joint ventures with international partners represents one-third of the nation’s milk production...

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0 Joint Ventures with International Partners November 7, 2005 Don Schriver Executive Vice President Dairy Farmers of America, Inc 1 Introduction DFA represents one-third of the nation’s milk production During fiscal 2004, DFA marketed 57.2 billion pounds of milk Largest dairy cooperative in the U.S. One of the largest milk marketers in the world More than 12,000 member farms DFA’s objective is to maximize value received by members for their milk

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Page 1: Joint Ventures with International Partners represents one-third of the nation’s milk production ... Glanbia PLC - Highlights International dairy, ... Expand product mix Reduce marketing

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Joint Ventures with International Partners

November 7, 2005

Don Schriver

Executive Vice President

Dairy Farmers of America, Inc

1

Introduction

� DFA represents one-third of the nation’s milk production

� During fiscal 2004, DFA marketed 57.2 billion pounds of milk

� Largest dairy cooperative in the U.S.

� One of the largest milk marketers in the world

� More than 12,000 member farms

� DFA’s objective is to maximize value received by members for their milk

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Organizational Structure

Bottling & Manufacturing

Affiliates

Bottling & Manufacturing

Affiliates

FormulatedFormulated BordenBordenDairy Foods

Dairy Foods

Member Dairy Farms

Member Dairy Farms

Fluid Milk GroupFluid Milk Group� Market members’

milk at highest competitive price

Manufacturing GroupManufacturing Group� Balance seasonal milk production� Process members’ milk into value-added dairy

products with longer shelf-lives

� National network of affiliates and alliances

� 12,500 member farms

� 49 states

� Market 100% of milk through DFA

� 34% of U.S. milk supply

Seven AreasSeven Areas

� Products include shredded and packaged cheeses, processed cheese products and whey products

� 2004 sales of $1,362.6 million

� Manufactures and markets value added dairy products

� Manages DFA purchasing and logistics

� 2004 sales of $372.9 million

� Produces consumer packaged cheese products marketed under Bordenbrand name

� 2004 sales of $300.4 million

3

The DFA Footprint

Stremicks Heritage Foods

Wilcox Dairy Farms

Roberts Dairy

Hiland-Roberts Ice Cream Co.

Ideal American

National Dairy Holdings

Turner DairiesSouthern BelleHiland Dairy

Cheney

Salem

Roy

Riverside

Cedar City

Santa Ana

Omaha Iowa CityDes Moines

Kansas City

Norfolk

Evansville

CovingtonMemphis

Little Rock

Ft. Smith Chandler

Norman

Springfield

Fayetteville

Wichita

Miami

Winterhaven

Salt Lake City

N. Charleston

Cincinnati

Bristol

Cleveland

London

Madisonville

Roanoke

Minneapolis

Rapid City

Duluth

Farmington

Norwood

CedarburgRochester

Philadelphia

ArkportBinghamton

Concord

Hatfield

Lancaster

AlbanySodus

LaFargeville

Wolcott

Dallas

AustinConroe

Lafayette

Somerset

DairiConcepts

Keller’s Creamery

Pollock Bruce

Hummelstown

El Dorado Springs

Winnsboro

ChiliGreenwood

Harleysville

Melrose Dairy Proteins

Melrose

Portales

Winsted

Springfield

W. Middlesex

Monett

Zumbrota

Corona

Smithfield

Lovington

Plymouth

Winthrop

Springfield

Schulenburg

Ventura

Mechanicsburg

Sulphur Springs

Cabool

Turlock

Hughson

BeaverFt. Morgan

El Paso

Franklinton

Louisville

GoshenNew Wilmington

Middlebury Reading

DFA (Italian Cheese)

DFA (American Cheese)

DFA (Canning/Specialty)

DFA (Condensed/Butter/Powder)

Colorado Springs

Fulton

Baker

Hattiesburg

Mobile

Dothan

Southwest Cheese Co.

