganismgenetically (GMO) assupported status, by recognise thevalueinNew Zealand’s globalreputation for its We listen toourcustomersandconsumers also carefully and

66. FONTERRA SUSTAINABILITY REPORT 2018 REPORT SUSTAINABILITY FONTERRA

Our Nutrition 38 FONTERRA SUSTAINABILITY REPORT 2018 REPORT SUSTAINABILITY FONTERRA wisely wewisely are findingapath to regeneration. land, animalsandwater, andusingresources hei oranga tangata mōngā rā eheke mainei. By theconnectionbetween understanding Environment nature and our environment. our and nature We are working together to It’s of ourtransition toamore part all find ways that regenerate regenerate that ways find so that the land cares for that thelandcares so ustomorrow. sustainable waysustainable of dairying. Tiakina te whenua i tēnei rā, Tiakina rā, whenua itēnei te Caring for the landtoday, Our Our

improving productivity?” reduces greenhouseemissions while that regenerates the environment and we help ourfarmers transition tofarming of New Zealand products value. Howdo farmers, communities andconsumers the pasture-based farming modelthat sustainability onfarm, we want toretain “As we continue toinvest in Director Farm Services Matt Bolger, environmental oranimalwelfare impacts?” waste other valuablenutrition,orcause to ensure reliablewe supplyso donot are thebestalternative sources energy valuable nutritionwithalonglife. What turning itinto it, anddry pasteurise milk Large quantities of are energy required to asecuresupplyofmust maintain energy. processes tonetzero emissions,we “As we transition manufacturing Global Operations OperatingChief Officer, Robert Spurway, FONTERRA SUSTAINABILITY REPORT 2018 REPORT SUSTAINABILITY FONTERRA

Our CommunitiesEnvironment Fonterra’s contribution to the SDGs Our from an environmental perspective. Environment 97% of supplying farms in New Zealand are participating in nutrient management reporting Share our dairy expertise with and benchmarking. small-scale producers (2.3) Increase productivity through BREAKDOWN: sustainable practices (2.4) 10% 1% of supplying farms in Distribution New Zealand have environment plans How Fonterra is making this happen: tailored to the specific Globally, food production systems are 10% risks and opportunities facing a transformational challenge We are focused on improving our productivity Manufacturing on their farm. Reduce the impact of farming and to meet the demands of a growing and protecting the environment. We will: manufacturing on water quality (6.3) population within environmental limits. Improve the health and biodiversity of our land Increase water efficiency in areas of and waters by reducing the impacts of farming and 89% constrained supply (6.4) On-farm 2.4% manufacturing and working in partnership with others Dairy is a rich source of many vital nutrients but the improvement in water Protect and restore industry needs to find more efficiencies and improve its Lead the transition to a low-carbon future efficiency at our New freshwater ecosystems (6.6) practices to achieve positive environmental outcomes. by investing in innovation and infrastructure to Zealand manufacturing sites since FY15. Reduce impact of farming New Zealand farmers lead the world in many aspects of remove greenhouse gas (GHG) emissions from and manufacturing on sustainable dairying, with high productivity, year-round our supply chain marine ecosystems (14.1) pasture grazing and lower use of supplementary feeds. Meet the growing nutritional demand through However, the scale of the industry in New Zealand means improvements in productivity and minimising waste that our environmental footprint is of national significance. from farm to consumer. 22.2M We are working in our sites, with our farmers and our Total GHG emissions 22.2m tCO -e. communities to improve our environmental performance. 2 To achieve positive environmental outcomes requires KEY HIGHLIGHTS working together to deliver improvements at scale. Manage and use natural • Protecting New Zealand’s waterways: Our farmers resources efficiently (12.2) have essentially excluded all their dairy cattle from Reduce food waste throughout waterways on their farms – see page 50 our supply chain (12.3) • Investing in resource-efficient manufacturing: Reduce waste generation Investments in our Pahiatua site have improved water 220,000 through our operations and efficiency by 64% since FY15 and lessons are being New Zealand homes product packaging (12.5) shared to accelerate progress across our other sites – The 19.3% energy efficiency see page 53 improvement our New Zealand • On-farm GHG emissions: Pilot of greenhouse gas Manufacturing team have achieved since FY03 saved enough reporting completed with 104 farms to help improve energy this year to power 220,000 emissions efficiency on farm – see page 56 residential homes for the year. • Biosecurity response: We have helped respond to the first detection of Mycoplasma bovis into New Zealand, Reduce emissions across our seeking to minimise its impact and eradicate it if supply chain possible – see page 66 Support farmers to build resilience to climate change (13.1) Reduce impact of farming and manufacturing on freshwater ecosystems (15.1)

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 40 41 Environment Our OUR ENVIRONMENT

Our farming and NETHERLANDS SAUDI ARABIA SRI LANKA CHINA 1 1 1 296M LITRES MANUFACTURING MANUFACTURING MANUFACTURING RAW MILK COLLECTED SITE SITE SITE manufacturing activities 7 14M LITRES FARMS RAW MILK COLLECTED 1 FARM

New Zealand is our home – it’s where our shareholder farmers are based and where we source most of our AUSTRALIA milk. We also have operations around 7 the world. MANUFACTURING SITES This map shows the locations of the manufacturing LITRES sites we manage and that we report in this section. 2,046M RAW MILK COLLECTED It also shows the small number of farms that we directly manage around the world. The litres of raw milk collected refers to the total raw milk that we collected from farms in the region.

LATIN AMERICA (CHILE, BRAZIL, VENEZUELA) NEW ZEALAND

7 30 MANUFACTURING SITES MANUFACTURING SITES ETHIOPIA MALAYSIA INDONESIA 497M LITRES 16,985M LITRES RAW MILK COLLECTED RAW MILK COLLECTED 1 2 1 1 MANUFACTURING MANUFACTURING MANUFACTURING 29 FARM SITE SITES SITE FARMS

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 42 43 Environment Our OUR ENVIRONMENT

How we work New Zealand on-farm assessments 2016/17 2017/18 Commentary

Number of assessments 9,891 9,694 This represents more than 99% of supplying farms during with farmers 2017/18. The lower number corresponds to fewer supplying farms. Percentage of farms with 82% 86% Progress continues to be made towards achieving 100%. effluent infrastructure capable of 365-day compliance

Percentage of farms referred 3.2% 3.9% There was a slight increase in referrals because we have to SDAs with major or critical included those arising from Farm Environmental Plans as non-compliances well as from annual assessments.

Number of milk collection 78 farms 98 farms due to There was a slight increase in the number issued as we suspension notices issued due to stock stock exclusion focussed on completing our stock exclusion1 targets. exclusion 8 farms due to effluent requirements

Our farmers are at the heart of our Expectations for supplying farms On all farms where it is identified that requirements are In addition to the support provided by our Australian Farm not being met, our Sustainable Dairying Advisors (SDAs), Source team, we back special projects funded in part by We encourage and support farmers to adopt good Co-operative. Weʼve built our expertise or equivalent, develop an action plan with the farmer which our Anchor™ Sustainability Fund. In the last year, the fund management practices and to continuously improve includes target dates for completion. We may also suspend approved 25 innovative on-farm projects. These projects on the legacy of thousands of dairy men profitability, environmental efficiency and resilience. We have the collection of milk until we are satisfied that all minimum need to provide an environmental or animal welfare benefit, and women who have taken their milk a set of policies and standards that support sustainable dairy requirements are being met and that any actions required improve farmer profitability, and be of value in terms of farming. Our Farmer Handbooks set expectations for farmers to the world to meet the changing needs to avoid a repeat of the issue have been completed. innovation for the dairy industry. when it comes to the environment, animal health and welfare, of consumers. biosecurity, and food safety and quality. Sustainable dairying – on-farm Fonterra Farm Source™ stores Today, more than 85% of our milk comes from the farmers Our Raw Milk Harvesting Standard sets out the minimum support services Fonterra operates a network of 70 Farm Source™ in New Zealand who own Fonterra and we also source milk requirements that all farmers must meet. It applies across all stores throughout New Zealand. These stores operate as in other countries around the world (see map on the We have farmer engagement and support programmes in markets we source milk from and forms the basis of the on- retail farm supply stores for the farming community and previous page). farm audits that we conduct. every country we source raw milk from. These programmes enable us to build relationships with farmers, communicate wider public while also offering specific support services In this section, we cover farming practices on all farms Through a combination of our own staff and third parties, we our requirements with them and support them to improve for our supplying shareholders. Farm Source is a directly supplying milk to Fonterraʼs manufacturing regularly assess supplying farms around the world: their farming systems. We tailor these programmes to reflect wholly owned subsidiary covered by the same management sites globally. systems and policies as our other operations. • In New Zealand, every supplying farm is visited each year the priority farming issues in the country and to encourage performance that goes beyond the minimum requirements. In Australia, we do not have retail stores but this year we Farms we manage by an independent farm assessor. This year, we adjusted the approach to help streamline the assessment and In New Zealand, our Tiaki sustainable dairying programme introduced a Farm Source™ Partners service, which leverages We directly manage a small number of farms around the introduced a more detailed assessment to provide greater provides our farmers with specialised regional expertise our scale to provide special deals and savings for farmers world. In New Zealand, we manage 29 Fonterra owned value. It is expected that each farm will participate in a through our team of SDAs, which we grew from 17 in FY17 to supplying us in Australia. farms which neighbour our manufacturing sites. We use detailed assessment once every five years and this year 24 in FY18. It has proven quite difficult to recruit people with these farms to manage excess water and nutrients from our we completed 2,087 (21% of supplying farms). the required skills to fill this role, but by the end of 2018 we manufacturing sites. The irrigation and spreading of nutrients will have 28, just short of our target of 30. A priority for us acts as a fertiliser, improving soil health and supporting • In Australia, farmer suppliers are visited multiple times each year by our own staff and independent assessments is helping farmers establish a Farm Environment Plan (FEP), pasture growth. We then grow and supply supplementary unique for their farm. Using digital mapping tools that we animal feeds to our farmers. are scheduled based on prior compliance levels. Every farm is assessed at least once every two years and in FY18, have developed and a suite of good management practices, In China, we operate seven large-scale farms and produce raw 73% of farmers were assessed. we can help the farmer identify risks to the environment milk for use in local products. This complements the dairy and agree prioritised improvement plans. products we export to China from New Zealand and Australia. • In Latin America, each farm is assessed by a combination of our own staff and third parties. In addition, our We have used our experience from New Zealand to provide These farms use a housed farming system rather than the new support services and digital tools to our supplying pasture-based model most commonly found on the farms New Zealand based team audits a random selection of farmers on an annual basis. farmers in Australia over the past year, with the aim of adding which supply us with milk. We also directly manage farms for tangible value to our suppliers. So far, around 85% of our training and demonstration purposes – one in Sri Lanka and • In China, our farms are under our direct control. These Australian farmers have signed up to Farm Source™ Digital, one in Chile (see Dairy Development on page 85). farms are subject to assessments by our New Zealand and the new 24/7 service centre is receiving between 200 and Milk Sourcing team and Internal Audit team. These farms 300 calls each week. have also been independently assessed to the benchmark food safety and quality standard for farms called SQF.

1 Stock exclusion means keep dairy cattle out of waterways to improve water quality. See Water section on page 48.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 44 45 Environment Our OUR ENVIRONMENT

How we manage operations

Our manufacturing sites share the Independent evaluation and Environmental compliance Significant spills same environment as our farmers, with certification of sites In the past year, our operational sites had five incidents In New Zealand, there were two significant spills at our environmental challenges interconnected Our manufacturing sites are subject to regular internal of non-compliance with environmental regulations which Whareroa site and one at our Takanini site. At Whareroa, and third-party audits. Internal audits are conducted by resulted in fines or non-monetary sanctions. All occurred 60,000 litres of skim milk was spilled when a coupling between farms and sites. staff independent of the site and are used to identify areas in New Zealand including: a fine of $750 for discharging failed. Additional locking clips have been fitted to prevent a for improvement. Third-party audits give regulatory stormwater in an unauthorised manner from our Kapuni reoccurrence and sensors adjusted to allow earlier detection. We must also take into account the potential localised site; a fine of $500 for taking more water from a stream than There was also a spill of 36,000 litres of cream due to human environmental impacts of our sites, particularly on freshwater authorities and our customers independent assessments of our performance. allowed by our permit at our Whareroa site; a fine of $750 error. Automation has been added to prevent reoccurence. quality and biodiversity. This means using water responsibly, for exceeding wastewater discharge consent limits from our At Takanini, 60,000 litres of glycol spilled due to the failure of and investing in best practice water treatment. For example, independent audits against the Sedex Member Whareroa site; and two fines of $750 each for two separate a fitting on a rental chilling system. The majority of the Ethical Trade Audit (SMETA) standard for labour practices, incidents of discharging milk solids to water at our Whareroa About 95% of our processing by raw milk supply happens in spill was absorbed by soil around the unit but there was environment, health and safety and business practices are site (see Significant Spills). New Zealand or Australia, but we also manage some leakage into the estuary. Auckland Council were a number of other sites around the world. required by some of our customers. Other customers require us to undertake an annual assessment by EcoVadis. This year In the past year, our China Farms received three notices notified and their pollution response team visited the site. We share some manufacturing sites, which are operated we achieved a Gold rating for the first time. related to environmental non-compliance. The non- The remediation included monitoring of the water quality in by joint-venture partners. These sites are excluded from compliance related to a delay in the installation of the estuary for a period of three months. Other third-party audits are part of independent environmental monitoring equipment and improper discharge our performance reporting. The majority of these sites are Five spills were also recorded in New Zealand from separate certification of site Environmental Management Systems of effluent. As the negative impacts of the non-compliance run by DFE Pharma, a joint venture between Fonterra and tanker incidents, which resulted in an estimated total of (EMS) to international standards, such as ISO14001. issues were not serious and our China Farms had promptly Royal FrieslandCampina. 45,500 litres being spilled. The most significant of these was Independent certification to ISO14001, or an equivalent taken the necessary measures to eliminate the impacts, the a tanker accident in Taranaki, which spilled an estimated The Fonterra Group Environmental Policy defines Fonterra’s such as EnviroMark Diamond, provides a third-party ultimate fines for each instance were relatively minor, ranging 20,000 litres. When a tanker accident results in a spill we commitment to safeguarding natural resources through evaluation of the performance of our EMS. from RMB20,000 to RMB40,000 ($4,400-8,800). reducing environmental impacts across our global value have containment and clean-up procedures to minimise chain, including applying our precautionary approach where Our focus this year has been transitioning existing certified In addition to the non-compliances list above, there were any impact. sites to the updated 14001:2015 standard. This is assessed at some minor non-compliances, which did not result in any serious threats may exist. The policy is available online. In Australia, there were two significant spills. At Dennington, a site level but it now also considers our broader influence monetary or non-monetary sanctions. www.fonterra.com/environmentalpolicy over our value chain. At the end of FY18, we had successfully following a dryer deluge, around 1,000 litres of milk were transitioned all sites with existing certification to the new In all cases we have taken action to improve processes and discharged into the Merri River. The Environmental Protection All sites have a manager specifically responsible for minimise the risk of further non-compliances. Authority was notified of the incident. On a private property environmental compliance. At most sites, this is a dedicated standard. This covers more than 60% of our manufacturing sites and we are now working to expand this. in Tasmania, around 6,000 litres of milk leaked from a milk environmental manager and they are often supported by tanker and then into a local creek. In both cases, the clean- a site Environmental Management team. Their focus is Gold rating up work we did to minimise any impact to the environment on managing site-wide environmental performance and satisfied local authorities. compliance with local environmental requirements. For a number of customers, we are independently assessed each year by Ecovadis. This year we achieved Gold rating.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 46 47 Environment Our OUR ENVIRONMENT

Collective action Water on catchments WAIRUA RIVER (LIVING WATER) Credit: GaryCredit: Philip Our Living Water partnership with the New Zealand Department of Conservation is focused on five catchments. We are now extending our involvement to support farmer and community action across a further 50 catchments.

