Fonterra Releases Sustainability Report

Sustainability
Report
FOR THE YEAR ENDING 31 JULY 2018
FONTERRA CO-OPERATIVE GROUP LIMITED

We are working together,
for tomorrow.
By improving how we dairy, we can
make a positive impact on the world.
That means caring about nutrition, for
our environment and for our communities.
Working together,
for tomorrow.
1FONTERRA SUSTAINABILITY REPORT 2018

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 90.
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 92.
We understand the importance of understanding
stakeholder perspectives so we’d appreciate your feedback on
this report and our performance. Please email us at
sustainability@fonterra.com
Our Environment
38
WaterPackaging
and waste
Climate change Animal health
and biosecurity
48625466
Our Approach
04
Letter from
Chairman and CEO
Our approach
and progress
Reporting what’s
important
About Fonterra
and our value
creation
Our contribution
to UN SDGs
0410181420
Our Nutrition
22
Health and
wellbeing
In-school
nutrition
Food safety
and quality
Trusted
Goodness
28363437
Our Community
68
Doing what’s right
by our people
Health, safety
and wellbeing
Responsible
procurement
Human rightsSupporting our
communities
7478828088
Appendices
90
Assurance
statement
GRI standardsAssociations and
memberships
929094
3FONTERRA SUSTAINABILITY REPORT 2018
About this report
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 2018 –
‘FY18’. This report sits alongside our 2018 Annual Review
which sets out our financial performance.
www.fonterra.com/annualreview2018
In certain sections throughout the report, we have included
data relating to periods prior to FY18 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 second stand-alone sustainability report (our first
was in 2017) and we intend to continue this reporting on an
annual basis.
Contents
2FONTERRA SUSTAINABILITY REPORT 2018
C)

John Monaghan, Chairman and Miles Hurrell, Chief Executive Officer
The Sustainable Co-operative is one
of three core platforms for Fonterra’s
strategy and in many ways is the most
vital as well as the most challenging.
Our Co-operative has a strong heritage of respecting
our natural resources and working with them to produce
quality pasture-based milk.
We have changed as times have changed, recognising the
importance of sustainability and the role it plays in ensuring
our economic contribution, as well as our contribution to
healthy lifestyles, can be both grown and maintained.
In some areas, such as the proactive steps taken from
the early 2000s to fence waterways and better manage
nutrient losses, we have shown leadership from within
Fonterra. In others, such as our alignment and commitment
to the United Nations Sustainable Development Goals
(SDGs), we are joining forces across sectors and society
to contribute to a healthier planet and the lifestyles of the
people on it.
External perspectives are invaluable, and we are looking forward
to both guidance and challenges from our newly formed
Sustainability Advisory Panel. We expect them to be part of our
conscience as well as a constructive critic.
This is our second independently assured sustainability report. It
acknowledges that while we are making good progress across our
environmental, social and economic goals, some of the progress
will be hard won. We have set industry-leading targets in many
areas, and these need to be challenging, not easy. Where we have
tried, but not quite made the mark, we say so. Where we have
reached a milestone, we acknowledge it.
In many of our priority areas, such as nutrition, the environment
and the community, we are proud to report good progress, as well
as the work yet to be completed.
For example, we now have 71% of our everyday and advanced
nutrition products meeting our Food and Nutrition Guidelines,
endorsed by the New Zealand Nutrition Foundation. This is
significant progress towards our target of 75% by 2020 and
underlines our commitment to ensuring dairy remains an essential
and affordable part of a healthy diet for all ages. It is especially
pleasing that we can now electronically trace 92% of our products
back to the source of our milk – this is a level of reassurance
consumers expect and meets our Trusted Goodness promise.
Credit: newspix.co.nz
Our Values
We launched our Cared for Cows Standard, bringing an
independently verified certification to the way our farmers treat
their herds every day. Consumers care about animal welfare as
much as our farmers, so it is important we can verify our claims
that we care.
Consumers can also be reassured that New Zealand has among
the lowest greenhouse gas emissions per litre of milk collected in
the world at 0.87 per kgCO
2
-e/kg FPCM.
1
This too underlines our
commitment to play a leading role in supporting New Zealand to
reach our carbon reduction goals, while also reinforcing we have
more work to do to bring our manufacturing emissions down.
Sustainability embraces environmental, economic, ethical and
community concerns and it can often be a difficult balancing act
to align them all. In the year covered by this report, our farmers
have weathered some very difficult climatic conditions, from
drought to floods, and they have seen production and anticipated
incomes fall.
Despite the tough year, they have continued to set their sights
high and to carry a significant share of our sustainability workload.
They more than anyone recognise it is important to their families,
their community, our country and the planet. They deserve and
have our thanks. We also appreciate the work of our Fonterra
employees, our suppliers, partners and customers for their
contribution to this year’s progress.
Sustainability is not a long-term goal – it is an infinite one.
Every year of work that we report represents a small step along
the way.
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.
John Monaghan
Chairman
Miles H
urrell
Chief Executive Officer
1 FPCM – Fat-and-protein-corrected milk.
4
Letter from the
Chairman and
Chief Executive
5FONTERRA SUSTAINABILITY REPORT 2018
Our Approach
FONTERRA SUSTAINABILITY REPORT 2018

,,,

It is estimated that by  there
will be another one billion people,
placing the Earth’s resources under
even more pressure.
Severe food insecurity
was higher in  than
it was in  in every
region except northern
America and Europe.
Over ­ of children
under €ve are still a‚ected
by stunting, which can
impact cognitive
development and
school achievement.
The Earth’s climate has experienced
warming of approximately .°C during
the last century and ƒood-related
disasters have increased by …†­ in the
last † years. Not only does agricultural
food production need to help reduce
greenhouse gas emissions, it must
also adapt to the increased variability
in weather patterns.

billion people
are already
suering from
‘hidden hunger’.
More than  in  adults
are obese, placing them
at much higher risk of
acute and long-term
health problems.
A GROWING
POPULATION



­
in
.C°
Micronutrient de€ciency or
‘hidden hunger’ is estimated
to a‚ect two billion people.
The insuŒcient intake of key
micronutrients such as iron,
iodine and vitamins can impact
development and exacerbate
disease, and the impacts
are not always visible.
Global
Context
67FONTERRA SUSTAINABILITY REPORT 2018
Our Approach
OUR APPROACH
FONTERRA SUSTAINABILITY REPORT 2018
Around the world, the way food is
produced and consumed is at the
centre of many of the sustainability
challenges facing society.
The future of food will be shaped
by the global response to
these challenges.

