Fonterra releases first Sustainability Report
Sustainability
Report
FOR THE YEAR ENDING 31 JULY 2017
FONTERRA CO-OPERATIVE GROUP LIMITED
Chairman and CEO Introduction 1
Our Heritage 4
About Fonterra 6
The Global Context 8
The Dairy Context 10
Our Opportunity 12
Our Approach 14
Nutrition 16
Environment 18
Community 20
Value Chain Diagram 22
Sustainable Dairying 24
Sustainable Operations 46
Sustainable Consumption 60
Sustainable Foundations 76
Contents
This report covers the activities of Fonterra
Co-operative Group Limited and of joint ventures
under Fonterra’s management control. It covers
economic, social and environmental impacts for
the year ending 31 July 2017 – ‘FY17’. This report
sits alongside our Annual Review 2017 which sets
out our financial performance:
www.fonterra.com/annualreview2017
In certain sections throughout the report, we
have included data relating to periods prior to
FY17 where such data is relevant to, or useful
context for the reader. Where we have done so,
we have made it clear which year(s) the data
relates to.
This is our first stand-alone sustainability report.
We intend to continue this reporting on an
annual basis. This report has been prepared in
accordance with the Global Reporting Initiative
(GRI) Standards: Core option. We have included
an index of disclosures against the GRI standards
on page 100.
The GRI Standards are the world’s most widely
used standards for sustainability reporting,
enabling organisations to measure and report
their most important sustainability topics.
For more information see:
www.globalreporting.org
An independent assurance of the report has
been completed by Bureau Veritas. This provides
assurance that the report complies with GRI
Standards and provides an accurate and fair
representation of Fonterra’s sustainability
performance. Refer to the Assurance Statement
on page 102.
FONTERRA SUSTAINABILITY REPORT 2017
Letter from
the Chairman
and Chief Executive
Strong healthy local environments and
communities are the foundation for
sustainable, profitable dairy farming.
That’s why, what we call the “Sustainable
Co-operative” is one of our three strategic
priorities – alongside Strong V3 Co-operative
and Innovative Co-operative.
Strong healthy local environments and communities are the
foundation for sustainable, profitable dairy farming. That’s why,
what we call the “Sustainable Co-operative,” is one of our three
strategic priorities – alongside Strong V3 Co-operative and
Innovative Co-operative.
The Sustainable Co-operative recognises our commitment to
building sustainability into everything we do. We have made
significant progress in some areas, and have plans in place
where there is more work to be done. This Sustainability Report
brings together all of our initiatives in one publication so that
our farmers, unit holders, commercial partners, customers
and neighbours can review our progress towards our goals
and our promises.
For generations Fonterra has provided dairy products to
customers and consumers around the world, producing good
returns for our farmers, their families and the economy. The
Sustainable Co-operative recognises the need to balance these
social, environmental and economic considerations so our
products are produced responsibly, as well as competitively.
SUSTAINABLE STRATEGY | 1
Sustainable Strategy
FONTERRA SUSTAINABILITY REPORT 2017
It also recognises that consumers want clean and healthy food at a
reasonable cost, and they want ethical and considered approaches
to the way that food is produced. The communities where we
operate want this food produced within the local environmental
limits they have helped to determine. They also look to us to
support social progress through our community initiatives.
We’re working right across our value chain to do what’s right and
have three principal sustainability priorities; help address global
public health issues linked to nutrition as the world’s population
grows, help improve New Zealand’s water quality, and play our
part in addressing climate change.
This is where we believe we can make the greatest contribution.
It’s where we’re directing our time and resources, and where we
have ambitious new targets to create a more sustainable future.
Our Sustainable Co-operative commitment is to support our
farmers by investing significantly in the development of new
technology and solutions for water quality and on-farm emissions
– without impacting production.
We are also committed to reducing the environmental footprint of
our processing operations and transitioning to renewable energy
as options become viable.
Sustainability, like farming, is an inter-generational effort where
progress made in the past is built on in the present to secure the
future. We are proud of the progress the Co-operative has made
in most areas thanks to the commitment and hard work of our
farmers, people, and partners that work alongside our
Co-operative.
What is most important is that our responsibilities are being taken
seriously, and our many successes celebrated, as this report shows.
John Wilson and Theo Spierings
2 | SUSTAINABLE STRATEGY
FONTERRA SUSTAINABILITY REPORT 2017
OUR VALUES
We’re an organisation that spans many countries
and cultures, and values are hugely important to us.
But when you boil it down, there are just four simple
things that guide us. And it doesn’t matter who or
where we are within Fonterra, these are the values
we all share.
Our shared values enable us to combine our personal
strengths with those of others to make Fonterra
stronger, more innovative and more successful.
SUSTAINABLE STRATEGY | 3
Sustainable Strategy
FONTERRA SUSTAINABILITY REPORT 2017
1814
British missionary
Samuel Marsden
lands in
New Zealand,
bringing a bull
and two heifers.
1871
The Otago Peninsula
Co-operative
Cheese Factory
Company is formed,
New Zealand’s first
dairy co-operative.
1923
The Dairy Export
Produce Control
Board is established to
promote New Zealand
dairy exports.
1940
Shelf life of Anhydrous
Milk Fat (AMF) is
extended, allowing
cream-based food to
be shipped to troops
during World War II.
1845
A consignment of
cheese from Banks
Peninsula to Australia
becomes New
Zealand’s first
dairy export.
1886
First commercial
butter-churning
operation started in
the Waikato, giving
birth to the famous
Anchor™ brand.
1927
Dairy Research Institute
of New Zealand is
created – now the
Fonterra Research and
Development Centre.
1969
Taranaki farmer
Merv Hicks
invents the rotary
milking shed.
2002
Agreement with
International Union
of Food and NZ Dairy
Workers’ Union
committing to
core International
Labour Organization
conventions.
2001
Formation of
Fonterra.
Our
Heritage
We are Fonterra.
We are of the land.
We were born from a heritage
of staunchly independent
farmers who knew we
had to stand together as
one co-operative for us
all to be successful.
We honour the legacy of
past dairy men and women
who went out and created
markets in far flung places
for our New Zealand milk.
We will be fiercely loyal
to our roots and always
remember that we exist to
secure the prosperity of future
generations of New Zealand
farmers by bringing the
goodness of dairy to the world.
From those seeds, we now
source milk from around
the world and create new
products and services.
We can do this because
we know milk better than
anyone else and can unlock
its natural goodness in
ways that add real value to
customers and consumers
throughout their lives.
FONTERRA SUSTAINABILITY REPORT 2017
4 | SUSTAINABLE STRATEGY
2003
Launch of
Fonterra’s code of
business conduct,
The Way We Work.
2004
‘Every farm, every
year’ independent
assessments
launched, including
Clean Streams
Accord targets.
2014
National roll-out
of Fonterra
Milk for Schools
is completed.
2009
Launch of
KickStart
Breakfast.
2017
Fonterra Food
and Nutrition
Guidelines are
endorsed by
New Zealand
Nutrition
Foundation.
2010
Launch of
Fonterra’s values.
2013
Launch of
Living Water
partnership with
Department
of Conservation.
2008
Global Dairy Trade
established to
transparently
discover reference
prices for dairy.
2015
Social
responsibility
plan (based
on ISO26000
guidance) is
approved by
Fonterra Board.
2017
Publication of
first stand-alone
sustainability
report.
We will succeed through
the generations because
we are committed to
sustainable dairying and
to the communities where
we live and work.
This starts with our own
people. Their richness of
difference – countries,
cultures, experiences – and
the shared passion they bring,
make us successful.
We listen to our customers
and partners, speak
forthrightly and do what we
say we’ll do.
We stand for naturalness,
health and uncompromising
standards of quality, safety
and integrity.
We aim high, always work
to deliver exceptional
results and find ways to
make it happen, even when
the going gets tough.
We will do things tomorrow
that we can only dream
of today.
We are Fonterra.
We are dairy for life.
Sustainable Strategy
FONTERRA SUSTAINABILITY REPORT 2017
SUSTAINABLE STRATEGY | 5
Fonterra is a dairy co-operative owned by 10,000
farmer shareholders in New Zealand. Pasture-fed
dairying has a long history in New Zealand with our
farmers closely connected to the natural environment
and their rural communities. As New Zealand’s
largest business, and the world’s largest processor
and exporter of dairy products, our high-quality dairy
ingredients and branded dairy products are consumed
in over 100 countries around the globe.
About
Fonterra
(CHILE, BRAZIL,
VENEZUELA)
4,325
EMPLOYEES
$2.16 BILLION
REVENUE
7
MANUFACTURING SITES
LATIN AMERICA
$1.25 BILLION
REVENUE
UNITED STATES
22,269
$19.2B
GLOBAL
22,269
EMPLOYEES
$19.2 BILLION
REVENUE
22.9 BILLION
LME
1
51
MANUFACTURING SITES
2
11%
RETURN ON CAPITAL
1 LME is a standard measure of the litres of milk allocated to each product based on the
amount of fat and protein in the product relative to standardised raw milk.
2 This is the number of manufacturing sites under Fonterra management control.
3 See page 90 for details on our approach to tax.
Global revenue from sale of goods: $19.2 billion
Economic value distributed$ million
Payment to suppliers (farmers)
for NZ-sourced milk
9,471
Payment to suppliers (farmers)
for non-NZ sourced milk
932
Tax expense
3
20
Profit after tax attributable to
shareholders
734
(earnings of $0.46 per share)
Dividend payment to equity
holders of the Co-operative
642
(dividend of $0.40 per share)
For our full financial results, please refer to our Annual Review 2017:
www.fonterra.com/annualreview2017
$1.25B
4,325
$2.16B
B
e.
e
w Zeala
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our high-qualit
roducts are con
lobe.
ssor
ty dairy
onsumed
$1.25BB
e.
e
w Zeala
s la
our
roducts are con
lobe.
t
o
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onsu
25B
6 | SUSTAINABLE STRATEGY
FONTERRA SUSTAINABILITY REPORT 2017
12,039
EMPLOYEES
$2.06 BILLION
REVENUE
30
MANUFACTURING SITES
NEW ZEALAND
1,644
EMPLOYEES
$3.38 BILLION
REVENUE
7
FARMS
CHINA
2,412
EMPLOYEES
$5.17 BILLION
REVENUE
4
MANUFACTURING SITES
REST OF ASIA
1,313
EMPLOYEES
$1.59 BILLION
REVENUE
7
MANUFACTURING SITES
AUSTRALIA
1,313
$1.59B
12,039
$2.06B
2,412
$5.17B
1,644
$3.38B
SUSTAINABLE STRATEGY | 7
Sustainable Strategy
FONTERRA SUSTAINABILITY REPORT 2017
Food is at the
centre of many
sustainability
challenges facing
the world.
The global transformation
required to meet these
challenges will shape the
future of food production.
Water scarcity
By 2030 it is projected
that 40 per cent of
water demand in the
world won’t be met.
Water quality
Intensification of
agriculture has
contributed to
declining water
quality around the
world, caused by
run-off of nutrients
from the land.
Limiting and adapting
to climate change
The world’s food
production systems
must address emissions
from agriculture. It is also
likely that agricultural
production will face
significant disruption
from changes to climates
and increased variability
in weather patterns.
Limited new
land for further
agricultural growth
Even with today’s
agricultural practices,
there is not enough
additional agricultural
land to meet the growing
demand for food.
Threatened biodiversity
Around the world the
variety of plants, animals
and micro-organisms, and
the ecosystems they form,
has decreased.
Global Agreement
Paris Agreement to keep
global temperature rise this
century to well below 2°C.
8 | SUSTAINABLE STRATEGY
FONTERRA SUSTAINABILITY REPORT 2017
Feeding a growing
population
By 2050 the
world’s population is
projected to increase
to 9.7 billion. This is
expected to drive a
50 per cent increase
in the demand for food.
A public health crisis
The leading cause of death in
most countries today is poor
diets and lifestyles.
About 1.9billionadults are
overweight or obese.
Access to nutrition
Many people don’t
have access to
adequate nutrition.
Around 792
million people are
undernourished
around the world.
Improvements
in global land
productivity have
slowed down
Over the past
century innovation
has significantly
increased productivity
per hectare of land.
However, these
gains are slowing.
Productivity growth
per hectare is now
less than one per cent
each year.
SUSTAINABLE STRATEGY | 9
Sustainable Strategy
FONTERRA SUSTAINABILITY REPORT 2017
1 HLPE. 2016. Sustainable agricultural development for food security and nutrition: what
roles for livestock? A report by the High Level Panel of Experts (HLPE) on Food Security and
Nutrition of the Committee on World Food Security, Rome. www.fao.org/cfs/cfs-hlpe P15
2 Future of Food: Shaping the Global Food System to Deliver Improved Nutrition and Health,
April 2016, World Bank Group.
The Dairy
Context
Global call to action
Like all major transformations, change cannot occur without clear
objectives, pathways to achieve them and a collective intention
to implement what is needed.
Clear objectives have been set through the United Nations’
17 Sustainable Development Goals (SDGs) adopted by member
countries in 2015. These were strengthened last year with
169 targets set across the five P’s – People, Planet, Prosperity,
Peace and Partnership.
For more information, see:
www.un.org/sustainabledevelopment
Achieving the SDGs requires the partnership of governments,
private sector, civil society and citizens to ensure a better planet
for future generations. Fonterra recognises the strong need for
business-led action, we support the SDGs and are committed
to playing our part in achieving them by working collaboratively
to deliver change at scale. While important to consider all 17
goals because of their interconnectedness, we have assessed our
potential contribution to each goal and prioritised 10 goals where
we can make the most material difference.
Food is at the centre of many sustainability
challenges facing the world. There is growing
concern regarding global food security and
nutrition with malnutrition impacting people
in three different ways:
• Hunger, where insufficient food intake is estimated to affect
792 million people worldwide
• Micronutrient deficiency or ‘hidden hunger’, where insufficient
intake of key micronutrients such as iron, iodine and vitamins is
estimated to affect two billion people
• Over-nutrition, with an estimated 600 million adults
considered obese in 2014.
1
The growing, making and distribution of food across the world has
a massive global economic, environmental and social footprint. It
represents 40 per cent of employment, 10 per cent of consumer
spending, 30 per cent of GHG emissions and relies on crucial
natural resources such as land, water and biodiversity. Currently,
serious land degradation affects 20 per cent of the world’s arable
land, climate change is working against food production and it is
estimated that, by 2030, 40 per cent of water demand is unlikely
to be met. In addition, competition for scarce resources, such as
water, is likely to significantly increase the global political unrest
we are already experiencing.
We believe, like many, that the worldwide food system must shift
from being part of the problem to becoming a greater part of the
solution. Making this transformational change a reality will involve
innovation, collaboration, productivity gains and a willingness to
share insights and technology advances to achieve the net
positive global outcomes needed.
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FONTERRA SUSTAINABILITY REPORT 2017
Sustainable agricultural development
1
This is agricultural development that contributes to
improving resource efficiency, strengthening resilience and
securing social equity/responsibility of agriculture and food
systems in order to ensure food security and nutrition for
all, now and in the future.
1
The role of dairy
Dairy’s contribution to the Sustainable Development Goals is
recognised in the 2016 Dairy Declaration of Rotterdam, a joint
declaration of the Food and Agriculture Organization (FAO)
and the International Dairy Federation (IDF), to which Fonterra
belongs. The declaration recognises the SDGs as the overarching
framework for achieving sustainable development to 2030 and
the critical contribution the dairy sector will play in delivering that.
For more information, see:
www.dairydeclaration.org
Dairy has an essential nutritional role to play in balanced and
healthy diets globally. It makes a major contribution to economies,
income and employment, supporting the livelihoods for an
estimated one billion people. The sector also has a key role to play
in improving the management of terrestrial ecosystems to address
environmental degradation and climate change, and to support
biodiversity.
The dairy sector’s global approach to sustainable development
is represented by the Dairy Sustainability Framework (DSF), a
pre-competitive and internationally recognised initiative that helps
the dairy supply chain align and report its sustainability activities on
a global basis. Fonterra is a founding and implementing member of
the DSF.
For more information, see:
www.dairysustainabilityframework.org
1 HLPE. 2016. Sustainable agricultural development for food security and nutrition: what
roles for livestock? A report by the High Level Panel of Experts (HLPE) on Food Security and
Nutrition of the Committee on World Food Security, Rome. www.fao.org/cfs/cfs-hlpe P29
SUSTAINABLE STRATEGY | 11
Sustainable Strategy
FONTERRA SUSTAINABILITY REPORT 2017
Our
Opportunity
Innovative heritage and culture
Reliant on selling their product to markets on the other side of
the world, pasture-based New Zealand farmers have a history
of innovation, findings ways to protect the goodness of milk
and provide valuable nutrient-dense food through a growing
range of product categories. Huge productivity gains achieved
through generations of innovation have ensured New Zealand
dairy farmers are among the most efficient in the world.
They have remained cost-competitive and are able to deliver
products across the world that are still among the most
emissions efficient available. To achieve this has required
constant innovation and flexibility, including the creation
and adoption of new technologies.
Fonterra has continued to encourage this ‘can-do’ culture,
investing more than a billion dollars over the past decade in
research and development (R&D) through our R&D teams
based in New Zealand and abroad. From grass to glass, this
innovative heritage and culture will be essential to achieve
sustainable development.
In fact, we believe the pace of change requires innovation and
adoption of new technologies at an even faster pace. To achieve
this, Fonterra is collaborating with numerous technology leaders
internationally while also involving staff and our wider network.
We introduced Disrupt in FY16, our new internal innovation
engine, and Fonterra Ventures in FY17 to partner with others,
and we are seeking further ways to facilitate the ingenuity and
intellectual curiosity of our people and partners.
Connection with farmers
Dairy farming has been a part of the New Zealand way of life
since the first Shorthorns cows were introduced in 1814 by the
missionary Samuel Marsden. Most settlements had farms with
some dairy cattle by the 1840s and the first dairy co-operative was
established on the Otago Peninsula in 1871.
Fonterra is a co-operative, owned by 10,000 supplying farmers
in New Zealand who have a long history in dairy and are closely
connected to the natural environment and their rural communities.
Farmers are strongly represented in our governance and have a
vested interested in ensuring the Co-operative is able to generate
long-term value for all stakeholders in the widest sense. Being
traditionally inter-generational, many of our farmers know first-
hand of, and accept the responsibility for, a sustainable future so
they can pass on their farming operation to the next generation.
90YEARS
Dairy Research Institute of
New Zealand was created in
1927. 90 years later it is now
the Fonterra Research and
Development Centre.
$
1B
Fonterra has invested more
than a billion dollars over
the past decade in research
and development.
12 | SUSTAINABLE STRATEGY
FONTERRA SUSTAINABILITY REPORT 2017
End-to-end integrated value chain
As the world grapples with issues of water quality, arable land and
a growing population, the value of our pasture-fed New Zealand
dairy products continues to grow in importance and customer
demand. We recognised this with the launch of our Trusted
Goodness™ quality seal this year.
Protecting that brand value is important through every stage of
the grass-to-glass process. Unlike many global food businesses we
have an end-to-end integrated value chain–from the farms which
produce and supply us with raw milk, through the milk collection,
manufacturing and distribution networks which deliver products
to our customers or consumers. This means we take care at every
step to protect the natural goodness of dairy and influence the
overall sustainability of the products we deliver.
Scale
Fonterra is the largest business in New Zealand and is heavily
reliant on New Zealand’s natural resources. As one of the world’s
largest global dairy businesses and the largest exporter of dairy
products, we deliver products to more than 100 countries and are
actively involved in a wide range of international forums.
Fonterra’s farmers are at the forefront of sustainable farming
(for example, low greenhouse gas emissions per litre of milk
collected) but that is not enough for ourselves or our New Zealand
stakeholders. New Zealanders value their natural environment
highly and they expect Fonterra and our farmer shareholders to
continue to strive towards the highest standards of sustainability.
We aim to be a true global leader in sustainable dairy nutrition and
this will require us to produce high-quality dairy nutrition within
an environment that meets the expectations of New Zealand
communities. In doing so, we can also influence change across
the wider agricultural and food industry.
100+
As one of the world’s largest
global dairy businesses and
the largest exporter of dairy
products, we deliver products
to more than 100 countries.
Our ambition
Our ambition is to make a difference in the lives of two billion
people by 2025 and we believe we have the opportunity to create
the scale of change to help achieve this. We know there are
challenges and we do not currently have all the solutions – but,
with increased agility, innovation and collaborative working, we
are optimistic about what we can achieve and contribute toward
a sustainable future.
SUSTAINABLE STRATEGY | 13
Sustainable Strategy
FONTERRA SUSTAINABILITY REPORT 2017
Nutrition
Address public health challenges by improving the
nutritional profile of our products and promoting
healthy diets
Improve access to adequate nutrition by developing
affordable products tailored to specific nutritional
needs of communities
Improve the wellbeing of individuals by leading
innovation in advanced dairy nutritional products
to address specific health needs
A sustainable future for our Co-operative is
part of our core strategy – it’s how we create
long-term value for future generations.
We consider the long-term challenges and shifts we face as a
global food producer to ensure we are acting and planning today
with a long-term view, managing the risks and identifying the
opportunities to deliver a sustainable business.
To summarise our approach we have organised our priorities
into three main pillars:
• Nutrition – improving health and wellbeing through the
products and services we deliver
• Environment – achieving a healthy environment for
farming and society
• Community – delivering prosperity for our farmers and
wider communities.
While our approach is organised around these three pillars, the
main sections of this report reflect our value chain, see page 22.
Our
Approach
Medium-term targets
• 2019: 100% sites certified to leading Food Service Quality
(FSQ) level
• 2020: 75% product portfolio meeting endorsed
nutrition guidelines
• 2025: 100% product portfolio meeting endorsed
nutrition guidelines
Long-term
contribution
FY18 delivery
• Launch one new affordable product
• Continue to reformulate products to nutritional guidelines
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FONTERRA SUSTAINABILITY REPORT 2017
Medium-term targets
• 2025: All farms have FEPs
• 2026: All sites treating wastewater to leading industry standards
• 2030: Climate-neutral growth for farming
• 2030: 30% reduction in GHG emissions for manufacturing operations
• 2050: Net zero emissions for manufacturing operations
Medium-term targets
• Continue to invest in community programmes in key markets
• World-class TRIFR
• Word-class engagement
• 2025: $35 billion turnover
Long-term
contribution
Long-term
contribution
FY18 delivery
• Agree action plans for 50 catchments
• Deliver 1,000 Farm Environment Plans (FEPs)
• Pilot climate action plan on 100 farms
FY18 delivery
• Agree target for Diversity and Inclusion
• Introduce family violence support initiative in New Zealand
• Deliver 20+ million serves of dairy nutrition for NZ children
Environment
Improve the health and biodiversity of our land
and waters by reducing the impacts of farming and
manufacturing and working in partnership with others
Lead the transition to a low-carbon future by investing
in innovation and infrastructure to remove greenhouse
gas emissions from our supply chain
Meet the growing nutritional demand through
improvements in productivity and minimising waste
from farm to consumer
Community
Support healthy sustainable livelihoods for our farmers
by returning the most value from every drop of milk by
driving volume to higher value
Provide positive livelihoods for our people by developing
a diverse, skilled and agile workforce and promoting a
healthy and safe working environment
Invest in the future of our communities by sharing
what we do best and building farming capability in key
emerging dairy markets
SUSTAINABLE STRATEGY | 15
Sustainable Strategy
FONTERRA SUSTAINABILITY REPORT 2017
KEY HIGHLIGHTS
• Food and Nutrition Guidelines: We received
independent endorsement of our approach to
nutrition – see page 62
• Affordable products: Through our Anchor™ Fortified
Milk Drink, we are providing affordable dairy-based
nutrition to families in Ethiopia – see page 65
• Reduction in added sugars: In FY16, we reduced added
sugars in Anchor Uno, a children’s yoghurt available in
New Zealand – see page 65
• Advanced nutrition: Anlene Heart-Plus™ is helping to
combat high cholesterol and diabetes – see page 65
How Fonterra is making this happen
We are focused on providing healthy and
responsible products. We will:
Address public health challenges by improving the
nutritional profile of our products and promoting
healthy diets
Improve access to adequate nutrition by developing
affordable products tailored to specific nutritional needs
of communities
Improve the wellbeing of individuals by leading innovation
in advanced dairy nutritional products to address specific
health needs.