Clovis

Greensboro

Chattanooga

HP Hood

Barre Portland

AgawamSuffield

Winchester

Oneida

Vernon

Eagle Family Foods

PleasantonAllerton

Humboldt Creamery

Fortuna

Los Angeles

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Industry

254,523

170,500

80,469

71,650

31,627

26,380 23,448 21,760 17,416 17,372

-

50,000

100,000

150,000

200,000

250,000

300,000

European

Union

United

States

India Russian

Federat ion

New

Zealand

Poland Australia M exico Argent ina Canada

International Milk Production for 2004 (millions of pounds)

5

International Alliances

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� Started in 2000, this joint venture combines DFA’s U.S. manufacturing capacity with Fonterra’stechnological innovations and advanced research and development

� Manufactures dairy and cheese ingredients for industrial customers, including McCormick, NestléUSA and Frito-Lay

� Venture also manufactures dried and grated Italian cheeses for the retail, food service and industrial markets

Int’l Alliances - DairiConcepts

7

Fonterra - Highlights

� Leading multinational dairy company, owned by 13,000 New Zealand dairy farmers

� World's largest exporter of dairy products, exporting 95 percent of its production� Customers and consumers in 140

countries

� Ingredients business is the largest dairy ingredients operation in the world, manufacturing and marketing more than 1,000 ingredient products to the international food industry

� Credit rating of AA-

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Dairy Flavors•Supernatural 3X•Next Generation SN 5X•ALACO EMC 10X

Dairy Flavors•Supernatural 3X•Next Generation SN 5X•ALACO EMC 10X

Dairy Powders•Straight Cheese•Cheese Blends•Seasonings•Creams & Fats•Organics•Cultured

Dairy Powders•Straight Cheese•Cheese Blends•Seasonings•Creams & Fats•Organics•Cultured

Nutritional Powders

•Infant Formula•Nutritional Drinks•Retail Packaging

Nutritional Powders

•Infant Formula•Nutritional Drinks•Retail Packaging

Dairy Ingredients

•Proteins•Fats•Club Cheese

Dairy Ingredients

•Proteins•Fats•Club Cheese

Hard Italian• Grated Bulk Retail, Food Service•Bulk Natural Cheese

Hard Italian• Grated Bulk Retail, Food Service•Bulk Natural Cheese

DairiConcepts, LP – Business Overview

9

DairiConcepts Governance

DairiConcepts Board of Directors

DFA Representatives Fonterra Representatives

Fonterra / DFA Oversight Board

DFA Representatives Fonterra Representatives

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DairiConcepts, LP – Plant Locations

Hummelstown, PA

Portales, NM

Greenwood, WI

Chili, WI

Bruce, WI

Pollock, SD

Winsted, MN

El Dorado Springs, MOSpringfield, MO

Allerton, IA

Dairy Ingredients Hard ItalianNutritional PowdersDairy FlavorsDairy Powders

11

� Many of DairiConcepts’ products end up in

Convenience Food Applications� Snacks

� Ready Meals

� Sauces

� Soups

� Baked goods

DairiConcepts, LP

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� DairiConcepts also sells into two other

important segments� Nutritional and infant foods

� Prepared Dairy

DairiConcepts, LP

13

DairiConcepts, LP

� DFA and Fonterra have committed significant amounts of capital to the joint venture – approximately $25 million from each partner

� DairiConcepts recently entered into a credit facility

� The financing is supported by the assets of DairiConcepts

� The partners do not guarantee the credit facility

� DairiConcepts annual sales are aproximately $400 million

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Int’l Alliances – Southwest Cheese Co.

� Several years ago, DFA began evaluating strategic alternatives to handle the rapid growth in milk production in the southwestern U.S.