The world needs good nutrition to
meet the demands of an expanding
global population and rising rates
of malnutrition.
The way the world is collectively producing food is depleting
natural resources and creating waste faster than our planet
can cope with. We believe the global food system must shift
from compounding the problem to being part of the solution.
With New Zealand’s natural environment and some of the
world’s most effective farmers, we’re well positioned to lead
change. Dairy is a source of high-quality nutrition which, if
produced efficiently and responsibly, can help improve the
management of ecosystems while enhancing rural livelihoods.

Our ambition is to make the best nutrition in a way
that regenerates our farms, our country and the
world. We have a long way to go to achieve this,
with significant challenges.
Some of these challenges are:
• Delivering sustainable nutrition
•Optimising the role of dairy in sustainable diets
•Transitioning manufacturing to net zero emissions
• Transitioning to regenerative farming
• Achieving social equit
y in our communities.
Using heat to pasteurise milk and
dry it into powder is gr
eat for food
safety and for turning a short shelf-
life, seasonal product into long-life
valuable nutrition, but it requires
significant amounts of energy.
How do we transition
manufacturing processes to net
zero emissions while maintaining
a secure energy supply and safe
long-lasting nutrition?”
Robert Spurway
Chief Operating Officer,
Global Operations
The global population is expected
to grow by one billion by 2030,
food production overall is depleting
natural resources and rural
communities are migrating to cities
in search of better livelihoods.
How do we transform our food
system to produce sufficient good
nutrition, while regenerating the
environment and returning decent
livelihoods to farmers?”
Carolyn Mortland
Director Social Responsibility
Access to nutrition, education,
employment and income continue
to be significantly influenced by a
person’s social background, their
ethnicity and gender identity
or expression. An inclusive and
respectful world is essential for a
fairer and sustainable future.
How do we eliminate social
inequity, not just directly in
our own workplace but through
our influence on the supply
chain and the wider society
we interact with?”
Susan Doughty
GM Diversity, Inclusion
and Talent
Different farming practices
have different impacts on the
environment, animal welfare and
the quantity of high-quality nutrition
that can be produced profitably.
How do we transition to farming
that regenerates nature and our
environment while ensuring
farmers can make good financial
returns with the highly-productive
pasture-based farming model that
consumers value?”
Matt Bolger
Director Farm Services
Sustainable diets will involve
different food sources fulfilling
different roles. Dairy is a source
of high-quality nutrition, but
it’s being associated, often
inappropriately, with negative
environmental impacts and
animal rights concerns.
How do we properly evaluate the
nutritional value of food sources
against their environmental and
social impacts? What is the best
balance of different nutrition
sources and the role for dairy
within this?”
Dr Jeremy Hill
Chief Science and
Technology Officer
89FONTERRA SUSTAINABILITY REPORT 2018
Our Approach
OUR APPROACH
Our
Challenges
'' ''
-
''
I
' .
I
..
3·
'' ''

FY19 delivery
•
Launch a new affordable pr
oduct.
• Continue to reformulate products to nutritional guidelines.
• Continue to rollout electronic product traceability.
FY19 delivery
• Deliver another 1,000 FEPs.
•
Commission biomass co-firing at Brightwater.
•
Establish global targ
ets for waste reduction.
FY19 delivery
• Halve the gender pay gap for New Zealand employees from
2% to 1%.
• Continue to deliver free portions of dairy nutrition
for New Zealand children.
•
Deliver earnings per share for
ecast.
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.
Nutrition
On-track
Behind plan
Medium-term targets
•
2019: 100% sites c
ertified to leading Food Safety
and Quality (FSQ) level.
•
2020: 75% product port
folio meeting endorsed
nutrition guidelines.
•
2025: 100% product portfolio meeting endorsed
nutrition guidelines.
FY18 delivery
•
Launch a new affordable pr
oduct.
• Continue to reformulate products to nutritional guidelines.
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.
Environment
Support healthy sustainable livelihoods for our
farmers by returning the most value from every drop
of milk by moving more of our milk 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.
Community
Long-term contribution
Long-term contribution
Medium-term targets
• Continue to invest in community programmes in key markets.
• World-class injury prevention (total recordable injury
frequency rate).
•
World-class engagement.
• Return on capital abo
ve our weighted average cost of capital.
Medium-term targets
• 2025: All farms have FEP.
• 2026: All sites treating wastewater to leading
industry standards.
•
2030: Climate neutral growth for farming.
• 2030: 30% reduc
tion in GHG emissions for
manufacturing operations.
•
2050: Net zero emissions for manufacturing operations.
FY18 delivery
•
Agree action plans for 50
catchments.
• Deliver 1, 000 Farm Environment Plans (FEPs).
• Pilot climate action plan on 100 farms.
Long-term contribution
FY18 delivery
•
Agree target f
or diversity and inclusion.
• Introduce family violence support initiative in New Zealand.
• Deliver 20+ million free portions of dairy nutrition for
New Zealand children.
Community
Environment
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 transitional
changes we face as a global food producer to ensure we are
acting and planning today with a long-term view, managing
risks and identifying opportunities to deliver sustainable
business outcomes.
To communicate our approach to sustainability we have
grouped our priorities under three 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.
Nutrition
11
Our Approach
FONTERRA SUSTAINABILITY REPORT 2018FONTERRA SUSTAINABILITY REPORT 201810
Our
Approach
-
•
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•
•
•
•
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•
•
0
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- - -11 ■■·· 11· .. , uwl:JI " ' ' e '"'