Dairy’s role in providing nutrition
Dairy products can play a valuable role in addressing deficiencies
in diets and improving health and wellbeing for people around
the world.
Globally, government health organisations include dairy in
their dietary guidelines. The Food and Agriculture Organization
(FAO) reports that most countries recommend at least one serve
of milk or dairy products per day and many recommend up to
three serves per day.
1
As people’s diets evolve, dairy will continue to have a valuable
role due to its many nutritional benefits. To meet the global
challenge of feeding a growing population while operating within
environment limits, it is likely that people will increasingly look
to plant-based sources of protein, such as soy, rice and nut-
based products. For those consuming plant-based proteins, dairy
products offer multiple essential nutrients which otherwise are
not readily available in people’s diets.
Nutrition
1 FAO, 2013, Milk and dairy products in human nutrition, p162
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FONTERRA SUSTAINABILITY REPORT 2017
DAIRY PRODUCTS
ARE NUTRIENT-DENSE
FOODS
They provide energy and
high-quality protein which
helps grow and repair muscles.
They also help meet the
body’s needs for:
Vitamin B2
(Riboflavin) which helps
reduce tiredness
Vitamin B12
which supports normal
brain function
Vitamin A
which supports vision and
immune function.
Provide access to safe,
affordable nutrition (2.1)
Address malnutrition
through products tailored
to specific health needs
(2.2)
Lift dairy productivity to
meet growing nutritional
needs (2.4)
Responsibly provide
products to support
well-being of mothers and
infants (3.1 and 3.2)
1
Promote healthy and
informed consumer
choices (3.6)
Continue to improve the
nutritional profile of our
products (3.6)
Fonterra’s contribution
to the SDGs from a
nutrition perspective.
Phosphorus
which supports the
generation of energy
from nutrients.
Calcium
which makes teeth
and bones strong.
Potassium
which helps
maintain a healthy
blood pressure.
1 See page 67 for our position on responsible
promotion of breast-milk substitutes.
SUSTAINABLE STRATEGY | 17
Sustainable Strategy
FONTERRA SUSTAINABILITY REPORT 2017FONTERRA SUSTAINABILITY REPORT 2017
How Fonterra is making this happen
Our focus is on improving our productivity and protecting
the environment. We will:
Improve the health and biodiversity of our land and waters
by reducing the impacts of farming and manufacturing and
working in partnership with others
Lead the transition to a low-carbon future by investing in
innovation and infrastructure to remove greenhouse gas
emissions from our supply chain
Meet the growing nutritional demand through improvements
in productivity and minimising waste from farm to consumer.
Dairy’s role in meeting nutrition needs within
environmental limits
Globally, food production systems are facing a transformational
challenge to meet the demands of a growing population
within environmental limits. Dairy is a rich source of many
vital nutrients which will be relevant as the world shifts to
more efficiently produced diets. However, the dairy industry
also needs to find more efficiencies in the way it operates and
reduce its impact on the environment.
New Zealand farmers lead the world in many aspects of
sustainable dairying, with high productivity, year-round pasture
grazing and lower use of supplementary feeds. However,
the scale of the industry in New Zealand means that our
environmental footprint is of national significance. For example,
around a quarter of New Zealand’s greenhouse gas emissions
are from dairy farming.
FONTERRA SUSTAINABILITY REPORT 2017
Environment
kg CO
2
-e/kg FPCM
Fonterra
New Zealand
0.85
Global
Average
2.9*
Fonterra
Australia
0.92
Global
Highest
9.0*
Fonterra
China
Farms
1.62
KEY HIGHLIGHTS
• Protecting the New Zealand environment: We have
set out six commitments to help improve water quality
in New Zealand – see page 34
• Investing resource-efficient manufacturing:
Lichfield site investment to deliver almost 80 per cent
more production for under 20 per cent more water
– see page 55
• On-farm emissions: Dairy Action for Climate Change
plan launched at National Field Days – see page 40
On-farm relative emissions efficiency
*FAO Report 2013, Greenhouse gas emissions from ruminant supply chains
18 | SUSTAINABLE STRATEGY
FONTERRA SUSTAINABILITY REPORT 2017
• Reduce the impact of
farming and manufacturing
on water quality (6.3)
• Increase water efficiency in
areas of constrained supply
(6.4)
• Protect and restore
freshwater ecosystems (6.6)
• Reduce impact of farming
and manufacturing on
marine ecosystems (14.1)
Share our dairy expertise
with small-scale producers
(2.3)
Increase productivity
through sustainable
practices (2.4)
Manage and use natural
resources efficiently (12.2)
Reduce food waste
throughout our supply
chain (12.3)
Reduce waste generation
through our operations and
product packaging (12.5)
Fonterra’s contribution
to the SDGs from an
environmental perspective:
Reduce emissions across
our supply chain
Support farmers to build
resilience to climate change
(13.1)
Reduce impact of farming
and manufacturing on
freshwater eco-systems (15.1)
95%
95% of supplying farms
in New Zealand are
participating in nutrient
management reporting and
benchmarking.
50
New ambition for 50
water catchments in
New Zealand.
22.2M
Total emissions =
22.2 million tonnes
CO
2
-e.
BREAKDOWN:
1%
Distribution
9%
Manufacturing
90%
On Farm
Sustainable Strategy
FONTERRA SUSTAINABILITY REPORT 2017FONTERRA SUSTAINABILITY REPORT 2017
SUSTAINABLE STRATEGY | 19
Dairy’s role in enriching communities
The production of milk and dairy products touches the lives of
up to a billion people
1
, from family-run farms to international
businesses. The dairy industry makes a significant contribution
to regional New Zealand and to the national economy.
In New Zealand and around the world our industry plays
an important role in supporting rural livelihoods and
community development.
In developing countries, dairy cows provide a daily source of
food and cash, unlike other crops or meat. Cows also generate
manure, which is valuable as a fertiliser, fuel and construction
material, offering other sources of income. Farm animals are also
a popular asset among rural women, and often provide the first
stepping-stone for rural women to start creating a better place for
themselves in their communities.
Fonterra’s unique position in contributing
to New Zealand’s economy
As a co-operative, we are owned by 10,000 farmer shareholders
in New Zealand. The money we earn through exporting dairy
products around the world is returned to our farmer shareholders
in the regions. Last year we returned $10 billion to our
New Zealand farmer suppliers.
We provide employment opportunities throughout rural
New Zealand. A recent study by the New Zealand Institute of
Economic Research (NZIER) for DCANZ
2
showed New Zealand’s
dairy industry employs over 40,000 people – 27,500 worked on
farms and 13,000 were involved in dairy processing. These workers
are paid higher wages than comparable jobs in other industries.
FONTERRA SUSTAINABILITY REPORT 2017
Community
KEY HIGHLIGHTS
• Economic contribution: $19.2 billion revenue,
$10 billion to New Zealand farmers – see our
Annual Review 2017 for more information:
www.fonterra.com/annualreview2017
• Engaged employees: Strong improvements in
employee engagement, highest recorded level since
we began surveying in 2010 – see page 78
• Fonterra Milk for Schools: Every school day, 140,000
Kiwi children are drinking milk our farmers provide,
for free – see page 68
• Dairy Development programme: Sharing our dairy
expertise with farmers in Sri Lanka and Indonesia –
see page 38
How Fonterra is making this happen
Our focus is on improving the long-term wellbeing of our
farmers and communities. We will:
Support healthy sustainable livelihoods for our farmers by
returning the most value from every drop of milk by driving
volume to higher value
Provide positive livelihoods for our people by developing
a diverse, skilled and agile workforce and promoting a
healthy and safe working environment
Invest in the future of our communities by sharing what
we do best and building farming capability in key emerging
dairy markets.
1 FAO Global Facts: www.dairydeclaration.org/Facts-and-Resources
2 Dairy Company Association of New Zealand (DCANZ). NZIER Report: Dairy trade’s
economic contribution to New Zealand: https://nzier.org.nz/publication/
20 | SUSTAINABLE STRATEGY
FONTERRA SUSTAINABILITY REPORT 2017
12,000
Over 12,000 farmers
supplying milk to
Fonterra around
the world.
11%
The New Zealand
shareholder farmers
who own the
Co-operative
received an 11%
return on capital.
19%
reduction in total
recordable injury
frequency rate, taking
us to 5.2 per million
hours worked.
432
432 community
projects supported
through our Fonterra
Grass Roots fund.
Fonterra’s contribution
to the SDGs from a
community perspective.
Create positive employment
opportunities along
our value chain (1.2)
Share our dairy expertise
with small-scale producers
(2.3)
Share our dairy expertise
with female small-scale
producers (5.5)
Ensure equal participation
and opportunity for women
in our workforce (5.5)
Provide positive and
inclusive employment
for all groups. (8.5)
Address labour and human
rights issues in our supply
chain (8.7, 8.8)
Provide a safe and secure
working environment (8.8)
SUSTAINABLE STRATEGY | 21
Sustainable Strategy
FONTERRA SUSTAINABILITY REPORT 2017FONTERRA SUSTAINABILITY REPORT 2017
To make this report easier to navigate we have
structured it around our value chain. Topics are
grouped together by where they occur and how
we manage them.
The topics included in the report are shaped by our
materiality process, which takes into account our
stakeholders’ views on the importance of topics,
and the importance of topics to our Co-operative.
See page
98 for more information.
SUSTAINABLE DAIRYING 24
SUSTAINABLE FOUNDATIONS
More than
12,000 farmers
supplying us in New
Zealand and around
the world.
More than
4 million
cows.
Dairying in New Zealand 28
Dairying in other countries 36
On-farm GHG emissions 40
On-farm labour 44
Animal health and welfare 42
Sourcing palm products (PKE) 45
Dairy development 38
Our Global
Value Chain
98.4% stock exclusion
from NZ waterways.
98.4%
19.9 million tonnes
CO
2
-e from farms.
19.9M
Health, safety and wellbeing 80
Human rights 89
Non-milk supply chain 95
22 | SUSTAINABLE STRATEGY
FONTERRA SUSTAINABILITY REPORT 2017
76
22.9 billion
litres liquid
milk equivalent
processed.
ENTRY
Where our products go 63
Nutrition guidelines 62
Product strategy 64
Marketing breast-milk substitutes 67
Food safety and quality 70
Customer complaints handling 72
Packaging 74
SUSTAINABLE OPERATIONS 46
SUSTAINABLE CONSUMPTION 60
51 sites
across 11 countries
and five continents.
200 million serves
a day of dairy
provided by
Fonterra’s products.
Over 22,000
employees
around
the world.
$19.2 billion
revenue
from sale of
goods.
Where we make products 48
Energy and emissions 50
Our GHG emissions target 51
Coal 50
Water 54
Solid waste 56
Logistics 58
52.5 million m
3
water
withdrawn by our sites.
40% Fonterra consumer
and foodservice products.
2.1 million tonnes CO
2
- e
from sites.
60% ingredients sold to
other companies.
52.5M40%2.1M60%
Investing in communities 92
Ethics 90
Governance and stakeholder engagement 96
Diversity and inclusion 84
Gender pay 86
Employee engagement 78
While this report is organised by our value chain, our
approach is summarised by the three pillars of Nutrition,
Environment and Community, see page
14
SUSTAINABLE STRATEGY | 23
Sustainable Strategy
FONTERRA SUSTAINABILITY REPORT 2017
Sustainable
Dairying
1 kg CO
2
-e/kg FPCM: kilograms of carbon dioxide equivalent per kilogram of fat-and-protein-corrected milk.
See page
34
New ambition for
50 water catchments
in New Zealand.
Sustainable dairying requires working within
the environmental constraints of the land
to harness its productive value, creating
sustainable livelihoods while meeting the
social and environmental expectations of
communities and customers to deliver
high quality products.
The natural nutritional value of milk and the ability to produce
high quality, safe products starts on the farm. This means caring
for the environment, and caring for the health and wellbeing of
dairy cows.
The challenge to produce more food for a growing global
population requires an increase in productivity from the land,
and using our natural resources more efficiently. Increased
productivity must also be combined with a reduction in waste,
and through finding new ways to reduce the environmental
footprint of food production.
Fonterra’s role in helping achieve this is to work with our farmers,
in New Zealand and around the world, to support their livelihoods,
drive innovation and encourage good farming practices so they
are able to deal with future challenges.
See page
30
Fencing statistics
98.4 per cent of
waterways on supplying
farms in New Zealand
are fenced to keep cows
out of waterways.
24 | SUSTAINABLE DAIRYING
FONTERRA SUSTAINABILITY REPORT 2017
Emissions intensity
per kilogram
1
New Zealand 0.85
Australia 0.92
China 1.62
95 per cent of supplying
farms in New Zealand
are participating in
nutrient management
reporting and
benchmarking.
See page
30
See pages
40
On-farm emissions
19.9 million tonnes CO
2
-e
emitted from supplying
farms around the world.
See page
38
Farmer
training
More than 2,600
farmers in Sri Lanka
received training.
Riparian
management plans
4 per cent of supplying
farms in New Zealand
have documented riparian
management plans.
22 per cent reduction in
New Zealand somatic
cell count since 2009,
a key indicator of
animal health.
See page
43
See page
30
SUSTAINABLE DAIRYING | 25
Sustainable Dairying
FONTERRA SUSTAINABILITY REPORT 2017
Where does our milk come from?
In this section, we cover farming practices on all farms directly
supplying raw milk to Fonterra’s manufacturing sites.
We source the majority of our raw milk from Fonterra farmers in
New Zealand – the owners of the Co-operative. We also source
milk in other countries around the world.
We directly own and operate a small number of farms in
New Zealand. These farms neighbour our manufacturing sites,
where we use the wastewater from our sites to recycle excess
nutrients from the manufacturing process back into the land.
In China, we operate a number of farms which sell raw milk to our
customers and our Consumer and Foodservice business for use
in products. This complements the dairy products we export to
China from New Zealand and Australia.
How we work with farmers
We work with farmers through a partnership approach.
We encourage and support farmers to adopt good management
practices and to continuously improve profitability, environmental
efficiency and resilience. We have a set of policies and standards
that support sustainable dairy farming. These include our
Co-operative’s expectations for farmers when it comes to the
environment, animal health and welfare, biosecurity, and food
safety and quality. Our raw milk harvesting standard sets out
the minimum quality for the raw milk that all farmers must meet.
And it is the same standard across all markets we source milk from.
Within each country we operate, we have farmer engagement
and support programmes. These allow us to build relationships
with farmers, communicate our requirements with them, and to
support them to improve their farming systems.
We tailor these programmes so they address each country’s
specific farming issues which we also prioritise based on a number
of factors, including community expectations and concerns.
How we
Work With
Farmers
Farmers’
Handbooks
Detailed information
and expectations
are provided in our
Farmers’ Handbooks
26 | SUSTAINABLE DAIRYING
FONTERRA SUSTAINABILITY REPORT 2017
Sources of raw milk
by quantity
CHINA
305
MILLION LITRES
RAW MILK COLLECTED
NEW ZEALAND
17,082
MILLION LITRES
RAW MILK COLLECTED
SRI LANKA
12.5
MILLION LITRES
RAW MILK
COLLECTED
LATIN AMERICA
(CHILE, BRAZIL,
VENEZUELA)
549
MILLION LITRES
RAW MILK COLLECTED
AUSTRALIA
1,606
MILLION LITRES
RAW MILK COLLECTED
SUSTAINABLE DAIRYING | 27
Sustainable Dairying
FONTERRA SUSTAINABILITY REPORT 2017
Tiaki – supporting sustainable dairy farming
in New Zealand
We have a long-standing sustainable dairying programme,
which took a world-leading position in 2004 when it introduced
independent assessments for every farm each year. This year
we launched the Tiaki Sustainable Dairying Programme.
Tiaki means to look after, to guard, to care for, keep and nurture.
To accompany the name, we have crafted a whakataukī (proverb):
‘Tiakina te whenua i tēnei rā, kia whai oranga tangata mō ngā rā
e heke mai nei’. It means ‘Caring for the land today, so that the
land cares for us tomorrow.’ This gets to the heart of what we are
striving to do when it comes to our land and natural resources.
The programme builds on our work from the past 13 years.
It also recognises that each region and farm has individual
requirements. Through Tiaki our farmers can tap into specialised
regional expertise and services to support best-practice
farm management, proactively staying ahead of regulatory
requirements, and future-proofing their farm so that we can
satisfy evolving consumer and market expectations.
Our farmers have delivered substantial progress on the food safety
and quality requirements that relate to their farms, animal health
and welfare, and managing their impact on the environment.
Evaluating farm performance–farm dairy assessments
In New Zealand, every supplying farm is visited each year by an
independent party to complete an assessment against a detailed
protocol covering minimum requirements and some future-looking
items. The assessment protocol changes gradually over time with
new criteria introduced initially as observations only.
The current assessment covers food safety and quality, animal
health and welfare, and environmental topics including effluent
management systems, stock exclusion from waterways, and
riparian, nitrogen and water management processes. Information
on these assessments, and other detailed farm requirements, is
contained within our Farmers’ Handbook:
www.fonterra.com/farmerhandbook2017
On all farms where it is identified that requirements are not being
met, our Sustainable Dairying Advisors (SDAs) develop an action
plan with the farmer which includes target dates for completion.
We may also suspend the collection of milk until we are satisfied
that all minimum requirements are being met and that any actions
required to avoid a repeat of the issue have been completed.
Over the past season 9,891 farms were assessed. Of these, major
or critical hazards were identified on 318 farms – 3.2 per cent of
assessed farms. Major or critical hazards are identified where there
is a significant risk of environmental damage, or where actual
damage is found to be occurring.
The three most frequent issues identified through the
assessments were ponding and run-off from irrigation, improper
cleaning of sand traps and effluent not being captured correctly
into the management system. In the past season we suspended
the collection of milk from 78 farms, all owing to non-completion
of fencing to exclude stock from waterways.
Sustainable
Dairying in
New Zealand
Farm dairy assessments
2014/152015/162016/17
Percentage of farms with
effluent infrastructure capable of
365-day compliance
78%75%82%
Percentage of farms referred to
SDAs with major or critical non-
compliances
4.2%3.4%3.2%
9,891 3.2%
9,891 farms were
independently assessed
this year.
Percentage of farms referred to
SDAs with major or critical
non-compliances.
FARM DAIRY ASSESSMENTS IN 2016-17
28 | SUSTAINABLE DAIRYING
FONTERRA SUSTAINABILITY REPORT 2017
CASE STUDY
New Zealand Farm:
Garry Reymer – Farm Environment Plans
“ It needs to be individually tailored so you can get
a real advantage from it. It also makes it easy for
each farmer to understand because it’s specifically
about their farm.”
– Garry Reymer
When Garry Reymer took over
an 80-hectare Cambridge dairy
farm, little to no environmental
work had been done. But it
didn’t take long to get stuck in.
In two short years, Garry had
fenced off waterways, started
riparian planting, fenced the
drains, sorted the effluent, and
dealt with the underpass. The
bulk of the work was done, but
he knew there would still be
areas to address.
When Garry was invited
to take part in a Farm
Environment Plan (FEP) pilot
programme, he recognised
it as an ideal opportunity to
keep the ball rolling. The FEP
pilot programme was set
up by Fonterra and Waikato
Federated Farmers, with a view
to helping farmers prepare
for the Proposed Waikato
Regional Plan Change.
The results provided instant
feedback of just how far he
had taken the farm. Just as
importantly, it confirmed a
clear way forward for future
work, too.
To get his FEP set up, Fonterra
SDA Anna-Lena Wright walked
with Garry across his farm.
Together they looked at the
farm’s terrain, waterways,
the size and complexity of
the operation, underpasses,
effluent management, stocking
rates, cropping regimes,
nitrogen management, water
use and more. The SDA
then recommended what
areas could be improved in a
comprehensive report.
Garry’s FEP helps
him better manage
his farm’s impact on
the environment and
meet the regulatory
requirements in the
Waikato. There is no
one size fits all and this
is the secret to its
success, says Garry.
SUSTAINABLE DAIRYING | 29
Sustainable Strategy
FONTERRA SUSTAINABILITY REPORT 2017
Riparian management
Riparian management is a key activity to improve water quality,
enhance ecosystem health and improve biodiversity. Fencing
defined waterways prevents cows excreting directly into
waterways and protects river and stream banks from cows grazing
on them, which helps limit erosion. Planting along river and
stream banks also helps with erosion by filtering sediment. It also
filters nutrient run-off, provides shade for the water for cooling
and encourages increased land and water-based biodiversity.
At the end of May 2017, our farmers have essentially delivered on
the targets to keep stock out of all permanent waterways on their
dairy farms, through fencing 98.4 per cent of the entire length of
these waterways and installing bridges or culverts for 99.8 per cent
of all crossings. This work is independently inspected and verified.
A specific process is now being followed with the few remaining
farmers who have work outstanding.
We are working with our farmers to have documented riparian
management plans in place for 100 per cent of farms by the
end of the 2019-20 season. Within the plan key activities
are identified specific to each farm’s location and waterways
and include planting decisions and the approach for ongoing
protection and maintenance of the plants to deliver long-
term benefits for waterways. We have not made as much
progress in this area as originally planned – at the end of
FY17 four per cent of our farmers had a documented plan in
place. However, through the additional SDAs and the services
they will be offering, including Farm Environment Plans, we
expect accelerated progress over the next three years.
Nutrient budgets and nitrogen reporting
Most of our Sustainable Dairying Advisors are Certified Nutrient
Management Advisors who can help our farmers review their
nutrient budgets and identify changes on farms that can help
reduce nutrient loss and improve profitability.
By combining the detailed information our farmers collect on
their farming activities with standard modelling tools and our own
information, we can provide them with detailed reports. These
include estimates of their farm nitrogen losses and efficiency, their
nitrous oxide emissions and their performance relative to other
local farmers.
This year, 95 per cent of our suppliers submitted their nutrient
budgets and received a nitrogen report. Our focus now is on
helping our farmers make use of the information to achieve year-
on-year improvements.
95%
This year 95% of our suppliers submitted their
nutrient budgets and received a nitrogen report.
Sustainable Dairying in New Zealand
CONTINUED
30 | SUSTAINABLE DAIRYING
FONTERRA SUSTAINABILITY REPORT 2017
Soil health
Soil is vital for food production and underpins the success of the
dairy industry. Globally, soils are under pressure from increases
in population, higher demands for food and competing land uses.
Already approximately 33 per cent of global soils are degraded
1
and significant global effort is required to address this issue.
Soil faces different challenges in different countries and regions.
In New Zealand, compaction, erosion and changes in soil carbon
are the key challenges. Given the complex interaction between
soil and the whole farm system, we need to take an integrated
approach to improving soil health. Our current work to support
farmers with nutrient and riparian management, to reduce our
impact on water quality, is also how we will make the biggest
difference to soil health and reduce erosion. Through work with
industry partners, we are also helping to increase the adoption of
farm practices which reduce soil compaction. Most of this effort
focuses on restricted grazing practices and appropriate stand-off
infrastructure during periods of soil saturation, for example
grazing in winter.
2
Shifting farming systems: Farm Environment Plans
Over the past five years our farmers have made significant
investments in environmental improvements on their farms. This
reflects their recognition of the cumulative effects of some farming
practices on our waterways. These investments have come ahead
of regional councils setting environmental limits for water on
behalf of their communities and, in some places, before the land
and water science for specific catchments was clear.
Now that limit-setting processes are under way in some regions,
new land and water science is becoming available and farmers
are getting certainty around what standards have to be met to
achieve healthy freshwater, and under what time frames.
