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
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our high-qualit
roducts are con
lobe.
ssor
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onsumed
$1.25BB
e.
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w Zeala
s la
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onsu
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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.
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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.
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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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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
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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
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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
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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
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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.
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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)
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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.
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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.
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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.
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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.
62 | SUSTAINABLE CONSUMPTION
FONTERRA SUSTAINABILITY REPORT 2017

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
64 | SUSTAINABLE CONSUMPTION
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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.
SUSTAINABLE CONSUMPTION | 67
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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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