Nutrition
Environment
Community
Indicator
1
Percentage of manufacturing sites certified
by an independent third party to leading food
safety management system (e.g. FSSC22000)
Total electronic traceability from
finished product back to milk supply
Farms with water meters on significant
water intakes (NZ)
Farms participating in nutrient management
reporting and benchmarking (NZ)
Farm Environment Plans (FEPs) (NZ)
Reduction in absolute manufacturing
GHG emissions from FY15 baseline
Employee engagement
Female representation in senior leadership
Ethnic representation in senior leadership
Total recordable injury frequency rate
(TRIFR) per million work hours
Return on capital
Manufacturing sites are treating wastewater
to leading industry standards
Target
2
Status
Net change in GHG emissions from dairy farming
since 14/15 (NZ) (Pre-farm gate tCO
2
-e)
75% by 2020
100% by 2025
100% by 2019
20% by 2022
All Fonterra products
by 2020
FY16
–
–
–
FY17
–
81%
62%
FY18
––
71%
90%
92%
Neutral to 2030
–
252,000
below
baseline
85% by 2020
50%51%53%
100% by 30 Nov 2015
86%95%97%
100% by 2025
––10%
30% reduction
by 2030
3.6%
reduction
3.0%
reduction
World-class
3.653.854.00
3
50% by 2022
–30.5%30.1%
9%
World-class (<5)
6.45.26.1
Above our weighted
average cost of capital
9. 2%8.3%6.3%
100% by 2026
Page 29
Page 34
Page 34
See page
Page 75
Page 55
Page 52
Page 50
Page 50
Page 57
Page 77
Page 75
Page 78
Page 14
Page 51
25%25%26%
Percentage of everyday and advanced nutrition
products that meet endorsed nutritional
guidelines. Fonterra consumer branded products.
817,000
below
baseline
4.7%
reduction
13
Our Approach
FONTERRA SUSTAINABILITY REPORT 201812FONTERRA SUSTAINABILITY REPORT 2018
Our Progress
OUR APPROACH
1 All targets are global unless stated otherwise (e.g. NZ).
2 All targets are by the end of the calendar year stated.
3 Our FY18 survey was moved to the start of FY19, a more suitable time of
year for increased participation and it is expected to continue at this timing.
•
•
•
•
•
•
•
•
•
•
•
•

Fonterra is a New Zealand-based dairy
co-operative which brings together
10,000 farmers to care for people
and the land through generations.
Our New Zealand-based advantage is our pasture-based
farming model, with our farmers closely connected to the
natural environment and their local communities.
From our home in New Zealand, and from the farmers
we work with in a number of other markets, we make
high-quality dairy ingredients, foodservice and consumer
dairy products, which are sold into 138 countries around
the world.
22,358
EMPLOYEES
$20.4B
REVENUE
GLOBAL DATA
22,358
( FROM 22,269)
EMPLOYEES
$20.4B (

FROM $19.2B)
REVENUE
51
MANUFACTURING SITES
1

6.3% (

FROM 8.3%)
RETURN ON CAPITAL
2
1 This is the number of manufacturing sites under Fonterra management control.
2
Return on capit
al excluding brands, goodwill and equity-accounted investments
was 8.0% (down from 11.1%).
3
See www.f
onterra.com/taxprinciples for details on our approach to tax.
Global revenue from sale of goods:
$20.4B (up from $19.2B)
Economic value distributedFY18 $ millionFY17 $ million
Payment to suppliers (farmers)
for NZ-sourced milk
10,1159,471
Payment to suppliers (farmers)
for non-NZ sourced milk
1,245932
Tax expense
3
4220
Profit after tax attributable
to shareholders
221 loss
(earnings of
-$0.14 per share)
734 (earnings of
$0.46 per share)
Dividend payment to equity
holders of the Co-operative
161
(dividend of
$0.10 per share)
642 (dividend of
$0.40 per share)
For our full financial results, please refer to our Annual Review:
www.fonterra.com/annualreview2018
Jason Mercer
National Account Manager
Chicago,
United States
Ine Koot
Technical Innovation Lead
Europe, Amsterdam,
The Netherlands
Tao Wang
FSQR and Health
and Safety Direct
Shanghai, China
Udara Harshana Abayawardana
Senior Engineering Assistant
Fonterra Brands Lanka (Pte)
Biyagama, Sri Lanka
Jane M Sugrue
Regional Environmental
Manager
West Victoria, Australia
Leandro González P.
Corporate Manager
Health, Safety
and Environment,
Risk and Resilience
Valencia, Venezuela
Tara Josie McKerrow
Plant Manager
Whareroa, New Zealand
LATIN AMERICA
(CHILE, BRAZIL, VENEZUELA)
REST OF WORLD
2
$3.12B

REVENUE
308
EMPLOYEES
MANUFACTURING
SITES
REST OF ASIA
2,392
EMPLOYEES
$5.68B
REVENUE
4
MANUFACTURING
SITES
AUSTRALIA
1, 432
EMPLOYEES
$1.84B
REVENUE
7
MANUFACTURING
SITES
CHINA
1, 697
EMPLOYEES
$3.98B
REVENUE
7
FARMS
EUROPE
136
EMPLOYEES
$681M
REVENUE
1
MANUFACTURING
SITE
4,003
EMPLOYEES
$2.27B
REVENUE
7
MANUFACTURING
SITES
UNITED STATES
92
EMPLOYEES
$793M
REVENUE
NEW ZEALAND
12,298
EMPLOYEES
$2.08B
REVENUE
30
MANUFACTURING
SITES
15
Our Approach
14
OUR APPROACH
FONTERRA SUSTAINABILITY REPORT 2018FONTERRA SUSTAINABILITY REPORT 2018
About
Fonterra
-
....
....