PUKOROKORO-MIRANDA (LIVING WATER) LAKES AREARE, RUATAUNA, ROTOMANUKA (LIVING WATER)

What weʼve been doing Healthy freshwater and ecosystems are essential to the long-term success of our Sustainable catchments business, and to the communities where We want to see sustainable water catchments in the regions we live, work and farm. where we operate, and this means working with others to help protect and regenerate the waterways to meet the That’s why we are working to improve our water efficiency specific environmental aspirations of the local community. and improve water quality wherever we operate. To achieve improvements at scale, individual farmers and WAITUNA This section covers our impact on water arising from the single manufacturing sites are not enough. We want to (LIVING WATER) manufacturing operations that we manage globally and in connect and empower farmers, sites and local communities ARAIRA-LII RIVER relation to the farmers from whom we collect milk. so that more can get involved and accelerate progress, (LIVING WATER) starting in New Zealand. Our approach Our Living Water partnership with the New Zealand Our manufacturing sites extract water from a range of Department of Conservation is focused on five catchments sources and create wastewater. Our approach is to make use to identify game-changing and scalable solutions that of resource-efficient technologies as we build new plants or demonstrate dairying and freshwater can thrive together. upgrade existing ones, and to improve the efficiency of our Living Water is currently working with 39 other groups and operating practices. Manufacturing sites measure their water organisations and with 92 Fonterra dairy farms. Across the use and monitor water quality as part of their regulatory five catchments, the farmers involved are implementing requirements. By becoming more water-efficient, there is freshwater improvement activities that go beyond regulatory less wastewater to treat before we discharge it. This means requirements and 5,823ha of land has already been enhanced when we upgrade our wastewater treatment facilities we can through protection, restoration and pest control. Farm Environment Plans (FEPs) are tailored improvement plans for each farm. go beyond minimum compliance requirements and aim for To help accelerate progress at a catchment level, we are clustering the development of FEPs. leading industry standards. We are now extending our involvement to support farmer and community action across a further 50 catchments in On farm, our approach is to work with farmers to identify Waiotahi Catchment, Bay of Plenty Kaikoura Catchment New Zealand. We’ve been working alongside local their water impact risks and prioritise improvement actions stakeholders such as regional councils, the Department As part of wider community action, FEPs have been developed for all A government restoration fund was set up to help the 21 farmers in this specific to their situation. of Conservation, iwi, farming leaders and other industry 16 dairy farmers in this catchment and the farmers have started to catchment get further ahead than they were before the November 2016 In New Zealand, where we collect and process most of members to identify where our help is wanted and what implement their improvement actions. The Bay of Plenty Regional Council earthquake. The farmers have been keen to demonstrate how they’re our milk, the health of waterways is an important issue for contribution we can make. We aim to build on existing have been pleased with the work completed and see the importance of moving towards good management practice. The 21 farms not only have rolling out FEPs in other catchments. FEPs, they have also installed soil moisture probes to support on-farm all New Zealanders. We share this passion for our natural community efforts and work with other land users and management decisions. environment – we want our rivers and lakes to be swimmable businesses to help achieve the community’s environmental Tutira Catchment, Hawkeʼs Bay Waituna Catchment (Living Water Programme) for our children and our grandchildren, and we want our aspirations. In many cases, these include not just water Community groups and iwi have been working together to improve freshwater systems to be strong enough to support nature quality and freshwater biodiversity, but also predator the water quality of the lake, particularly given its use for recreational Waituna is a wetland, internationally recognised by the RAMSAR and the many uses people have for them. management and related terrestrial biodiversity. activities. Dairy farmers are one of the smaller land users but have shown Convention. This catchment is managed in a holistic way by a Joint Please refer to “How we work with farmers” on page 44 strong buy-in to establishing FEPs. Six of the seven farms in the immediate Governance Group involving Fonterra, Department of Conservation, lake catchment now have FEPs and another seven farms in the wider Southland District Council, Environment Southland and iwi. This group and “How we manage operations” on page 46 for more region have them too. makes decisions on what work needs to happen to ensure the water information on our general approach to improving our quality improves. environmental performance. Living Water Catchments Example of clustered FEPs 50 catchments

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 48 49 Environment Our OUR ENVIRONMENT

Water continued. Credit: Karen Marlow Karen Credit:

Improving water quality and use on farm In Australia, in addition to on-farm support services provided by Reducing water use and improving wastewater quality our Farm Source™ team, we support special projects funded in at our manufacturing operations WHATʼS NEXT In New Zealand, our farmers have fenced 99.6% of part by our Anchor™ Fund. For example, this year we have been 1 This year, we have continued several years of investment in permanent waterways and installed bridges or culverts at working with Rigneys’ farm in Tasmania on a trial to re-introduce our Pahiatua site, making it our most water-efficient site in On farm 99.9% of regular crossings that keep cows out of waterways. dung beetles. Dung beetles are great at transferring cow manure New Zealand (see Case Study on page 53). We also improved This stops cows from excreting into the water and avoids from the surface into the root zone of pasture. Unfortunately, • We will continue to support our New Zealand farmers water efficiency at a number of other sites including Hautapu, the potential damage to river and stream banks, which dung beetle colonies have been eliminated from some regions as they establish Farm Environment Plans (FEP), Lichfield, Te Awamutu and Waitoa. can contribute to erosion and sediment. The next step for due to some farming activities such as the use of certain animal focusing on the specific priorities for their farm. improved riparian management is having documented plans health products. We are working with the Rigneys to trial the In New Zealand, our target is to improve water efficiency • We will use this approach to not only drive describing the specific planting and maintenance activities introduction of four different species of dung beetle. The primary by 20% by 2020 (from a 2015 baseline). For several years, improvements in water quality but also increase for each farm. We’ve made significant progress this year, up goal is to improve soil health by using the natural cow manure and we had been trending in the wrong direction but we have the focus on water usage, especially in water from 4% to 25% of our farms, but we’ve deliberately shifted reduce the need for added fertilisers. This will not only reduce the reversed the trend and achieved improvement. We still have stressed regions. our focus to establishing Farm Environment Plans (FEPs). An risk of potential nutrient run-off to waterways, it is also anticipated significant work to meet our original target, but we have FEP not only considers the riparian management activities to reduce fly numbers, lower the occurrence of intestinal worm multiple improvements being made and a prioritised plan for • We will investigate applying our approach to tailored but also the wider environmental priorities specific to the parasites and save the farmer money. further progress. farm environment planning in other countries where farm. At the end of FY18, we reached our target of 10% of we source milk, and aim to set new targets that cover Our Nutrient Management team have been changing the farmers having an FEP. Meanwhile the rollout of our nutrient our global on-farm activities around water. management programme has taken longer than originally Dung beetles way we treat excess nutrients retrieved from wastewater treatment at some of our sites. Taking these nutrients, planned, but 97% of our New Zealand farmers are now taking Inspecting the dung Manufacturing part. This helps them identify if and where they can reduce beetles reintroduced which originally came from collected milk, and using them onto Rigneys' farm, to improve soil health on our farms supports the growth of • We will continue to focus on operational their nutrient use and, as a result, minimise the risk of excess Tasmania to help nutrients moving from their soil into waterways. improve soil health. valuable and nutritious grass and maize silage. This means we improvements within our manufacturing sites, sharing can ʻclose the loopʼ back to some of our supplying farmers, lessons from sites that successfully improve water Participation of New Zealand farmers who use the sileage to help their cows produce quality milk. It efficiency with our other sites around the world. in our nitrogen management programme (%) also means that the risk of nutrients leaching into waterways • We will also invest in new water processing technology is further reduced. such as reverse osmosis – a membrane filtration system which can be used to purify the water extracted from cow’s milk during processing. This technology will go live in FY19 at our Darfield site and is expected to significantly reduce the amount of water drawn in and decrease the amount of water the site discharges for irrigation. • We will progress a prioritised sequence of such investments to reduce our water usage and upgrade our wastewater treatment to leading standards.

1 A permanent waterway is any waterway or drain that is wider than 1m and deeper than 30 cm or significant wetlands.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 50 51 Environment Our OUR ENVIRONMENT

Water continued.

Our performance

On-farm New Zealand Indicator Target Performance Commentary

FY16 FY17 FY18 Length of defined 100% by 97. 4% 98.4% 99.6% This major investment by farmers is now considered waterways with dairy 31 May 2017 complete, although continued investment will be required to maintain the exclusion. cattle permanently excluded Regular crossing points 100% by 99.5% 99.8% 99.9% This major investment by farmers is now on farm have bridge 31 May 2018 considered complete. or culvert

Farms with 100% by A significant improvement this year reflecting our waterways have 31 May 2020 n/a 4% 25% ability to capture data about those plans completed documented riparian by credible parties other than our own Sustainable management plan Dairying Advisors. This is now being progressed with Farm Environment CASE STUDY Plans (see below) and we intend to revise the target to 2025 for alignment. Water efficiency at Pahiatua Farms with water 85% by Potential impacts on water quality have been treated Our Pahiatua site is located Since FY15, we have completed We needed to reduce We are now looking at options meters on significant 2020 50% 51% 53% as higher priority, so progress has been slow here. The water intakes largest users of water are those farmers with irrigation in a water-sensitive zone of multiple initiatives to reduce our wastewater volumes to expand the solution to the and we know that they all have water meters. We will New Zealand, so when we water use including the newest by finding new ways to use other two powder plants at use our focus on FEPs to accelerate progress. started investing to increase and largest dryer. As the milk the condensate water. For Pahiatua and to rollout the Farms participating in 100% by 86% 95% 97% The effort required to achieve this was initially its capacity, we knew it needed is dried into powder, we can each new usage we also learnings from Pahiatua to nutrient management 30 Nov 2015 under-estimated but full adoption level has now to be resource-efficient. The capture the water evaporated needed to meet stakeholder several other sites in New almost been achieved, allowing almost all farms to reporting and benefit from the information. site now processes up to four from the milk as steam, expectations such as food Zealand. The estimate savings benchmarking million litres of milk per day, condense it, and use it instead safety and health standards, are likely to be several million producing milk powder that is of ground water. regulatory and religious litres of water every day. Farm Environment 100% by This new target was set in FY17 and our aim to exported around the world. It compliance, legal requirements – – 10% achieve 1,000 farms by the end of FY18 has been Improving water efficiency Plans (FEPs) end 2025 is now our most water-efficient and market access. achieved. Our goal for FY18 is for a further 1,000 not only reduces the amount farms to have completed an FEP. site in New Zealand. of water drawn in, it also During FY18, the site resolved Manufacturing generally reduces the amount all stakeholder concerns of wastewater that needs to and installed the necessary Improvement in 20% reduction 1.6% 1.3% 2.4% We are pleased that an improvement in water be treated and discharged. infrastructure to increase reuse. water efficiency (water by 2020 from efficiency has been achieved this year. Our priority 1 reduction reduction reduction now is to accelerate this good trend. However, when capturing With the changes made, we used per cubic metre FY15 baseline from baseline from baseline from baseline of milk processed) for NZ steam to reuse it, we found that expect further savings of about we sometimes ended up with 500,000 litres per day during Manufacturing 100% of Another site qualified as leading standards this year. more water than we needed. the peak season for FY19 – the 25% 25% 26% We have also upgraded a number of wastewater sites are treating sites by 2026 This was a problem in FY18 equivalent of 18 tanker loads. wastewater to leading (global target) treatment plants and have a plan of upgrades industry standards for the coming years. when wet weather restricted our ability to use the treated Water withdrawn by source FY18 Water discharge FY18 wastewater for irrigation. Volume (000 m3) Percentage Volume (000 m3) Quality (COD2 mg/L) Surface water (including water from 25,066 46% Discharged to irrigation 15,591 1,417 wetlands, rivers, lakes and oceans) Discharged to river 23,671 803 Groundwater 19,165 35% Discharged to ocean 14,041 2,049 Municipal water supplies or other 9,782 18% public or private water utilities Discharged to municipal 5,274 1,864 Other (e.g. rainwater collection) 0 0% Discharged to other 0 0 Total 54,013 Grand Total 58,577

1 In prior reporting water withdrawn for cooling at our Kapuni site had been omitted from our FY15 baseline, and this has now been corrected. 2 Chemical Oxygen Demand – an indicator of water quality measuring chemicals in water that can be oxidised. 3 The main reason for worsening average quality to river is the inclusion of data for Chile. Edgecumbe infrastructure was upgraded during FY18 but Edgecumbe remains a high contributor to this average.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 52 53 Environment Our OUR ENVIRONMENT