Farm Environment Plans (FEPs) help farmers meet these new
limits. This year we piloted a new FEP service in collaboration
with Waikato Federated Farmers to help farmers prepare for the
proposed Waikato Regional Plan Change.
A farmer’s FEP is unique to their farm. It includes a farm map and
photographs of critical locations around the farm. FEPs identify
areas of existing strength and priority areas for action; for example,
specific changes to reduce sediment, bacteria or nutrients from
entering waterways, including groundwater.
1 FAO, 2016 www.fao.org/global-soil-partnership/overview/
why-the-partnership/en/
2 www.dairynz.co.nz/feed/seasonal-management/winter-management
1,000 FEPs
In the year ending 31 July 2018
our target is to complete
SUSTAINABLE DAIRYING | 31
Sustainable Dairying
FONTERRA SUSTAINABILITY REPORT 2017
Innovation for sustainable dairy farming
Through Tiaki we offer our farmers resources, such as our digital
farm management tools and support services provided by our
team of SDAs, which help them improve the sustainability of
their farms. In 2018 we intend to expand our investment in farmer
support, increasing the number of SDAs to 30.
We recognise the importance of technology and innovation in
enabling sustainable farming solutions. Many of our farmers are
starting to embrace the precision farming future, using sensing
and monitoring technology to measure and track farm inputs
and outputs to maximise productivity and minimise
environmental impacts.
To support our farmers and the services our SDAs provide to
them, we have developed a software system using GPS mapping
technology. Initially this focused on mapping the land used for
dairy farming and recording all permanent waterways including
their crossing points. It was extended to include details on
underlying soil types and the different uses of management
blocks on the farm to support nutrient management modelling.
For riparian management and critical source identification, it
now covers the ability to plan and track progress on riparian
management. This includes the storage of photographs tagged
to specific locations showing changes over time.
Another example of new technology is the launch this year
of Agrigate, an online tool jointly developed by Farm Source,
Fonterra’s farmer-facing business unit, and the New Zealand
Livestock Improvement Corporation. This tool aggregates data
from across a farmer’s business into a single view, providing
an online dashboard to enable smarter and faster decisions.
The dashboard provides insights into the interactions between
different aspects of the farming system, including weather
conditions, animal health, milk production, pasture
cover, fertiliser use and financials.
Sustainable Dairying in New Zealand
CONTINUED
Fonterra Farm Source™ stores
Fonterra operates a network of over 70 Farm Source stores
throughout New Zealand. These stores offer services and support to
our farmers, and operate as retail farm supply stores for our farmers
and the wider public. Farm Source is a fully-owned subsidiary, and is
covered by the same management systems and policies as our other
operations.
71
Fonterra operates a network
of 71 Farm Source stores
throughout New Zealand.
A NATIONWIDE
NETWORK
32 | SUSTAINABLE DAIRYING
FONTERRA SUSTAINABILITY REPORT 2017
Fonterra’s New Zealand targets
IndicatorTargetPerformanceCommentary
Length of defined waterways with
dairy cattle permanently excluded
100% by 31 May 2017
98.4%
Essentially completed to plan
and a focused effort now
under way for the remaining
small number of farmers.
Regular crossing points on farm
have bridge or culvert
100% by 31 May 2018
99.8%
Essentially completed one
year ahead of plan.
Farms with waterways have
documented riparian
management plan
100% by 31 May 2020
4%
Progress is better than can be reported
because not all data is currently
available; however, progress is
slower than planned. Effort has been
prioritised elsewhere. New tools and
services like Farm Environment Plans
will accelerate progress from now.
Farms with water meters on
significant water intakes
85% by 2020
51%
On track.
Farms participating in nutrient
management reporting and
benchmarking
100% by 30 Nov 2015
95%
The effort required to achieve this
was initially under-estimated but
adoption has grown rapidly and is now
approaching target.
Farm Environment
Plan
100% by end 2025
NEW
FY18
This is a new initiative and starts with a
target for 1,000 during FY18.
SUSTAINABLE DAIRYING | 33
Sustainable Dairying
FONTERRA SUSTAINABILITY REPORT 2017
Our six commitments
1. Farm within regional environmental limits:
We work with farmers, councils and local communities to
establish environmental limits for water and help farmers
achieve them.
2. Encourage strong environmental farming practices:
We support all the farmers in our Co-operative to use the
best environmental farming practices available.
3. Reduce water use and improve wastewater quality
at our manufacturing sites:
We will improve the way we manage the water within our
manufacturing sites and invest in resource efficiency.
4. Work together on water health:
We will work with our communities to help rebuild the
health of our waterways.
5. Invest in science and innovation to find new solutions:
Digital disruption and new technologies are redefining the
world we live in. We will invest in research and innovation to
accelerate new solutions for sustainable farming and healthy
waterways.
6. Make the products people value most:
The future of food relies on a healthy planet and a healthy
living for farmers. We will make the high-quality products that
people need the most, and in a way they value so we can create
sustainable value for our Co-operative.
To see our progress on water efficiency and water quality within our
manufacturing sites, see page 54
Opening up on water
The impact of the dairy industry on the environment is an
important issue for all New Zealanders. We share this passion
for our natural environment – we want our rivers and lakes to be
swimmable for our children and our grandchildren, and we want
our freshwater systems to be strong enough to support nature
and the many uses people have for them.
We recently published Opening up on Water. This book is a
summary of the current state of New Zealand’s waterways, what
actions have been undertaken by Fonterra’s farmers to care for
them, and what our commitments are for the future – on farms,
at our manufacturing sites and within our local communities:
www.fonterra.com/water
Sustainable Dairying: Water Accord
Fonterra is an accountable partner of the Sustainable Dairying:
Water Accord (SDWA), which was launched in 2013. Our own
targets and reporting align with the measures and targets of
the SDWA. Our performance data is included in annual industry-
wide reporting, which also includes data supplied by regional
councils and unitary authorities on significant non-compliance
incidents found through annual regional monitoring.
In the 2015-16 season the national industry-wide rate of
significant non-compliance on monitored farms was 5.2 per cent,
a drop from 5.8 per cent from the previous season.
The report for the 2015-16 season was published in May 2017:
www.dairynz.co.nz
New Zealand’s
Waterways
A BOOK OF COMMITMENTS TO NEW ZEALAND AND ITS WATERWAYS FROM THE FARMERS OF FONTERRA
34 | SUSTAINABLE DAIRYING
FONTERRA SUSTAINABILITY REPORT 2017
KAIPARA
HARBOUR
TE WAIHORA/
LAKE ELLESMERE
AWARUA–WAITUNA
TĪKAPA MOANA/
FIRTH OF THAMES
WAIKATO
PEAT LAKES
4
2
1
3
5
Living Water is our 10-year partnership with the
New Zealand Department of Conservation (DOC).
The partnership was founded on a common vision
of a sustainable dairy industry being part of healthy
functioning ecosystems that together enrich the lives
of all New Zealanders.
The purpose of Living
Water is to implement
game-changing and scalable
solutions that demonstrate
sustainable dairying in five
significant catchments.
In these catchments
we work with farmers,
local Māori, councils,
community groups and key
stakeholders to restore
freshwater ecosystems,
build ecological resilience
and to trial solutions that
can accelerate sustainable
farming practices.
In the Kaipara Harbour, we
are working in the Wairua
Catchment on reducing
sediment loads using
solutions that both improve
hydrologic functioning and
build ecological resilience.
This catchment covers an area
of 75,000 hectares.
In the Tīkapa Moana,
Firth of Thames we are
working in the Pūkorokoro–
Miranda Catchment on
protecting shorebird habitat,
international flyways and
farming on the coast. This
catchment covers an area
of 6,000 hectares.
In the Waikato Peat Lakes we
are working at lakes Areare,
Ruatuna and Rotom
ānuka
on restoring the unique
peat ecosystems. The three
catchments cover an area of
1,000 hectares.
In Te Waihora/Lake Ellesmere
we are working in the
Ararira/LII Catchment on
transforming the drain and
water network into a healthy
freshwater ecosystem within
a productive agricultural
landscape. This catchment
covers an area of 6,600
hectares.
In Awarua–Waituna, we
are working in the Waituna
Catchment on designing and
implementing a catchment-
wide approach to nutrient
and sediment management
using solutions that build
ecological resilience. This
catchment covers an area of
20,423 hectares.
For more information, see:
www.livingwater.net.nz
Living Water partnership
Sustainable Dairying
FONTERRA SUSTAINABILITY REPORT 2017
SUSTAINABLE DAIRYING | 35
Australia
In Australia, our farmer sustainability programme is called
SupportCrew™. It includes initiatives which farmers can choose to
be a part of that help improve their profitability and environmental
performance. Through SupportCrew we provide our farmers with
access to incentives and experts to work with on projects that
lift profits by improving the efficient use of farm inputs such as
energy, nutrients and water. Project designs are peer-reviewed by
other farmers and help provide solutions that can be used more
widely. In the past year, 20 project milestones were completed by
our farmers.
One of the most material issues in Australia’s dairy industry is
water scarcity and maximising effluent recovery is an effective
solution. Such initiatives are largely funded by investment from
farmers, with targeted support by the Australian Government
and Fonterra incentives. Partnering with us is often attractive
to government agencies as we have field teams who can rapidly
identify farmers for target projects.
This year we launched the Anchor™ Dairy Fund, a new incentive
scheme to provide seed funding to Australian suppliers for trialling
innovations and on-farm sustainability improvements. We put
five cents from the sale of every bottle of Anchor fresh milk in
Australia into the Fund. Monies raised have contributed towards
trialling innovations such as soil sensors to help save water as well
as introducing robotic manure scrapers, dung beetles and shared
infrastructure for effluent recovery.
Australian farmer suppliers are visited multiple times each year
by Fonterra Milk Supply Group representatives. Independent
auditors, either contractors or regulators, are also scheduled to
visit each farm based on location and previous compliance levels.
As non-conformances are noted the audit frequency generally
increases. Audit requirements are based on regulatory needs and
additional Fonterra specifications.
Latin America
In Latin America, we collect milk from farmers in Chile, Brazil
and Venezuela. Our farmer relations team in each country
provides support to the farmers including technical advice
regarding quality, animal health and welfare, nutrition and the
environment. In a similar way to New Zealand, each farm directly
supplying us is assessed each year against our raw milk harvesting
standard. These assessments are carried out by a combination of
independent third parties and our own staff. In addition, our
New Zealand team audits a random selection of farms on an
annual basis. We also source some milk via third parties in this
region and for these our New Zealand team audits both the
provider and a random selection of their farms on a yearly basis.
In Chile, 87 per cent of farms supplying raw milk to Soprole have
signed a clean production agreement. This promotes different
actions to improve sustainability such as decreased water
consumption, reduced wastewater and use of LED illumination.
Dairying
Around
the World
We are members and supporters of the
Dairy Sustainability Framework (DSF).
The DSF is a framework that allows
members of the dairy sector to align
their sustainability activities on a global
basis. As members of the DSF, Fonterra
is required to demonstrate alignment
with the framework and provide annual
reporting of our progress.
For more information, see: www.dairysustainabilityframework.org
36 | SUSTAINABLE DAIRYING
FONTERRA SUSTAINABILITY REPORT 2017
China Farms
We directly operate seven farms in China. These are based around
two farming ‘hubs’–Yutian and Ying.
1
These farms are part of our
strong presence in China as the world’s most populous country
and our largest export market.
Our China Farms operations differ from the pasture-based farming
systems found in New Zealand and other markets which supply
us milk. Across the seven farms 34,900 milking cows are housed
indoors and are fed a combination of feed which is grown on
site or bought-in from other supplying farms. We source about
85 per cent of feed locally, providing income and development
opportunities for the wider industry. These animals are cared for
by a team on each farm that includes dedicated animal health and
welfare staff.
The focus of our Chinese farms is on building local capacity for
producing safe, high-quality milk. The farms operate under the
same global policies as other farms which supply us milk, including
standards for environmental issues, food safety and quality, and
animal welfare. This year these farms achieved independent
certification to benchmark
2
standards for food safety and quality.
As the farms are directly operated by Fonterra, farm employees
are covered by Fonterra’s group-wide labour and health and
safety requirements.
Water is an important issue for our Chinese farms given national
water constraints. Water usage on farms is closely monitored
and we have established on-site wastewater treatment systems,
including biodigesters to manage effluent. These ensure water
meets quality standards before being discharged, primarily for
irrigation on-farm to reduce water use.
Fonterra is also working on research with Chinese ministries
on an opportunity to provide semi-treated effluent as a natural
fertiliser to restore soil health in key Chinese agricultural
regions. This work is part of a New Zealand–China Environment
Co-operation Project between the New Zealand and Chinese
governments, with support from government agencies and
Fonterra. In June 2017 a symposium was held on this topic with
representatives from Chinese and New Zealand government
authorities and research institutes. There was strong alignment
on the value of increasing usage of the treated effluent as a
restorative fertiliser and developing a circular economy.
1 We are also establishing a third hub as a joint venture with Abbott
but this is not covered in this report.
2 Certified to standard recognised by Global Food Safety Initiative.
34,900
Across the seven farms in China, 34,900 milking cows are
fed a combination of feed with 85 per cent sourced locally.
SUSTAINABLE DAIRYING | 37
Sustainable Dairying
FONTERRA SUSTAINABILITY REPORT 2017
Dairy development
As a farmer-owned co-operative, Fonterra’s role is to export our
farmers’ milk to the world. Our global success is built upon the
home-grown dairy expertise we have developed. This is recognised
in many countries where we have a presence, where our dairy
expertise is valued and recognised as being able to develop local
dairy industries.
Through our dairy development activities, we support local
farmers to sustainably increase dairy production, helping improve
livelihoods and create thriving communities by generating
sustainable employment.
This work is delivered in partnership with others who recognise
the value of a productive dairy industry. To guide us on
implementation we work closely with key external stakeholders
including local government agencies, universities and
New Zealand industry experts to tailor our approach to the
specific needs of particular farming communities.
Sri Lanka
In Sri Lanka the focus of our dairy development initiative is to
develop the capability of local dairy farmers. This is supported
by investment in infrastructure to collect and process the milk,
and work to increase the demand for the fresh products that will
generate a sustainable income for local farmers.
When we opened our demonstration and training farm at Pannala
in 2016, our goal was to provide training for 2,500 farmers every
year. We exceeded this target in the first full year of operation,
with 121 training days providing more than 2,600 farmers with
tuition through a combination of classroom and on-farm training
facilities. Ongoing support is provided through our network of 21
supplier relationship officers who personally visit the local farmers
on their farms.
As the programme has expanded, we have established seven
milk collection centres in the regions and trained staff to collect,
test and rapidly cool the milk before it is transferred to food
production facilities.
To track outcomes of the work, we have introduced performance
indicators monitored across a sample of farmers. Since 2015
we have seen more than a 50 per cent improvement in animal
productivity and farmer profit.
1
China
Encouraging the development of young Chinese talent in
agriculture is an important aspect of our dairy development work.
On our own farms more than 90 per cent of staff are locally
recruited and trained.
In 2010 we established the Fonterra Scholarship and so far almost
900 students from 11 universities have received awards to help
Chinese students studying farming or food science. In association
with the Chinese Ministry of Industry and Information Technology,
we also support manufacturing training with about 20 Chinese
dairy practitioners invited to New Zealand each year.
We train farmers on animal health and modern farm management
practices and have developed the skills of 4,100 local farmers since
2012. We provide this training in partnership with the Chinese
Ministry of Agriculture, Dairy Association of China and the
National Dairy Industry Technology System.
Established in 2014 and funded by Fonterra Greater China,
the China –New Zealand Dairy Forum has been a platform of
knowledge and experience sharing between government officials,
experts and enterprise in the dairy sector. Based on the number of
attendees, now more than 300 in total, and the feedback we have
received, this year’s event was the most successful to date.
Dairy
Development
1 Based on IFCN Industry data for 2015 and results from 185 farmers monitored in Sri Lanka.
Growing forage feed on our
demonstration and training farm,
using recycled paper sacks as
mulch to control weeds.
38 | SUSTAINABLE DAIRYING
FONTERRA SUSTAINABILITY REPORT 2017
Indonesia
Our Fonterra Dairy Scholarship is run in partnership with the
Indonesian Government. Its goal is to improve the livelihoods of
small farmers and farming communities by increasing productivity,
milk quality and profitability. Now in its fifth year, the scholarship
was named Indonesia’s Best Corporate Social Initiative and has
expanded from 12 to 16 participants per year.
The local dairy farmers and extension staff receive classroom and
practical training, on-farm reviews and undertake a study tour
to New Zealand. The extension training includes all aspects of
farm management, animal husbandry, hygiene and quality, feed
management, health and safety, and caring for the environment.
Alumni support then helps build local farmer learning groups to
continue and share the development learning with the broader
farming community as the farmers apply the learning on their
own farms.
Fonterra does not collect milk from these farmers; therefore,
a baseline report is created for each farmer participating in the
scholarship programme and a follow-up review is conducted to
identify learnings they have gained and what benefits the
changes have delivered.
In Sumatra, three of our female alumni wanted to share their
learning and support with other local farming women, so we
helped by providing additional guidance on communication skills
and preparing specific technical training material for their use.
They have grown in confidence and now their support group
comprises 15 female farmers and they are expanding our impact
by further sharing with other local farming groups.
Elsewhere around the world
Since 2014, we have been supporting Japan’s dairy industry in
Hokkaido to assess the potential future of profitable pasture-
based farming and to help ensure local consumers have access to
affordable dairy nutrition. Findings from the initial phases of study
are positive and the initiative was extended this year to investigate
implementation strategies on farms.
We have a new exchange scheme this year for young Chilean
farmers. The first cohort of 11 arrived in New Zealand in June for
a year of paid hands-on work experience at participating farms.
We also facilitated a number of study tours including a visit
by Myanmar government and industry representatives to our
demonstration and training farm in Sri Lanka.
11
Eleven Chilean farmers arrived in
New Zealand in June for a year of
paid hands-on work experience at
participating farms.
NEW EXCHANGE SCHEME
FOR CHILEAN FARMERS
In Sumatra, one of our scholarship alumni
uses a human food analogy to teach the
importance of good feed for dairy cattle.
SUSTAINABLE DAIRYING | 39
Sustainable Dairying
FONTERRA SUSTAINABILITY REPORT 2017
On-farm
Emissions
On-farm greenhouse gas emissions
The main contributor to our overall carbon footprint is the
greenhouse gas (GHG) emissions from dairy farm production
systems, primarily from cows. As ruminant animals, dairy cows
produce methane during digestion, emitted mainly through
burping. Nitrous oxide is emitted from dairy pasture too, as the
urine and faeces produced by the cows and the fertilisers applied
are broken down. Both methane and nitrous oxide are significant
GHGs, making up the majority of the emissions in the production
of dairy products.
Other sources of on-farm emissions include use of energy and
electricity in farm operations and milk cooling, and emissions
relating to farm inputs such as feed and fertiliser.
Our progress
The long-term trend for New Zealand shows a 20 per cent
decrease in biological emissions per unit of production (kilogram
of milk solid) since 1990, calculated on an inventory basis.
Fonterra has commissioned regular independent analysis of our
New Zealand milk supply for the full on-farm carbon life cycle.
Over the past five years, this has shown a downwards trend and it
is now at 0.85 kilograms of carbon dioxide equivalent per kilogram
of fat-and-protein-corrected milk (kg CO
2
-e/ kg FPCM). This year
we have extended this analysis to also consider our Australian
and China footprints using the same methodology. Australia is
0.92 kg CO
2
-e/kg FPCM and our seven Chinese farms average
1.62 kg CO
2
-e/kg FPCM. Our milk is among the most climate-
efficient in the world, with most of our raw milk supply at less
than half of the global estimated average.
Our commitments
We have been working towards a target of reducing on-farm GHG
emissions intensity in New Zealand by 15 per cent by 2030 from a
2008 baseline. Despite a downward trend in emissions intensity
here over the past five years, emissions intensity had increased in
the previous four seasons. This brings us back to a similar level as
that for the 2007-08 season. This is now heading in the correct
direction but we believe we need to increase our focus in this
area. We have therefore lifted our ambition in this area, setting a
new target for climate-neutral growth to 2030 for pre-farmgate
emissions in New Zealand, from a 2015 base year. We expect milk
volumes to continue to increase to 2030 so our existing emissions
intensity target will not be enough to ensure the total emissions
from on-farm activities will be no higher than they were in 2015.
However, we believe this can be achieved through a combination
of mitigations with some use of offsetting if needed. We also
aspire to have a positive impact on global emissions by enabling
agricultural mitigation solutions.
Climate change mitigation options available to farmers
Improved productivity
Continuing to improve on-farm productivity remains the best area
to focus on. Examples include:
• Caring for animals throughout their lives not only improves the
quality of the milk they produce it also sees each cow produce
more milk over a longer life.
• Improving nutrient management not only reduces the risk of
nutrients entering waterways, it also decreases the amount
of bought-in fertiliser needed to achieve the same level of
production; as a result, this reduces the production of
nitrous oxide.
40 | SUSTAINABLE DAIRYING
FONTERRA SUSTAINABILITY REPORT 2017
Less deforestation
Change of land use that results in deforestation to support
dairying contributes to our GHG emissions and is included in our
estimates. This can arise from new conversions to dairy or as a
consequence of growing supplementary feeds. Farmers are able to
make a difference by:
• Making use of existing pasture land, rather than converting it
from forestry
• Reducing their use of supplementary feeds which are
associated with deforestation or ensuring it is only purchased
from sustainable sources
• Increasing planting on marginal land not suitable for dairy
farming to reverse prior deforestation.
Breakthrough technologies
We continue to invest in research and development, primarily
through the Pastoral Greenhouse Gas Research Consortium
(PGgRC), to identify breakthrough technologies which can provide
a step reduction in the biological emissions produced by dairy
cows. Some examples being investigated include:
• Breeding of cows that produce less GHG emissions
• Vaccines that can be given to cows to reduce their GHG
emissions
• Inhibitors which can be administered through supplemental
feeds to reduce their GHG emissions.
New Zealand Dairy Action for Climate Change
The New Zealand Dairy Action for Climate Change Plan was
launched in June 2017, by DairyNZ, the industry-good organisation
representing New Zealand dairy farmers, in partnership with
Fonterra and supported by the Ministry for the Environment
and Ministry for Primary Industries. The Dairy Action for Climate
Change Plan is the industry’s phased plan to contribute to the
New Zealand Paris Agreement target. This first phase focuses
on establishing the foundation for the dairy sector – farmers,
scientists, rural professionals, and others – to work together to
raise awareness and mitigate biological emissions so as to make
a valuable contribution to the overall reduction New Zealand has
pledged to achieve by 2030.
We have committed to undertake an on-farm recording pilot
involving up to 100 Fonterra farmers, measuring GHG emissions
and providing farmers with individual emissions data. We will
share the findings from the pilot with the Plan supporters,
Ministry for the Environment and Ministry for Primary Industries.
Emissions reductions in Chile
Our supplying farmers in Chile are leading innovation in energy
and emissions capture. Prolesur is working with government
research agencies to investigate the use of biodigesters as on-
farm energy sources capturing energy from farm waste.
At present, in Soprole, approximately 40 per cent of the milk
we purchase comes from farms that produce electricity through
biodigesters, and 30 per cent is from farms with heat recovery
systems to generate warm water using the milk cooling process.
1 The reporting of on-farm greenhouse gas emissions is one season behind financial year to
allow completion of a life-cycle analysis.
2 Emissions for the 2014-15 season in China are derived from 2014-15 production volumes
and the 2015-16 on-farm carbon life-cycle analysis.
3 Rest-of-the-world farms includes those in Australia and Latin America. No specific
life-cycle analysis has been completed for Latin America, so this has been estimated
using the Australian emissions intensity and the actual production.