Outcomes - Our value creationInputs - Our dependencies
Social capital
We exported to 138 countries and we are working to encourage
international trade and increase common understanding through
stakeholder engagement.
We partner with others to achieve positive social impact at scale
through programmes such as Fonterra Milk for Schools, KickStart Breakfast,
Living Water, Sustainable Catchments and Fonterra Grass Roots Fund.
Social capital
We rely on the social capital of our Co-operative as 10,000 New Zealand
farmer shareholders working together.
We rely on positive relationships with governments to enable trade and
collaboration with others, to efficiently and effectively deliver nutritional
products to the world.
Intellectual capital
Our people, processes and systems mean:
•
90% of our
manufacturing sites are certified to leading food safety standards
• 92% of our products can be electronically traced back to milk supply.
We are working to deliver further innovations such as farming practices,
methane reduction, improved nutrition and efficient manufacturing.
Intellectual capital
We rely on the know-how, systems and intellectual property
that more than 170 years of dairying experience in New Zealand
and more than 90 years of investment in research and development
has generated.
Financial capital
We create financial value for our investors and farmers by generating
demand for their milk in higher-value products (up 3% to 45% in FY18).
•Return on capital was 6.3%
•$10,115 million paid to farmers for New Zealand-sourced milk
•$161 million paid as dividend.
We are wor
king to deliver a respectable return on capital and a strong
payout to our farmers.
Financial capital
We rely on a strong financial base to operate and invest
in infrastructure for the future.
We employed capital of $9,552 million from our farmer
shareholders, unit holders and from debt during FY18.
Physical capital
We manufactured 4 million tonnes of finished goods and commissioned
new infrastructure including:
•New cream cheese, butter and UHT plants in New Zealand
•New cheese plant in Australia.
We are upgrading our assets to be more resource-efficient and meet
the changing demands of our customers.
Physical capital
We rely on the property, plant and equipment that allow us to collect
milk, and make and distribute our products to the world.
With a total net book value of $6,810 million at the end of FY18
this included:
• 500+ milk collection tankers
• 51 manufacturing sites.
Human capital
We are working to improve health and wellbeing through the products
and services we deliver. We provide a workplace that delivers:
•A safe environment (
TRIFR = 6.1 per million hrs)
•High staff engagement (MyS
ay = 4.00)
•Good development opportunities.
We are working to increase our positive impact by developing a diverse
and inclusive workforce and providing support services to our farmers.
Human capital
Over 22,000 talented employees directly contribute around
the world.
Over 29,000 farmers and farm workers use their skills
to provide us with milk. And thousands of people in our supply chain
are vital to the provision of the goods and services we procure.
Natural capital
Our supplying farms emit 20 million tonnes of CO
2
-e and can impact
local water quality. We are working with our farmers to achieve a healthy
environment for farming and for society.
Our manufacturing sites emit 2 million tonnes of CO
2
-e and discharge
59 million cubic metres of water, which can impact local water quality.
We are investing to improve resource efficiency, transition to renewable
energy and achieve leading standards of wastewater treatment.
Natural capital
Our farmers and their 4.7 million milking cows rely on 1.8 million
hectares of pastoral land where rain, sunlight and soil grows natural
grass. Some additional inputs include fertiliser, irrigated water and
animal nutrition.
Manufacturing processes farmers' milk, combining it with other ingredients
and materials to make our products. This includes 29PJ of energy and
54 million cubic metres of fresh water.
and to consumers.
ENTRY
to make and distributenutrition around the world
and to consumers.as ingredients, for foodservice
from farmers We source raw milk
17
Our Approach
16FONTERRA SUSTAINABILITY REPORT 2018
OUR APPROACH
FONTERRA SUSTAINABILITY REPORT 2018
Our Value Creation
11
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Taking into account the
views and perspectives
of our stakeholders, and
building relationships,
is critical to the
long-term success of
our Co-operative.
Customers and consumers
We engage with our business-to-business
customers on an ongoing basis through our
account management teams and by sharing
information through programmes such as
SEDEX and the Carbon Disclosure Project.
Our engagement with customers
provides us with insight on their consumers
and we engage with our own direct
consumers through our service teams, email
and social media, and consumer research.
Topics of most importance:
• Using water r
esponsibly, including
water quality and availability
•
Food safety and quality
• Biosecurity risks to animal,
plant and human health
• Climate change
• Human rights
• Animal health and welfare.

Nutrition and health – see page 28
Improving the range and formulation of our nutrition portfolio to meet our
independently endorsed nutrition guidelines.
Food safety and quality – see page 34
Working towards all manufacturing facilities being certified to benchmark
standards, embedding a culture of food safety and investing in electronic
traceability and food defence mechanisms.
Water – see page 48
Reducing water use and improving wastewater quality at our manufacturing
sites. Working with our farmers to minimise their impact on water quality.
Working with our communities to improve the health of waterways at
catchment scale.
Climate change – see page 54
Improving energy efficiency in our operations and transitioning to low carbon
energy sources. Improving productivity on farm and investing in research and
development to help reduce animal emissions.
Packaging and waste – see page 62
Seeking opportunities to decrease materials used, increase reuse and recycling,
and reduce our solid waste to landfill.
Animal health and biosecurity – see page 66
Working with government agencies to minimise the impact of M. Bovis and
supporting farmers to eliminate practices that contravene the five freedoms.
Employment rights – see page 74
Working with employees and unions to ensure we have a fair working
environment, that encourages diversity and inclusion, and on-going learning
and development.
Health, safety and wellbeing – see page 78
Continuing to focus on getting employees, contractors and visitors home safe
every day and influencing our supply chain and wider society to do the same.
Human rights – see page 80
Continuing to assess the risk of human rights violations in our value
chain and providing specific support for highest areas of risk: bullying and
domestic violence.
Responsible procurement – see page 82
Assessing and influencing our supply chain to reduce the risk of social and
environmental abuses.
At a governance level, the
Co-operative Relations
Committee of the
Fonterra Board provides
governance oversight
of the management of
Fonterra’s relationships
with key external
stakeholders including
relationships with
governments, NGOs
and community
representatives.
This year, we directly surveyed
representatives of key stakeholder
groups to help us further understand
the relative importance of
sustainability topics for reporting. We
have also used previous materiality
assessments, as published in 2017, to
inform our understanding.
Using the topics that we covered in the
Sustainability Report 2017 as a starting
point, we used the relative importance
and non-importance indicated by this
year’s stakeholder survey responses
to inform the coverage in this report.
The responses were assessed by
stakeholder group and the results for
each stakeholder were treated on an
equal basis. Topics of high importance
to many stakeholder groups have
therefore been given priority in this
report. Topics of lower importance to
many stakeholder groups have been
omitted from this document, but may
be disclosed on our website or in other
reports or publications.
Employees
We engage with our employees on an ongoing
basis through our everyday interactions, regular
engagement surveys and engagement with unions.
Topics of most importance:
• Food safety and quality
• Using water responsibly, including water quality
and availability
• Minimising waste
• Protecting the health and safety of people at work.
Farmer shareholders and supplying
farmers around the world
We engage with our New Zealand farmers
shareholders at meetings and roadshows, and
through the formal governance of our Co-operative.
We also engage with farmers on an ongoing basis
directly through employees, such as Area Managers
and Sustainable Dairying Advisors.
Topics of most importance:
• Financial performance
• Food safety and quality
• Biosecurity risks to animals, plant
and human health
• Organisational governance.
NGOs
We engage with non-governmental organisations
(NGOs) through collaboration and consultation on
specific topics, e.g. The Forest Trust on palm products
sourcing and the New Zealand Nutrition Foundation
on nutrition guidelines.
Topics of most importance:
• Using water responsibly, including water quality
and availability
• Climate change and mitigation
• Nutrition and health
•
Minimising waste.
Central and regional governments
We engage with central and regional governments
at many levels, coordinated through our
Government and Stakeholders Affairs team. We
also work in partnership on important issues
such as climate change (Pastoral Greenhouse Gas
Research Consortium), NZ Water (Department of
Conservation), and children’s wellbeing (KickStart
Breakfast programme).
Topics of most importance:
• Climate change and mitigation
• Food safety and quality
• Protecting health and safety of people at work
• Human rights
• Using water responsibly, including
water quality and availability.
Investors (including unit holders,
bond holders and banks)
We engage with our investors on a
regular basis through updates, formal
reporting and meetings coordinated
through our Capital Markets team.
We also share information through this
report and the Carbon Disclosure Project.
Topics of most importance:
• Financial performance
• Biosecurity risks to animal, plant
and human health
• Food safety and quality
• Climate change, including energy use
• Water
• Minimising waste.
To determine the content for this report we applied the GRI’s
principles for defining report content including context,
completeness, stakeholder inclusivity and materiality.
The boundary for each material topic was defined on the
basis of our materiality analysis.
Our stakeholders are the people and
organisations that we interact with and
influence along our value chain, both
directly and indirectly.
Over the past year we have strengthened
our stakeholder engagement around
several specific sustainability topics.
For example, for Sustainable Catchments,
see section on page 48.
OUR APPROACH
Our Approach
18FONTERRA SUSTAINABILITY REPORT 201819FONTERRA SUSTAINABILITY REPORT 2018
Our
Stakeholders
Responding to
what’s important
-