Climate Change

Climate change has a critical influence Within our own operations, the majority of our GHG What weʼve been doing Caring for dairy cows throughout their lives, from the minute on feeding the world into the future. emissions arise from the energy we use, particularly to they are born, not only improves the quality of the milk they Reducing on-farm emissions pasteurise products for food safety and to dry them for produce, it also sees each cow continue to produce more Food producers must help mitigate the impact of climate long-life and efficient transportation. On-farm life cycle assessments milk year-on-year over a longer lifespan (see Animal health change through reducing emissions, and adapt to the effects To help us understand the full carbon life cycle to the farm- and biosecurity on page 66). a changing climate has on agricultural production. As a result, the GHG emissions from the distribution of gate for our main milk supply regions, and identify areas for our finished products to our customers and consumers improvement, we commission regular independent analysis. Feed management is not just about growing grass – it’s about Agriculture and associated land use change account for around the world only account for about 1% of our total choosing the right combination of grass and other feed crops 1 about 24% of global greenhouse gas (GHG) emissions. GHG emissions. In New Zealand, for the 2016/17 season, the estimated to grow on the farm, optimising the use of fertiliser, managing It is likely that agricultural production will face significant cradle-to-farm-gate carbon intensity, including land use pests and maintaining soil health. Improving the quality of Based on climate change projections, food production in disruption from changes to climate and increased variability change (LUC) is 0.87 kilograms of carbon dioxide equivalent the feed to the cows and getting the mix right increases many parts of the world is expected to experience negative in weather patterns. per kilogram of fat-and-protein-corrected milk (kg CO2-e/kg production and improves emissions efficiency. Optimising impacts from resulting changes in natural resources. FPCM). A recent change in methodology by the Ministry for There is a huge variance between the most and least efficient fertiliser use not only reduces the risk of nutrients entering However, a large proportion of Fonterraʼs existing supply Primary Industries equates to an increase of approximately producers of each food type. Our less-intensive pasture-based waterways, it also decreases the amount of brought-in base is in regions where less significant changes are expected. 17% in the LUC component compared to that used previously. farming model places us as one of the most efficient dairy fertiliser needed to achieve the same level of production, For example, in New Zealand the climate is conducive to Given its significance, we have used this to recalculate and producers in the world. At the same time, as New Zealand is thereby reducing the production of nitrous oxide. pasture-based farming and this is likely to continue under restate prior years so the underlying trend can be viewed. The a large agricultural exporter, agricultural emissions represent most climate change projections, albeit there may be some underlying average carbon intensity has been trending down In New Zealand, we completed a pilot of farm-specific GHG 50% of the country’s GHG emissions, with dairy accounting regional shifts. This provides Fonterra with opportunities to from a high in the 2010/11 season, primarily due to increased reporting with over 100 farmers this year (see Case Study on for approximately half of this. continue to produce safe, world-class quality food products. production per cow and a decrease in the use of animal feeds page 56 for further details). We have conducted initial vulnerability assessments and are The majority of our emissions remain on farm. Our challenge brought onto the farm during the last two years. However, In Australia, the renewable energy content of electricity using the results to help us plan. is to continue to drive on-farm efficiency, to transition to compared to the baseline 2014/15 season for our target, the is much lower than New Zealand. This means considering lower emission energy sources – and to consider the role of We have set specific targets for GHG emissions arising from on-farm emissions intensity in 2016/17 was worse by 0.8%. energy management on farm is much more important, and dairy foods in efficient diets of the future. our farming and manufacturing operations and we have In China, for the 2016/17 season, the estimated cradle-to- seeking alternative fuel sources for heating water on farm initiatives underway to help achieve these. makes sense. Rod and Clive Orgill are farmers in Gippsland Our approach farm-gate carbon intensity ranged from 1.24 – 1.48 kg CO2-e/ kg FPCM across the seven farms with the overall weighted who received support through one of our Anchor™ Fund The GHG emissions associated with dairy products primarily Please refer to “How we work with farmers” on page 44 and average being 1.35 kg CO -e/kg FPCM, down from 1.62 kg projects this year to install a biomass boiler. Waste wood from come from the cows on the farms. Dairy cows produce “How we manage operations” on page 46 for further details 2 CO -e/kg FPCM in the previous year. This improvement their firewood business is used to generate hot water for their methane during digestion, emitted mainly through burping. of our approach. 2 has arisen primarily from higher feed conversion efficiency dairy shed wash down. This saves money, reduces emissions Nitrous oxide emissions also occur from urine, dung and – more milk for the same amount of feed. and is providing a more reliable hot water supply. fertilisers applied to the pasture. Other sources of on-farm emissions include use of energy in farm operations and milk Our most recent assessment for Australia was in FY17 for the In China, where our dairy cows are housed and provided with a mixed diet of brought-in feeds, choosing where the feed is cooling, and emissions relating to farm inputs such as feed 2015/16 season, at 0.92 kg CO2-e/kg FPCM. and fertiliser. sourced from is important. Increasingly we are working with On-farm improvements local farmers (see Dairy Development on page 85) and this Our primary focus is on improving on-farm productivity, with year we successfully trialled sourcing alfalfa (lucerne) locally good animal husbandry and feed management examples of rather than importing it internationally. where we can continue to improve emissions intensity. In New Zealand, milk solids produced by each cow increased by 1.4% per year on average over the last 28 years, with the strongest improvements from 2007 to 2016.

1 IPCC (2014) Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 54 55 Environment Our OUR ENVIRONMENT

CASE STUDY Climate Farm-specific GHG reporting pilot Change continued. The New Zealand Dairy to build on this to collect a Action for Climate Change small amount of additional Plan was launched in June information and provide 2017 by DairyNZ, the reporting in a similar style industry-wide organisation and format. representing New Zealand At this stage, only the major dairy farmers, in partnership direct GHG emissions with Fonterra and supported from dairy animals are by the Ministry for the compared. These include Environment and the Ministry methane (CH4) emissions for Primary Industries. from enteric fermentation This year, collaborating and manure management as with DairyNZ and other well as nitrous oxide (N2O) experts, we set up an on- emissions from urine, dung Investing in breakthrough technologies Reducing manufacturing emissions farm pilot involving more and fertilisers. From past We continue to invest in research and development, primarily Energy efficiency than 100 Fonterra farmers lifecycle analysis we know through the Pastoral Greenhouse Gas Research Consortium Improving energy efficiency in our manufacturing operations to investigate farm-specific that these account for more (PGgRC). We want to identify breakthrough technologies has been a long-term strategy and it remains a priority. GHG emissions reporting. than 90% of the total on- which can provide a step reduction in the biological emissions Benefits include reducing the amount of energy we consume, The primary objective of farm footprint. produced by cows. Our intention is to not only use such saving costs and reducing emissions. Reducing the energy the pilot is to assess the The resulting report (see solutions to reduce emissions in regions where we farm, but we consume will also help reduce some of the hurdles in type and quality of data that below right) provides the also increase the impact by promoting them more widely. our transition to lower emission energy sources. Less energy needs to be captured on farmers with total emissions potentially means less capital and less additional operating farm to provide farmers with While there are some promising pathways being investigated, (in kilograms of carbon costs, and it is more likely that an alternative energy source reporting that helps them such as breeding of cows, vaccines and inhibitors, we dioxide equivalents) per will be available at the scale required. reduce GHG emissions also face some dilemmas. For example, to maximise hectare per year, broken over time. A secondary the effectiveness of inhibitors administered through Through our long-running focus on energy efficiency in down by source. objective is to train the supplementary feed, the cows would need to spend more New Zealand manufacturing, we have achieved a 19.3% selected group of farmers We have evaluated the time in sheds or on feed pads being fed the special feed. This reduction in energy intensity since 2003 against a target of on biological emissions and use of different models not only increases the farming costs, it is at odds with the 20% by 2020. This year, that is saving 5.7 petajoules, enough methods to reduce these so to estimate the GHG growing demand from consumers for dairy produced from energy to power over 220,000 households in New Zealand. that they can engage and emissions and we are now grass-fed cows. This means our focus is on inhibitors that can In Australia, we started to transition our product storage then share that knowledge looking to evaluate a second be fed at milking time, and then reduce emissions while the and logistics to a purpose-built, energy-efficient facility, with other farmers. year of data for the same cow is back out on the pasture. operated by a third party in Melbourne. The facility operates farmers so we can see the We already had an We strongly support innovation based on sound science in low oxygen conditions and needs minimal lighting. The quality of trend information established nitrogen and we continue to monitor the possibilities offered by new high-bay pallet stacking also allows for a smaller footprint to help with on-farm reporting programme with and emerging life science technologies such as gene editing. than conventional warehouses. Only once the transition is decision making. our farmers so it made sense Such advances could offer significant benefits for sustainable completed and historic facilities are decommissioned will nutrition and the environment. We also listen carefully to our the energy savings be fully realised. customers and consumers and recognise the value in New Zealand’s genetic modification status. To date, no genetically Around the world, our energy efficiency improved in six modified plants or animals have been released in New countries while declining in another five, giving an overall Zealand (see Trusted Goodness on page 37). improvement of just over 1%. While there was a similar pattern for emissions intensity, overall our emissions intensity from manufacturing has remained unchanged at 0.53 tonnes of carbon dioxide equivalent per tonne of dispatched production.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 56 57 Environment Our Credit: Tim Snow Tim Credit: OUR ENVIRONMENT

Climate Change continued.

CASE STUDY Transitioning to cleaner sources of energy before the end of 2018. This co-firing is estimated to reduce Electric milk In addition to energy efficiency improvements, we are also factory emissions by about 2,400 tCO2-e per year or the progressing changes to alternative, lower emission energy equivalent of taking about 530 petrol cars off the road. In FY17, we developed a Numerous electrification The study identified two The study has provided a sources. Finding viable alternatives to coal is the first priority To better understand the challenges with increased electricity ‘Roadmap to transition to a steps were identified. Each phases for transition. The comprehensive approach to in our transition to a low-carbon future and achieving our use, we conducted a feasibility study to consider fully low emission future’ with the of these would reduce the first “optimisation” phase, guide further improvements goal of net zero emissions from manufacturing by 2050. electrifying milk processing at Edendale (see Case Study New Zealand Ministry for the thermal energy used, thereby uses predominantly known to our manufacturing Our coal use now only occurs in New Zealand, where opposite). This has identified an approach that we can apply Environment. This year, as part reducing emissions, but technologies to improve processes to reduce both a third of our sites still rely on it, primarily in the South across all our sites and we plan to apply this at our Stirling of that roadmap, we conducted increase electricity usage. energy efficiency and reduce energy and emissions and Island. Our use of coal increased slightly this year due to site as a pilot to transition away from coal. a study to investigate how we Understanding the capacity the thermal energy while help us transition towards changes in the mix of products made and where these were could displace all coal use of the electricity supply to the increasing electricity use. net zero emissions. Divesting from coal at our Edendale site site allows combinations of The second “transformational” made. Fluctuations in the volume of milk to be processed This approach has been Reinforcing our commitment toward renewable energy, our with electricity. steps and their sequence to be phase will require technology in different regions and the need to retain a secure supply applied at three further subsidiary Glencoal Energy Limited has stopped all coal assessed to see which could development and of energy means our usage of coal is likely to change from Working with a project team, sites and in August 2018 mining operations completely. be achieved before triggering demonstration to occur. season to season. We have already started the transition including representatives we announced our plan to a distribution or transmission towards other fuels, but the scale of our coal use and the lack For the proposed Mangatangi mine, we have sold the land from a range of industry and Overall, this study showed electrify our Stirling site. This grid upgrade. of economically viable alternatives means that we will remain and surrendered the mining permit. academic organisations, we that while technically possible will eliminate about 10,000 reliant on coal for longer than we would like. Our intention is For the Kopako 3 mine, we have stopped extracting coal and undertook the study knowing to fully displace coal use at tonnes of coal use per year. that no new coal boilers will be installed at any sites. We are we are completing rehabilitation of the site. The coal pit that what was learned from Edendale with electricity, it confident that this will be the case from 2030, but prior to has been transformed into a lake with hundreds of natives our Edendale site – the largest would trigger a transmission that there is a small risk that our legal obligations1 to process planted around the edge. The majority of the mine land has in the Southern hemisphere – grid upgrade and there would milk may require us to, and this will only be as a last resort. been restored as farmland. could be applied more widely. be significant capital costs and In the North Island, we are looking at options to transition ongoing costs. Reducing logistics emissions our coal sites, including to natural gas as this is a more emissions-efficient source of energy, but we recognise By removing the water content from milk by drying it, that transitioning to renewable sources of energy is the we remove weight and bulk. This also preserves the Optimising electrication best option. nutritional content for a long time without the need for refrigeration, reduces waste and makes it very efficient STEP STEP In the South Island, where natural gas is not available, we are for export. investing in a combination of wood biomass and increased ENERGY International trade will continue to play a vital role in EFFICIENCY use of electricity. TRANSITION achieving a sustainable global food system. With climate THERMAL TO The challenge with adopting wood biomass in New Zealand change, some parts of the world such as New Zealand will ELECTRIC and Australia is the security of supply and obtaining sufficient be better placed to grow food efficiently for consumption. volumes within a reasonable distance of the sites. Running It is therefore important that, although only 1% of our total Grow load out of energy and being unable to process large volumes emissions, we continue to look for opportunities to further within of milk generates its own environmental impacts and improve logistics, reduce emissions and save costs. existing transporting biomass over long distances quickly diminishes grid capacity. its emissions reduction benefit. As a first step, we are converting the boiler at our Brightwater site to co-fire wood biomass with coal. This is on track to be up and running 1 The Dairy Industry Restructuring Act (2001) (DIRA) places legal obligations on Fonterra Thermal Electrical Thermal Electrical Thermal Electrical that limits our influence over where, when and how milk volume growth occurs and requires us to expand our processing capacity to meet all potential demand.

FONTERRA SUSTAINABILITY REPORT 2018 58 59 Environment Our OUR ENVIRONMENT

Climate Our performance Change continued. Climate targets Indicator Target Performance Commentary FY16 FY17 FY18 Reduction in manufacturing 20% reduction by 18.1% 17.8% 19.3% We continue to make good progress energy intensity (energy per 2020 from FY03 and we remain on track to deliver reduction reduction reduction by 2020. tonne of production) baseline (NZ)

Reduction in absolute 30% reduction by Our overall manufacturing emissions 3.6% 4.7% 3.0% intensity remained constant. Increased manufacturing emissions 2030 from FY15 reduction reduction reduction baseline (Global) production, particularly in Australia, where the emissions intensity of grid electricity is higher, means our progress on absolute reduction has been impacted.