On-farm
emissions
1
China
2
:
Fonterra-owned farms: 220
Scope 3
NZ Supplier Farms:
17.3
million tC0
2
-e
Scope 1
Scope 2
Scope 3
New Zealand:
Fonterra-owned farms: 22.8
China:
2
Fonterra-owned farms: 52.9
New Zealand:
Fonterra-owned farms: 0.36
China:
Fonterra-owned farms 202
New Zealand:
Fonterra-owned farms: 7.12
Scope 3
ROW
Supplier Farms:
3
2.2
million tC0
2
-e
Total On-farm GHG emissions: 19.9 million tCO2-e
For detailed information on the scope, methodology and assumptions used in reporting these
emissions see Fonterra Sustainability Report 2017 – Environmental Data Reporting Notes.
(000 tC0
2
-e)
SUSTAINABLE DAIRYING | 41
Sustainable Dairying
FONTERRA SUSTAINABILITY REPORT 2017
Animal
Welfare
Animal health and welfare
Healthy, well-cared-for animals are vital to producing safe,
high-quality milk.
Cows are the heart of every dairy farm, and their health and
welfare is of paramount importance to us. The way animals
are treated is also an increasing focus of consumers and
other stakeholders.
We work with our farmers to meet globally recognised standards
as set by the World Organisation for Animal Health and eliminate
practices that contravene the Five Freedoms:
• Freedom from hunger and thirst by ready access to fresh water
and a diet to maintain full health and vigour
• Freedom from discomfort by providing an appropriate
environment including shelter and a comfortable resting area
• Freedom from pain, injury and disease by ensuring rapid
diagnosis and treatment
• Freedom to express normal behaviour by providing sufficient
space, proper facilities and the company of the animal’s
own kind
• Freedom from fear and distress by ensuring conditions and
treatment which avoid physical and mental suffering.
Our farmers are required to uphold high standards of animal
welfare and comply fully with the latest regulations and codes of
welfare. These requirements are set out in Fonterra’s Terms and
Conditions of Supply, and are guided by our overarching Group
Animal Welfare and Biosecurity Policy and supporting standards.
We support our farmers to adopt good management practices
to continuously improve animal health and welfare outcomes,
keeping our farmers up to date with the latest animal welfare
practices and requirements. We work with industry-good bodies
and training organisations to ensure farmers have access to high-
quality information that sets out expected best practice, relevant
regulatory requirements, and access to training where required.
The responsibility for the development of strategy, policy and
standards for management of farm animal welfare across
Fonterra on a global basis is assigned to Fonterra’s General
Manager – Veterinary, Technical and Risk Management.
Management and implementation of Fonterra’s animal welfare
policies and strategies are undertaken by the business units
sourcing raw milk, supported by an in-house veterinary team
nationally and internationally.
Globally, our International Milk Quality team assesses animal
welfare as part of their milk quality audits in all markets outside
of New Zealand where we source milk. This enables Fonterra to
identify any issues and recommend improvements to farmers.
Due to animal welfare concerns, we do not support the use of
hormonal growth promoting substances (HGPs) or substances
stimulating increased milk production, such as rBST. Regulations
prohibit the use of both these substances in New Zealand and
Australia, and these are not being used on our farms in China or
Sri Lanka. In Latin America there continues to be some usage of
rBST but we are actively working with farmers to phase out its use.
Globally, regulations also prohibit the use of ruminant protein as a
feed for ruminants including milking cows.
42 | SUSTAINABLE DAIRYING
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Somatic cell counts
Somatic cell count (SCC) is a measure of white blood cells in milk,
which is not only an indicator of milk quality but also of good
animal husbandry. The lower the SCC, the lower the incidence of
mastitis infection in our animals and the better they are being
cared for. We have seen a significant downward trend for SCCs
in New Zealand since 2009, from 223,000 to 173,000 cells/ml
achieved in the past year. SCCs outside of New Zealand are
considered within normal ranges for the farming systems being
utilised and fluctuation is within normal ranges. Results in all
regions are well below the European Union standard, a widely
quoted standard, which requires fewer than 400,000 cells/ml for
imports and exports. Although we have delivered excellent results
in this area, we will continue to monitor and work to achieve
lower counts.
Lifespan
Cows in New Zealand have one of the world’s lowest annual
replacement rates, indicating they have long and productive lives.
The average replacement rate is 22 per cent with cows averaging
4.5 lactations (6.5 to 7 years) with a calving interval of 368.4 days.
1
These measures jointly reflect high reproductive performance, which
can only be achieved under conditions of good animal management.
Antimicrobial resistance
Increasing levels of antimicrobial resistance is of growing concern
around the world, with the threat of standard treatments becoming
ineffective against many common pathogens of importance to
human and animals. The risk of development of resistance can be
minimised in animals by ensuring that the use of antimicrobials is
minimised and, where required they are used specifically for the
treatment of known infections. The prudent use of antimicrobials,
particularly those identified as of critical importance for treatment
of human disease, will help to make sure that antibiotics remain
effective for the treatment of disease in the future.
New Zealand is free from many diseases such as brucella abortus,
brucella melitensis, infectious pleuropneumonia, sheep and goat
pox, and foot and mouth disease. Pasture-based farmers are able to
use low levels of antibiotics in animals as our cows have low levels
of mastitis and other diseases. New Zealand has been ranked as
the third-lowest user of antibiotics in animals in the world.
2
Improving regulations
In response to isolated incidents identified in FY16, new improved
young calf regulations have been introduced and we have
provided support for our farmers to ensure they meet these.
In addition, new regulations regarding painful procedures are in
the process of being implemented to ensure freedom from pain.
Somatic cell counts by location
2014/152015/162016/17
Average
(mean) 000
cells/ml
Average
(mean) 000
cells/ml
Average
(mean) 000
cells/ml
New Zealand171176173
Australia198188190
China180148165
Chile – Soprole236232262
Chile – Prolesur238234286
European Union
import/export standard
400400400
1 Dairy New Zealand Dairy Statistics, 2015-16
2 The Review on Antimicrobial Resistance 2015.
SUSTAINABLE DAIRYING | 43
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On-farm
Labour
Practices
Labour practices on-farm
In New Zealand, Fonterra is a supporter of the Sustainable
Dairying: Workplace Action Plan, an industry action plan
developed by DairyNZ and Federated Farmers to assist dairy
farming businesses to adopt good workplace management
practices.
This plan describes what a quality work environment in the dairy
industry looks like and sets out the co-ordinated actions and
commitments of the industry. It also provides practical advice and
support to employers and employees.
To assess potential human rights issues around the world,
we recently completed a targeted global due diligence process.
This process included identification of potential issues in
Fonterra’s direct operations and in first-tier suppliers, including
farmer suppliers. See the Human Rights section on page 89 for
more information.
1 Source: WorkSafe NZ Workplace fatalities by industry www.worksafe.govt.nz/worksafe/
research/health-and-safety-data/workplace-fatalities/workplace-fatalities-by-industry.
On-farm health and safety
When it comes to health and safety on farms, we have a
direct responsibility for our employees, contractors and other
representatives, including the safety of milk collection activities.
Our evaluations of farms include health and safety to confirm
that relevant areas of the farm are free from risks and hazards
and allow safe access, with specific detailed consideration of the
tanker access included in the supplier handbook for
New Zealand farmers.
In New Zealand, more people are killed working in agriculture
than in any other sector, with 18 fatalities reported during 2016.
1
To help improve this, we are working with an agriculture working
group, including WorkSafe New Zealand and DairyNZ, to identify
ways to reduce injuries and implement new standards.
This year we applied our Safe Home Audit approach to six of the
nutrient management farms that we own and operate with our
own staff. All received a vulnerable rating so we have implemented
an action plan and intend to share the lessons learnt. Through
our network of Farm Source stores, we already make safety
information pamphlets available to all our customers, many of
whom are farmers.
44 | SUSTAINABLE DAIRYING
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Sustainable
Palm Products
Palm products
Palm products in Fonterra’s supply chain includes palm oil used
as an ingredient in a limited number of our products and Palm
Kernel Expeller (PKE), which is used as a supplementary feed
for dairy cattle. PKE is a by-product of the palm kernel crushing
process. Approximately 30 per cent of PKE imports into New
Zealand are procured through International Nutritionals Ltd (INL),
our joint venture with Wilmar International Limited. PKE is sold
through our Farm Source retail stores.
We recognise that the production of some palm products is
linked to unsustainable practices, including deforestation, habitat
destruction, and poor labour and human rights practices. We
are committed to responsible sourcing of palm products, and
working with stakeholders to ensure the fair and ethical treatment
of suppliers, to avoiding deforestation, and to protecting
conservation values in the palm products supply chain.
Fonterra has been a member of the Roundtable on Sustainable
Palm Oil (RSPO) since 2010. In 2015 we achieved our target to use
Green Palm
TM
certificates for 100 per cent of palm oil purchases,
which supports the production of certified sustainable palm oil.
In August 2016, we released the Fonterra Palm Product Standard
which commits Fonterra to a higher standard of sustainability and
more proactive and transparent monitoring of the palm products
that we source globally. This standard was shaped in consultation
with our stakeholders:
www.fonterra.com/palmproductsstandard
The standard requires that:
• Fonterra will move towards sourcing segregated supply palm
oil from credible organisations with an aim of 100 per cent
segregated supply by 2018.
1
• All vendors of palm products within Fonterra’s supply chain
must publicly be committed to policies that give equivalent
effect to “No Deforestation, No Peatland Development, and
No Exploitation” and have business processes in place to enact
these commitments.
• Fonterra has traceability to mill, with time-bound plans to
achieve traceability to plantation.
• Fonterra will disclose use of palm products and performance of
palm products suppliers in relation to this standard.
We have been working with The Forest Trust (TFT) to evaluate the
performance of our palm products supply chain and compliance
with our standard. Since the end of the financial year we have
strengthened this relationship, by becoming a TFT member.
Working with our vendors, we have confirmed 96.7 per cent
traceability to mill, and 17.7 per cent traceability to plantation for
PKE purchased through INL for the year to June 2017.
In 2016 Fonterra procured 15,135 metric tonnes of palm oil
ingredients, all of which were from RSPO-certified sources
2
:
• 2.7 per cent was from segregated sources, where it is kept
separate from ordinary palm oil throughout the supply chain
• 57.0 per cent was from ‘mass balance’ sources which are mixed
with ordinary palm oil throughout the supply chain
• 40.3 per cent was from ‘book and claim’ sources, where the
supply chain is not monitored but credits are purchased from
RSPO-certified growers.
In Australia two of our sites also have independent supply chain
certification (SSC RSPO), which allows any products we make
there containing palm oil to be fully certified.
1 Some palm derivatives for use in specialised products may require additional
time to transition.
2 www.rspo.org/certification/supply-chains.
SUSTAINABLE DAIRYING | 45
Sustainable Dairying
FONTERRA SUSTAINABILITY REPORT 2017
Sustainable operations means taking care
to preserve every drop of natural goodness
from the milk we collect. It means operating
efficiently, minimising our manufacturing sites’
energy use and emissions and investing in
new technologies and equipment to meet
our long-term climate change ambitions.
This includes optimising the movement of our raw materials and
finished products, to take our dairy products from the farm to the
end consumer in the most efficient way and being conscious of
the distances many of our products have to travel to market.
Our manufacturing sites share the same environment as our
farmers, with environmental challenges interconnected between
farms and sites. We need to also take into account the potential
localised environmental impacts of our sites, particularly on
freshwater quality and biodiversity. This means using water
responsibly, and investing in best-practice water treatment processes.
This section covers our performance and management of issues
related to our manufacturing sites and logistics, from the point of
collection of milk at the farm through to delivery to our customers
and consumers.
Sustainable
Operations
22.9 billion LME
1
processed – down
3% from last year.
29.4 PJ energy used.
Essentially the
same as last year.
PPJJ
See page
53
1 LME is a standard measure of the litres of milk allocated to each product based on the
amount of fat and protein in the product relative to standardised raw milk
46 | SUSTAINABLE OPERATIONS
FONTERRA SUSTAINABILITY REPORT 2017
2.1 million tonnes
CO
2
-e emitted from
manufacturing – down
1.2% from last year.
0.17 million tonnes
CO
2
-e emitted
from logistics.
52.5 million cubic
metres of water
withdrawn – down
2.1% from last year.
New target set to achieve
net zero emissions for
operations by 2050.
See page
54
See page
51
4.18 million tonnes of
Group volume – down
3.1 % from last year.
NNEETT--ZZEERROO
MMMM
See page
59
See page
53
SUSTAINABLE OPERATIONS | 47
Sustainable Operations
FONTERRA SUSTAINABILITY REPORT 2017
Independent evaluation and certification of sites
Our manufacturing sites are subject to regular internal and third
party audits. We are a member of Sedex. Regular independent
audits of site performance against the Sedex Member Ethical
Trade Audit (SMETA) standard for labour practices, environment,
health and safety, and business practices are used to demonstrate
our performance to our customers.
Other third-party audits are part of independent certification of
site Environmental Management Systems (EMS) to international
standards, such as ISO14001. Independent certification to
ISO14001 provides third-party evaluation of the performance
of our management system across site environmental issues.
Our sites are currently in the process of transitioning to the
updated ISO14001:2015 standard, which expands certification
to consider the broader influence organisations may exert
over their value chains.
We recognise that independent environmental certification is
not in place at all of our sites. This is particularly true outside
New Zealand and Australia. We are working towards achieving
certification to ISO14001:2015 or equivalent across our global
manufacturing footprint. As of the end of FY17, more than
60 per cent of our sites had achieved such certification.
Our global operations sites
The majority of our manufacturing activity is in New Zealand and
Australia, representing more than 95 per cent of our processing by
raw milk supply. We operate a number of other sites around the
world. Performance data in this section is for all Fonterra-operated
manufacturing sites unless otherwise stated.
We also share some manufacturing sites which are operated
by our joint-venture partners. These sites are excluded from
our performance reporting. The majority of these sites are run
by DFE Pharma, a joint venture between Fonterra and Royal
FrieslandCampina. Our policy is to ensure the joint venture adopts
policies at least as rigorous as those set out in equivalent Fonterra
Group standards, or to a higher standard if required by local law.
To ensure all manufacturing sites operate to consistent standards,
we use a global operating framework. At the heart of the
framework are our Global Group policies and standards which
prescribe operational practices. Global Group policies may be
supported by local operational standards, which provide guidance
on how to apply policy within local regulatory contexts.
Our Fonterra Group Environmental Policy is available online:
www.fonterra.com/environmentalpolicy
This policy defines Fonterra’s commitment to safeguarding natural
resources through reducing environmental impacts across our
global value chain, including our precautionary approach where
serious threats may exist.
Each site has a site manager with overall accountability for
site performance and compliance with Fonterra’s operating
framework, alongside any other site-specific requirements such
as resource consent conditions.
All sites have a manager specifically responsible for environmental
compliance. At most sites this is a dedicated environmental manager,
often supported by a site environmental management team.
Their focus is on managing site-wide environmental performance
and compliance with local environmental requirements.
Global
Operations
Management
We are working towards achieving
certification to ISO14001:2015
or equivalent across our global
manufacturing footprint.
ISO14001:2015
48 | SUSTAINABLE OPERATIONS
FONTERRA SUSTAINABILITY REPORT 2017
Our manufacturing
operations
51
GLOBAL
51 SITES
IN 11 COUNTRIES
WORLDWIDE
1
NETHERLANDS
2
VENEZUELA
1
ETHIOPIA
1
SRI LANKA
2
MALAYSIA
1
INDONESIA
7
AUSTRALIA
2
BRAZIL
1
SAUDI
ARABIA
30
NEW
ZEALAND
3
CHILE
SUSTAINABLE OPERATIONS | 49
Sustainable Operations
FONTERRA SUSTAINABILITY REPORT 2017
Climate and energy
The majority of Fonterra’s operational greenhouse gas (GHG)
emissions are a result of our energy use. Most of this is from the
combustion of fuels to create heat used to pasteurise products
for food safety and to dry them for long life and efficiency of
transportation around the world. As the world’s largest processor
of dairy products any improvements in our performance have a
significant impact.
Our emissions and energy efficiency track record
Fonterra has a long-standing strategy focused on improving energy
efficiency across our sites. Our largest programme focuses on our
New Zealand sites. Since the programme was launched in 2003
we have achieved 17.6 per cent reduction in energy intensity. Today,
this is equivalent to saving enough energy each year to meet the
electricity usage of more than 200,000 New Zealand households.
Over the past year, energy use per tonne of production across our
global operations has increased by 1.8 per cent to 7.55 GJ/tonne.
With milk volumes down over the season, running our manufacturing
factories as efficiently as in previous years has proved challenging
and this has contributed to a flattening in our progress.
In the past year, the GHG emission intensity from our
manufacturing activities remains the same at 0.53 tonnes of carbon
dioxide equivalent per tonne of production. While there has been a
shift in fuel mix quantities, in particular a lower proportion of coal,
the improvements have been outweighed by the decreased
energy efficiency.
Transitioning to cleaner sources of energy
Finding viable alternatives to coal is the first priority in our
transition to cleaner sources of energy. Natural gas is preferred as a
more emissions-efficient source of energy. However, we recognise
that we ultimately need to transition all production to renewable
sources of energy to meet our net zero emission ambition.
In Australia, all of our sites have been transitioned away from
coal to natural gas. This transition was completed in 2013. Coal is
still used by a third of our sites in New Zealand, primarily in the
South Island where natural gas is not available.
We are seeking ways to transition away from this coal use but
there is a small short-term risk that we may need to install
additional coil boiler technology to meet our DIRA obligations
(see below). However, as demonstrated in the consent for our
proposed expansion at the Studholme site, if a new coal boiler is
required, we are committed to co-fire the coal with up to 20 per
cent wood biomass to minimise the amount of coal used.
Regardless of any increase in capacity, we will work towards
our target of achieving a 30 per cent emissions reduction target
by 2030.
Energy and
Emissions
The Dairy Industry Restructuring Act (2001) (DIRA) in New Zealand places legal obligations on Fonterra, including a requirement to collect all
milk under certain conditions. This 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. While we do not intend to install any new coal boilers from now, this means increased demand
in certain locations may require this in the short term where there are no alternatives available. From 2030 we are confident that any new
capacity will use more emissions-efficient energy sources than coal.
IMPLICATIONS OF MARKET REGULATION – DIRA
50 | SUSTAINABLE OPERATIONS
FONTERRA SUSTAINABILITY REPORT 2017
Our existing efficiency-based targets committed
us to reductions in emissions for each unit of
production. This year we have set new targets.
For our global manufacturing and milk collection
operations our target is an absolute emissions
reduction of 30 per cent by 2030 against a FY15
baseline, and net zero by 2050.
Our emissions
reduction targets
Manufacturing
emissions by 2050.
NNNNNNEEEEETTTTTT
Reduction in manufacturing
emissions by 2030.
Reduction in energy
intensity by 2020.
SUSTAINABLE OPERATIONS | 51
Sustainable Operations
FONTERRA SUSTAINABILITY REPORT 2017
Fonterra’s investment in coal
Fonterra has direct investment in coalmining operations through
Glencoal Energy Limited, which is a wholly-owned subsidiary.
With our raised ambition in climate change, we have committed
to divesting any coal mining interest by 2025.
Glencoal has mining operations in the Waikato region of
New Zealand, which historically has provided coal for local
Fonterra manufacturing sites. Glencoal’s last mine, Kopako 3,
finished producing coal for our sites last season, and is now
in the process of rehabilitating the mine site.
A new site at Mangatangi, close to the existing mine, was granted
resource consent in 2013 following a process of public notification
and hearings which involved members of the community and
representatives of local iwi representing local Māori interests.
Most of this site has been owned by Fonterra for many years and
is currently used for dairy farming.
Both sites have biodiversity management plans in place, to protect
the local environment during operations and to rehabilitate them
when operations are complete. After the mining ceases most of
the land will be returned to pastoral farming.
Investment in alternative energy sources
In New Zealand, over 80 per cent of electricity is generated from
renewable sources. We are working with government and the
electricity industry to explore options for using this renewable
energy source to electrify our current processes, rather than relying
upon heat generated from fossil-fuel boilers. While the technology
looks promising, the existing transmission line infrastructure and
pricing protocols make this challenging.
Wood biomass offers another sustainable energy opportunity. In
New Zealand, there is a possibility of using wood waste which is a
by-product of New Zealand plantation forestry. We have committed
to the installation of dual-fuel boilers capable of being fuelled by
a mixture of coal and wood biomass at the proposed Studholme
expansion. In the past year, we have trialled co-firing wood biomass
in a coal boiler at our Brightwater plant in the South Island. This trial
successfully tested co-firing wood biomass with coal, with a 40 per
cent mix by mass, and a 25 per cent by energy, and plans to develop
this are being progressed.
A challenge with adopting biomass in New Zealand and Australia
is the security of supply and the availability of fuels in the required
volumes to displace coal use fully. In other countries biomass is a
well-established energy source, for example in our Los Lagos site,
which is operated by Prolesur in Chile. We also use biogas from
our wastewater treatment plant at the Tirau factory in Waikato,
New Zealand.
Energy and Emissions
CONTINUED
52 | SUSTAINABLE OPERATIONS
FONTERRA SUSTAINABILITY REPORT 2017
Performance targets
IndicatorTargetPerformanceCommentary
Reduction in manufacturing
emissions intensity (emissions
per tonne of production)
30% reduction by 2030
from 2010 baseline
(NZ and Australia)
7. 8%
reduction
cumulative to FY17
This represents 26% progress
over 35% of time period.
Reduction in absolute
manufacturing emissions
30% reduction in absolute
emissions by 2030
from FY15 baseline
(Global)
5.0%
reduction
cumulative to FY17
This represents 16% progress
over 13% of time period.
Reduction in manufacturing
energy intensity (energy per
tonne of production)
20% reduction by 2020
from FY03 baseline
(NZ)
17.6%
reduction
cumulative to FY17
This represents 88% progress
over 82% of time period.
For detailed information on the scope, methodology and assumptions used in reporting these
emissions, see Fonterra Sustainability Report 2017 – Environmental Data Reporting Notes.
GHG emissions by fuel type (000, tCO
2
-e)
Energy use by fuel type (PJ = 10
15
Joules)
2500
2000
1500
1000
500
0
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0
CoalNatural GasLiquid Fossil Fuels
Electricity
Purchased SteamBiofuels
Scope 2:
630
Scope 1:
1,440
Total: 2,179Total: 2,100Total: 2,070
FY16FY15FY17
267
412
187
389
924
4
255
401
181
392
872
29
241
389
175
405
860
28
Total: 30.06Total: 29.40Total: 29.40
FY16FY15FY17
2.67
4.80
5.00
7.40
10.13
0.05
2.61
4.57
5.00
7.44
9.58
0.20
2.53
4.40
5.15
7.69
9.45
0.19
Scope 2:
656
Scope 1:
1,445
Scope 2:
679
Scope 1:
1,500
SUSTAINABLE OPERATIONS | 53
Sustainable Operations
FONTERRA SUSTAINABILITY REPORT 2017
Efficient use of water
In most of our operating locations water is not a scarce resource.
Many of our manufacturing sites produce an excess of water, as
water is removed from the raw milk supplied. In all circumstances
our policy is to use water responsibly. Where constrained supply
exists, we prioritise investment to reduce water consumption by
working towards greater efficiency and self-sufficiency.
Over recent years, our water efficiency has remained largely static,
with performance improvements through investment in new
resource-efficient plants (see Lichfield – Case Study) countered by
inefficiencies which occur when milk volumes are lower. For example,
when not running at full capacity there is opportunity to change
products more frequently, introducing more cleaning operations.
We believe we can make further progress in this area. So, to focus
our efforts, our New Zealand operations sites have set a new 2020
target to reduce water use by 20 per cent per cubic metre of milk
processed, against a FY15 baseline.
Impacts on water quality
Through our manufacturing processes, our sites produce
wastewater. Depending on each site's location and manufacturing
systems employed, water is either discharged to local waterways,
discharged to sea, sent into municipal wastewater treatment
plants or recycled through irrigation on neighbouring farms.