Fonterra supports the United Nations
Sustainable Development Goals (SDGs)
and we are committed to playing our
part, by working collaboratively to deliver
change at scale.
The Dairy Declaration of Rotterdam,
1
recognises the SDGs
as the overarching framework for achieving sustainable
development to 2030 and the critical contribution the dairy
sector will play.
We understand that the SDGs and their underlying targets
can help us refine our sustainability approach, not only to
reduce risks, but also to identify opportunities for growth that
contribute positively to their achievement.
We have analysed our business activities, material issues and
value chain against the SDGs and their underlying 169 targets.
Here we identify the specific goals where we can make the
most material contribution, the objectives we have prioritised
for specific indicators and where this occurs in our value chain.
Sustainable Development GoalsOur contributionIndicatorDairyingOperationsConsumption
End poverty in all its
forms everywhere
Create positive employment opportunities along our value chain1.2
End hunger, achieve food security
and improved nutrition and promote
sustainable agriculture
Provide access to safe, affordable nutrition 2.1
Address malnutrition through products tailored to specific health needs2.2
Share our dairy expertise with small-scale producers 2.3
Lift dairy productivity to meet growing nutritional needs2.4
Ensure healthy lives and promote
well-being for all at all ages
Responsibly provide products to support wellbeing of mothers and infants
3.1
3.2
Continue to improve the nutritional profile of our products3.4
Promote healthy and informed consumer choices3.4
Achieve gender equality and
empower all women and girls
Ensure equal participation and opportunities for women in the workforce 5.5
Share our dairy expertise with female small-scale producers 5.5
Ensure access to sanitation and
water for all
Reduce the impact of farming and manufacturing on water
quality and ecosystems
6.3
14.1
15.1
Conserve and sustainably use the
oceans, seas and marine resources
Increase water efficiency in areas of constrained supply 6.4
Sustainably manage forests, combat
desertification, halt and reverse land
degradation and halt biodiversity loss
Protect and restore freshwater ecosystems 6.6
Promote inclusive and sustainable
economic growth, employment and
decent work for all
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
Ensure sustainable consumption
and production patterns
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
Take urgent action to combat
climate change and its impacts
Support farmers to build resilience to climate change 13.1
Reduced emissions across our supply chain
1 A joint declaration of the UN Food and Agriculture Organization and the International
Dairy Federation signed in 2016.
21
Our Approach
20
OUR APPROACH
FONTERRA SUSTAINABILITY REPORT 2018FONTERRA SUSTAINABILITY REPORT 2018
Our Contribution
to United Nations
Sustainable
Development Goals
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Our CommunitiesOur Nutrition
Dr Jeremy Hill
Chief Science and
Technology Officer
“As global food systems transform, we
must consider both optimal land use
for production and optimal diets for
consumption. What is the best balance
of different nutrition sources and what is
the role for dairy within this?
Current assessment tools tend to
focus on individual aspects such as
adequate protein and greenhouse gas
emissions, ignoring complexities such
as bioavailability – the body’s ability to
absorb the nutrition. How do we robustly
consider nutritional and health attributes
such as these alongside the broader
environmental and social implications,
so we properly plan a transition to a
sustainable food system?”
Our
Nutrition
We are working together to
deliver great dairy nutrition.
By unlocking the potential in dairy through
science and innovation, we are developing
products that contribute to balanced
nutrition and respond to people’s changing
needs, attitudes and lifestyles. It’s all part
of making sure dairy plays its part in a
sustainable food system.
Nā tō rourou, nā taku
rourou ka ora ai te iwi.
With your food basket and
my food basket the people will thrive.
23FONTERRA SUSTAINABILITY REPORT 201822FONTERRA SUSTAINABILITY REPORT 2018