Net change in GHG emissions Neutral to 2030 Our estimated absolute GHG – 252,000 817,000 emissions have reduced. This is Milk collection In New Zealand we also have a fleet of over 650 forklifts from dairy farming since below below 14/15 (NZ) due to a reduction in the volume of In New Zealand, our milk collection activities are already ranging up to 14 tonnes that we are progressively converting baseline baseline milk collected. Emissions efficiency (Pre-farm gate tCO2-e) highly efficient. Our fleet of tankers are regularly upgraded to electric power, which generate less GHG emissions than on farm is 0.8% worse than 14/15 baseline but 3.2% better than the to use the latest technology and innovations. One example the LPG forklifts we are replacing. In FY18, we introduced high of 10/11. is on-board sensors, which help with driver training and have lithium-ion battery technology for the first time, growing the improved driving efficiency and fuel efficiency. The activities total electric fleet to 13 lithium-ion and 254 lead acid battery. of the tankers are planned and managed by a sophisticated Lithium-ion batteries last longer than lead acid, and because On-farm GHG emissions Total GHG emissions Manufacturing GHG emissions computer system that helps us collect the milk from the they allow on-demand charging only one battery is required by scope (000, tCO2-e) by value chain segment by source (000, tCO2-e) farms and deliver it to the factories, while ensuring legal per forklift. (000, 000, tCO2-e) compliance and minimising the total time and distance To investigate heavy fleet solutions, our land logistics partner required to achieve it. , , Coda successfully applied for a grant from New Zealand’s Total Total , Total , Total , , This year, a legislative change increased the maximum gross Energy Efficiency and Conservation Authority (EECA) to Total . , weight for heavy vehicles from 44 to 46 tonnes for 8 axle help develop and trial an electric truck to transport finished , Total vehicles such as our tankers. Over the year, we have modified goods between sites in New Zealand. Unfortunately, after six , each of the tankers slightly, extending the draw bar, so that months of collaboration and consultation with like-minded , we can make use of this extra carrying capacity safely. Being companies looking at different opportunities in Waikato and able to plan for and transport approximately 2,000 extra litres Auckland, we concluded that the overall risk is unacceptable , , of milk per load means we can complete work in fewer trips, to proceed further at this time. We do plan to keep reviewing saving time, costs and emissions. options for more sustainable heavy vehicle solutions and Total , we will continue to engage with EECA and our partners in , , In Australia, in response to a growing volume of milk, we this process. introduced eight new, more efficient milk tankers. These truck , , and trailer tankers have 40% more capacity to carry milk and , are also more fuel efficient compared to the existing single WHATʼS NEXT , trailer tankers.

Electrifying the fleet • On farm our primary focus will remain supporting , , We are also investigating electrification of our light fleet, our farmers around the world to improve on-farm forklifts and heavy fleet. Electricity in New Zealand is productivity. We will continue to evaluate on-farm generated by more than 80% renewables and is therefore GHG reporting and its ability to inform on-farm , a good alternative to petrol and diesel. decision-making that reduces biological emissions. We will also continue to invest in research and We have 113 hybrid vehicles and we have purchased our first development to investigate breakthrough FY FY FY FY FY FY FY four electric vehicles. This is part of our commitment to have reported reported reported 30% of our corporate fleet using electric vehicles and thereby mitigation technologies. ( season) ( season) ( season) Distribution Purchased Steam Electricity Liquid Fossil Fuels Natural Gas help increase the wider adoption of electric vehicles. Based • For our manufacturing operations we will continue Scope Manufacturing Farms we manage Coal Non-energy on other priorities for capital, we will only be introducing Scope } Farming to progress our energy efficiency improvements and (e.g. packing CO) electric vehicles gradually and it will take us longer than the our transition to lower emission energy sources. Scope Supplying Farms original target set for the end of 2019. In particular, the go-live of our biomass co-firing solution at Brightwater and the planning phase for For detailed information on the scope, methodology and assumptions used in reporting these emissions, including corrections electrification at Stirling. to prior reporting, see Fonterra Sustainability Reporting 2018 – Environmental Data Reporting Notes.

Transmission losses for FY18 of 66,000 tC02-e are excluded from manufacturing breakdown but included in total by value chain.

Emissions from biofuels are not shown as protocol excludes them from the total. Biofuels emissions in FY18 were 262 tC02-e.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 60 61 Environment Our OUR ENVIRONMENT

Packaging and waste

Packaging is vital for delivering safe Our Group Environment Policy requires all sites to: manage Many consumers now want access to safe food out of Investigating solutions and quality nutrition. hazardous substances responsibly; minimise the production home with the convenience of single serve portions and We continue to investigate packaging and recycling solutions and disposal of waste products; and increase our use of in packaging that is recyclable. Many manufacturers want for the more challenging items. recyclable materials, including packaging. Backing this, we the efficiency of scale that comes from a single packaging For us, the primary job of packaging is to protect the have packaging design guidelines and a cross-functional solution that is sold into different markets. Finding solutions At our Takanini site, one of the largest items left in our waste nutritional value of the natural and perishable product it group of experts to set direction and support progress. that work for a sustainable future is challenging and will take to landfill stream is the plastic backing from the labels applied contains. It also needs to be practical, appealing, provide key collaboration and co-operation to solve. to products. There is nowhere to recycle this in New Zealand information and, ideally, sustainable. We continue to investigate the use of recycled materials in and alternative backings do not work in our current labelling our packaging, but the risk of contaminants impacting food This year, we’ve seen public interest in plastic grow equipment. We are investigating a recycling solution overseas safety significantly limits our options. In most cases, we seek What weʼve been doing considerably. It is likely that a combination of factors have that we can use until we upgrade our labelling equipment. to use sustainably sourced input materials instead, such as Using less materials driven this such as: media coverage of the plastic in our For several years, we have been investigating the potential of fibre from sustainably managed forests. When designing new packaging, we seek to reduce the oceans and how long it lasts; China significantly reducing its turning waste plastic into fence posts to use on farms. Trials amount of materials to an optimal level. This is a delicate recycling of internationally recovered plastics; and the fact Collaboration and co-operation were successfully completed this year in collaboration with balance. Reducing the materials used not only improves that plastic packaging is something consumers interact with Generally, the rural communities where our farmers operate Kiwi start-up Future Post, and we are now looking to retail transport efficiency, it also means less materials to be on a daily basis. do not have the same access to waste and recycling services these through our Farm Source™ stores. recycled, reused or disposed of after consumption. However, as urban areas do. We are therefore working with others to The majority of our finished goods are ingredients for use by we must ensure that packaging is robust enough to avoid Fonterra Milk for Schools features a recycling programme develop waste management and recycling solutions that business customers, but we also produce packaged goods for damage to our products, which leads to wasted food. that has achieved product stewardship accreditation improve environmental outcomes and enable greater access foodservice and consumers. from the New Zealand Ministry for the Environment. for others to those services. In New Zealand, by collaborating with other industry players, The packaging is currently not recyclable in New Zealand This section covers the packaging used for all finished goods we modified the caps on all our fresh white milk and cream With recycling and minimising waste to landfill, we have so we ship it overseas where it is recycled into products manufactured at the sites we manage and at third-party products this year. This involved a change to the caps, the already completed what could be considered the easier items. such as school books and roofing tiles. We are working with manufacturing sites who make finished goods for us. It also bottles and the filling equipment at multiple sites, reducing For New Zealand, we achieved our previous target of 90% partners to explore options for local recycling, and looking covers the solid waste related to all sites that we manage, the plastic (HDPE) used per cap by 33%. This equates to diversion from landfill several years ago. We are now in a at alternatives to the plastic straws. including manufacturing sites, offices, retail stores and farms. about 144 tonnes less material per year. more challenging phase, where it is important for businesses Supporting food banks Our approach and other organisations to collaborate and work together. Multi-walled bags in different sizes and different One person's waste can be another person’s raw material, or configurations are the most common form of packaging Around the world, we support a number of food To maximise the nutritional value we deliver, we focus on the combined waste from multiple organisations can reach a we use. This year, we further optimised the amount of glue bank initiatives. This helps us reduce food waste and minimising food loss across our supply chain, from the farm scale that makes new innovations viable. used in each bag, and standardised the paper used, reducing provides good nutrition for those who need it most. to the consumer. This also helps us deliver the maximum adhesive by about 14 tonnes per year and paper by around 60 We host an annual Recycling Forum to facilitate new In New Zealand, we donated more than 100 tonnes of return to our farmers and get better outcomes for tonnes per year. the environment. relationships and encourage innovation. We also work closely food to the Salvation Army, the Auckland City Mission with our customers and, for example, this year we worked In Australia, we saved more than 125 tonnes of materials by and Kiwi Harvest this year. In Australia, we continued Improving performance with SKYCITY in New Zealand to recycle milk bottles into working with the packaging providers for our main cheese to support Foodbank, Australia’s largest hunger relief Our aim is to deliver products right-first-time and capture shampoo bottles. and butter products through weight reductions in corrugated organisation, donating over 260,000 meals in 2017. by-products that were previously considered waste, such as cardboard and cheese bags. In Chile, we continued to support Red Alimentos. whey, to make them into new valuable products. You can Considering and stimulating demand for the recycled content In Malaysia, we reduced the weight of the plastic bottle used call this minimising waste or maximising yield. We regularly is also important. For example, the plastic crates we use for for cultured milk products, saving about 30 tonnes per year. monitor this and a specialist centralised team provides milk bottles and the recycling bins we provide to schools support to manufacturing sites where the performance is through Fonterra Milk for Schools, include a high percentage falling behind the best. of recycled plastic from our own milk bottles.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 62 63 Environment Our OUR ENVIRONMENT CASE STUDY Packaging Pallets – lighter and longer living Most of our pallets are This has been achieved and waste continued. made from radiata pine, without impacting the safe a renewable natural load-carrying capacity, resource locally sourced performance or life in New Zealand. We have expectancy. over 900,000 pallets in Not only is this a great circulation in New Zealand cost saving, it also results at any one time and every in an annual saving of year we send about 150,000 approximately 190 trees and pallets overseas. five tonnes of steel. We try not to ship the At the end of its useful life, pallet but in some cases Timpack sends the pallet a pallet is mandatory. to Reharvest Enviromulch Working with our supplier who chip them for reuse in Timpack, we re-designed children’s playgrounds or for one of the pallets used for landscaping. In FY18, over Our performance export. The new design 760,000 replaced boards uses fewer and narrower and almost 14,000 pallets Our targets boards, needing 25 less nails went to Reharvest – that’s and reducing the weight by Indicator Target Performance Commentary more than 1,600 tonnes of almost 5kg per pallet. FY17 FY18 wood that was diverted Solid waste sent to 20% reduction by 5,295 5,663 During FY17 we transitioned to a new waste provider and they from landfill. landfill (tonnes) 2020 from FY15 measure waste from some of our sites differently to the previous baseline (NZ) 1 provider. This makes it difficult to meaningfully compare against (New Zealand ) 7% 14% the FY15 baseline and has contributed to the increase. We are cumulative cumulative now focused on reducing significantly from our FY18 levels. increase increase Solid waste sent to Monitor and report 15,1131 15,430 Given the difficulties we have encountered with data quality in CASE STUDY landfill (tonnes) with the aim of this area, we have not set a global target yet but we intend to in the near future. (Global) significant reduction 2% increase Going Circular We established NZAgbiz in At NZAgbiz, we also 2005 to create value from recycle the packaging In Australia, we are becoming a Redcycle Partner. Redcycle collect by-products that would which historically soft plastics from special bins located at major supermarkets. WHATʼS NEXT otherwise go to landfill. would have gone to This scheme makes it possible for consumers to return previously Waste products that are landfill because it was non-recyclable soft plastics. A similar scheme already exists in • We are aiming to set new global targets for our own not suitable for human contaminated with food. New Zealand, operated by the Packaging Forum and covering solid waste to landfill and the packaging we use for consumption are re-worked For example, for infant approximately 70% of the country. finished goods. Ultimately, we aspire to play our part in into animal nutrition formula which cannot In Australia, the Packaging Technology Team were first time achieving the concept of ʻzero waste.ʼ products that are then sold be released, we de-can finalists in the 2018 Australian Packaging Covenant Organisation to farmers to help their the product and recycle • To achieve this, we are initiating a research sustainable packaging awards. livestock thrive. everything from the programme to evaluate the performance and safety plastic lid to the plastic The materials that NZAgbiz In New Zealand, our Farm Source™ stores have stopped providing of alternative sustainable packaging materials, and scoop and aluminium collects from Fonterra and plastic bags to customers. It is estimated this will eliminate how packaging materials might be manufactured seal. The tin itself is other dairy manufacturing approximately 365,000 plastic bags per year. from locally-sourced by-products, waste streams crushed and collected sites are turned into useful and low-impact renewable sources. by metal recyclers. animal nutrition products DEFINITION • We will continue to reduce the quantities of materials like calf milk replacers, pig During FY18, we produced we use and increase yield by minimising waste across feed products and specialist about 12,000 tonnes of Zero waste: our full value chain. Is where products and processes are designed to animal health supplements finished goods for sale minimise resource use, seeking to conserve and such as probiotics, and sent the following for recover resources rather than burn or bury them, and colostrum powder and recycling: electrolyte replacements. influencing people to change their lifestyle to better • 104 tonnes of metal emulate natural cycles. Any waste product NZAgbiz • 60 tonnes of paper cannot re-work is sold as and cardboard ingredients for other stock 1 700 tonnes of waste to landfill was previously overlooked in FY17 when a change to the • 120 tonnes of plastic. main service provider led to a gap in the reporting coverage. feeds, soaps and bio fuels.