The main potential environmental impact from our water
discharge is through nutrients included in discharge, which can
impact ecosystems. Other impacts may be from accidental spills
of materials, including milk or chemicals used in manufacturing
or cleaning processes.
All of our sites must comply with local resource consent
conditions, which place specific environmental requirements
on each site. The majority of our sites have on-site treatment
plants which treat wastewater prior to discharge. As part of water
treatment many of our sites capture nutrients in wastewater
which can be recycled as a fertiliser. This is the case in many
sites across New Zealand, where Fonterra owns and operates
neighbouring farms where nutrients are naturally recycled.
Above and beyond legal compliance, in 2015 we launched a
commitment for all manufacturing sites around the world to treat
wastewater to leading industry standards. To date, more than
25 per cent of our sites meet such standards. An investment
programme is in place to bring all sites to this level by 2026.
Water Use
and Discharge
Water withdrawn by source FY17
Volume (000 m
3
)Percentage
Surface water (including water from
wetlands, rivers, lakes and oceans)
26,68651%
Groundwater17,62134%
Municipal water supplies or other
public or private water utilities
8,14716%
Other (e.g. rainwater collection)00%
Total52,454100%
Water discharge FY17
Volume (000 m
3
)Quality (COD
1
mg/L)
Discharged to irrigation14,8151,440
Discharged to river25,08166
2
Discharged to ocean14,709 2,194
Discharged to municipal5,248
2,148
Discharged to other0
0
Grand Total59,853
1 Chemical Oxygen Demand – an indicator of water quality measuring chemicals in water
that can be oxidised.
2 A single site, Edgecumbe, results in this high result. Infrastructure is being upgraded in FY18
54 | SUSTAINABLE OPERATIONS
FONTERRA SUSTAINABILITY REPORT 2017
CASE STUDY
Lichfield: Investing in new technologies
As we build new capacity, we
use this opportunity to invest
in improving the resource
efficiency of our sites. Last year
we invested in the expansion
of our Lichfield site with a new
milk powder dryer, distribution
centre and wastewater
treatment plant
.
The new 30 tonne-an-
hour dryer is fuelled
by natural gas. It is
Fonterra’s most efficient
milk dryer to date.
The dryer is capable of
processing 4.4 million litres of
milk each day, making it the
largest milk powder dryer in
the world alongside the dryer
at Fonterra’s site at Darfield in
Canterbury, New Zealand.
As the milk is heated and dried,
water is evaporated from it.
Rather than allow this to escape
as steam, the site collects and
condenses it back into water
which is then filtered and reused
in other processes. This means
the site needs less water in, and
produces less wastewater out.
Because of this, the site produces
more water than it takes in.
The site expansion also included
investment in a new biological
wastewater treatment plant. This
uses natural processes to reduce
the nutrient levels in wastewater.
This brings the site up to the
leading industry standards we
have committed to bringing all
sites inline with by 2026.
Wastewater is irrigated
to neighbouring ‘nutrient
management’ farms, which are
owned and managed by Fonterra.
The wastewater plant can store
100 million litres of water if for
some reason irrigation is not
feasible.
Investment was also made in
logistics efficiency, to cope
with additional manufacturing
volumes. The new distribution
centre has the capacity to
store 40,000 metric tonnes
of whole milk powder which is
then loaded into containers and
shipped directly to port via an
in-built rail siding. This removes
up to 40 truck movements
from the site every day, which
eliminates traffic from local roads
and reduces transport emissions.
Robert Spurway,
Chief Operating Officer
Global Operations
at the Lichfield site.
Performance targets
IndicatorTargetPerformanceCommentary
Improvement in water efficiency
(water used per cubic metre of
milk processed)
20% reduction by 2020 from FY15
baseline for NZ
5.1%
increase
cumulative to FY17
New target to focus on declining
water efficiency.
Site treating wastewater to
leading industry standards
100% of sites by 2026
(global target)
25%
Long-term target, but on track to
achieve as investments are made
in site development.
For detailed information on the scope, methodology and assumptions used in reporting
see Fonterra Sustainability Report 2017 – Environmental Data Reporting Notes.
SUSTAINABLE OPERATIONS | 55
Sustainable Operations
FONTERRA SUSTAINABILITY REPORT 2017
Waste minimisation
Raw milk from our supplying farmers is our largest input material.
To maximise the nutritional value we deliver to our customers
and consumers, we focus on minimising food loss across our
supply chain. This also helps us deliver the maximum return to our
supplying farmers and minimise our impact on the environment.
In our manufacturing operations our food safety and quality
standards aim to deliver products right-first-time and our
processing steps seek to capture by-products that were
previously considered waste, such as whey, and make them
into new valuable products.
The majority of our solid waste is a by-product of manufacturing
practices; for example, packaging, damaged product and personal
protective equipment that cannot be reused or recycled.
Solid waste to landfill
Minimising our solid waste to landfill is part of our long-standing
environmental efficiency programme across our New Zealand
manufacturing sites. We achieved our previous target of 90 per
cent of solid waste diverted from landfill several years ago.
This was an important achievement, but we can do more; so,
therefore we have set a new target for a 20 per cent reduction in
solid waste to landfill by 2020 from a FY15 baseline.
This target applies to our New Zealand sites only at this stage,
but the aspiration behind it extends to all of our operating
markets. Our waste performance data is incomplete for many
operating markets over past years. We collected and reported
our global combined waste to landfill for the first time in FY17.
We intend to use this information to set a robust baseline in
order to build a global reduction target.
Solid
Waste
Solid waste to landfill
FY15 New Zealand
Waste to Landfill
FY17 New Zealand
Waste to Landfill
FY17 Global
Waste to Landfill
4,969 tonnes4,598 tonnes14,382 tonnes
20%
Reduction in solid waste to
landfill in New Zealand by 2020
from FY15 baseline.
REDUCTION TARGET
BY 2020
Performance targets
IndicatorTargetPerformanceCommentary
Solid waste sent to landfill20% reduction by 2020
from FY15 baseline (NZ)
7. 5%
reduction
cumulative to FY17
This represents 37% progress
in 40% of time span.
56 | SUSTAINABLE OPERATIONS
FONTERRA SUSTAINABILITY REPORT 2017
Environmental non-compliance
In the past year we had two incidents of non-compliance with
environmental regulations which resulted in fines or non-monetary
sanctions, both in New Zealand. We were fined $750 for an
incident at a Kapuni nutrient management farm of dairy farm solids
run-off to surface water. We received another fine of $750 and a
non-compliance notice for a milk tanker spill in Rahotu, coastal
Taranaki, which resulted in a discharge of milk to surface water.
Over the past three years our most significant fine was in 2015
for $192,000 related to the discharge of buttermilk in a South
Taranaki treatment pond. In 2015 we were also fined $174,150 for
discharging wastewater from our Edgecumbe plant into Bay of
Plenty waterways. The Bay of Plenty Regional Council prosecuted
Fonterra over four failures of our whey irrigation system and two
overflows of wastewater in September 2014 and April 2015.
Our joint venture in Brazil, DPAB, leases a manufacturing site
in Garanhuns where we have identified some environmental
issues. DPAB has already started to address these through actions
plans. In addition, DPAB has introduced more controls to prevent
environmental issues, and has plans in the near future for more
investments to further improve the controls.
In addition to the listed non-compliances above, there were some
minor non-compliances which have not resulted in any monetary
or non-monetary sanctions.
Significant spills
In the past year a number of our sites reported spills or incidents
which resulted in us not meeting our environmental consent
conditions. Unseasonably high rainfall at Cobden in Australia
resulted in the overflow of the site's wastewater storage lagoons.
The incident resulted in a controlled discharge of 84 million litres
of wastewater into the Curdies River. Cobden treats wastewater
to a high level and field monitoring confirmed the wastewater
release had no lasting impact on the environment.
Four spills were also recorded from milk tanker incidents in
New Zealand. As reported in our environmental non-compliance
section opposite, a spill of milk from a tanker in Rahotu, coastal
Taranaki, resulted in approximately 2,000 litres of milk spilled
to ground. Temporary containment was used to reduce risks to
waterways. Tanker accidents near Waitoa and Murchison also
caused spills of milk, and an opened valve resulted in discharge
of milk from a tanker collecting for our Kauri site.
In addition we also had an incident at our Edendale site in the
past year, with a spill of approximately 5,000 litres each of nitric
acid and caustic alkali – chemicals used in cleaning processes.
Both chemicals were contained within safety catchment areas and
there was no release to the environment or harm to our people.
Site
Compliance
SUSTAINABLE OPERATIONS | 57
Sustainable Operations
FONTERRA SUSTAINABILITY REPORT 2017
Logistics efficiency
Greenhouse gas (GHG) emissions are generated from the
transportation of raw milk from our farms to factory and from
the distribution of our finished products to our customers and
consumers. Although these emissions account for only about one
per cent of our total GHG emissions, it is still an important area
where we continue to deliver efficiency gains, not only reducing
our carbon footprint, but also saving costs.
Efficiency in this area needs to include care for the product as well.
By protecting our finished goods from damage we minimise waste.
The design of our packaging, the way we stack products on pallets
and the way we pack containers all help achieve this.
Milk collection
Optimising milk collection from farms would appear a simple
activity. However, it quickly becomes a difficult problem to
solve when you are trying to minimise the time and fuel used to
complete this task every day, 365 days per year.
In New Zealand, all milk is collected from farms by milk tankers.
The design of these tankers has evolved over time to increase
the volume that can be carried legally, while also seeking ways
to improve the safety of the vehicles for sometimes challenging
road conditions. Tankers and drivers do more than just collect milk
– they are also an important step in our integrated food safety
and quality systems. Representative samples are taken from each
supplying farm at collection, allowing the quality of milk to be
assured; any issues can be traced back to individual farms.
Our fleet of tankers is regularly upgraded to use the latest
technology and innovations. For example, all of our tankers are
already at Euro V level, with semi-automatic gearboxes. The newer
engines and regular maintenance, combined with driver training
that is guided by in-cab sensors to improve driving efficiency and
safety, have resulted in improved fuel efficiency.
A sophisticated computer system also helps us plan and manage
the tanker journeys each shift so that we can collect all the milk
from our farmers in the required time window, and deliver the
right amounts of milk to our different factories at the correct
rate. The system does this while ensuring legal compliance and
minimising the total time and distance required to complete the
work, saving emissions, money and reducing traffic on the roads.
Logistics
58 | SUSTAINABLE OPERATIONS
FONTERRA SUSTAINABILITY REPORT 2017
Export from New Zealand
As the majority of our products are exported from New Zealand,
the efficiency of transportation from factory to port and shipping
to destinations is important. By manufacturing milk powders, we
create a very efficient product for export, removing excess weight
and bulk, and creating a long-lasting product which does not
require refrigeration.
Although our products have to travel a long distance to many of
our customers and consumers, the efficiency of our distribution
network, together with the pasture-based efficiency of our
New Zealand production, means that our products are still
competitive on a GHG emissions efficiency basis.
In FY17 we continued to shift product movements from road
to rail. With rail infrastructure built into many of our manufacturing
sites and distribution centres, and maximising the use of these
locations we can increase rail usage. Coda, our land transport
logistics partner, also opened a new intermodal freight hub at
Savill Drive in Auckland, one of the largest in New Zealand.
By collaborating across import, export and domestic freight supply
chains, Coda’s intermodal freight strategy allows the consolidation
of freight to reduce wasted space from the North Island’s freight
network. By filling trucks and trains, for both the outward and
return journeys, Coda’s innovative approach saves fuel, reduces
carbon emissions and decreases truck trips on congested roads.
Compared to FY16, this year we increased our proportional use of
rail compared to road, on a tonne-kilometre basis, by 10 per cent.
This has resulted in a 15 per cent reduction in corresponding carbon
emissions, despite a slight increase in the movements of goods.
Innovative fully intermodal 25-foot curtain-sided containers have
been created to support this strategy. These containers can be
used on road and rail, and are specifically designed with extra
internal height to allow the double stacking of dairy products
while having external dimensions minimised to fit through the rail
tunnels near some of Fonterra's sites in the lower North Island.
Logistics emissions
GHG Emissions SourceFY16 (tCO
2
-e)FY17 (tCO
2
-e)
Scope 1NZ Milk Tanker
Collection
1
133,093
133,371
Scope 3NZ Road and
Rail Transport
Ocean Shipping
Air Travel
23,590
141,733
9,049
20,070
138,622
9,606
Total174,372168,298
1 GHG emissions from milk collection are included in the total for manufacturing on page 53.
For detailed information on the scope, methodology and assumptions
used in reporting these emissions, see Fonterra Sustainability Report 2017
– Environmental Data Reporting Notes.
Thermally insulated, curtain sides support efficient loading
for fast-moving consumer goods in the domestic market.
Special features such as rivet-free internal surfaces help protect
products from damage and reusable dunnage bags secure the
cargo while minimising waste.
Kotahi is our ocean freight partner. Through their
collaboration with exporters Maersk Line and Port of Tauranga,
a new generation of larger, more-efficient ships now visit
New Zealand on a regular basis. These container ships, capable
of carrying 9,500 20-foot equivalent units/(TEU) containers,
are more fuel-efficient on a per-container basis and will
reduce the carbon footprint of the ocean freight component
of exports on these services by a minimum of 22 per cent
per container unit compared to the existing New Zealand
industry average. These larger vessels enable all New Zealand
exporters to better compete with export nations which already
have this generation of vessels on their main trade routes.
SUSTAINABLE OPERATIONS | 59
Sustainable Operations
FONTERRA SUSTAINABILITY REPORT 2017
Sustainable
Consumption
See page
63
See page
63
Fonterra is a global company, exporting
products to more than 100 countries. As the
world’s largest exporter of dairy products,
we have significant influence over the impact
of dairy products around the world.
Beyond sustainable farming and manufacturing, we want our
products to have a positive impact on the people who consume
them and the places where they are consumed. The primary
impact of our products is on the health and wellbeing of our
consumers. Our role is to harness dairy’s natural goodness,
leveraging our technical expertise to deliver safe and nutritious
products that are part of sustainable diets.
In addition to the composition of our products, we also carefully
consider our role in promoting healthy lifestyles and sustainable
consumption choices. This includes the packaging of our products
and the supporting information we provide.
1.78 million tonnes
of consumer and
foodservice products.
3.02 million tonnes
of global ingredients
products.
60 | SUSTAINABLE CONSUMPTION
FONTERRA SUSTAINABILITY REPORT 2017
ENTRY
Independent
endorsement
Independent
endorsement of
nutrition guidelines
by the New Zealand
Nutrition Foundation.
See page
62
See page
72
Launch of Anlene
Heart-Plus™.
See page
65
Fonterra Milk for
Schools delivered
a 17% increase
in the number of
New Zealand children
meeting nutrition
guidelines.
See page
68
Anmumm
Anmum™ QR Codes
launched in New Zealand.
SUSTAINABLE CONSUMPTION | 61
Sustainable Consumption
FONTERRA SUSTAINABILITY REPORT 2017
SUSTAINABLE CONSUMPTION | 61
Sustainable Consumption
Fonterra’s food and nutrition guidelines
The Fonterra Group Nutrition Policy sets out our high-level
nutritional commitments to deliver highly nutritious dairy
products to the world. In the past year, we launched the detailed
Fonterra Food and Nutrition Guidelines. The guidelines set
the nutrition criteria for our product composition and inform
our marketing practices across all branded consumer products
and ingredients that Fonterra manufactures. The guidelines
complement food standards and regulations, as well as our own
education and advocacy activities to raise awareness of the value
of dairy nutrition in healthy, balanced diets.
Adding further credibility to these guidelines, the New Zealand
Nutrition Foundation has independently reviewed and endorsed
them as evidence-based guidelines founded in robust nutritional
science and reflecting international directives on nutrition and
health. In creating the guidelines, we have also established new
targets for responsible product development to support balanced
diets as part of a healthy lifestyle. See page
66
Nutrition
Consumer
Fonterra manufactures, markets and distributes our own
consumer products. These products include branded dairy
products sold direct to consumers, such as milk, milk powders,
yoghurt, butter and cheese. Our three global brands are Anchor™,
Anlene™ and Anmum™.
Foodservice
Fonterra supplies foodservice products to customers in over
50 countries. Foodservice is one of the largest industries in the
world and encompasses food and beverages that are consumed
out of the home such as in restaurants, cafés and bakeries.
Global Ingredients
Fonterra supplies dairy ingredients to many of the world’s leading
food companies. These include bulk products such as whole milk
powder, bulk butter, and cheese.
We also produce advanced ingredients, which have superior
product performance supported by Fonterra’s own research
and process innovation. Advanced ingredients products include
functional proteins, medical-grade lactose, high-spec whole milk
powder and extra-stretch cheese.
Over 50 countries
Fonterra supplies
foodservice products
to customers in over
50 countries.
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Products consumed in
more than 100 countries
GREATER CHINA
$1.28B
REVENUE
237,000
METRIC TONNES
VOLUME
OCEANIA
$1.95B
REVENUE
636,000
METRIC TONNES
VOLUME
ASIA
$1.81B
REVENUE
310,000
METRIC TONNES
VOLUME
LATIN AMERICA
$1.48B
REVENUE
600,000
METRIC TONNES
VOLUME
GLOBAL
INGREDIENTS*
$15.28 BILLION
REVENUE
3,019,000
METRIC TONNES
VOLUME
* Excludes China Farms revenue of
$0.3 billion and 26,000 metric tonnes
*Revenues and volumes reported above
include internal sales of $2.84 billion
and 684,000 metric tonnes.
CONSUMER &
FOODSERVICE*
$6.52 BILLION
REVENUE
1,783,000
METRIC TONNES
VOLUME
SUSTAINABLE CONSUMPTION | 63
Sustainable Consumption
FONTERRA SUSTAINABILITY REPORT 2017
1
Advanced nutrition:
• Daily dairy nutrition with targeted
nutritional fortification based on
sound science
• Promoting specific health benefits
based on robust evidence
2
Everyday nutrition:
• Daily serves of dairy nutrition
• Promoted in the context of
healthy, balanced diets
3
Affordable nutrition:
• Formulation and fortification
based on sound science to
address nutritional needs
• Maintaining most of the protein
content of pure dairy products
• Promoted with honest and
clear product claims
4
Occasional and
indulgent dairy products:
• Promoted as occasional products
to be enjoyed in moderation as
part of healthy, balanced diets
• Minimising use of unnecessary
additives and preservatives
Our Consumer
Product Strategy
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1
Advanced
nutrition:
Anlene Heart-Plus™
in Malaysia
This year we have launched
Anlene Heart-Plus in Malaysia
– a new formulation to help
combat nutrition-related
health issues such
as high cholesterol and
diabetes. Anlene Heart-Plus
was awarded the Healthier
Choice logo by the Malaysian
Ministry of Health, a trust
mark highlighting the
healthiest choices in product
categories.
2
Everyday
nutrition:
Reformulation of Anchor Uno
yoghurt in New Zealand
We reformulated our range
of Anchor Uno children’s
yoghurts in FY16, with a focus
on reducing sugar content.
Across the four flavours,
all products experienced
a minimum 40 per cent
reduction in sugar compared
to the original product. This is
equivalent to one-and-a-half
teaspoons less sugar per 100
grams. This made Anchor Uno
the lowest-sugar children’s
yoghurt brand in New Zealand.
3
Affordable
nutrition:
Anchor Fortified milk Drink
in Ethiopia
Ethiopia is the second most
populous country in Africa
with close to 100 million
people. Despite its status as
the fastest-growing economy
in the world, more than 40
per cent of Ethiopia’s population
are malnourished and lack
access to affordable nutrition.
Anchor Fortified Milk Drink
is a milk powder blended
with other ingredients and
specifically formulated to
provide families with access
to affordable dairy-based
nutrition. In FY16, Fonterra
worked with the Food and
Nutrition Society of Ethiopia
to ensure it provides children
with the essential nutrients
they may be missing from their
daily diet.
4
Occasional and
indulgent dairy products:
Tip Top is an iconic
New Zealand ice-cream
and ice block brand
Research showed that
New Zealanders valued the
use of natural ingredients over
artificial ones. In response
Tip Top replaced all artificial
colours and flavours with
natural alternatives, while
retaining the same quality
and taste.
The rollout started in 2013
and since the end of 2014, all
Tip Top branded ice cream and
ice blocks use only natural
colours and flavours, and
include an ‘only natural colours
and flavours’ logo on packs.
Tip Top has also removed
palm oil from all of its ice
creams and ice blocks. This
was achieved by working with
suppliers to identify alternative
ingredients and innovative
processes to deliver the same
consistent product quality
demanded by customers.
SUSTAINABLE CONSUMPTION | 65
Sustainable Consumption
FONTERRA SUSTAINABILITY REPORT 2017
1 Trans fats, or Trans Fatty Acids (TCA), are a form of unsaturated fatty acids.
Industrial trans fatty acids are produced by processing vegetable oils.
Nutrition
CONTINUED
Improving the nutritional profile of our products
We are focused on continuing to improve the nutritional benefits
of our products and minimising non-dairy ingredients such as
added sugars and refined carbohydrates. Our dairy nutrition
criteria define minimums for dairy protein, calcium, riboflavin,
niacin, vitamin B12, phosphorus and potassium content.
Our guideline for added sugars and refined carbohydrates
is intended to help consumers achieve the World Health
Organization’s (WHO)recommended guidelines for limiting
daily added sugar intake.
For our everyday and advanced nutrition products, we have set
a target for all of our portfolio to meet these criteria by 2025,
with an interim target of 75 per cent by 2020.
Reducing the addition of non-dairy ingredients
• Limit added sugars and refined carbohydrates to less than
two per cent of total daily energy requirements per serve.
Added sugars and refined carbohydrates contribute calories but
offer little nutritional benefit to a food.
• Minimise added sweeteners (natural or artificial), aiming for
no more than required for product technical performance and/
or palatability when reducing added sugars content. With a
focus on reducing added sugars, it is important that sweetness
is managed responsibly in products that are positioned for
nutrition and health.
• Limit sodium in products positioned for nutrition and health
to less than 0.7grams per 100g. Reducing salt (sodium) intake
is linked with improved blood pressure, which may help reduce
the risk of cardiovascular disease. This target is in line with the
WHO’s recommendation on daily sodium consumption for
adults of a maximum of 2g sodium per day.
• Limit total fat content and composition to the upper range
naturally present in dairy. Minimise the use of added non-dairy
fats but, when necessary, the total fat content should not
exceed the natural total fat level in milk and avoid the addition
of industrial of trans fats.
1
Investment in innovation
The Fonterra Research and Development Centre (FRDC) is one
of the largest of its kind in the world, with around 250 scientific
and technical staff. Founded in 1927 as the New Zealand Dairy
Research Institute, the centre has driven many innovations in
the global dairy industry, including developing the world’s first
spreadable butter.
The centre represents a significant investment in innovation,
driving scientifically supported benefits from dairy to meet
nutritional needs. An example of this innovation is our high-quality
milk protein concentrates, which are used in formulations both in
New Zealand and overseas to help people recovering from surgery
and serious accidents. We have also demonstrated the benefits
of our milk protein ingredients for supporting muscle health – a
benefit that can be leveraged in applications for ageing, sports and
medical nutrition.
Right now we are conducting extensive research to investigate the
brain development benefits of our complex milk lipid ingredients.
The research programme has won several innovation awards in
the past year.
We also continue to improve our evidence behind two proprietary
probiotics strains. We have demonstrated the benefits for one
strain in protecting against colds and infections in young children,
while the other shows promise for helping to reduce the risk of
eczema, gestational diabetes and post-natal depression.
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Responsible marketing of breast-milk substitutes
We support the World Health Organization (WHO)
recommendation that breastfeeding should be exclusive for
the first six months of an infant’s life, and that infants receive
safe and appropriate complementary foods with continued
breastfeeding up to two years of age and beyond. However, we
also believe that if mothers are unable to breastfeed, for medical
or other reasons, then they should have access to a safe and
nutritious alternative.