Our Nutrition
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:
Fonterra’s contribution to the
SDGs from a nutrition perspective.
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 wellbeing of mothers and
infants (3.1 and 3.2)
2
Promote healthy and informed
consumer choices (3.4)
Continue to improve the nutritional
profile of our products (3.4)
Vitamin B2
(Riboflavin) which helps
reduce tiredness.
Vitamin B12
which supports normal
brain function.
Vitamin A
which supports vision
and immune function.
Calcium
which helps build
strong teeth and bones.
Phosphorus
which helps generate
energy from nutrients.
Potassium
which supports
muscle function.
25FONTERRA SUSTAINABILITY REPORT 2018
Our
Nutrition
24FONTERRA SUSTAINABILITY REPORT 2018
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 w
ellbeing of individuals by leading
innovation in advanced dairy nutritional products to
address specific health needs.
• Nutritional profile: 71% of our everyday and advanced
nutrition products meet independently endorsed
nutrition guidelines – see page 29
•
Affordable products: Our planned launch of a new
affordable product this year has been delayed to FY19
but it is still under development – see page 30
• Advanced nutrition: W
e launched a new dedicated
medical nutrition division – see page 29
•
Food safety and quality: 92% of our products have
electronic traceability from the finished product back
to where the milk was collected – see page 34
KEY HIGHLIGHTS
Our dairy products can play a valuable
role in addressing deficiencies in diets
and improving the health and wellbeing
of people around the world.
Not all proteins are equal. We eat protein to help us build
muscle and other body tissues. Some foods contain good
proteins but they are not readily digestible. Other foods
have a poor range of proteins but they are easily absorbed.
Protein sources, such as milk, contain high-quality proteins
and are readily digested to make these available within
our bodies.
1
But malnutrition is not just about protein. Micronutrient
deficiency is the ʻhidden hungerʼ that affects an estimated
two billion people. A diet lacking in key micronutrients can
be adequate to live, but have serious implications for an
individual’s health and their children.

1 These two aspects of protein quality are measured by the Dietary Indispensable Amino Acid
Score (DIAAS).
2 See page 28 for our position on
the responsible promotion of
breast-milk substitutes.
-

Our Nutrition
27FONTERRA SUSTAINABILITY REPORT 201826FONTERRA SUSTAINABILITY REPORT 2018
OUR NUTRITION
* Group totals also include China Farms revenue of $0.3 billion
and 22,000MT and the elimination of revenues and volumes
from internal sales of $3.26 billion and 683,000MT.
Where
we sell
Global Ingredients
Fonterra supplies dairy ingredients to many of the worldʼs
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 Fonterraʼs
own research and process innovation. Advanced
ingredients products include functional proteins,
medical grade lactose, high-spec whole milk powder
and extra-stretch cheese.
578 ( FROM 600)
VOLUME (METRIC
TONNES, THOUSANDS)
$1,534M ( FROM $1,478M)
REVENUE ($ MILLION)
CONSUMER AND FOODSERVICE
LATIN AMERICA
331 ( FROM 310)
VOLUME (METRIC
TONNES, THOUSANDS)
$1,865M ( FROM $1,810M)
REVENUE ($ MILLION)
CONSUMER AND FOODSERVICE
ASIA
623 ( FROM 636)
VOLUME (METRIC
TONNES, THOUSANDS)
$2,159M ( FROM $1,952M)
REVENUE ($ MILLION)
CONSUMER AND FOODSERVICE
OCEANIA
266 ( FROM 237)
VOLUME (METRIC
TONNES, THOUSANDS)
$1,564M ( FROM $1,277M)
REVENUE ($ MILLION)
CONSUMER AND FOODSERVICE
GREATER CHINA
2,986 ( FROM 3,019)
VOLUME (METRIC
TONNES, THOUSANDS)
$16.3B ( FROM $15.3B)
REVENUE ($ BILLION)
GLOBAL
INGREDIENTS