FONTERRA SUSTAINABILITY REPORT 2018 64 65 Environment Our OUR ENVIRONMENT

Somatic cell counts by location

Animal Health 3 2016/17 2017/18

Average (mean) Average (mean) and Biosecurity 000 cells/ml 000 cells/ml New Zealand 177 180

Australia 186 178

China 167 168

Chile – Soprole 283 313

Chile – Prolesur 249 322

European Union 400 400 import/export standard

Cows are the heart of every dairy The development of strategy, policy and standards for the Antimicrobial resistance Growth hormones farm, and their health and welfare is global management of farm animal welfare is the Antimicrobial resistance (AMR) is of growing concern around Due to animal welfare concerns, we do not support the responsibility of Fonterra’s General Manager – Veterinary, the world, with the threat of standard treatments becoming use of hormonal growth promoting substances (HGPs) or of paramount importance to us Technical and Risk Management. The management and ineffective against many common pathogens of importance substances stimulating increased milk production, such as implementation of Fonterra’s animal welfare policies and to human and animals. Our milk testing regime includes rBST. Regulations prohibit the use of both these substances We work with our farmers to meet globally recognised strategies is undertaken at a local level, supported by our specific testing for inhibitory substances such as antibiotics in New Zealand and Australia, and these are not being used standards as set by the World Organisation for Animal centralised veterinary and risk team. and there are financial penalties for farmers associated with on our farms in China or Sri Lanka. In Latin America, there Health, and eliminate practices that contravene the non-compliance. continues to be some isolated usage of rBST. Five Freedoms. Globally, our International Milk Quality team assesses animal welfare as part of their milk quality audits in all We support the prudent use of antibiotics with the aim of Inductions Even with good animal husbandry, diseases and pests remain markets outside of New Zealand where we source milk. optimising therapeutic effect and minimising the risk of an ongoing threat, especially with increased international Our policy is for no routine use of calving inductions. This has This enables Fonterra to identify any issues and recommend developing resistance. By being particularly careful with those trade and travel. Biosecurity is a set of preventative measures been successfully implemented in New Zealand and we are improvements to farmers. Many markets also have local antimicrobials of critical importance for treatment of human designed to reduce the risk of transmission of infectious working with stakeholders to achieve the same outcome in veterinary and milk quality support teams to manage disease, agriculture can help to ensure that antibiotics remain diseases and pests to livestock and crops that impact animal, other regions. this work. effective for the treatment of disease in the future. plant and human health as well as the community, livelihoods Lifespan and the environment. What weʼve been doing Our predominantly pasture-based farmers only use low levels of antibiotics in animals, as our cows have low levels Cows in New Zealand have long and productive lives. This section covers animal health and welfare and biosecurity Responding to biosecurity incursion of disease. In fact, although New Zealand has been ranked The latest available information indicates cows average 4.5 for farms we manage and farms that supply us with raw milk 4 In July 2017, samples taken from a dairy herd in the South the ninth highest user of antibiotics for humans1 it has been lactations (6.5 – 7 years) with a calving interval of 369.5 days. around the world. Canterbury region of New Zealand tested positive for ranked as the third-lowest user of antibiotics in animals in the These measures jointly reflect high reproductive performance, Mycoplasma bovis (M. bovis), a bacterium which is widespread world.2 Australia is ranked the fifth lowest user in agriculture.2 which can only be achieved under conditions Our approach internationally but had never been identified in New Zealand of good animal management. In New Zealand, we are working with regulators and Our farmers are required to uphold high standards of before. The bacterium causes disease in cattle which has wider livestock sector to implement improvements for the animal welfare and comply fully with the latest regulations significant implications for disease management, animal management of AMR. In Australia, the dairy industry strategy WHATʼS NEXT and codes of welfare. These requirements are set out in welfare and production. However, it poses no risk to milk is aligning with the Australian Animal Sector National AMR Fonterra’s Terms and Conditions of Supply, and are guided quality or food safety. Plan 2018 and taking a whole-of-industry approach to best- by our overarching Group Animal Welfare and Biosecurity • We will continue to work with farmers and regulators Since the incursion was detected we have worked with the practice management and prevention of over-use. Policy and supporting standards. to support strong biosecurity and promote good Government, sector groups and other dairy companies to animal health and welfare practices. We support our farmers to continuously improve animal minimise the implications to both animal and farmer welfare, Our performance health and welfare outcomes. We work with industry bodies and support efforts to eradicate the disease. The Farm Somatic cell counts • Building on the existing data collection, farm assessment and monitoring activities we already have and training organisations to ensure farmers have access to Source™ network, tanker operators, and other teams have Somatic cell count (SCC) is not only an indicator of milk in place around the world, during the season ahead high-quality information that sets out expected best practice, helped develop and coordinate two rounds of testing of every quality, a low SCC also gives an indication of good animal we are rolling out an independently certified “Cared relevant regulatory requirements and access to training herd supplying milk and organised more than 60 information husbandry. Results shown above are well below the European for Cows” programme, which launched in June 2018 in where required. We work with industry partners such as meetings for farmers. Union standard, a widely quoted standard. We have delivered meat processors, transportation companies and regulators to New Zealand. Good progress is being made towards eradication of the excellent results in this area and will continue to work ensure best practice controls are in place. disease. Once clear of the disease farms are having their towards lower counts. biosecurity controls lifted and can get back to business with the restocking of their herd. We will continue to support the 1 "Global increase and geographic convergence in antibiotic consumption between 2000 and 3 We have restated all results for 2016/17 to standardise the calculation to mean of mean eradication process and monitor the compensation process 2015”, Klein, E. Y. et al, PNAS April 10, 2018 115 (15). for all supplying farms for the year. Care is required when comparing data from different on behalf of our affected farmers. 2 Review on Antimicrobial Resistance (2015). “Antimicrobials in agriculture and the sources as aggregation methods differ. environment: reducing unnecessary use and waste”. 4 DairyNZ, New Zealand Dairy Statistics, 2016-17

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the smallholders are treated fairly?”the smallholders material andinfluenceso thesupplychain Canwerights abuses. keep buyingthe beassociated withhuman chains andcan Some raw materials have complex supply progress onimproving inclusion? therefore howdowe monitorour age, ethnicity orgender identity suchas details personal disclose People are notobliged to the complexities withinthesupplychain. andrecognise priorities suchasprivacy conflicting must respectpotentially our influence onthesupplychain, we within ourownworkplace andthrough “As we toeliminate inequity seek social Inclusion andTalent GM Diversity, Doughty,Susan FONTERRA SUSTAINABILITY REPORT 2018 REPORT SUSTAINABILITY FONTERRA

Our CommunitiesCommunity Fonterra’s contribution to the SDGs from a community perspective. Our Community 696 Create positive employment We contributed to opportunities along our value 696 community chain (1.2) initiatives through our Grass Roots fund.

How Fonterra is making this happen Share our dairy expertise Caring for people is at the core of our with small-scale producers (2.3) Co-operative, from providing support Our focus is on improving the long-term wellbeing of our farmers and communities. We will: and positive livelihoods to our farmers, Support healthy sustainable livelihoods for our through direct and indirect employment farmers by returning the most value from every drop of 29,000 milk by moving more of our milk to higher value There are over 29,000 in our supply chain, to providing farmers and farm workers nutrition to people around the world. Provide positive livelihoods for our people by supplying milk to Fonterra developing a diverse, skilled and agile workforce and around the world. Who are our communities promoting a healthy and safe working environment Share our dairy expertise with female small-scale producers (5.5) We contribute to three interconnected communities: Invest in the future of our communities by sharing what we do best and building farming capability in key Ensure equal participation and • The people who own and work on the farms that supply emerging dairy markets. opportunity for women in our us with milk, and others who work in our supply chain workforce (5.5) providing us with goods and services • The people who are employed by Fonterra, all around KEY HIGHLIGHTS the world

• The people in the communities where we live and work. • Economic contribution: $20.4 billion revenue, Caring for people $10.3 billion returned to New Zealand farmers for BREAKDOWN OF 1 2017/18 season : see our Annual Review 2018 for 2 As a farmer co-operative, the essence of our strategy is GENDER PAY(F/M ): more information: about returning the most value we can from every drop Provide positive and inclusive of our farmers’ milk. Only in this way can we generate www.fonterra.com/annualreview2018 1.10 employment for all groups (8.5) livelihoods for them that will endure for the long term and • Diversity and inclusion: New targets set for gender Global Address labour and human rights flow on into their local communities. and ethnic representation in senior management – issues in our supply chain (8.7, 8.8) To deliver this requires a highly-effective team. We care see page 75 Provide a safe and secure working about our workforce. We want them to be safe at work, • Health and safety: Slight increase in injury rate for 0.98 environment (8.8) New Zealand have opportunities to develop and be treated fairly. staff, contractors and visitors to our sites but the In addition to contributing to society through our daily injuries were less severe – see page 78 business activities, we also seek to contribute by sharing • Fonterra Milk for Schools: Every school day, 0.92 our expertise and by investing for social impact. 140,000 Kiwi children are drinking milk Fonterra Australia and our farmers provide for free – see page 36

1 Includes Farmgate Milk Price and Dividend. 2 Ratio of female base pay to male base pay with 1.0 indicating equity and less than 1.0 indicating females paid less.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 70 71 Community Our OUR COMMUNITY

Our People

Full time Global full-time equivalent employees for FY2018 Full time NEW ZEALAND Female: Male Gender Pay Gap

FY18 Pay Gap FY17 Pay Gap 95.7% 99.5% FY18 0.98 0.96 Part time Part time , 1 , 12 298 Local senior management appointments 4.3% 0.5% 22FY17 22,269 358 EMPLOYEES FY18 FY17 Diversity in age 0% 100% Gender 29% 71% 82% 88% Fonterra Board 30-50 >50 18% 82% BRAZIL GREATER CHINA Management Team (FMT) 30-50 >50 17% 83%

FY18 FY18 Across all employees <30 30-50 >50 27% 73% 1.29 1.64 FEMALE:MALE FEMALE:MALE 1,433 GENDER PAY GAP 1,858 GENDER PAY GAP EMPLOYEES EMPLOYEES Statistics by employee category Turnover 100% 70% (as % of total workforce) 17% 83% 34% 66% Employee LOCAL SENIOR LOCAL SENIOR category FY18 Pay Gap FY17 Pay Gap MANAGEMENT MANAGEMENT

Senior Leaders 11.1 0.87 0.90 Turnover Rate Managers 0.96 0.96 Voluntary 9.0 Involuntary Professionals 1.28 1.23 1.0 Other* Waged 0.88 0.90 1.1

Statistics by 0% Age 100% Gender type employee category CHILE AUSTRALIA Senior Leaders 30-50 >50 30% 70%

Managers <30 30-50 >50 37% 63% FY18 FY18 Professionals <30 30-50 >50 1.40 0.92 41% 59% FEMALE:MALE FEMALE:MALE 1,808 GENDER PAY GAP 1,432 GENDER PAY GAP EMPLOYEES EMPLOYEES Waged <30 30-50 >50 16% 84% 100% 67% 14% 86% LOCAL SENIOR 26% 74% LOCAL SENIOR MANAGEMENT MANAGEMENT Our employee data is drawn from our global SAP-based employee data systems. The gender, age and turnover data excludes the employees in our Latin America joint venture operations. Numbers are reported for all fixed-term and permanent employees on a full-time equivalent (FTE) Age Unknown basis, except for turnover and new hires reporting which excludes fixed-term employees and is based on headcount, and gender pay gap data, which includes permanent staff only. There are no significant seasonal variations in the employee data reported. Casual staff contracted by *Contract end, legal Fonterra are excluded from these figures as this represents only a very small proportion of the regular workforce. retirement, or deceased. 1 Percentage of senior management team who are citizens or permanent residents of the country

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 72 73 Community Our OUR COMMUNITY

Doing whatʼs right by our people

Our people are at the heart of our success. Labour rights What weʼve been doing We also offer access to qualifications through development programmes such as DAIRYCRAFT. In partnership with We’re focused on building a diverse and Fonterra has a long-standing agreement with the Learning and development International Union of Food (IUF) and the New Zealand Dairy the Primary Industry Training Organisation, DAIRYCRAFT Learning and development activities are important for inclusive workforce that is highly-engaged Workers Union which recognises our commitment to the currently helps operators in our New Zealand manufacturing building the capabilities of our people and helping us achieve Conventions of the International Labour Organisation (ILO) sites and distribution centres to develop relevant technical and effective, while also investing in our ambition. We expect that every employee, supported for all Fonterra employees. skills and gain a national qualification. To date, 161 employees employees to help them respond to the by their leaders, will embrace the need for lifelong learning. have completed the 18-month programme and 500 ever-evolving nature of work. We have union agreements and relationships in many Fonterra supports development in many ways, including with are currently enrolled. This year, we have expanded the markets. For example: in New Zealand with the Dairy innovative technologies. programme and added more locations. Workersʼ Union (DWU) and E Tū; in Australia with the Most of our 22,000 employees work in processing A new initiative ʻampʼ helps employees develop their careers National Union of Workers; and in Malaysia with the Diversity and inclusion and distribution. They are supported by employees in by spending up to a third of their time on projects outside Malaysian Food Industry Employeesʼ Union. In New Zealand, corporate roles such as sales, marketing, finance and human their day jobs across areas where they have a special interest Embedding diversity and inclusion is the right thing 61% of all full-time equivalent Fonterra employees are resources. This section covers all people who we employ or particular skill. It is powered by a web-based app where to do for our people and it helps drive better business covered by collective bargaining agreements. directly and work in sites or offices that are owned or people build a profile and match their expertise to listings of performance. With diverse and inclusive teams, we can controlled by Fonterra. Respect for each other internal projects, helping Fonterra tap into existing talent. think differently about how to do things better, smarter and faster, and anticipate the needs of our diverse customers Our Code of Business Conduct and global policies set clear Our approach and communities. expectations for how our people need to act and behave. Our overarching people strategy is centred around “Love it, so easy to use and great way This year, our Board approved targets to increase the number We will not tolerate any discrimination due to ethnicity, simplification, preparing for the future and a focus on of women and ethnic minorities within our senior leadership cultural background, gender identity or expression, age, to find talent, share expertise and organisational health and engagement. Our approach to levels to 50% and 20%, respectively, by 2022. These were set national origin, disability, religious affiliation, sexual grow and develop people in new areas.” managing and developing people is defined in global policies based on research and our historic imbalances. We’ll still hire orientation, education, thinking style or any other form covering ethical behaviour, diversity and inclusion, and people Robyn Moore, GM Brand Experience based on merit, but setting targets is important to help drive of diversity, for our employees, farmer shareholders, management. These policies are supported by local guidance change. We are committed to ongoing measurement to track stakeholders, suppliers or customers. to reflect relevant regulations and norms. An understanding progress. As part of the Champions for Change initiative in of and connection with local markets is vital to our success. We fund an independent and confidential service, facilitated Other innovative programmes piloted and then made New Zealand, which we joined when it launched in 2015, By hiring and developing local talent, we contribute towards by Deloitte, available to all employees to seek advice and raise available to the wider business this year were Degreed, we were one of the first organisations to take part in the the shared success of our Co-operative and the countries concerns related to ethical or unlawful behaviour. This year, MyCoach and THRIVE. new diversity reporting framework introduced for the 2017-18 where we operate. 42 disclosures were made globally. Of these, seven related Degreed is an online learning experience platform that reporting year. to discrimination. After investigation, three were found to be gathers relevant content for individuals including articles, We have begun to create a more complete picture of the unsubstantiated, one was withdrawn by the complainant and videos, podcasts, books and courses. MyCoach is a tailor- diversity of our people by asking them to voluntarily provide three were upheld in part. These three incidents were in the made mobile app that uses role play to help people information like gender identification, nationality, ethnicity same location and steps were taken following the complaint improve skills such as giving and receiving feedback and and age. At present we are unable to classify over a third to promote a more supportive and inclusive environment. having courageous conversations. THRIVE is an immersive of our employees. This is partly due to our own system learning experience that helps employees build a deeper limitations, which we strive to improve over time. However, understanding of Fonterraʼs end-to-end value chain, including this is likely to remain a challenge due to international an online element and a face-to-face simulation. regulations and the high proportion of operational workforce with limited access to systems. Collection of some information must remain voluntary to respect privacy rights.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 74 75 Community Our OUR COMMUNITY

Doing whatʼs right by our people continued.