The WHO recognises that infant formula has a legitimate role to
play in such circumstances. It is the only recognised alternative
which can allow mothers to provide vital nutrition that supports
the rapid mental and physical development that occurs during
their children’s early years.
The WHO Code for the Marketing of Breast Milk Substitutes
(WHO Code) aims to contribute to the provision of safe and
adequate nutrition for infants by protecting and promoting
breastfeeding, ensuring the proper use of breast-milk substitutes
if necessary. Fonterra supports the aim and intent of the WHO
Code and also complies with any relevant country industry
codes and legislation in all countries where our products
targeting infants and young children are sold.
Compliance with regulation
In the past year Fonterra incurred a small number of product
or nutrition-related fines or sanctions. A fine of RMB 100,000
($19,800) was imposed by Chinese authorities in relation to
marketing materials on our Anmum™ website. We did not
consider this to be a serious breach, but rather a technical error
which has now been corrected. Fonterra has incurred minor
nutrition-related fines in Sri Lanka for technical breaches of
the food labelling regulations, in each case not exceeding LKR
10,000 (NZ$95). During FY17 we have also worked with the
New Zealand Ministry for Primary Industries to correct a
regulatory issue with our Anchor Uno yoghurt packaging.
Genetically Modified Organisms
We strongly support science and innovation. We are not anti-
genetic modification (GM) and see genuine value in maintaining
optionality in the use of technology, and the possibilities
offered by new and emerging life science technologies such as
gene editing. Such advances could offer significant benefits for
sustainable nutrition, animal welfare, human health, biosecurity
and the environment.
We also listen carefully to our customers and consumers and
recognise the value in New Zealand’s global reputation for its
GM status, as supported by the current New Zealand regulatory
framework. New Zealand is known for its pasture-based farming
practices and regulatory control of Genetically Modified
Organisms (GMOs). To date, no genetically modified plants or
animals (including cows) have been released in New Zealand,
and the use of recombinant growth hormones on dairy cows is
prohibited in New Zealand. Our products do not contain GMOs
and we have not released or commercialised any GMOs.
During FY17 we have achieved Non-GMO Project Standard
verification for a range for New Zealand-sourced dairy ingredients,
sold by Fonterra’s global dairy ingredients brand, NZMP. These
ingredients are available to North American food and beverage
manufacturers to address consumer demand for information
about there their food comes from, and food without the use of
genetically modified ingredients.
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Supporting healthy children in New Zealand
In the past year Fonterra committed our support for the newly
launched Healthy Kids Industry Pledge. This is an industry-wide
initiative, co-ordinated by the New Zealand Ministry of Health, to
identify and contribute solutions that will reduce rates of obesity
among children in New Zealand:
www.fonterra.com/healthykidsindustrypledge
We are rolling out the Health Star Rating on our everyday
products in New Zealand. We will be adding the rating to products
whenever possible as we refresh our packaging, to provide useful
information to support healthy choices. At the end of FY17 the
rating was on almost half of our applicable products. By the end of
the 2018 calendar year information on the Health Star Rating will
be on our websites for all New Zealand everyday products.
Fonterra Milk for Schools
Fonterra Milk for Schools is a significant investment to help
New Zealand children reach their potential. Working in
partnership with schools, the programme offers a daily 200 ml
serving of lite (reduced fat) milk to every primary-aged (5 to
11-year-old) child in the country. More than 140,000 children
enjoy a drink of milk each day. This initiative is funded by
Fonterra’s farmers and is open to all New Zealand schools
with primary-aged students.
The programme was introduced in the context of declining
milk consumption among New Zealand children, with fewer
consuming the daily serves of dairy recommended by national
dietary guidelines. To evaluate the impact of the programme, we
worked with the University of Auckland, which conducted a study
of schools participating in the programme. The study, commenced
in 2014, showed that 72 per cent of children were consuming the
recommended minimum of two daily serves of dairy at the start
of the scheme. Two years later the results showed a significant
impact, with a 17 per cent change in students meeting the dairy
consumption nutrition guidelines, up to 84 per cent of students.
Massey University has also studied the impact of the
programme on children’s bone health. The study, published
in 2017, compared children at schools participating in the
programme with children at schools that have opted to not
participate. The study found that participating children grew
(height and weight) at the same rate as the control group, but that
they had significantly improved bone health. This demonstrated
the value of the programme and the importance of milk and dairy
for growth and development.
Nutrition
CONTINUED
17%
A 17% increase in students
meeting the dairy consumption
nutrition guidelines, up to 84%
of students.
IMPROVING DIET
Image: FMFS Programme
Suggested by DW
“Children embrace it,
they love it. It helps
us, as educators,
deliver a better quality
understanding of what
nutrition and health is,
and what it looks like”
– Sonya Hockley,
Principal at Auckland
Point School, Nelson,
New Zealand.
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“It’s unbelievable the difference it makes in the
behaviour and concentration of the students.
By morning tea they lose focus if they have
not had a good breakfast.”
– Ohura Valley Primary
CASE STUDY
KickStart Breakfast programme
The KickStart Breakfast
programme is a partnership
between Fonterra, Sanitarium
and the New Zealand
Government. KickStart is a
national initiative providing
nutritious breakfasts of Weet-
Bix and Anchor Milk to school
breakfast clubs supporting
those students who need
it most.
The programme was founded
in 2009 by Fonterra and
Sanitarium. Research had
shown that 20 per cent of
New Zealand children did not
regularly eat or drink at home
before leaving for school, and
that 55,000 children were
frequently missing breakfast
at home each week. The
New Zealand Government
joined as a supporter in 2013,
enabling the programme to
be extended from two days to
five and it was opened up to
all school deciles nationwide.
Around 125,000
breakfasts are now served
each school week in over
900 school KickStart
Breakfast clubs.
The programme is supported
by school communities, who
provide bowls, spoons, a
central location, food storage
facilities and volunteers to
run the breakfast club.
As well as providing a healthy
breakfast, the clubs also
foster a safe and nurturing
environment for children to
get the best possible start to
their school day.
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Food Safety
and Quality
Working together to look after our customers
and consumers
At Fonterra, food safety and quality is everyone’s responsibility,
from our farms all the way to our customers and consumers
around the world. Our Food Safety and Quality System ensures
that, wherever we are located in the world, we have a clear,
consistent framework to deliver safe, quality products and services.
Our Food Safety and Quality System is made up of four
key components:
1. Our Food Safety Policy
2. Our Business Unit Requirements
3. Our Partner Requirements
4. Our Food Safety and Quality Behaviours
Established in 2014, the Group Food Safety, Quality and
Regulatory (FSQR) organisation and operating model, including
the Food Safety and Quality Council, is now embedded across
Fonterra. In 2013 Fonterra initiated a precautionary global
recall of three batches of product due to a potential food safety
risk. Subsequently it was confirmed that consumers were
never in danger. Following this recall, independent evaluations
recommended a number of improvements to our systems and
processes, which we have put in place. These improvements have
been supported by a renewed focus on our food safety and quality
culture, which is at the heart of our purpose to be the world’s
most trusted source of dairy nutrition.
Thinking and living food safety and quality
To ensure we deliver on our promise, we have been focusing
on strengthening our food safety and quality behaviours
and decisions.
Independent research in FY17 showed the success of these
efforts, with our culture moving up two levels on a four-level
maturity model. Importantly, it also demonstrated that Fonterra’s
employees better understand their individual responsibilities as
part of a food company, and are empowered, encouraged and
enabled to make interventions to protect food safety and quality.
New and innovative thinking around food safety and quality has
included turning procedural training activities into an interactive
board game, customised to build engagement with its audience.
The game has positively impacted food safety behaviours, and it
won the New Zealand Association of Training and Documentation
Learning Innovation of the Year 2016.
Achieving benchmark standards
Our Food Safety and Quality System is subject to regular scrutiny
from third-party audits by regulators, key account customers and
certification bodies. We are working towards a target of having all
our global manufacturing facilities independently certified to the
benchmark quality standards
1
by 2019. At the end of FY17, 81 per
cent of all global sites had achieved this level. In addition, our own
farming operations in China also achieved this benchmark this
year, demonstrating the robust Food Safety Management Systems
in place.
1 A standard recognised by the Global Food Safety Initiative, currently FSSC 22000,
BRC or SQF
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Our target is for all our
global manufacturing
facilities to be
independently certified
to the benchmark quality
standards by 2019. At the
end of FY17, 81% of all
global sites had achieved
this level.
Achieving
benchmark
standards
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Helping to set global standards
Global food standards help facilitate global dairy trade, reducing
the risk of trade disputes and safeguarding the integrity of
dairy products for the benefit of all stakeholders. Through our
active participation in organisations such as the International
Dairy Federation (IDF) and International Organization for
Standardization (ISO), we continue to contribute to the
international harmonisation of standards and guidelines and help
develop international test methods for milk and milk products.
In recognition of our thought leadership and positive
contributions in the area of food safety culture, we were selected
by the Global Food Safety Initiative Board as one of 25 companies
to form the Food Safety Culture Technical Working Group,
charged with developing audit tools for food safety culture.
Product traceability
We continue to deliver on our food traceability strategy,
improving our capability to track all batches of product and the
ingredients that went into them – from raw milk right through
to the consumer. Our new external traceability service enables
consumers to check that the product they are purchasing
is authentic. This initiative was launched in FY17 across our
Anmum™ paediatric and maternal products in New Zealand.
Each Anmum can has a unique QR code. Consumers can use their
mobile phone to scan this QR code which immediately connects
the consumer to information that verifies the authenticity of the
product and provides additional details about it. Consumers can
also scan the can at any stage after they have bought it and get
up-to-date status information about their product. The QR codes
are part of a programme that will allow fully electronic traceability
of all Fonterra products, from the raw milk source right through to
retailers who sell the product to consumers.
Customer complaints handling
Over the past three years we have seen a significant increase in the
level of customer satisfaction for the way complaints are handled.
Getting it right first time remains our focus but, when something
is not quite right, we know our customers value a timely and
professional resolution. To assess our performance, we use an annual
satisfaction survey with our business-to-business customers.
In FY17 our customers’ perceptions of our technical knowledge
and support improved from 8.2 to 8.4 on a 10-point scale.
Our customer service team’s overall performance remains
at a ‘best in class’ level, also up from 8.2 to 8.4.
During the year, there were no consumer recalls of product for safety
reasons. There was a voluntary withdrawal of product following
a reported taste issue impacting fresh milk. This posed no risk to
product safety, and was attributed to a feed-related issue on a small
group of farms, near our Palmerston North factory in New Zealand.
Food Safety and Quality
CONTINUED
Performance targets
IndicatorTargetPerformanceCommentary
Number of manufacturing sites certified
by an independent third party to leading
food safety management system
(e.g. FSSC22000)
100% by 2019
81%
On track to achieve
Total electronic traceability from
finished product back to milk supply
All Fonterra products by end 2020
62%
On track to achieve
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PACKING
STORAGE
SHIPPING
GRASS
COLLECTION
GLASS
SALES
Delivering what matters most to our
customers and consumers.
Demonstrated through every aspect of
our grass-to-glass supply chain. Keeping
our promises and showing we stand for:
Trust in source
WORLD
CLASS
QUALITY
UNCOMPROMISING
FOOD
SAFETY
SUSTAINABLE CONSUMPTION | 73
Sustainable Strategy
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Sustainable Consumption
FONTERRA SUSTAINABILITY REPORT 2017
Our packaging
Packaging is a vital element of delivering safe and quality
nutrition to our customers and consumers. The primary job of
our packaging is to protect the nutritional value of the natural
and perishable product contained within. It must also be practical
and appealing for the customer or consumer and provide key
information to them.
When we are developing new packaging design, a priority for us
is resource efficiency. We seek to reduce the amount of materials
used to an optimal level. This is a delicate balance. Decreasing the
raw materials used has the potential to increase the efficiency of
shipping our products around the world and usually saves costs.
However, we need to also make sure that packaging is robust
enough to avoid any damage to our products which would result
in wasting food.
The sustainability of our source materials is another consideration.
We seek to use renewably sourced input materials such as fibre
from sustainable forests. As a result of food safety impacts,
we have found there are limited opportunities to use recycled
materials in our product packaging but it is an area we continue to
consider carefully.
We also consider the full life cycle of our packaging, to promote
packaging that can be recycled or reused after the product has
been consumed.
Fonterra Milk for Schools pack
Our Fonterra Milk for Schools milk uses a 200ml Tetra Pak
package, manufactured from sources certified by the Forestry
Stewardship Council.
The programme provides all schools with recycling bins, liners and
training material. Competitions like the fastest folder have helped
make this fun for the children and support learning on recycling
and the environment.
The schools recycle all used packaging, which we collect with each
new milk delivery. As the packaging is currently not recyclable in
New Zealand we ship it overseas where it is recycled into products
such as school books and roofing tiles.
The recycling programme has proved successful, achieving official
product stewardship accreditation from the New Zealand Ministry
for the Environment. We are currently working with partners to
explore options that will enable the recycling of these packages in
New Zealand.
Packaging
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CASE STUDY
25kg Milk Powder Bag
The 25kg bag of milk powder is the
cornerstone of our commodity
export business. It enables us
to overcome the challenges
of New Zealand’s geographic
isolation to export our products
efficiently to provide high-
quality, safe and nutritious dairy
ingredients used in consumer
products around the world.
By removing the water
content from milk by drying
it, we remove weight and
bulk. This also preserves
the nutritional content for a
long time without the need
for refrigeration, reducing
waste and making it very
efficient for export.
As a result, across our supply
chain less than one per cent of
our greenhouse gas emissions
are from the transportation of
our products. Combined with
the emissions efficiency of our
pasture-fed milk production,
this means we can deliver
finished products to overseas
consumers with lower carbon
footprints than locally sourced
alternatives. When they reach
their destination, our milk
powders are used by our
customers to create high-
quality products for
their consumers.
This can include blending or
rehydrating the ingredients for
finished goods, or repackaging
into consumer milk-powder
products where consumers
can rehydrate the products
themselves.
The 25kg milk powder bag is
the most used packaging in
our supply chain. To protect
the contents, the bags have
a plastic layer sandwiched
between multiple layers
of paper sourced from
sustainably-managed
New Zealand forests.
Originally wooden boxes were
used for this purpose. In 1986
the standard comprised four
layers of paper with total paper
weight 367 grams per square
metre. Since 2004 we have
been using two layers totalling
240g/m
2
.
At our customers’ facilities,
the paper outer is generally
removed for hygiene purposes
before transferring the plastic
inner with the product into
the food production area.
This allows both the paper
and the plastic to be recycled.
SUSTAINABLE CONSUMPTION | 75
Sustainable Consumption
FONTERRA SUSTAINABILITY REPORT 2017
Sustainable
Foundations
To be a sustainable co-operative our value chain
must be underpinned by responsible business
practices. This extends across our sphere of
influence over our suppliers, employees and our
customers, and to the impacts and investments
we make within our communities.
Responsible business practices also create a strong and stable
platform for long-term value creation. Our organisation is
supported by a diverse, inclusive and engaged workforce, through
strong relationships with our stakeholders, and via robust processes
for identifying and responding to our sustainability
risks and opportunities.
See page
35
Living Water
10-year partnership
with the New Zealand
Department
of Conservation.
76 | SUSTAINABLE FOUNDATIONS
FONTERRA SUSTAINABILITY REPORT 2017
TRIFR
1
health
and safety rate,
improved 19% on
the previous year.
See page
86
See page
78
Ratio of female/male
base salaries
across five largest
operating locations.
Highest staff
engagement
since 2010.
The ratio of female/
male base salaries in
New Zealand is 0.96.
This is our largest
employment market.
Distributed to
432 community
programmes through the
Fonterra Grass Roots Fund.
See page
92
See page
86
See page
81
M
Serves of in-school milk
to New Zealand children
through the Fonterra Milk
for Schools and KickStart
Breakfast programmes.
See page
92
1 Total Recordable Injury Frequency Rate (TRIFR) per million hours worked
SUSTAINABLE FOUNDATIONS | 77
Sustainable Strategy
FONTERRA SUSTAINABILITY REPORT 2017
Sustainable Foundations
FONTERRA SUSTAINABILITY REPORT 2017
How we manage our global workforce
We have a significant responsibility for and influence on the
wellbeing of more than 22,000 people we employ around the
world. Beyond the protection of employees’ rights and wellbeing,
a diverse, engaged and effective workforce is vital for us to build a
successful and sustainable co-operative.
The majority of our people are employed in processing and
distribution. They are supported by a considerable number of
salaried employees in corporate roles, such as in sales, marketing,
finance and human resources.
The scope of our reporting includes people directly employed
by Fonterra or Fonterra-controlled joint ventures. This section
therefore covers all employees working in Fonterra’s owned and
controlled sites and offices.
Our management approach
Fonterra has a set of global policies which govern our
management of people. In many geographies these are supported
by local standards, which provide more-detailed requirements on
how to implement policy in line with local regulations and norms.
Human Resources staff are embedded into business units and
geographies. These employees are supported by central group
functions, reporting to the Managing Director, People and Culture.
Employee engagement
Employee engagement is a measure of Fonterra’s performance as
an organisation and as an employer. An engaged workforce
is central to our success and effectiveness.
We measure our engagement performance through Fonterra’s
employee ‘MySay’ survey. Our latest survey results were published
in May 2017, based on a survey conducted in March 2017. Almost
17,000 Fonterra employees participated in this research, a 77 per
cent participation rate.
The results showed strong improvements over the past year in
employee engagement, with our engagement score of 3.85 the
highest recorded since we began surveying employees in 2010,
and up from 3.65 in the 2016 survey. These improvements have
been achieved through a focus on team-level action plans to
address issues raised.
We also measure our performance using the McKinsey
organisational health improvement (OHI) system. Last year our
OHI score showed a significant improvement of 11 points, to 66.
OHI is an organisation measure that focuses on how effective the
organisation is and what the underlying management practices
are that drive this.
Employee
Management
STAFF ENGAGEMENT
THROUGH MYSAY
SURVEY
Almost 17,000 Fonterra
employees participated in our
latest survey, which yielded
3.85, the highest engagement
score ever recorded.
3.85
78 | SUSTAINABLE FOUNDATIONS
FONTERRA SUSTAINABILITY REPORT 2017
TOTAL GLOBAL FULL-TIME EQUIVALENT EMPLOYEES FY17
8.9%
1.6%
1.0%
16.6%
10.4%
>50 24%
<30 16%
UNKNOWN 5%
>50 29%
<30 0%
UNKNOWN 0%
All employees
Fonterra Management Team
(FMT)
30-50 56%30-50 71%
0.5% Part-time
4.2% Part-time
99.5%9955.88%%
%%
DIVERSITY OF AGE*
EMPLOYMENT TYPE BYGGENENDERNEW HIRES
TURNOVER
Voluntary
(as a percentage
of total workforce)
Involuntary
Other
(contract end, legal
retirement, or deceased)
FY16
FY15
BY REGION
New Zealand
12,039
Australia
1,313
Asia MEA (inc.China)
4,394
Latin America
4,325
Rest of World
198
FY15 22,761
FuFull-time
TOTAL
TURNOVER
RATE
%
FY17
Male 1,367Female 793
Full-timeFull-time
Contract type
95.7% Permanent
4.3% Fixed-term
Contract type
96.4% Permanent
3.6% Fixed-term
* Our employee data is drawn from our SAP-based employee data systems,
and covers our global workforce. The gender, age and turnover data
excludes the employees in our Latin America joint venture operations, as
further data integration is required for our joint ventures in Latin America.
Numbers are reported for all fixed-term and permanent employees on an
FTE basis with the exception of turnover and new hires reporting which
excludes fixed-term employees and is based on headcount.
FY16 22,074
SUSTAINABLE FOUNDATIONS | 79
Sustainable Strategy
FONTERRA SUSTAINABILITY REPORT 2017
Sustainable Foundations
FONTERRA SUSTAINABILITY REPORT 2017
Right across the globe we want all Fonterra people to be healthy,
to live a balanced life and to go home from work safely every day.
Fonterra operates a global health and safety management system.
The Fonterra Group Health and Safety Policy sets out our global
requirements for responsible operation in relation to employee
safety. Implementation of and compliance with the policy is
overseen by our global Director of Health and Safety, Resilience
and Risk.
Fonterra extends a duty of care seeking to ensure no harm comes
to anyone who is affected by our operations, and with continuous
improvement an integral part of how we operate. The key areas
of focus and goals for Fonterra’s health, safety and wellbeing
programme are:
• People – Create the culture where our people believe and
demonstrate that zero harm is possible. Fonterra will support
our people and develop an environment where they are
healthy, well and safe.
• Process – Develop core policies, processes and procedures
and work to eliminate harm through proactive management of
events and exposure to risk.
• Plant and Equipment – Ensure a healthy and safe work
environment, through procurement, design, management,
maintenance and process safety, and a focus on critical risk.
Accountability for performance extends from the Board of
Directors, through the Fonterra Management Team, to individual
managers, workers, and contractors working on Fonterra sites.
Our health, safety and wellbeing performance
Our Safe Home System standards are aligned as a minimum with
AS/NZS 4801:2001 (Occupational Health and Safety Management
Systems). This year, in addition to 69 self-assessment audits, we
completed comprehensive Safe Home Assurance Audits on 15 of
our sites.
We measure our global health and safety performance by
tracking our number of fatalities, serious harm injuries, and the
total injury frequency rate for our employees and sites per
million hours worked.
Performance improved across all measures over the past year.
There were no fatalities on any of our sites and serious harm
injuries
1
have continued to decrease to 17, our lowest-ever
recorded level.
Our global target is to reduce our Total Recordable Injury
Frequency Rate (TRIFR) to below 5 per million hours worked.
This year we achieved a TRIFR of 5.2, a 19 per cent reduction on
FY16 and a total reduction of more than 70 per cent since 2010.
While we are pleased with this progress, we continue to seek
further improvement by analysing events and sharing corrective
actions because last year 241 of our employees still required
medical treatment, restricted work duties or time away from
work as a result of an injury.
Health,
Safety and
Wellbeing
REDUCTION IN
TRIFR SINCE 2010
We have achieved a total
reduction in TRIFR of
more than 70 per cent
since 2010.
70%
1 Serious harm injuries are injuries that cause temporary or permanent loss of body
function and include those to/involving both employees and contractors.
80 | SUSTAINABLE FOUNDATIONS
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This year we launched an engaging programme via gamification
to help increase health, safety and wellbeing capability worldwide.
We also partnered with WellSouth New Zealand to deliver
GoodYarn workshops for our tanker drivers, regional managers
and employees at manufacturing sites. The GoodYarn programme
helps participants to recognise and respond openly to mental
wellbeing in the community.
For the second year, through our global wellbeing challenge,
‘Eat, Move, Sleep’, we encouraged staff to eat five servings of fruit
and vegetables, move for more than 30 minutes a day and sleep
for at least seven hours daily. Staff participation in the challenge
remained stable with almost 20 per cent of all global staff taking
part. Staff were surveyed after the challenge and 85 per cent felt it
had had a positive impact on their health and 90 per cent felt they
would keep going.
0
5
10
15
20
TRIFR (per million work hours)
FY10FY11FY12FY13FY14FY15FY16FY17
Total Recordable Injury Frequency Rate
Fonterra’s targets
IndicatorTarget
Performance
Commentary
FY15FY16FY17
Work-related fatalities
(attributable to Fonterra–
staff, contractors, on-site public)
Zero harm
210
No fatalities in FY17
Number of serious harm injuriesZero harm
382117
Serious harm injuries halved
over past two years
Total recordable injury frequency
rate (TRIFR) per million work hours
<5
8.16.45.2
Injury frequency rate
continues to track downwards
Percentage of staff participation
in at least one health and wellness
programme per year
Measure and
report only
N/A
19%18%
w
SUSTAINABLE FOUNDATIONS | 81
Sustainable Foundations
FONTERRA SUSTAINABILITY REPORT 2017
Employee Assistance Programme
A global Employee Assistance Programme (EAP) is available
to all staff. This is a free and confidential service provided to
employees experiencing personal or work-related difficulties.