SOLD TO OTHER COMPANIES*
1,798 ( FROM 1,783)
VOLUME (METRIC
TONNES, THOUSANDS)
$7.12B ( FROM $6.52B)
REVENUE ($ BILLION)
TOTAL CONSUMER
& FOODSERVICE*
138
COUNTRIES
Our products were delivered
to 138 countries this year.
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.
-
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A
•
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Our Nutrition
29FONTERRA SUSTAINABILITY REPORT 201828FONTERRA SUSTAINABILITY REPORT 2018
OUR NUTRITION
Health and
wellbeing
Good nutrition is essential for people
to lead healthy and fulfilling lives.
Thereʼs work to do to achieve this.
The recently published State of Food Security and Nutrition in
the World
1
highlights worrying health statistics related to poor
nutrition. In 2017, the number of undernourished people increased
to 821 million, reversing a long downward trend. At the same
time, adult obesity climbed to 672 million. In many countries,
undernourishment, obesity and micronutrient deficiencies – the
triple burden of malnutrition – co-exist.
When pregnant women have poor access to food, the risk of low
birthweights and stunting in children increases. In turn, children
with low birthweight or stunting, have a higher chance of being
overweight later in life. Disturbingly, stunting still affects more
than 22% of children under five globally.
As a food company, we recognise the valuable role dairy products
can play in addressing deficiencies in diets and improving health
and wellbeing for people around the world. This section covers
our global approach to nutrition and its contribution to health
and wellbeing.
We focus on the branded consumer products we control directly,
but we also seek to add value to our range of foodservice and
ingredient products, by influencing and helping our customers
with new product innovations.
Our approach
The Fonterra Group Nutrition Policy sets out our overarching
commitments to deliver highly nutritious dairy products to
the world.
The policy is supported by detailed guidelines that define nutrition
criteria for the composition of products, and inform our marketing
practices across all branded consumer products and ingredients.
The New Zealand Nutrition Foundation has independently
reviewed and endorsed these guidelines as evidence-based,
founded in robust nutritional science and reflecting international
directives on nutrition and health. These guidelines complement
national 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. For example, our
criteria for added sugars and refined carbohydrates are intended
to help consumers achieve the World Health Organizationʼs
(WHO) recommended guidelines for limiting daily added
sugar intake.
We support the aim and intent of the WHO Code for the
Marketing of Breast Milk Substitutes and are committed to
complying with the relevant industry codes and legislation in all
countries where our products targeting infants and young children
are sold.
As part of our consumer products strategy, and to guide our
research and development processes, we have grouped our
products into four categories:
•
Advanced nutrition – Daily dairy nutrition with targeted
nutritional fortification based on sound science, promoting
specific health benefits based on robust evidence (e.g. Anlene
Heart-Plus™, NZMP Super Fortified Instant Skim Milk Powder).
•
Everyda
y nutrition – Daily serves of dairy nutrition,
promoting the important and flexible role of dairy in meeting
the daily nutrient requirements of a healthy, balanced diet
(e.g. Anchor™ Milk).
•
Affordable nutrition – Products formulated based on sound
science to address specific needs of communities, providing
access to affordable nutrition to fight under nourishment
(e.g. Anchor™ Fortified Milk Drink in Ethiopia).
•
Occasional and indulgent – Promoted as occasional products
to be enjoyed in moderation as part of a healthy, balanced diet
(e.g. Tip Top ice cream).
What weʼve been doing
Improving the nutritional profile of our consumer products
We continue to improve the nutritional benefits of our products.
Our dairy nutrition criteria define minimums for dairy protein,
calcium, riboflavin, niacin, vitamin B12, phosphorus and potassium
content. We are also minimising the addition of added sugars
and refined carbohydrates to less than 2% of total daily energy
requirements per serve, minimising added sweeteners (natural or
artificial), limiting sodium in products positioned for nutrition and
health, and limiting total fat content.
We have set ourselves targets for our everyday and advanced
nutrition products and this year we have established our baseline
(see Our Performance section on page 32). See the Case Study on
Improving Nutrition on page 31 for examples of improvements
this year.
Investment in innovation
The Fonterra Research and Development Centre (FRDC) is one
of the largest of its kind in the world, with over 300 scientific
and technical experts. Itʼs here that we invest most in innovation,
driving scientifically supported benefits from dairy to meet the
nutritional needs and expectations of society.
This year, we continued our research into the effects of dairy
products on mobility, demonstrating that dairy protein has a
positive impact on muscle protein synthesis.
Looking at womenʼs health, our research has shown that milk
fortified with calcium and vitamin D improves bone density
in post-menopausal women. Similarly, for pre-menopausal
Chinese women living in Malaysia, we showed that fortified milk
supplements improved vitamin D levels and grip strength, and
maintained bone density.
Building on previous research into our proprietary probiotic strain
DR20™, which has shown to help treat childrenʼs eczema and
potentially reduce the risk of gestational diabetes when taken
during pregnancy, a new study published this year indicated that
DR20™ can also help reduce postnatal depression by 50%.

Established new dedicated medical nutrition division
With NZMP ingredients positively contributing to this area for
many years, this year we decided to establish a specialised medical
nutrition division. The small team is tasked with pioneering a
range of dairy nutrition solutions for people who are recovering
from disease and illness at all stages of life, or who want to take
preventative actions to help them live longer and healthier lives.
This is part of our strategy to unlock the health benefits of dairy,
delivering a positive impact on society and delivering higher value
for our farmers’ milk.
As part of this new venture, we are participating in a major
international project with 24 science and nutrition organisations
to investigate the role of diet in maintaining nourishment and
function in people over 70 years. Older people in many countries,
including New Zealand, are at higher risk of health issues because
of poor nutrition. In Europe, about 20% of older adults who live at
home are malnourished or at risk of malnutrition. In New Zealand,
almost 75% of older adults involved in a recent Massey University
study were found to be at risk of malnourishment, or were
malnourished, when they were admitted to hospital.
1 FAO, IFAD, UNICEF, WFP and WHO. 2018. The State of Food Security and Nutrition in the
World 2018. Building climate resilience for food security and nutrition. Rome, FAO.

Our Nutrition
31FONTERRA SUSTAINABILITY REPORT 2018
OUR NUTRITION
30FONTERRA SUSTAINABILITY REPORT 2018
Health and
wellbeing
continued.
Developing affordable nutrition
In countries with emerging markets such as Ethiopia, a significant
proportion of the population survives on less than US$10 a day.
We have recognised the opportunity to create value by helping
to fight malnutrition through targeted new products that nourish
families living on less than US$10 a day. It’s not just the taste,
nutritional and dietary aspects of the product that will ensure it
is a success. We also need to consider access for consumers living
in remote and rural areas, and design innovative communication
channels to reach our target audience.
We had planned to launch a new affordable nutrition product
this year, but the development phase has taken longer than we
estimated. We’ve engaged with government officials, NGOs,
doctors and teachers in key markets to determine the most
important nutrient deficiencies. We’ve been working closely with
consumers to co-create such a product – undertaking testing with
them and adjusting the product based on their feedback. This
included the team spending time living with consumers in remote
areas to understand their life, daily habits and how they prepared
meals. We are now investigating the new product launch for the
year ahead.
Investigating complementary nutrition
Dairy is a unique source of nutrition: a complex mix of proteins,
fats, lactose, minerals and other micro-nutrients with the flexibility
to play a fundamental role in healthy, balanced diets as recognised
by governments and health experts around the world. Consumers
value the natural goodness of dairy and we are confident they will
continue to purchase it as a premium source of nutrition.
To help meet the world’s increasing need for food, especially
protein, we believe a sustainable diet will involve a combination of
traditional and alternative nutritional sources.
We’re therefore working with a wide range of world-leading
organisations, including research institutes and start-ups, to
investigate the potential of complementary nutrition sources such
as plant and fermentation-produced nutrition. Over time these
ingredients may play a role in our business alongside our core
dairy business, giving more options to customers and consumers.
Supporting action on health
In 2017, we signed up to the New Zealand Ministry of Health’s
Healthy Kids Industry Pledge. We are committed to identifying
and contributing solutions that aim to help reduce rates of obesity
for all children in New Zealand. This year, we continued to improve
the formulation of our everyday products in New Zealand (see
page 29), rolling out Health Star Ratings on a further 46% of our
applicable1 products (achieving a total of 93%) and continuing to
deliver our in-school nutrition programmes (see page 36).
In 2018, we made a submission to the Australian Federal Inquiry
into the obesity epidemic. Our submission reinforced our support
for government, industry and community-based initiatives that
promote the consumption of dairy products as one of the core
food groups, and support increased physical activity to improve
health outcomes for all Australians.
1 Applicable products are those intended for everyday consumption in New Zealand and
where the packaging is not also used for export to regions where the Health Star Rating
is not accepted.
2
Excluding infant formula follow-on milk where lactose is added to comply with the
regulations for the category.
CASE STUDY
Healthier options for mothers
in Malaysia
Anmum™ Materna is
specially formulated to
support the nutritional
needs of pregnant women
or women planning to have
children. Anmum™ Lacta is
specially formulated to meet
the nutritional requirements
of breastfeeding mothers.
This year, we launched a no
added sugars formulation for
the Anmum™ Materna plain
flavour, and a reduced sugar
version for the chocolate
flavour. These are intended
to help address common
pregnancy concerns such
as excessive weight gain
and the risk of pregnancy
induced diabetes due to
excessive sugar intake.
The new formulation is
also fortified with probiotic
DR10™ to support good
gut health.
At the same time,
we released a new no
added sugars version of
Anmum™ Lacta.
These releases
complete our rollout of
no added sugars across
the entire Anmum™
range
2
in Malaysia.