This year, we hired our first diversity and inclusion leader to Closing our gender pay gap Our performance drive the development and implementation of our global Our approach is that there should be no unexplainable strategy. One focus has been around flexible working, which gender pay gap for any employees, taking into account factors Our targets is a key enabler for diversity and inclusion, and we have such as tenure, qualification levels or experience. Our pay gap developed a new flexibility toolkit to support our people. Indicator Target Performance Commentary is also impacted by the gender ratio of our employees, with FY16 FY17 FY18 We also have a Rautaki Māori (Māori strategy) to build Māori manufacturing being a historically male-dominated area. capability and forge stronger relationships with groups Employee engagement World-class 3.65 3.85 4.00 The engagement survey for FY18 was For waged employees, this principle is embedded in our moved into early FY19 with a record 19,259 representing the interests of the indigenous Māori people participating (87% of employees) and highest collective employment agreements, with consistent of New Zealand. Some of the highlights this year included result of 4.00 (out of 5.00). remuneration for each employment category irrespective of launching our Te Mātāpuna app, which makes Māori culture who is employed. Female representation 50% by 2022 - 30.5% 30.1% This slight drop highlights that more targeted and language more accessible to employees, and delivering in senior leadership intervention is required to increase female an employee Māori language learning pilot through Te For other employees, Fonterra uses a range of independent representation at senior leadership levels. 50% by 2022 is a new target set in FY18. Wānanga o Aotearoa. and external third-party pay market data to benchmark our competitive pay position and to ensure internal consistency. We ran our own Diversity and Inclusion Week in March and Ethnic representation 20% by 2022 - - 9% Result based on employees voluntarily We use pay bands to determine the relative pay levels across in senior leadership providing information this year. More than a we also recognised significant events throughout the year third of our global population is still unknown. the workforce. Our pay approach is governed internally by a such as Māori Language Week, Diwali and Chinese New Year. 20% target by 2022 is a new target set in FY18. transparent remuneration policy. Employee-led affinity groups are supported to help foster an inclusive environment. This year, we conducted a thorough internal pay equity One way we measure how our people strategy is tracking analysis in New Zealand, where the largest number of is through our annual engagement survey. In FY17, our WHATʼS NEXT Partnerships and community engagement are another key employees are based. This has helped us identify actions to be global ʼMy Sayʼ survey achieved a 77% participation rate and part of our strategy. The organisations we work with include recorded our highest result since we started surveying in taken to close unexplainable pay gaps. • Over the coming year, weʼll work with leadership Global Women, Champions for Change, TupuToa and First 2010. This year, we moved the FY18 survey to the start of the groups in each country to increase the proportion of Foundation in New Zealand, Workplace Gender Equity in In terms of our gender pay ratio (see page 72), the female financial year to increase participation. Although these results women and ethnic minorities within senior leadership Australia and the local government in Saudi Arabia to help to male base salary across our five largest locations is 1.10 were measured in FY19, they do reflect our performance levels, in line with our new diversity targets. bring more women into the workplace. meaning that, on average, female base salaries are higher. This over FY18. A record 87% participation rate was achieved and has widened from 1.09 last year because we have increased an increased engagement score of 4.00, building on the 1 • We're working to get the Rainbow Tick, awarded Gender pay gap the scope from just the top five markets. Like last year, the improvement from last year. to New Zealand workplaces that are inclusive and New Zealand 0.98 pay ratio is again skewed towards women in the countries welcoming for people of diverse sexuality and gender This year, we won the Deloitte Top 200 Diversity & Inclusion The female to male with the highest proportion of men working as operators, identity and the Gender Tick, given to New Zealand pay gap in our largest Leadership Award and were voted New Zealandʼs Top technicians, drivers and farm worker roles, and the highest employers committed to gender equality. employment country proportion of women in more senior roles. Graduate Employer in the Talent Solutions and Nxtstep improved from 0.96 Student Pulse Survey 2018, after previously finishing third. to 0.98. • We’re prioritising learning for six capabilities In New Zealand, the female to male base salary is 0.98, Fonterraʼs Learning Solutions team, in partnership with – emotional intelligence, change adaptability, meaning the gap has reduced since last year (0.96). This New Zealand consultancy Sysdoc, earned international learning agility, evidence-based problem solving, compares well with the national average of 0.908 but still recognition winning the Silver Award for ʼBest Learning Teamʼ entrepreneurship and external orientation. leaves room for improvement. Australia is the location where at Americaʼs Brandon Hall Human Capital Management • For DAIRYCRAFT, we are developing a new pathway we have the most significant negative gender pay ratio. This Academy awards in 2017. has improved over the past year, from 0.90 to 0.92. to encourage regional youth into a dairy processing career by offering a managed apprenticeship programme at selected sites.

1 For the same scope as FY17 reporting, the top five markets, the pay gap narrowed by 0.01.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 76 77 Community Our OUR COMMUNITY

Health, safety Total recordable injury frequency rate and wellbeing . . .

. . . . . . TRIFR (per million hours) work

FY FY FY FY FY FY FY FY FY

We want all Fonterra people to be healthy, to effective as we would like and improvement actions have been Our performance identified to address this. live a balanced life and to go home from work Our targets safely every day. On-farm health and safety When it comes to health and safety on farms, we have a Indicator Target Performance Commentary As a business with thousands of employees, contractors and direct responsibility for our employees, contractors and other FY16 FY17 FY18 farmers around the world, interacting with the wider public every representatives, including the safety of those involved in milk Work-related fatalities Zero harm 1 0 0 This year there were no fatalities day, this topic is fundamental to our business and essential to our collection activities. Our on-farm assessments include health (attributable to Fonterra – on any of our sites. long-term success. That’s why it has been a particular focus for us and safety to confirm that relevant areas of the farm are staff, contractors, for more than 10 years. well-managed for risks and hazards, with specific, detailed on-site public) consideration of the tanker access included in the supplier Our approach Total recordable injury World class for our 6.4 5.2 6.1 Having achieved a 70% reduction from FY10 handbook for New Zealand farmers. frequency rate (TRIFR per industry group (<5) to FY17, this year we saw a slight increase and 284 employees required medical treatment, Fonterra operates a global health and safety management system. In New Zealand, there are significant numbers of fatalities million work hours) restricted work duties or time away from The Fonterra Group Health, Safety and Wellbeing Policy sets out associated with working in the agricultural industry, with 18 work, because of a work-related injury. We remain committed to achieving our target. our requirements for responsible operation and employee safety. reported during 2016 and nine in the 2017 calendar year.1 Implementation of and compliance with the policy is overseen by We are active members of the Agricultural Leaders Health and Number of serious Zero harm 21 17 14 Serious harm injuries2 have continued our global Director of Health and Safety, Resilience and Risk. Safety Action Group and working with other organisations, harm injuries to decrease, reaching 14, our lowest recorded level. We remain focused We are committed to delivering on our health, safety and including Worksafe New Zealand and DairyNZ, we are seeking on reducing this further. wellbeing commitments through: ways to help reduce the risk of injury. Also, through our network of Farm Source™ stores, we make safety information available for Percentage of staff Measure and 19% 18% - This year, rather than a single global • People, who believe that harm is avoidable and who support a participation in at least report only approach, employees participated in a range our farming communities. of regional wellbeing activities, including an safe and healthy work environment one health and wellness “Unlocking Your Life” programme in Australia. For our own Nutrient Management farms in New Zealand, our programme per year This means we are unable to report an overall • Processes, that always prioritise safe work practices and Internal Audit team completed Safe Home Assurance Audits at participation rate. proactively identify and manage exposure to risk a further six of the 29 farms. Controls were found to be not as • Plant and equipment that considers design, operation, effective as we would like and improvement actions have been Our performance management and maintenance to always prioritise a safe and identified. Improvements arising from actions last year resulted WHATʼS NEXT healthy work environment. in improved ratings for four assessment categories: Leadership Our initiatives to date have dramatically improved the and Engagement, Injury Management, Hazardous Substances and health and safety of our people, even as we have grown our Accountability for performance extends from the Board of Farm Vehicle Safety. operations and business complexity. This has been achieved • We continue to seek further improvements by Directors, through the Fonterra Management Team, to individual by focusing on areas of vulnerability, building resilience and analysing events and executing a broad range of Helping local community initiatives managers, workers and contractors working on Fonterra sites. considering what it takes to keep our people safe. improvement initiatives. Our concern for health and safety extends to the wider What weʼve been doing community. Through our Fonterra Grass Roots fund we In Australia this year, our Stanhope team won a WorkSafe • We are establishing a Global Wellbeing Forum with a specific emphasis on the mental health aspect Safe home audits provide financial support for local initiatives that help make Victoria Award for their commitment to health and wellbeing. communities safer. In FY18, grants were provided to help groups During the expansion project, the team developed ‘The of personal wellbeing. The forum is intended to Each year we run a global programme of comprehensive such as volunteer fire brigades, surf lifesaving and land search Village’ initiative to build a sense of community to keep each encourage local ownership of wellbeing in our Safe Home Assurance Audits in addition to self-assessments and rescue. Through bulk buying we were also able to provide other safe. business units around the world, but in an aligned performed locally. These audits are undertaken by our Internal more than 10,000 high visibility vests and 25 defibrillators to way where locally developed best practice can be Audit team, independently of the business unit, and involve a community groups. shared to accelerate progress. detailed assessment on site. This year we completed audits at 30 of our sites. For 12 of these, controls were found to be not as 1 Source: Worksafe NZ Workplace fatalities by industry 2 Serious harm injuries are injuries that cause temporary or permanent loss of body function and include those to/involving both employees and contractors.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 78 79 Community Our IN 2016 POLICE RECORDED: OUR COMMUNITY 118 910 Human CASE STUDY 5 Addressing family violence Rights MIN in New Zealand and Australia Family violence is one of facilitate access to expert New Zealand and Australia’s external support through biggest human rights partners such as Shine. FAMILY VIOLENCE INVESTIGATIONS issues. New Zealand has We also launched a support the highest reported rate package including additional – ONE EVERY 5 MINUTES of family violence in the leave of up to 10 days for developed world. victims and three days for New Zealand statistics. supporters of victims, as Source: areyouok.org.nz The workplace is often a well as provision for ʻusersʼ safe place from the violence of violence who want to at home, where a sense attend rehabilitation. of value and worth can be maintained and victims can In Australia, we also At Fonterra, we believe that everyone has the right to work in a As a large-scale employer, working in seek help away from the introduced up to 10 safe environment free from any form of bullying or harassment. scrutiny of the abuser. days of paid leave for many countries around the world, it is our We do not tolerate these harmful behaviours in our workplace victims, in what we and are taking steps to speak up, stand together and stop them This year we launched a new responsibility to care for the rights of people believe is an industry- from occurring. We have committed to a number of initiatives initiative aimed at making directly and indirectly impacted by our leading position, designed to create a ʻculture of care.ʼ This year, building on existing Fonterra a safe place for well above the legal operations and decisions. proactive and reactive measures in place, we have had our New Zealand and Australian requirement recently processes reviewed by external legal experts, we have simplified employees impacted by introduced. Our approach our policies and guidelines and made them more accessible, and family violence. We wanted Since adopting ISO26000 in 2014 we have been improving our weʼre developing a new Global Standard on Bullying, Harassment to ensure we have a caring Recognising the wider visibility of and accountability for human rights issues. and Discrimination to apply globally. and sensitive environment impact of this issue, we where people can talk about also worked with a number We have also developed new online and face-to-face bullying and family violence, and know of other organisations and Our approach has its foundations in our values and is built on harassment training for employees. Some of this training was how to get confidential developed a toolkit for the UN Guiding Principles on Business and Human Rights. piloted at our Te Rapa site earlier this year with great feedback. The Principles require that businesses should avoid causing or support if they need it. other businesses to use as a To help raise awareness of these issues we joined the Pink Shirt starting point for their own contributing to adverse human rights impacts through their In New Zealand, we asked Day movement, providing training material to all New Zealand internal policy and support business activities, and address such impacts should they occur. Shine's DVFREE experts people managers and raising awareness with employees globally. programmes. This has been to help us develop our made publicly available via: domestic violence policy What weʼve been doing Our performance www.businessworking and to train a group of Human rights due diligence toendfamilyviolence.co.nz/ Weʼve made good progress on due diligence this year, and employees. The trained Human Rights ʼdue diligenceʼ is a process to identify and prioritise established a governance group to oversee the findings. Weʼre employees provide initial actual and potential human rights issues in an organisationʼs continuing our focus on addressing bullying and harassment, and workplace support and direct and indirect sphere of influence. For Fonterra, this is an if any other issues are identified from our ongoing due diligence important step in developing our understanding of our potential process, we will be seeking to put additional action plans in place. New Zealand statistics. impacts so we can implement policies or actions to address them. Source: areyouok.org.nz In 2017, we conducted a human rights due diligence evaluation WHATʼS NEXT for four countries, which captured approximately three-quarters of our employees: New Zealand, Australia, Brazil and Chile. The results showed that some of our people had concerns about • In 2019, we will extend the due diligence process to bullying and harassment, long working hours and the potential for employees in other key regions, and continue with human rights risks in our non-milk supply chain (see page 82). our assessment and response to any issues identified in our on-farm and non-milk supply chains. Addressing bullying • We will consider extending the initiatives we New Zealand has high rates of bullying, and this spills over into have introduced to help address family violence workplaces, affecting around one in five working people. to other regions. Itʼs not just an issue in New Zealand, it impacts workplaces globally and can have a serious and ongoing impact on mental • We intend to publish an updated Group Bullying, health and wellbeing. Harassment and Discrimination standard, complete the development of new training resources for staff, and then commence their rollout.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 80 81 Community Our OUR COMMUNITY