It offers professional support to address issues such as anxiety,
grief and work-related stress. Targeted support is also available
to assist employees dealing with workplace change,
restructuring and redundancy.
Employee learning and development
A skilled and engaged workforce is essential to building a
sustainable co-operative. Fonterra’s Group Learning Standard
outlines our approach to creating an organisational learning
culture that supports the delivery of our ambition.
As part of the annual review process, all our salaried employees
are expected to agree individual development plans with their
managers. In other cases, managers and our Human Resources
team are responsible for establishing minimum development
standards alongside working on individual development
opportunities.
Fonterra provides potential for development in a
number of ways, including:
• Operational and compliance training for employees
• Technical advancement training, to develop
staff in particular fields
• Early career development–such as the Graduate Programme
• Leadership development for employees.
Some examples of these programmes are provided on the
opposite page.
Learning and
Development
2,000
E-LEARNING MODULES
2,000 staff around the world completed
12 essential e-learning modules in their
preferred language, choosing from English,
Spanish, Portuguese and simplified Chinese.
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Early career development:
Graduate programme
Sourcing the best graduate
talent to accelerate their
development is the goal of
our graduate and early career
programmes. More than 800
people have participated in our
graduate programmes since
their inception, and more than
40 per cent are still with the
Co-operative, including Kelvin
Wickham, a member of the
Fonterra Management Team.
These programmes have been
operating in New Zealand for
more than 40 years and were
extended to China in 2012.
Our early career programmes
facilitate cross-functional,
position and regional
experiences with ongoing
development, coaching and
mentoring. In addition we
run a New Zealand internship
programme which brings young
talent into targeted functions.
Operational training:
Health and safety
Continuous improvement in
health and safety requires
engaging training for our
operational staff. This year we
launched a learning tool where
employees from the shop
floor learn and coach each
other on key health and safety
messages by playing a board
game. The game is tailored
with different questions
for different business units
to increase relevancy and
engagement, but also to
ensure our teams are learning
more about Fonterra globally
at the same time.
Technical advancement:
DAIRYCRAFT
An example of industry-
specific training is
DAIRYCRAFT, which is part
of our tiered development
programme for operators
in our manufacturing sites,
offering them pathways to
recognised
1
qualifications.
DAIRYCRAFT is our entry-
level programme currently
available to employees who
produce and pack products
in our New Zealand sites that
make milk powder, cream
and cheese. It is delivered
through a partnership with
the Primary Industry Training
Organisation. To date, 146
employees have completed
the programme to earn a
New Zealand Certificate in
Dairy Processing, and another
259 are in progress.
E-learning platform
This year we have also
launched our new MY
FONTERRA learning platform
to give us increased ability
to plan and record learning
and development activities.
As part of our annual policy
compliance assessment,
this has enabled almost
2,000 staff around the world
to complete 12 essential
e-learning modules in their
preferred language, choosing
from English, Spanish,
Portuguese and simplified
Chinese.
1 Recognised by New Zealand Qualifications Agency at level 3 and/or 4.
SUSTAINABLE FOUNDATIONS | 83
Sustainable Foundations
FONTERRA SUSTAINABILITY REPORT 2017
Our commitments and beliefs
We believe having diverse and inclusive teams is important to
both our long-term success and to our communities. Embracing
different perspectives can assist organisations to be more
innovative, make better decisions and improve performance.
Respecting, embracing and harnessing the unique skills and
diverse perspectives of our people is consistent with what we
stand for to all our stakeholders, and reflects a core Fonterra
value to ‘Do What’s Right’.
We are stepping up our focus in this area and have created a
new Diversity and Inclusion Policy, which sets out what people
who work for and with Fonterra can expect around diversity
and inclusion.
For more information, see:
www.fonterra.com/diversityandinclusionpolicy
This builds upon our existing Code of Business Conduct, which
means we will not tolerate any discrimination of people due
to age, race, ethnicity, religious affiliation, gender, or sexual
orientation, whether they are an employee, farmer shareholder,
stakeholder, supplier or customer. In addition, Fonterra’s existing
People Management Policy requires that all policies, standards
and guidelines support the intent of diversity and inclusion.
Driving change
While we have made progress, we recognise there is more we
can do to embed diversity and inclusion into our culture. A focus
for the year ahead is to embed diversity and inclusion into our
existing people practices, such as recruitment, talent development
and promoting high-performing teams. This includes highlighting
the role of diversity to drive innovation. With diverse groups, we
can think differently about how to do things better, smarter, faster.
Research shows that companies committed to greater gender
balance, cultural representation, inclusive Lesbian, Gay, Bisexual,
Transgender and Intersex (LGBTI) and disability policies achieve
better business and financial results.
This change is being led from the top, with our CEO Theo Spierings
representing Fonterra on the New Zealand Champions for Change
initiative. This initiative aims to achieve a truly diverse leadership
in New Zealand by 2020 and will connect and collaborate with
other organisations enabling ethnic and cultural diversity.
Working with others
In New Zealand, we also partner with several organisations to
enhance diversity and inclusion.
For more than 10 years we have supported First Foundation,
offering scholarships and work experience to give young people
a ‘hand up’ – an opportunity to achieve, irrespective of socio-
economic status.
Through the Whakaterehia Māori Leadership Programme, a
partnership with ASB, we are developing Māori leaders for the
future. We also are in a partnership with Ngāti Whātua Ōrākei to
focus on leadership development which looks at what the Māori
culture means for the Co-operative.
In addition, we have been a major partner with Global Women for
eight years, with more than 35 of our female leaders taking part in
their development programmes.
In Saudi Arabia, we have increased the number of women in our
manufacturing team from zero in 2015 to now making up eight
per cent of the workplace. This has required working with the
local government and developing our site facilities to meet the
country’s cultural requirements.
Diversity
and Inclusion
84 | SUSTAINABLE FOUNDATIONS
FONTERRA SUSTAINABILITY REPORT 2017
CASE STUDY
The Disrupt Programme
‘Disrupt’ is a programme to harness the diversity, ingenuity and
talent of our people to create and implement innovative business
models that meet the needs of future customers and consumers.
It provides a platform for employees from across our markets to
put forward potential disruptive business models.
Disrupt gives all employees the
opportunity to submit ideas
to be selected in our global
‘hackathon’, bringing people
together in an international
location providing exposure
to new and diverse consumer
groups. The first hackathon was
hosted in Shanghai in 2016,
and moved to Kuala Lumpur
for the 2017 event. We received
submissions from 16 different
countries across the Americas,
Middle East, China, North Asia,
Sri Lanka, South East Asia and
Oceania, and participants from
21 to 60 years.
One of Disrupt’s benefits
is allowing employees
the opportunity to work
collaboratively with colleagues
to innovate and accelerate
growth within Fonterra. It
has helped our people with
new ways of thinking and on
working cross-functionally
across new markets.
Of this year’s 79
submissions, six
successful initiatives
have been incubated
across five markets.
As well as encouraging
diversity of thinking in our
business, Disrupt also enables
commercial growth. The two
ventures from the 2016 event
are already generating
positive returns.
“It’s a wonderful experience for you to get out of your
day-to-day routine and come up with out-of-the-box ideas
to create more value for our farmers. Learning about the
lean start-up mind-set and the build-measure-learn way
of working has been very helpful.”
– Kefei Bu
Project lead for Anchor Online
Fonterra CEO
Theo Spierings
at the Disrupt event.
SUSTAINABLE FOUNDATIONS | 85
Sustainable Strategy
FONTERRA SUSTAINABILITY REPORT 2017
Sustainable Foundations
FONTERRA SUSTAINABILITY REPORT 2017
Gender pay
In developing our Diversity and Inclusion Strategy, and publishing
our first stand-alone sustainability report, we are measuring and
reporting on our gender pay ratio for the first time. We have
reported this broken down by significant locations of operation
(countries where five per cent or more of our employees are
based) and by employee category.
Across our global workforce our focus is on ensuring diversity and
inclusion at all employee levels, with equal opportunities for all.
Our approach is that no unexplainable pay gap exists across male
and female employees for the same job role. Pay gaps within job
roles may be explained by factors such as tenure, qualification
levels and experience.
We internally monitor population for any pay gaps that may
emerge. For waged employees this principle is embedded in our
collective employment agreements, with consistent remuneration
for each employment category irrespective of who is employed.
For our other employees Fonterra uses a range of independent
external pay market data. This data is used to benchmark our
competitive pay position relative to the market, and to ensure
internal consistency. We use pay bands to determine the relative
pay levels across the workforce. Our pay approach is governed
internally by a transparent remuneration policy.
For our senior leaders and executive employees, we again use a
range of independent and external third-party pay market data.
We disclose our pay data externally to stakeholders as required
by the various authorities in the jurisdictions in which we operate.
In New Zealand, we disclose as required by the NZX reporting
requirements and other agencies.
Across our five largest operating locations the ratio of the female
to male base salary is 1.09 – meaning that on average female base
salaries are higher. Not shown in the table but, breaking roles
down by employment category shows that 67 per cent of the men
working in our five largest operating locations work as operators,
technicians, drivers and farm workers – roles which typically have
lower base salaries than the other categories. Only 39 per cent of
women work in these roles, with a greater proportion of women
working in more senior roles.
In the breakdown of pay ratio by country, the pay ratio is most
skewed towards women in the countries with the highest proportion
of men in operators, technicians, drivers and farm worker roles, and
the highest proportion of women in more senior roles.
In New Zealand, where the largest number of employees are
based, the ratio of the female to male base salary is 0.96 –
meaning that, on average, female base salaries are lower. This
compares well with the national average of 0.88 per cent, but still
leaves room for improvement. Across all of our global businesses
our focus is on ensuring equal opportunities and working to
increase the proportion of women in senior leadership roles.
Hiring from local communities
An understanding of and connection with local markets is vital
to our success around the world. By hiring and developing local
talent, we contribute towards the shared success of our
Co-operative and to the countries where we operate.
In all of our significant locations of operation, ‘locals’ comprise a
minimum of two-thirds of the senior management team–with the
most senior employee and the senior managers reporting to them.
‘Locals’ are defined as either citizens, by birth or acquired,
or permanent residents of the country.
Diversity and Inclusion
CONTINUED
Ratio of female/male base
salaries across our five
largest operating locations.
1.09
PAY RATIO
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FONTERRA SUSTAINABILITY REPORT 2017
FY16: Three female officers of eight officers (37.5%)
FY16: Two female Directors of 13 Directors (15.4%)
By employee categoryGender %
Senior leaders
Pay Ratio Female:Male0.90
1
Male69.5%
% of total staff1.6%Female30.5%
Managers
Pay Ratio Female:Male0.96Male63.4%
% of total staff11.6%Female36.6%
Supervisory & Professionals
Pay Ratio Female:Male1.23
2
Male56.7%
% of total staff27.5%Female43.3%
Operators, Techs, Drivers,
Farm Workers
Pay Ratio Female:Male0.90Male82.3%
% of total staff59.3%Female17.7%
By significant locations of operationGender %
New Zealand
Pay Ratio Female:Male0.96Male69.7%
% of total staff66.0%Female30.3%
Australia
Pay Ratio Female:Male0.90Male73. 2%
% of total staff6.3%Female26.8%
Greater China
Pay Ratio Female:Male1.89Male70.1%
% of total staff9.6%Female29.9%
Brazil
Pay Ratio Female:Male1.41Male85.1%
% of total staff8.0%Female14.9%
Chile
Pay Ratio Female:Male1.29Male86.6%
% of total staff10.1%Female13.4%
75%
Male
75%
Male
Female
25%
Female
25%
DIVERSITY OF GOVERNANCE BODIES
GENDER PAY
Pay Ratio Female:Male 1.09 Male 72.9%
% of total staff 100% Female 27.1%
FY17: Gender composition of board
FY17: Officers directly reporting to CEO
New ZealandChileChinaBrazilAustralia
Percentage of senior managers
citizens or permanent residents
88%100%67%100%75%
HIRING FROM LOCAL
COMMUNITIES
1 Ratio of 0.90 is primarily due to lower proportion of women in senior roles
2 Ratio of 1.23 is primarily due to higher proportion of women in supervisory positions
SUSTAINABLE FOUNDATIONS | 87
Sustainable Strategy
FONTERRA SUSTAINABILITY REPORT 2017
Sustainable Foundations
FONTERRA SUSTAINABILITY REPORT 2017
Our commitments and beliefs
Our commitment to labour issues around the world is formalised
through an agreement between Fonterra, the International Union
of Food (IUF) and the New Zealand Dairy Workers Union.
The IUF is an international federation of trade unions representing
workers in industries including agriculture and plantations, and
the preparation and manufacture of food and beverages.
The agreement, signed shortly after Fonterra’s creation in 2002,
recognises our commitment to the fundamental Conventions of
the International Labour Organization (ILO) for all Fonterra staff.
Union agreements and relationships are in place in many markets;
for example: in New Zealand, with major unions including the
Dairy Workers’ Union (DWU) and E tū, in Australia with the
National Union of Workers, and in Malaysia with the Malaysian
Food Workers Union. For New Zealand, our largest employment
market, 61 per cent of all Fonterra employees are covered by
collective bargaining agreements on a Full-Time-Equivalent
(FTE) basis.
As part of our global agreement, we hold an annual meeting
with the IUF to review our compliance with the agreement and
discuss any potential issues. In the past year we also surveyed our
Employment Relations Managers around the world on labour rights
issues. Most of our markets reported no time lost due to industrial
action during FY17. However, Australia and Venezuela reported
minor (one per cent or less) incidences of industrial action.
Internationally, notice periods for operational change reflect local
regulations, collective agreements and employment practices.
We investigated two reported incidents of discrimination over
the past year. These incidents were reported through formal
internal channels, or confidentially via The Way We Work Hotline,
see page 91. Both issues were investigated. One matter is no
longer subject to action; the other is still under investigation.
Labour
Rights
61%
For New Zealand, 61 per cent of all
Fonterra employees are covered by
collective bargaining agreements on
a Full-Time-Equivalent (FTE) basis.
UNION
AGREEMENTS
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Our management of human rights
Historically, our approach to human rights has prioritised the
rights and protections of our employees around the world.
In 2014 we adopted ISO26000. This guidance standard for a
socially responsible organisation has widened our focus, providing
an emphasis on due diligence to consider our broader impacts on
human rights.
We are applying the United Nations Guiding Principles on
Business and Human Rights. These require that businesses should
avoid causing or contributing to adverse human rights impacts
through their business activities, and address such impacts should
they occur. Organisations should seek to prevent or mitigate
adverse human rights impacts that are directly linked to their
operations, products or services by their business relationships,
even if they have not contributed to those impacts.
Human rights due diligence
In the past year we completed a targeted due diligence process
on human rights. This process was designed using a best-practice
approach and has built our understanding of our potential impacts
so that we can now implement policies or actions to address
them. We intend to include a more detailed disclosure on human
rights in our next sustainability report.
Our due diligence process focused on those countries where we
have a large operational footprint. Key employees in New Zealand,
Australia, Brazil and Chile were surveyed and asked questions
relating to how our own operations and our suppliers could affect
people from a human rights risk perspective. The survey was
completed by 244 people across the four countries. These four
markets represent approximately three-quarters of our employees,
and over 95 per cent of raw milk collection.
In 2018 we will extend this due diligence process to those
countries where we have smaller operational footprints and
where the local protection of human rights may not be as strong.
Addressing family violence in New Zealand
New Zealand has the highest reported rate of family violence in
the developed world. This year we have been investigating ways
in which we may be able to play our part and provide support
services for our staff. In FY18, we intend to launch a support
initiative for our New Zealand employees.
Human
Rights
244
244 people across four countries
completed the due diligence
survey in 2017.
DUE DILIGENCE ON
HUMAN RIGHTS
SUSTAINABLE FOUNDATIONS | 89
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FONTERRA SUSTAINABILITY REPORT 2017
Our Code of Conduct
A culture of honesty and integrity is vital to Fonterra’s
commitment to become the world’s most trusted source of
dairy nutrition. The Way We Work is Fonterra’s business code
of conduct. It is underpinned by our set of Group Policies, in
particular our Ethical Behaviour Group Policy which defines
Fonterra’s expectations in regard to conflict of interest situations,
corruption, business gifts and entertainment. Together with our
Board Charter, these three documents comprise Fonterra’s code
of ethics. All three documents are required to be reviewed and
approved annually.
Fonterra does not allow corporate contributions of any kind to a
candidate or political party in connection with political elections.
No political contributions were made in the past year. We do not
offer money or anything of material value to government officials,
parties or candidates for the purposes of influencing the acts or
decisions of officials.
Awareness and training
The Way We Work is included in employee induction programmes,
and is made available in multiple languages. An online Ethics
Portal supports employees to be aware of all potential conflicts
of interest and, where these exist, put in place steps to manage
conflicts appropriately. A Conflict of Interest e-learning module is
also available on this portal. This e-learning module explains how
to ‘Do What’s Right’ to maintain our culture of honesty
and integrity.
We operate an annual process to ensure managers are familiar
with requirements around ethics, compliance and corruption.
This is completed through online training and evaluation, with
participants required to pass an online test to ensure they have
read and understood what is required by the policy.
These policies, in combination with the Board Charter, also set
the expectation for Fonterra’s Board of Directors. Directors are
expected to keep themselves abreast of trends in the economic,
political, social and legal climate. As a group, the Board holds
several workshops on relevant subjects each year, and Directors
are also expected to keep up to date with governance issues.
Our approach to tax
Fonterra has a clear set of principles which guide how we manage
our tax obligations in New Zealand and around the world.
For more information, see: www.fonterra.com/taxprinciples
We pay our fair share of tax in all jurisdictions, and do not use tax
havens to avoid our tax responsibilities. We are transparent and
work with tax authorities to ensure we continue to act responsibly.
In New Zealand, co-operatives and corporates are treated
differently in tax law. Rather than being taxed directly, Fonterra
passes our income on to our farmer shareholders, who pay the tax
at their level.
Ethics and
Compliance
The Way We Work
The Way We Work is
Fonterra’s Code of
Conduct.
THE WAY
WE WORK
CODE OF BUSINESS CONDUCT
DECEMBER 2016
For more information, see:
www.fonterra.com/codeofbusinessconduct
90 | SUSTAINABLE FOUNDATIONS
FONTERRA SUSTAINABILITY REPORT 2017
Legal compliance
Our Group Legal Policy requires all Fonterra’s business units to
assign clear accountabilities to ensure compliance with all laws
and regulations applying to our operations. It also stipulates
that business units develop and implement effective processes,
including training, to ensure our employees are familiar with, and
comply with, appropriate laws.
We have not identified any incidents of non-compliance with
laws and regulations in the social and economic area in the past
year. There were also no fines or non-financial sanctions related
to anti-competitive behaviour, anti-trust, and monopoly practices
during this period. We are, however, involved in an ongoing case in
the New Zealand Courts relating to supply terms for a small group
of farmers, where one of the claims is that Fonterra discriminated
against those farmers under section 106 of the Dairy Industry
Restructuring Act 2001.
Compliance related to our operating sites, including environmental
non-compliance, is reported in our Sustainable Operations section
on page 57.
Compliance related to our products and nutrition is reported in
our Sustainable Consumption section on page 67.
The Way We Work Hotline
It is important to provide employees with a safe and
confidential channel to seek advice and raise concerns
related to ethical and lawful behaviour. Fonterra provides an
independent service, facilitated by Deloitte, available to all
our employees around the world. The Hotline is promoted
through communications to employees, and is displayed on
staff notice boards at operational sites.
35
35 disclosures were made globally to
The Way We Work Hotline. All were fully
investigated and appropriate action
was taken.
IN THE 2017 FINANCIAL YEAR
SUSTAINABLE FOUNDATIONS | 91
Sustainable Foundations
FONTERRA SUSTAINABILITY REPORT 2017
Investing in our communities
We understand that to be a sustainable co-operative we must be
supported by strong and resilient communities. In many regions
Fonterra is a significant part of the local community and economy.
Our approach is to share our expertise and invest in the health
and wellbeing of our communities through programmes aligned
with our organisational strengths.
Fonterra Grass Roots Fund
The Fonterra Grass Roots Fund financially supports initiatives
that help to strengthen our communities, bringing them together,
caring for the environment and promoting safe and healthy
lifestyles. Launched in 2007, it is now active in New Zealand,
Australia and Sri Lanka, with decision-making distributed regionally.
Greater China
In Greater China, our community care focusses on vulnerable or
disadvantaged groups, both in the rural villages where we have
farming operations and in some major cities.
This year 190 agriculture and food science students benefited
from the Fonterra Scholarship programme. Since it was launched
in 2010, nearly 900 students have received scholarships to
build capability in the local food industry. This year some of the
scholarship students from Shanxi Agricultural University helped
us introduce a new summer holiday education programme for
children near our farming hub, in Ying County. The scholarship
recipients volunteered their time to provide extra tuition to
around 70 children each day.
We have also funded lectures by influential NGO Girls’ Protection
to provide ‘protect your body’ guidance to more than 100 children.
The course seeks to help the children protect themselves against
harassment.
Latin America
An estimated 1.5 million of people benefit from Soprole’s long-
standing support of school sports in Latin America each year.
This support encourages healthy outdoor exercise and instils
important values such as hard work, perseverance and solidarity.
Every year, we also grant scholarships to the best participant in
each discipline, to cover tuition fees for the following year if the
student graduates from high school.
In addition to supporting school sports, Soprole has backed the
national Teletón since it started in 1978. Teletón is a charitable
foundation committed to the rehabilitation and inclusion of
physically and mentally challenged children in society. After
almost 40 years, the annual Teletón event has become a flagship
for national unity and collective community support for the
development of these children and their families.
Food banks
Joining forces in 2007, our Australian business supports Foodbank,
Australia’s largest hunger relief organisation, who provide meals
to charities and schools around Australia. To celebrate 10 years of
partnership, the relationship will now see Fonterra become the
exclusive supplier of fresh milk for Foodbank’s Milk Program in
Victoria.
This programme distributes fresh milk to Australian families
and individuals who need access to food. In the 2016 calendar
year Fonterra Australia donated fresh milk and other dairy foods
equivalent to almost 350,000 meals.
We also support other similar food bank initiatives throughout the
world, including five food banks in the Auckland region, such as
The Salvation Army and Auckland City Mission; and also further
afield with Red Alimentos in Chile.
Community
92 | SUSTAINABLE FOUNDATIONS
FONTERRA SUSTAINABILITY REPORT 2017
$
750K
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million
serves of
dairy to
Kiwi kids.
New Zealand in-school nutrition
programmes: Fonterra Milk for Schools
and KickStart Breakfast.
Fonterra Living
Water partnership
with New Zealand
Department
of Conservation.
ooovver
1000yyeears
See page
35
In Sustainable Dairying section.
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In Sri Lanka, funding and volunteer
time from staff has seen improved
water sanitation facilities in schools
across our dairying regions.
Distributed to 432 community programmes
in New Zealand, Australia and Sri Lanka.
In Australia, we
helped three
preschools to
establish garden
beds to grow fruit
and vegetables
to learn about
healthy eating and
sustainability.
See page
68
addition to In New Zealand in ad
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Sustainable Foundations
SUSTAINABLE FOUNDATIONS | 93
FONTERRA SUSTAINABILITY REPORT 2017
In New Zealand, Fonterra recognises Māori as the tangata whenua –
the people of the land. We value New Zealand’s Māori heritage and
recognise the potential of Māori business in the global economy.
We have created a strategy to address the way we work, both within
the Co-operative with our Māori shareholders and with other
Māori stakeholders around New Zealand. This is to build strong and
meaningful relationships, and partnering with Māori in growing
prosperous, healthy and sustainable communities across our nation.
To drive this strategy we have recently created a senior position
of General Manager, Māori Strategy. This complements four new
Business Relationship Management roles, created in 2016, to lead
engagement with Māori shareholders.