� Annual cost of transporting milk out of the region conservatively estimated at $40 million

� Nearly all milk in the southwestern U.S. is marketed by the Greater Southwest Agency

� Identified Glanbia PLC as an ideal partner

15

Glanbia PLC - Highlights

� International dairy, consumer foods and nutritional products company� Major international cheese

manufacturer

� Annual turnover exceeds €2.3 billion

� Employs 5,500 people

� Operations in Ireland, USA, UK

� Credit ratings of BBB- and Baa3

No. 1 – European Pizza Cheese Manufacturer

No. 1 – Cheese Manufacturer in Northwest USA

No. 2 – World producer of formulated milk products

No. 2 – USA producer of whey protein isolate

No. 2 – UK cheese producer / marketer

No. 3 – USA lactose producer

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Int’l Alliances – Southwest Cheese Co.

� In February 2004, Southwest Cheese Company announced commencement of construction of a $190 million cheese and whey manufacturing facility to be located in Clovis, New Mexico

� Once fully operational, it is anticipated that the new facility will generate sales of approximately $350 million per annum and will employ approximately 220 staff

� 7 million pounds of milk per day (line 1: 4 million, line 2: 3 million)

� 340 million pounds of cheese per year

� 640 and 40 pound block capacity

� DFA indirectly owns approximately 30% of the joint venture

CLOVIS, NEW MEXICOCLOVIS, NEW MEXICOCLOVIS, NEW MEXICOCLOVIS, NEW MEXICO

17

Southwest Cheese Company, LLC

Southwest Cheese

Company

GlanbiaMilk

Member, LP

50% 50%

DFA SelectZia &

Lonestar

68%* 30%* 2%*

_______________________

* Estimated ownership percentage based on amount of milk supplied to joint venture

The Milk Member partners represent nearly 100% of the

milk in the region!

$35 mm

$35 mm

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Southwest Cheese Company Governance

� Six Person Board of Directors

� 3 Milk Members David Jones

Mike McCloskey

John Dunker

� 3 Glanbia John Moloney

Geoff Meagher

David Thomas

19

Southwest Cheese Company, LLC

� 100% of the Milk in the Region

� 20 Year Product Sales Agreement

� 20 Year Milk Supply Agreement

� 10 Year Stand Still Agreement

� Proven Cheese Maker and Milk Marketers

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Southwest Cheese Company, LLC

21

� Started in 1995, this cooperative of cooperatives was established to market NFDM

� DairyAmerica currently markets approximately 75% of US NFDM production

� In August, 2001 DairyAmerica entered into an exclusive export marketing agreement with Fonterra, New Zealand

� Benefits of the relationship:

� Producer access to expanded markets

� International producer relationships

� Increase returns to producers

� Expand product mix

� Reduce marketing expenses

� Share manufacturing knowledge

Int’l Alliances - DairyAmerica

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DairyAmerica Members

� 1995

� California Milk Producers

� Dairyman’s Cooperative Creamery Association

� Danish Creamery Association

� 1997

� San Joaquin Valley Dairymen

� 1998

� Land O’Lakes

� 1999

� United Dairymen of Arizona

� California Dairies, Inc

� 2000

� Agri-Mark

� Maryland & Virginia Milk Producers Cooperative Association

� O-AT-KA Milk Products Cooperative

� Dairy Farmers of America

� 2004

� Lone Star Milk Producers

23

Governance Structure

� 26 Directors (staff & farmers)

� Officers

� President: Keith Murfield (UDA)

� Vice-President: Keith Gomes (CDI)

� Secretary: Richard Stammer (Agri-Mark)

� Treasurer: C. Richard Mosemann (MD & VA)

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2004 Exports by Region

100.0%284.9Total

5.0%14.3Cuba

19.6%55.8Nestle Worldwide

20.2%57.4Asia

55.2%157.4Mexico

% of salesPounds (mil.)

Over $950 million in sales on over 1 billion pounds of product annually.

25

Ireland

Leadership Visits

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Leadership Visits

South America

27

Thank You!