Responsible Procurement

CASE STUDY

Malaysia Palm productsKuala Lumpur The production of palm and Wilmar, and sold through In 2017, we joined The Forest www.wilmar-international. products is often linked to our Farm Source™ stores. We Trust, working with them to com/sustainability/progress/ unsustainable practices, have been a member of the evaluate the performance traceability/ including deforestation, Roundtable for Sustainable of our palm products supply www.agrifeeds.co.nz/ Our business has considerable scale We select vendors based on a balanced set of criteria and habitat destruction and poor Palm Oil (RSPO) since 2010 chain and compliance with our information/agrifeeds-pke- recognise that some may have weaker aspects of social or human rights practices. We and by 2015 all our palm oil standard. Our supply chain is and with that comes the opportunity supply-chain/ environmental performance. We believe that influencing and are committed to sustainable purchases were certified complex and tracing PKE back to influence for good. working with vendors who show a willingness to improve is sourcing of palm products and by RSPO. to individual smallholders is In the past year, we have the socially responsible thing to do. we are working with others to very resource intensive. To analysed our supply chain to In terms of procurement, this means working to source goods In 2016, we launched our improve practices across the make theCopyright biggest © Free Vectordifference, Maps.com identify priorities for further and services produced in an environmentally and socially As part of our regular assessment of vendors across a Palm Product Standard. supply chain. our stakeholders have action and established a responsible way and that positively influences behaviours in range of characteristics, we specifically consider social and This requires palm product recommended we focus our process with Wilmar for our supply chain. environmental risks. Palm oil is used in a limited vendors within our supply efforts on priority areas of risk traceability data and grievance number of our products. chain to publicly commit By far the largest single input to our business is raw milk, What weʼve been doing and support common tools for alerts. We have also hosted Palm Kernel Expeller (PKE), to “No Deforestation, No collected directly from farmers. For more information on transformation. conversations with key Vendor assessments a by-product of the palm Peatland Development, and how we work with our farmers, in New Zealand and around stakeholders to seek feedback oil production, is used as a No Exploitation” and have Wilmar, our largest supplier, the world, see page 44. As part of our on-going human rights due diligence process, on our progress and approach. this year we assessed our top 400 non-milk suppliers supplementary feed for cows. processes to meet these and Agrifeeds both make This section covers our non-milk supply chain, including (accounting for 75% of spend) for the risk of potential human Approximately 30% of PKE commitments. detailed traceability capital projects. rights abuses. We identified that the salient risks are most imports into New Zealand are information available on likely to be: discrimination and bullying or harassment, procured through International their web sites: Our approach followed by bribery and corruption, and then unsafe working Nutritionals Ltd (INL), a joint We have a Group Procurement Policy and Procurement conditions. These primarily relate to the ingredients we venture between Fonterra Standard which set out our global requirements for are sourcing from outside of New Zealand – typically from procurement of non-milk goods and services, including countries with systemically poor governance of labour capital projects. This includes key principles such as assuring conditions. As a socially responsible organisation, we are the health, safety and wellbeing of people, food safety and committed to providing meaningful work and income in PKE Supply Chain via Agrifeeds quality, environmental sustainability and social practices. emerging markets, while also encouraging our suppliers to Breakdown by renery The requirements apply for all purchasing, but for significant continually improve labour practices. MALAYSIA AND INDONESIA items, a specialist procurement team must be involved in Palm products purchasing decisions. Palm products are one of the highest-profile raw materials All staff are responsible for complying with the standard, in our supply chain. The production of palm oil and palm which is owned by the Director of Procurement, with the by-products, primarily in Malaysia and Indonesia, are CFO accountable for ensuring the Group Standard is fully associated with a number of environmental and social issues. implemented across the organisation. The Group Policy is We therefore have a specific focus on this area (please see approved by the Board of Directors. Case Study on Palm products opposite). The Fonterra Supplier Sustainability Code of Practice sets Reneries our expectations of vendors including upholding standards related to human rights, fair working conditions and environmental protection. www.fonterra.com/sustainabilitycop Mills Traceable to mill

FONTERRA SUSTAINABILITY REPORT 2018 82 83 Community Our OUR COMMUNITY

Responsible Procurement continued. Dairy Development

Our performance Our dairy development activities support Sri Lanka local dairy farmers in key markets to In Sri Lanka, we are developing the capability of local dairy Our targets farmers and collecting their milk to produce fresh dairy sustainably increase production, improve products for the local market. We have established seven Indicator Target Performance Commentary milk quality and profitability, and thereby milk collection centres in the regions and trained staff to FY17 FY18 collect, test and cool the milk before it is transferred to food (CY2016) (CY2017) help to build thriving communities. production facilities. Sourcing ʼsegregated 100% by Despite slow initial progress, indications are that we will achieve 2.7% 7.0% As a farmer-owned Co-operative, our global success is built supplyʼ palm oil from end of CY 2018 70% by the end of CY2018 with close to 100% RSPO segregated We also established our demonstration and training farm palm oil for New Zealand and Australian procured items. We on the dairy expertise we have developed. By sharing that at Pannala in 2016 as a way to build capabilities further. In credible organisations have faced challenges in markets such as Saudi Arabia, Thailand, Indonesia and Chile but we will continue to work with suppliers expertise and the lessons we continue to learn, we can make its first year of operation, we exceeded our goal to provide to transition to segregated supply. a greater contribution to sustainable development. To achieve training for more than 2,500 farmers per year. This year, 1,036 this we work closely with key external stakeholders including farmers received training at the farm. Competing priorities for PKE traceable to mill 100% by Traceability went down slightly in 2017 due to a new mill being local government agencies, universities and New Zealand end of CY 2018 96.7% 93.9% added to supply and this mill missing information that prevents it staff meant that we did not achieve our annual target. being considered traceable. industry experts to tailor our approach to specific needs. Traceability will continue to improve and AgriFeeds has made this The tuition is provided through a combination of classroom information publicly available on its website. and on-farm training activities and our network of supplier Milk collection relationship officers provide further support by visiting farms PKE traceable to 100% by end of CY While visibility continues to improve slowly, this is now 17.7% 19.4% in Sri Lanka and leading farmer discussion groups. plantation 2018 (excluding recognised as an impractical target. Alternative indicators to smallholder) better monitor changes to sustainable production are being Milk from small-scale discussed with stakeholders. This year, we introduced new milk testing technology, farmers being collected on the way to a milk tailored to suit the Sri Lankan conditions. This has provided Payment terms collection centre in a step change in the quality of milk test results, which will Sri Lanka. help improve milk quality. The instrument is now available In 2016, we changed our vendor payment terms, increasing WHATʼS NEXT commercially in Sri Lanka and is being adopted more widely. the time it took us to pay vendors. This brought us in line with international practices, and many of the existing agreements we • We will be expanding our engagement with To track outcomes from the development activities, we have had with our own customers. specific vendors in high-risk areas to ensure they introduced performance indicators, monitored across a sample of farmers in Sri Lanka. During the 2017 calendar year, It’s a decision we acknowledge put pressure on many of our better understand our expectations, and we better farmers worked on fodder improvement, planting techniques, smaller vendors, and damaged our relationships. Since introducing understand the practices in their supply chains. harvesting and silage making. This allowed farmers to reduce the longer payment terms, we have worked with many individual • We will continue to explore ways in which our their use of supplementary feed and lowered their average vendors to set payment terms that recognised the pressure on procurement spend and vendor management cost of production by 30%.1 their cash flows. approach can help improve social outcomes in our This year, we reviewed the situation and adjusted the standard supply chain. payment term for all small New Zealand and Australian • For palm products, we will continue to engage vendors 1 businesses. From August 2018, all small businesses in these and work with our partners to support transformation countries are paid on the 20th of the month following the of the palm industry towards a sustainable supply. We invoice date. will also update our Palm Product Standard to reflect recommendations from stakeholders on best practice.

1 We consider a vendor small if we spend less than $300,000 per year with them, they have annual turnover of less than $10 million and less than 20 employees. This is aligned with 1 Based on 37 farmers who provided more than the New Zealand Ministry of Business and Innovation and Employment description. nine months of data across 2017.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 84 85 Community Our OUR COMMUNITY SRI LANKA

MANUFACTURING SITE

OUR MILK COLLECTION

Dairy CENTRES Northern THIRD-PARTY MILK Development continued. COLLECTION CENTRES DEMONSTRATION AND TRAINING FARM

North Central

CASE STUDY North Western Eastern Encouraging dairy Second cohort of young Central farmers from Chile before heading to New Zealand. entrepeneurs in Sri Lanka Most dairy farming in Anusha Lakmali’s husband

Western Uva Sri Lanka involves hand- works in the army and China Indonesia milking a few cows. This is often stationed away Sabaragamuwa means there are challenges from home. With two sons Encouraging the development of young Chinese talent in Our dairy development work in Indonesia sees farmers agriculture is an important aspect of our dairy development around farm productivity and growing educational receive practical and classroom training in Indonesia and and milk quality, but there expenses, they were looking work. More than 90% of employees on our China Farms are a study tour to New Zealand. Now in its sixth year, 15 local locally recruited and trained. We have also provided financial Southern are also opportunities. for a new income stream. farmers in Indonesia completed our one-year development Starting with a single cow, support to a further 209 agriculture and food science Kalum Prasanna from scholarship this January. The extension training includes Anusha quickly learned students from 10 Chinese universities. This takes our total Kuliyapitiya started dairy animal husbandry, feed management, food safety and quality, how to weave the farming to over 1,000 since the Fonterra Scholarship programme farming at an early age, health and safety, and caring for the environment. The alumni activities into her daily launched in 2010. however he lacked the network then helps build local farmer learning groups for routine and now has two knowledge needed to We have been working with local authorities and research continued sharing within the group and the broader farming cows. Anusha also provides successfully manage a teams in China and New Zealand to build a circular economy community as they apply their learning. a collection service, dairy farm. After leaving solution. Treated effluent from our China Farms is used as collecting around 125 litres We have also launched a dairy cluster in West Sumatra. to explore other industries, a restorative fertiliser to improve soil health on arable land of milk from five or six other Supported by local government and working in partnership Kalum returned to dairy to grow feed for our cows. This year we have specifically set small-scale farmers on her with the local dairy co-operative, we are training about 70 farming in 2015 and began up demonstration plots where we are providing the local route to the milk collection farmers. We are also training local catering staff on using supplying fresh milk to farmers with advice on irrigation and crop management, and centre at Gampala. She now fresh milk as an alternative nutritional ingredient to develop Fonterra Brands Sri Lanka. monitoring effluent application and soil quality over time. market opportunities for the milk produced. hopes to grow her business Our goal is to demonstrate measurable results to encourage Kalum started with two and supply Fonterra with Chile wider adoption of the approach by local farmers, helping cows and has grown his herd 300 litres of milk every day. secure soil health for their long-term livelihoods. In FY17, working with our Chilean subsidiary Prolesur, we to nine, producing around Fonterra’s end-to-end dairy established a new exchange scheme to give young Chilean 80-100 litres of milk per day. development initiative in farmers the opportunity to learn from leading farmers in Kalum also has his own milk Sri Lanka is empowering New Zealand. Through paid, hands-on work experience with collection centre, collecting and improving the Fonterra farmers, young people from southern Chile learn around 150 litres of milk livelihoods of farmers pastoral dairy farming skills so they can return home and daily from 15 dairy farmers. like Kalum and Anusha by contribute to the dairy development potential there. Based on training received creating regular incomes. at Fonterra’s Demonstration From our first group of 11 young Chilean farmers, nine These livelihoods are and Training farm and completed their full year in New Zealand and the second powered by new product supported by the National group of 17 have arrived. development, to build local Agri Business Development demand for fresh, healthy Programme, Kalum has dairy nutrition sourced improved his own operation from local dairy farmers, and is helping other farmers and are supported by the increase their productivity. development of the end- Kalum is now looking to to-end supply chain. increase his herd to 20 and install a biogas plant to produce energy that can be used to power his home.

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 86 87 Community Our OUR COMMUNITY New Zealand and Australia Greater China In New Zealand, in addition to providing financial grants In Greater China, we have introduced a new scholarship we also directly provided more than 10,000 high visibility scheme to help the children of our China Farm workers vests and 25 defibrillators. Buying in bulk lets us help 14 further their education. This year, 14 scholarships were more groups. scholarships awarded. They are based on criteria including family Supporting our awarded income and college admission. We have also continued to fund lectures by influential Junwen Yang, Girls’ Protection, an NGO, to provide ‘protect your body’ communities a milker on guidance to more than 100 children. The course seeks to our Ying Farm, help the children protect themselves against harassment. was one of the first recipients of a further educational scholarship for his son.

Latin America For 18 years, Soprole has supported school sports across the length of Chile covering athletics, basketball, Our main contribution to our communities football, mountain biking, swimming, volleyball and chess. is through our daily business, but we also Participation is encouraged to help develop values such as tenacity and unity. invest in and support the communities that Defibrillators we rely on to be strong and resilient. provided across A further education scholarship is also awarded in New Zealand each discipline for the top participants when they Our approach is to share our expertise and invest in 25 graduate from high school. activities aligned with our sustainability priorities: nutrition, environment and healthy, safe communities.