Māori shareholders have over $180 million invested in the
Co-operative and produce around 30 million kg of milk solids each
year. Many of these shareholdings differ from typical dairy farming
businesses, as they are collectively owned and controlled through
entities such as trusts, incorporations, hapū or iwi-owned entities.
We aim to create opportunities for new Māori corporations,
trusts and landholders to build their dairying capability with
Fonterra as a valued partner in Māori development, working in
partnership to create opportunities for training, employment,
enterprise and investment.
Māori
strategy
Māori shareholders have over $180
million invested in the Co-operative
and produce around 30 million kg
of milk solids each year.
INVESTMENT IN THE
CO-OPERATIVE
Leveraging our New Zealand advantage
Fonterra’s commercial strategy is to turn more of our farmers’
raw milk into higher value products. Consumers are becoming
increasingly concerned and knowledgeable about where their food
comes from and how it’s produced. In many cases they are willing
to pay a premium for high quality, safe and healthy food when
there are assurances that the company behind that food acts in a
responsible and ethical way.
To meet this increasing consumer need, Fonterra launched
the Trusted Goodness
TM
quality seal. Over the next few years,
Trusted Goodness will be rolling out on Fonterra consumer
brands around the world.
A minimum annual average of
80 per cent grass-feeding in cows’ diets.
GRASS AND
PASTURE-FED STANDARD
New Zealand’s natural, grass-fed advantage and non-GMO status
are highly valued by our customers and consumers. To support a
grass-fed claim, Fonterra has developed a Grass and Pasture-Fed
Standard that will be third party verified. This standard outlines
the requirements for our grass-fed dairy, with a minimum annual
average of 80 per cent grass-feeding in cows’ diets across the
New Zealand milk pool, and a minimum 90 per cent time on
pasture. These are amongst the highest rates in the world.
$
180M
80%
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FONTERRA SUSTAINABILITY REPORT 2017
Our non-milk supply chain
Fonterra has significant influence through our purchasing from
suppliers around the world. A sustainable co-operative needs a
sustainable supply chain, and we have a responsibility to consider
the social and environmental impacts of our purchasing decisions.
As New Zealand’s largest business, we also have considerable
economic impact through our purchasing practices in our
home market.
Approximately half of Fonterra’s purchasing is spent on raw milk,
collected directly from farmers. We manage our farmer suppliers
through different systems to our other suppliers. For more
information on how we work with our farmers see the Sustainable
Dairying section, see pages 24-45.
For our non-milk supply chain the most significant categories
include energy, packaging and non-milk ingredients such as fruit
used in our products.
Our capital purchasing includes investments in vehicle fleet and
plant equipment. In line with any large organisation, we also have
supply relationships for items such as information technology,
travel and professional services.
Fonterra Supplier Sustainability Code of Practice
The Fonterra Supplier Sustainability Code of Practice sets
out our expectations for our vendors to uphold standards
related to human rights, fair working conditions and
environmental protection.
www.fonterra.com/sustainabilitycop
When we first introduced our Supplier Code of Practice, it was
an optional annex to our standard contracts with vendors but
commonly incorporated into significant contracts managed by
our procurement team. This year we have adjusted our standard
contracts for New Zealand to include this in our main terms and
linked to our online version of the document. This approach is
now being rolled out for contract templates around the world.
Vendor risk assessment
As part of our regular assessment of vendors across a range of
characteristics, this year we extended our analysis of social and
environmental aspects. We identified 39 vendors across the
categories of ingredients, chemicals, environmental services,
packaging and transportation, where more detailed assessment
and engagement is being pursued.
In addition, we surveyed our packaging and ingredients vendors
for further information on sustainability topics. We received 95
responses to the survey, 38 from packaging vendors, 50 from
ingredients vendors and seven from chemical vendors. The
results showed that 48 per cent of responding vendors had
achieved independent certification of policies and procedures
for health and safety, fair labour conditions and non-
discrimination. It also revealed that 37 per cent of responding
vendors had achieved independent certification of their
environmental management system.
Non-milk
Supply Chain
37% of responding vendors had
achieved independent certification
of their environmental
management system.
VENDOR RISK ASSESSMENT
37%
SUSTAINABLE FOUNDATIONS | 95
Sustainable Foundations
FONTERRA SUSTAINABILITY REPORT 2017
Embedding sustainability
At Fonterra, the roots of our sustainability management system
are in individual programmes which were established to tackle
specific issues that had been identified. This meant that, through
these programmes, we made good progress against many
sustainability issues. However, this progress was not captured
under one governance umbrella, and we had no process for
identifying gaps in our performance or proactively recognising
new or emerging topics.
In 2014 we launched a project to enhance governance of
sustainability and social responsibility topics, to introduce
processes for identifying new and emerging topics, and prioritising
actions and assigning accountability. This project was aligned with
ISO26000, an international standard for organisational social
responsibility. This initiative shaped our internal accountability,
materiality process, and sustainability stakeholder engagement.
Accountability for sustainability
Accountability for sustainability rests with the Fonterra
Board, our CEO, and the Fonterra Management Team (FMT).
Regular performance updates are provided at this governance
level. Accountability for individual elements of sustainability
performance cascades through the organisation and is integrated
into individuals’ Key Performance Indicators (KPIs) where relevant.
Sustainability requirements are integrated into Fonterra’s set of
group policies. All group policies are subject to regular review
and each policy is owned by an individual member of the FMT.
A centralised Social Responsibility team sits within the global
Corporate Affairs function, with a Social Responsibility Director
reporting to the Managing Director, Corporate Affairs. The
centralised Social Responsibility team is accountable for
overarching sustainability governance and strategy, external
reporting, and managing strategic and cross-functional
sustainability topics.
Operational delivery of sustainability strategy, and accountability
for performance against targets, is integrated into the
organisation, with geographical business units responsible for
performance in-country, and Group functions responsible for
progressing performance on specific topics at the global level.
Key teams include the Sustainable Dairying teams in New Zealand
and Australia, the Global Operations sustainability function, and
the Food Safety, Quality and Regulatory (FSQR) and Health,
Safety and Wellbeing teams.
Governance
& Stakeholder
engagement
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We engage with our employees through internal
communication via our staff social media platform,
through regular engagement surveys, through direct
engagement with management, and via
The Way We Work Hotline.
Important topics raised by employees:
• Employment rights and conditions
• Health and safety at work
• Learning and development
We engage with our New Zealand farmers at
farmer meetings and roadshows, and through
the formal governance of our Co-operative
such as voting and representation on the
Shareholders’ Council and Board of Directors.
We also engage with farmers directly through
our Farm Source team, including through Area
Managers and Sustainable Dairying Advisors.
Important topics raised by our farmers:
• Employment and income creation – through
sustainable financial returns for farmers
• Organisational governance – providing a
sustainable Co-operative that supports its farmers
We engage with farmers around the world through
local supplier relationship officers and through our
Dairy Development programme.
Important topics raised by farmers around
the world:
• Employment and income creation –
through sustainable returns for their milk
• Social investment and community development –
building dairying capability through sharing our
global expertise
We engage with our communities by being active
members of the communities we live and work in,
through formal site-level community engagement such
as open days, and through our community investment
activities such as Fonterra Milk for Schools and Fonterra
Grass Roots Fund.
Important topics raised by communities:
• Water
• Employment and income creation
• Social investment and community development
We engage with our business-to-business
customers through dedicated account managers,
performance review meetings for key accounts
and by sharing sustainability performance through
programmes such as EcoVadis / SEDEX and the
Carbon Disclosure Project.
Important topics raised by our customers:
• Climate and energy
• Food safety and quality
• Responsible procurement
We engage with consumers through our consumer
customer service teams (e.g. via 0800 number on
products), through email and social media, and through
consumer marketing and research.
Important topics raised by consumers and
consumer groups:
• Food safety and quality
• Nutrition and health
• Responsible marketing
We engage with non-governmental organisations
(NGOs) through collaboration and consultation on
specific topics, e.g. The Forest Trust on palm products
sourcing, and the New Zealand Nutrition Foundation
on nutrition guidelines.
Important topics raised by NGOs:
• Water and Waste and pollution
(particularly New Zealand NGOs)
• Health and nutrition
• Stakeholder and community dialogue
• Human right
s
We engage with national and regional governments
in New Zealand and offshore, at many levels and parts
of our business, coordinated through our Government
and Stakeholders Affairs team. We also work in
collaboration on important issues such as climate change
(Pastoral Greenhouse Gas Research Consortium),
NZ Water (Department of Conservation), and children’s
wellbeing (KickStart Breakfast programme).
Important topics raised by national and regional
governments:
• Employment and income creation
• Social investment and community development
• Protecting biodiversity and ecosystem services
We have many touchpoints
with our stakeholders around
the world.
These include a number of partnerships
and collaborations where we work
alongside our stakeholders to address
sustainability issues.
The Co-operative Relations Committee
of the Fonterra Board provides
governance oversight of the management
of Fonterra’s relationships with key
external stakeholders in New Zealand
and all other key markets. This includes
relationships with governments, NGOs
and community relationships.
Sustainable Foundations
| 97
Material topics
Our materiality matrix presents our most-material sustainability
topics, reflecting the perspectives of our stakeholders.
To evaluate the importance of these topics to our stakeholders
we have implemented a two-step process. The first step involves
a desktop analysis of over 200 global stakeholders, identified and
weighted using a number of criteria:
• Representation of individuals or communities impacted
by Fonterra
• Organisations directly impacted by Fonterra
• Organisations with influence over Fonterra
• Organisations or individuals representing diverse
perspectives on topics related to Fonterra.
The first step uses publicly available information and insights
gathered through regular engagement activities to generate
an initial assessment. At the second step this analysis is then
reviewed through a small number of one-on-one stakeholder
interviews, adjusting the topics where required, to provide the
final overall result. We use this result to determine the significance
of our economic, environmental and social impacts.
The importance of topics to Fonterra is determined via a
combination of risk (including opportunity) rating in the Fonterra
Risk Management System, and alignment with our strategic
priorities. This takes into account the influence of the topics on
stakeholders’ assessments and decisions.
Topic Importance
IMPORTANCE TO SOCIETY
IMPORTANCE TO OUR FARMER CO-OPERATIVE
• Animal health and welfare
• Climate and energy
• Employment and income creation
• Food safety and quality
• Nutrition and health
• Protecting biodiversity and ecosystem services
• Soil health
• Stakeholder and community dialogue
• Water
• Waste and pollution
• Human rights
• Responsible marketing
• Social investment
and community development
• Data protection and privacy
• Organisational governance
• Biosecurity
• Employment rights and conditions
• Ethical business practices
• Health and safety at work
• Responsible procurement
• Complaints and service relationships
Materiality
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TOPIC DESCRIPTIONS
TOPICDESCRIPTIONCOVERAGE
Animal health and welfareProtecting animal health and welfare within our supply chainSee page 42
BiosecurityAddressing the risk of transmission of infectious diseases and pests to
livestock and crops that impact animal, plant and human health
See page 43
Climate and energyMitigating our contribution to climate change and adapting to the
impacts of a changing climate
See page 18, 40, 50, 59
Complaints and service
relationships
Ensuring consumers and customers have the ability to complain and
responding to complaints to maintain good service relationships
See page 72
Data protection and privacyProtecting the data that we collect from people and other organisations
to ensure privacy is maintained
www.fonterra.com/
codeofbusinessconduct
Employment and income
creation
Contributing to society through meaningful employment, prosperous
farming and flow-on income generation
See page 20
Employment rights and
conditions
Protecting the rights of our people and their working conditions,
providing access to training and development opportunities
See page 88
Ethical business practicesSetting clear expectation and controls for anti-corruption,
responsible political involvement and fair competition
See page 90
Food safety and qualityEnsuring the products we deliver are safe and of good quality for consumersSee page 70
Health and safety at workProtecting the health and safety of people at work including
consideration of their wellbeing
See page 80
Human rightsProtecting the human rights of individuals who are directly
or indirectly impacted by our business activities
See page 89
Nutrition and healthConsidering the public health contribution of the products we produce,
access to good nutrition, and consumer behaviour and education
See page 16, 62
Organisational governanceEnsuring strong, sustainable governance and decision making to deliver
long-term value to all stakeholders as a sustainable co-operative
See page 96
Protecting biodiversity
and ecosystem services
Considering the impact of our supply chain on biodiversity and the
underlying ecosystem services we rely upon
See page 34
Responsible marketingResponsibly marketing and promoting our products to consumers,
including marketing to children and parents, and responsible promotion
of breast-milk substitutes
See page 67
Responsible procurementEngaging along our supply chain to set expectations and manage the
performance of our farmers, vendors and service providers
See page 26, 95
Soil healthProtecting soil health, which is central to sustainable agricultural
food production
See page 31
Social investment and
community development
Investing in our communities such as in-school nutrition programmes,
financial grants, staff volunteering and promoting access to essential
services, such as clean drinking water
See page 92
Stakeholder and
community dialogue
Engaging with our stakeholders, including communities, on topics that
may impact them
See page 97, 98
Waste and pollutionMinimising waste (hazardous and non-hazardous) and other
environmental impacts such as noise and air pollution
See page 56
WaterUsing water responsibly, including the impacts of our Co-operative
on water quality and availability (linked to biodiversity)
See page 28-35, 54
SUSTAINABLE FOUNDATIONS | 99
Sustainable Foundations
FONTERRA SUSTAINABILITY REPORT 2017
Global Reporting Initiative Standards
This report has been prepared in accordance with the Global
Reporting Initiative (GRI) Standards: Core option. To achieve ‘Core’
compliance with the GRI standards we must report against at least
one disclosure for each material topic. We have selected these
disclosures based on what the most important measures are, and
which data is available to report. We have reported beyond ‘Core’
compliance in our most material areas.
To determine the content for this report we applied the
GRI’s principles for defining report content including context,
completeness, stakeholder inclusivity and materiality.
The boundary for each material topic was defined on the basis
of our internal materiality analysis.
For more information, see: www.globalreporting.org
REFTOPIC TITLE REFERENCE
102-1
Name of the organisationFonterra Co-operative Group Limited
102-2
Activities, brands, products, and servicesAbout Fonterra. See page 6. Global Value Chain. See page 22
102-3
Location of headquartersSee page 104
102-4
Location of operationsOur Manufacturing Operations. See page 49
102-5
Ownership and legal formAbout Fonterra. See page 6
102-6
Markets servedProducts consumed in more than 100 countries. See page 63
102-7
Scale of the organisationAbout Fonterra. See page 6
102-8
Information on employees and other workersEmployee Management. See page 78
1
102-9
Supply chainGlobal Value Chain. See page 22
102-10
Significant changes to the organisation and its supply chainNo significant changes occurred in the reporting period FY17
102-11
Precautionary Principle or approachOur Manufacturing Operations. See page 48
102-12
External initiativesAssociations, Endorsements and Memberships. See page 104
102-13
Membership of associations Associations, Endorsements and Memberships. See page 104
102-14
Statement from senior decision-makerLetter from the Chairman and Chief Executive. See page 1
102-16
Values, principles, standards, and norms of behaviour Our Values. See page 3. Our Code of Conduct. See page 90
102-17
Mechanisms for advice and concerns about ethicsThe Way We Work Hotline. See page 91
102-18
Governance structure Accountability for sustainability. See page 96. A full list of Board
Committees is published on page 70 of the Fonterra Annual
Review 2017
102-20
Executive-level responsibility for economic, environmental, and
social topics
Accountability for sustainability. See page 96
102-40
List of stakeholder groups Materiality. See page 98
Governance and Stakeholder Engagement. See page 96
102-42
Identifying and selecting stakeholders
102-43
Approach to stakeholder engagement
102-44
Key topics and concerns raised
102-41
Collective bargaining agreementsLabour Rights. See page 88
102-45
Entities included in the consolidated financial statements A list of entities is included on page 45-46 of Fonterra’s FY17
Annual Financial Results
102-46
Defining report content and topic Boundaries Materiality. See page 98. Global Reporting Initiative Standards.
See page 100
102-47
List of material topics Materiality. See page 98-99
102-48
Restatements of informationNo restatements of previously-reported information have been
made
102-49
Changes in reporting Not applicable
102-50
Reporting period About This Report. See Inside Front Cover (Period is 1 August 2016
– 31 July 2017)
102-51
Date of most recent report Not applicable
100 | SUSTAINABLE FOUNDATIONS
FONTERRA SUSTAINABILITY REPORT 2017
102-52
Reporting cycleAbout This Report. See Inside Front Cover
(Annual reporting cycle)
102-53
Contact point for questions regarding the report See page 104. (Email: sustainability@fonterra.com)
102-54
Claims of reporting in accordance with the GRI StandardsGlobal Reporting Initiative Standards. See page 100
102-55
GRI content indexGlobal Reporting Initiative Standards. See page 100
102-56
External assurance Bureau Veritas Assurance Statement. See page 102
201-1
Direct economic value generated and distributedAbout Fonterra. See page 6. Community. See page 93
202-2
Proportion of senior management hired from the local communityHiring from local communities. See page 86-87
205-2
Communication and training about anti-corruption policies and
procedures
Awareness and training. See page 90
206-1
Legal actions for anti-competitive behaviour, anti-trust, and
monopoly practices
Legal compliance. See page 91
302-1
Energy consumption within the organisationEnergy use by fuel type. See page 53
302-3
Energy intensityOur emissions and energy efficiency track record. See page 50
2
303-1
Water withdrawal by sourceWater withdrawn by source. See page 54
304-2
Significant impacts of activities, products, and services
on biodiversity
New Zealand’s Waterways. See page 34-55
Sustainable Dairying in New Zealand. See page 28-33
Also see Our Commitment to New Zealand’s Waterways.
305-1
Direct (Scope 1) GHG emissionsOn-farm Emissions. See page 40
2
Operations GHG emissions. See page 53
2
Logistics emissions. See page 59
2
305-2
Energy indirect (Scope 2) GHG emissions
305-3
Other indirect (Scope 3) GHG emissions
305-4
GHG emissions intensity
306-1
Water discharge by quality and destinationWater discharge. See page 54
307-1
Non-compliance with environmental laws and regulationsEnvironmental non-compliance. See page 57
308-2
Negative environmental impacts in the supply chain
and actions taken
Evaluating farm performance–farm dairy assessments.
See page 28 (New Zealand disclosure)
401-1
New employee hires and employee turnoverEmployee Management. See page 79
1
402-1
Minimum notice periods regarding operational changes Labour Rights. See page 88
403-2
Types of injury and rates of injury, occupational diseases, lost days,
and absenteeism, and number of work-related fatalities
Health, Safety and Wellbeing. See page 80-81
404-2
Programmes for upgrading employee skills and transition
assistance programmes
Learning and Development. See page 82-83
405-1
Diversity of governance bodies and employeesDiversity of Governance Bodies. See page 87
405-2
Ratio of basic salary and remuneration of women to menGender pay. See page 86-87
406-1
Incidents of discrimination and corrective actions takenLabour Rights. See page 88
412-1
Operations that have been subject to human rights reviews or
impact assessments
Human Rights. See page 89
415-1
Political contributionsOur Code of Conduct. See page 90
416-1
Assessment of the health and safety impacts of product and
service categories
Improving the nutritional profile of our products. See page 66
Achieving benchmark standards. See page 70
417-2
Incidents of non-compliance concerning product and service
information and labelling
Compliance with regulation. See page 67
417-3
Incidents of non-compliance concerning marketing
communications
Compliance with regulation. See page 67
419-1
Non-compliance with laws and regulations in the social and
economic area
Legal compliance. See page 91
Within scope of assurance
1 For more information, see:
www.fonterra.com/2017AdditionalEmployeeData
2 For more information, see: www.fonterra.com/2017EnvironmentalDataReportingNotes
SUSTAINABLE FOUNDATIONS | 101
Sustainable Foundations
FONTERRA SUSTAINABILITY REPORT 2017
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 2017 Sustainability Report (“the Report”). This Assurance Statement applies
to the related information included within the scope of assurance described below.
This information and its presentation in the 2017 Sustainability Report are the sole responsibility of the management of
Fonterra. Bureau Veritas was not involved in the drafting of the Report. Our sole responsibility was to provide
independent assurance of the accuracy of information included. This is the first year in which we have provided limited
assurance over the Fonterra Sustainability Report.
Scope of Assurance
The Report was prepared in accordance with the GRI Standards: Core Option. Fonterra requested Bureau Veritas to
verify the accuracy of the data and information included in the Report and to assess compliance against the reporting
requirements from selected GRI Standards’ disclosures. The complete list of assured elements is referred to within the
GRI Index of the Report.
The scope of work was limited to the data and information related to sites and operations under which Fonterra has
operational control for the period of 1
st
August 2016 to 31
st
July 2017.
Methodology
As part of its independent limited assurance, Bureau Veritas undertook the following activities:
Interviews and follow-up communication with relevant personnel;
Review of documentary evidence produced by Fonterra representatives;
Audit of performance data and factual information including source verification;
Review of Fonterra’s processes for identification, aggregation and analysis of relevant information, report content
and performance data.
Our work was planned and executed in a manner designed to produce a limited level of assurance and to provide a
sound basis for our conclusions.
Our assurance process is aligned with and informed by Bureau Veritas’ standard procedures and guidelines for external
verification of sustainability reports, GRI Sustainability Reporting Standards 2016 and the International Standard for
Assurance Engagements (ISAE) 3000.
Our findings
On the basis of our methodology and the activities described above, we provide limited assurance that:
Nothing has come to our attention to indicate that the reviewed statements within the scope of our verification are
inaccurate and the information included therein is not fairly stated;
It is our opinion that Fonterra has established systems for the collection, aggregation and analysis of relevant
information and quantitative data.
INDEPENDENT ASSURANCE STATEMENT
Assurance Statement
102 | SUSTAINABLE FOUNDATIONS
FONTERRA SUSTAINABILITY REPORT 2017
Evaluation against the Global Reporting Initiative Sustainability Reporting Standards 2016 (GRI Standards)
Fonterra’s 2017 Sustainability Report has been prepared in accordance with the GRI Standards: Core Option, including
appropriate considerations of the reporting principles, general disclosures, management approach and topic-specific
performance indicators.
Bureau Veritas’ evaluation of Fonterra’s 2017 Sustainability Report included cross checking the GRI Index against
referenced documents.
Limitations and Exclusions
Excluded from the scope of our work is any assurance of information relating to:
Activities outside the defined reporting period;
Statements of commitment to, or intention to undertake future actions by Fonterra;
Statements of position, opinion, belief and/or aspiration by Fonterra;
Financial data audited by an external third party;
Other sites and activities not included in the scope.
This independent assurance statement should not be relied upon to detect all errors, omissions or misstatements that
may exist within the 2017 Sustainability Report.
Statement of independence, impartiality and competence
Bureau Veritas is an independent professional services company that specialises in Quality, Health, Safety, Social and
Environmental management with almost 180 years history in providing independent assurance services.
Bureau Veritas has implemented a Code of Ethics across the business to maintain high ethical standards among staff in
their day to day business activities. We are particularly vigilant in the prevention of conflicts of interest.
No member of the assurance team has a business relationship with Fonterra, its Directors or Managers beyond that
required of this assignment. We have conducted this assurance independently, and there has been no conflict of interest.
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
excellent understanding of good practice in sustainability reporting and assurance.
Bureau Veritas New-Zealand Ltd
04
th
December 2017
Andrew Mortimore
Head of Sustainability Services
SUSTAINABLE FOUNDATIONS | 103
Sustainable Foundations
FONTERRA SUSTAINABILITY REPORT 2017
Associations, Endorsements and Memberships
REGISTERED OFFICE
Fonterra Co-operative Group Limited
Private Bag 92032
Auckland 1010
New Zealand
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.
HEADQUARTERS
Fonterra Centre
109 Fanshawe Street
Auckland Central
Auckland 1010
New Zealand
Phone +64 9 374 9000
Fax +64 9 374 9001
Email: sustainability@fonterra.com
104 | SUSTAINABLE FOUNDATIONS
FONTERRA SUSTAINABILITY REPORT 2017
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