Fonterra Grass Roots fund Once they got the barge working really well, The Fonterra Grass Roots Fund financially supports initiatives A helping hand in times of crisis: it transported in: 2 full fuel tankers and that help to strengthen our communities, bringing them 2 chilled food trucks for the community; Australian bushfires and 6 empty trucks to collect dairy products. together, caring for the environment and promoting safe and On 18 March 2018, the Western Victoria dairy region healthy lifestyles. in Australia was hit by a bushfire, which quickly Launched in 2007, it is now active in New Zealand, Australia destroyed homes, sheds, fences and stock, and at one and Sri Lanka, with decision-making distributed regionally. point threatened the Cobden township and Fonterra's manufacturing facility. Sixteen Fonterra farms were directly affected, with another 70 farms impacted through loss of power and other disruptions. FY17 Our local Farm Source team helped to source generators, reconstruct fences, and provided technical advice on milk $750K distributed to 432 initiatives quality and animal health issues. Fonterra paid for milk not FY18 able to be collected (due to lack of access to farms or power We also provide dairy shortages), delivered clean water to affected farms using our FY18 23.6M nutrition through our fleet of tankers, and donated products for fundraising events. Cyclone Gita M portions1 In-school programmes $7.2 - see page 36 Building on the support services we provide our employees, In February 2018, Cyclone Gita hit the South Island of New distributed to we partnered with our Employment Assistance Programme Zealand. A slip on the only road out of Takaka caused the $770K 696 initiatives (EAP) provider and ‘Nurse on call’ to provide on-site town, the Golden Bay area and Fonterra’s plant to become counselling to both the community at large, as well as local cut off. Our operations team had to work quickly, by In Australia, we’ve supported initiatives across volunteers and workers. Victoria and Tasmania. Members of the 1st activating their business continuity plan. This involved hiring Drouin Scouts needed new tents for camps to a barge to move products out of the factory. Only 20 hours help young scouts safely learn good life skills. after the storm, after securing a berth at Port Nelson and building a ramp to give the trucks access, the first successful eight-hour trip was made. Realising there was room on the barge for more vehicles, our team worked with the local civil defence and other authorities to coordinate moving essentials such as food 1 A portion is 200ml of milk for Fonterra Milk for Schools and an estimated 140ml of and fuel to help the stranded community. After six days, the milk for KickStart Breakfast. In prior years KickStart has considered a portion 200ml but analysis indicates 140ml is more realistic. Takaka hill road re-opened to truck traffic only. During that time, the factory kept collecting from the local farms and the

FONTERRA SUSTAINABILITY REPORT 2018 community had access toFONTERRA essentials. SUSTAINABILITY REPORT 2018 88 89 Community Our APPENDICES

102-53 Contact point for questions regarding the report About this report. See page 3 Global Reporting (Email: [email protected]) 102-54 Claims of reporting in accordance with the GRI Standards Global Reporting Initiative Standards. See page 90 102-55 GRI content index Global Reporting Initiative Standards. See page 90 Initiative Standards 102-56 External assurance Bureau Veritas Assurance Statement. See page 92 ECONOMIC TOPIC DISCLOSURES This report has been prepared in accordance with the Global To achieve ʼCoreʼ compliance with the GRI standards we must 201-1 Direct economic value generated and distributed About Fonterra. See page 14. Community. See page 88 Reporting Initiative (GRI) Standards: Core option. report against at least one disclosure for each material topic. Refer to Remuneration on page 77 of Annual Report 2018 For more information: www.globalreporting.org 202-2 Proportion of senior management hired from the local community Our People. See page 72. Doing what’s right by our people. See page 74 REF TOPIC TITLE REFERENCE 205-2 Communication and training about anti-corruption policies Awareness and training in Governance and ethical business2 GENERAL DISCLOSURES and procedures 2 102-1 Name of the organisation Fonterra Co-operative Group Limited 206-1 Legal actions for anti-competitive behaviour, anti-trust, and Legal compliance in Governance and ethical business monopoly practices 102-2 Activities, brands, products, and services About Fonterra. See page 14 ENVIRONMENTAL TOPIC DISCLOSURES 102-3 Location of headquarters See page 94 302-1 Energy consumption within the organisation Climate change – Our performance. See page 613 102-4 Location of operations Our farming and manufacturing activities. See page 42 302-3 Energy intensity Climate change – Our performance. See page 613 102-5 Ownership and legal form About Fonterra See page 14 302-4 Reduction of energy consumption Climate change. See page 57-60 102-6 Markets served Where we sell. See page 26 303-1 Water withdrawal by source Water withdrawn by source. See page 52 102-7 Scale of the organisation About Fonterra. See page 14 102-8 Information on employees and other workers Our people. See page 721 305-1 Direct (Scope 1) GHG emissions Climate change – Our performance. See page 61 305-2 Energy indirect (Scope 2) GHG emissions 102-9 Supply chain Our Value Creation. See page 16 305-3 Other indirect (Scope 3) GHG emissions 102-10 Significant changes to the organisation and its supply chain No significant changes occurred in the reporting period FY18 Climate change – On farm lifecycle assessments. See page 55 305-4 GHG emissions intensity 102-11 Precautionary principle or approach How we manage operations. See page 46 306-1 Water discharge by quality and destination Water discharge. See page 52 102-12 External initiatives Associations, endorsements and memberships. See page 94 306-3 Significant spills Significant spills. Seepage 47 102-13 Membership of associations Associations, endorsements and memberships. See page 94 102-14 Statement from senior decision-maker Letter from the Chairman and Chief Executive. See page 4 307-1 Non-compliance with environmental laws and regulations Environmental compliance. See page 47 102-16 Values, principles, standards, and norms of behaviour Our Values. See page 5. Details on our Code of Ethics are 308-2 Negative environmental impacts in the supply chain How we work with farmers. See page 44 published on page 70 of the Fonterra Annual Review 2018 and actions taken 102-17 Mechanisms for advice and concerns about ethics The Way We Work Hotline is described on page 70 of the SOCIAL TOPIC DISCLOSURES Fonterra Annual Review 2018 401-1 New employee hires and employee turnover Our People. See page 721 102-18 Governance structure A full list of Board Committees is published on page 70 of the 403-2 Types of injury and rates of injury, occupational diseases, lost days, Health, safety and wellbeing. See page 78 Fonterra Annual Review 2018 and absenteeism, and number of work-related fatalities 102-20 Executive-level responsibility for economic, environmental, Accountability for sustainability in Governance and 404-2 Programmes for upgrading employee skills and transition Learning and development. See . Employee Assistance 2 page 75 and social topics Ethical Business assistance programmes Programme in Governance and ethical business 102-40 List of stakeholder groups Our stakeholders. See page 18 405-1 Diversity of governance bodies and employees Our People. See page 72 102-42 Identifying and selecting stakeholders 405-2 Ratio of basic salary and remuneration of women to men Gender pay. See page 76. Our People. See page 721 102-43 Approach to stakeholder engagement 102-44 Key topics and concerns raised 406-1 Incidents of discrimination and corrective actions taken Respect for each other. See page 74 102-41 Collective bargaining agreements Labour Rights. See page 74 412-1 Operations that have been subject to human rights reviews or Human Rights. See page 80 impact assessments 102-45 Entities included in the consolidated financial statements A list of entities is included on page 50 of Fonterra’s Annual Financial Results 2018. The same entities apply to this 415-1 Political contributions Responsible political involvement in Governance and Sustainability Report, except where explicitly excluded ethical business 102-46 Defining report content and topic boundaries Responding to whatʼs important. See page 19 416-1 Assessment of the health and safety impacts of product and Improving the nutritional profile of our products. Seepage 29 Global Reporting Initiative Standards. See page 90 service categories Food safety and quality. See page 34 102-47 List of material topics Responding to whatʼs important. See page 19 417-2 Incidents of non-compliance concerning product and service Compliance with regulation. See page 32 information and labelling 102-48 Restatements of information Refer to Environmental Data Reporting Notes for details3 417-3 Incidents of non-compliance concerning marketing Compliance with regulation. See page 32 102-49 Changes in reporting No significant changes other than improved data coverage communications and quality 419-1 Non-compliance with laws and regulations in the social and Legal compliance in Governance and ethical business 102-50 Reporting period About This Report. See page 2 economic area (Period is 1 August 2017 – 31 July 2018) Within scope of assurance. 1 For more information, see: www.fonterra.com/2018AdditionalEmployeeData 102-51 Date of most recent report December 2017 for period 1 August 2016 – 31 July 2017 2 For more information, see: www.fonterra.com/2018GovernanceEthicalBusinessNotes 102-52 Reporting cycle About This Report. See page 2 (Annual reporting cycle) 3 For more information, see: www.fonterra.com/2018EnvironmentalDataReportingNotes

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 90 91 Appendices APPENDICES

Assurance statement

INDEPENDENT ASSURANCE STATEMENT

To: The Stakeholders of Fonterra Co-operative Group Limited

Introduction and objectives of work

Bureau Veritas New-Zealand Ltd (“Bureau Veritas”) was engaged by Fonterra Co-operative Group Limited (“Fonterra”) to provide independent limited assurance of its 2018 Sustainability Report (“the Report”). This Assurance Statement applies Evaluation against the Global Reporting Initiative Sustainability Reporting Standards 2016 (GRI Standards) to the related information included within the scope of assurance described below. The Report has been prepared in accordance with the GRI Standards (2016): Core Option, including appropriate This information and its presentation in the Report are the sole responsibility of the management of Fonterra. Bureau considerations of the reporting principles, profile disclosures, management approach disclosures and performance Veritas was not involved in the drafting of the Report. Our sole responsibility was to provide independent assurance of the indicators. accuracy of information included. This is the second year in which we have provided limited assurance over the Fonterra Sustainability Report. Bureau Veritasʼ evaluation of the Report included cross checking the GRI Index against referenced documents.

Scope of Assurance Limitations and Exclusions

Fonterra requested Bureau Veritas to verify the accuracy and assure the material disclosures, both qualitative and Excluded from the scope of our work is any assurance of information relating to: quantitative, presented in the Report. The Report was prepared in accordance with the GRI Standards (2016): Core  Activities outside the defined reporting period; option. The complete list of assured elements is referred to within the GRI Index of the Report.  Statements of commitment to, or intention to undertake future actions by Fonterra; The scope of work was limited to the data and information related to sites and operations under which Fonterra has  Statements of position, opinion, belief and/or aspiration by Fonterra; operational control for the period of 1st August 2017 to 31st July 2018.  Financial data audited by an external third party; and Methodology  Other sites and activities not included in the scope.

As part of its independent limited assurance, Bureau Veritas undertook the following activities: This independent assurance statement should not be relied upon to detect all errors, omissions or misstatements that  Interviews and follow-up communication with relevant personnel; may exist within the Report.  Review of documentary evidence produced by Fonterra representatives; Statement of independence, impartiality and competence  Audit of performance data and factual information including source verification; and Bureau Veritas is an independent professional services company that specialises in Quality, Health, Safety, Social and  Review of Fonterraʼs processes for identification, aggregation and analysis of relevant information, report content Environmental management with almost 200 years history in providing independent assurance services. and performance data. Bureau Veritas has implemented a Code of Ethics across the business to maintain high ethical standards among staff in Our work was planned and executed in a manner designed to produce a limited level of assurance and to provide a their day to day business activities. We are particularly vigilant in the prevention of conflicts of interest. sound basis for our conclusions. No member of the assurance team has a business relationship with Fonterra, its Directors or Managers beyond that Our assurance process is aligned with and informed by Bureau Veritasʼ standard procedures and guidelines for external required of this assignment. We have conducted this assurance independently, and there has been no conflict of interest. verification of sustainability reports, GRI Sustainability Reporting Standards 2016 and the International Standard for Assurance Engagements (ISAE) 3000. The independent assurance team has extensive experience in conducting assurance over environmental, social, security, safety, health and ethical information, systems and processes, and through its combined experience in this field, an Our findings excellent understanding of good practice in sustainability reporting and assurance.

On the basis of our methodology and the activities described above, we provide limited assurance that: Bureau Veritas New-Zealand Ltd  Nothing has come to our attention to indicate that the reviewed statements within the scope of our verification are 22th November 2018 inaccurate and the information included therein is not fairly stated; and  It is our opinion that Fonterra has established systems for the collection, aggregation and analysis of relevant information and quantitative data.

Andrew Mortimore Head of Sustainability Services

FONTERRA SUSTAINABILITY REPORT 2018 FONTERRA SUSTAINABILITY REPORT 2018 92 93 Appendices APPENDICES

Associations, endorsements and memberships

REGISTERED OFFICE HEADQUARTERS Fonterra Co-operative Group Limited Fonterra Centre Private Bag 92032 109 Fanshawe Street Auckland 1010 Auckland Central New Zealand Auckland 1010 New Zealand Phone +64 9 374 9000 Fax +64 9 374 9001 Email: [email protected]

Disclaimer This report contains some forward-looking statements and projections. There can be no certainty of outcome in relation to the matters to which the forward- looking statements and projections relate. These forward-looking statements and projections involve known and unknown risks, uncertainties, assumptions and other important factors that could cause the actual outcomes to be materially different from the events or results expressed or implied by such statements and projections. Those risks, uncertainties, assumptions and other important factors are not all within the control of Fonterra Co-operative Group Limited (Fonterra) and its subsidiaries (the Fonterra Group) and cannot be predicted by the Fonterra Group. While all reasonable care has been taken in the preparation of this report none of Fonterra or any of its respective subsidiaries, affiliates and associated companies (or any of their respective officers, employees or agents) (Relevant Persons) makes any representation, assurance or guarantee as to the accuracy or completeness of any information in this report or likelihood of fulfilment of any forward-looking statement or projection or any outcomes expressed or implied in any forward-looking statement or projection. The forward-looking statements and projections in this report reflect views held only at the date of this report. Statements about past performance are not necessarily indicative of future performance. Except as required by applicable law or any applicable Listing Rules, the Relevant Persons disclaim any obligation or undertaking to update any information in this report. This report does not constitute investment advice, or an inducement, recommendation or offer to buy or sell any securities in Fonterra or the Fonterra Shareholders’ Fund.

94 FONTERRA SUSTAINABILITY REPORT 2018 This document is printed on an environmentally responsible paper, produced using Elemental Chlorine Free (ECF) FSC® certified mixed source pulp from responsible sources and manufactured under the strict ISO14001 Environmental Management System.