Our Nutrition
33FONTERRA SUSTAINABILITY REPORT 201832FONTERRA SUSTAINABILITY REPORT 201833FONTERRA SUSTAINABILITY REPORT 2018
OUR NUTRITION
Our targets
IndicatorTarget PerformanceCommentary
FY16FY17FY18
Percentage of everyday
and advanced nutrition
products that meet endorsed
nutritional guidelines
1

(Fonterra consumer branded
products globally)
75% by 2020
100% by 2025
––71%
We assessed our portfolio for the
new target we set in FY17 and we are
pleased with the baseline.
Innovation will be required to
deliver some of the remaining
improvements but we are on track
to achieve the targets.
Awards and recognition
Anchor™ Protein+ Plain Yoghurt won the best Dairy Product
of 2017, awarded by The New Zealand Healthy Food Guide.
Anmum™ Materna was awarded the Malaysian Parenthood
magazine and Readers’ Choice Award 2018.
Our commitments to population nutrition and obesity prevention
were independently assessed this year by universities in New
Zealand and Australia using a methodology developed by
INFORMAS.
2
The assessment is primarily based on information
that is publicly available and we were pleased to be ranked second
overall in New Zealand, with top marks awarded for our corporate
population nutrition strategy, and we ranked ninth in Australia. We
welcome the opportunity to continue engaging with researchers
in both jurisdictions, to improve transparency around our nutrition
commitments and our overall results in any future studies.
Compliance with regulations
In the past year, we had one perceived breach of marketing
guidelines. No financial penalty was imposed. We are focused on
ensuring we meet our compliance obligations.
1 Assessment of existing products is based on protein and calcium criteria only because most
of the portfolio predates the guidelines and information on other criteria is not available.
All new products are assessed against all guideline criteria.
2
An international network of researchers that benchmarks food environments in over
30 countries worldwide.
Our Nutrition
Health and
wellbeing
continued.
• We will continue to improve the nutritional value of
our consumer branded products and minimise added
sugars, salt and refined carbohydrates.
• We will complete our ne
w product development and
launch at least one new affordable nutrition product.
•
We will continue to invest in research and development
and new innovations for our entire product range.
WHATʼS NEXT
CASE STUDY
Helping consumers spread
their protein intake across the day
Scientific evidence suggests
that protein intake should
be spread throughout the
day to support optimal
muscle health. However,
many consumers get most
of their protein in their
evening meal.
This year, we relaunched our
Anchor website with a suite
of nutrition articles to help
consumers understand the
role of protein in diets and
make informed choices for
a healthy diet.
Our range of
Anchor™ Protein+
products, which include
high-protein milks,
yoghurts and smoothie
boosters, are designed
to help consumers
spread their protein
intake across the day.
Our performance
-

Our Nutrition
35FONTERRA SUSTAINABILITY REPORT 2018
OUR NUTRITION
34FONTERRA SUSTAINABILITY REPORT 2018
Food safety
and quality
Safe food. Safe people.
World class quality.
Itʼs our promise.
We make a promise to our customers and consumers to make
our food to standards of uncompromising food safety and
world-class quality. That’s why all our food products are
assessed for health and food safety impacts prior to initial
launch and on an ongoing basis.
Our approach
Fonterra operates a Food Safety and Quality System to ensure
that, wherever we are in the world, we have a clear, consistent
framework to deliver safe, quality products and services. Our Food
Safety and Quality System is made up of four key components:
our Food Safety Policy, business unit requirements, partner
requirements, and our food safety and quality behaviours.
At Fonterra, food safety and quality is everyoneʼs responsibility
– from our farms all the way to our customers and consumers
around the world. Accountability for performance extends from
the Board of Directors, through the Fonterra Management Team,
to individual managers, workers, contractors working on Fonterra
sites and providers of goods and services. To ensure consistency
of approach and continuous improvement, the Group Food
Safety, Quality and Regulatory (FSQR) organisation and operating
model, including the Food Safety and Quality Council, has been
embedded across Fonterra. Our Food Safety and Quality System
is subject to regular scrutiny from third-party audits by regulators,
key account customers and certification bodies.
What weʼve been doing
Trust in Source
We are working towards all our manufacturing facilities being
independently certified to benchmark quality standards
1
by 2019.
This year, we have progressed to 90% of all manufacturing sites
achieving this level. In addition, our own farming operations in
China have achieved this benchmark.
Having systems and processes in place is essential, but
thinking and living quality is what makes the biggest difference.
Strengthening food safety and quality as a cornerstone of our
culture has been our focus over the past four years. In FY17,
independent research showed the success of these efforts and
this year we have built on that success with a number of global
initiatives, including the preparation of standardised induction
programmes. These induction programmes apply to both
operational and non-operational employees, which starts the
conversation about food safety from the moment they join
the organisation.
Product traceability
We have been investing significantly to integrate our systems
and enhance our electronic capabilities around traceability. This
now allows us to very efficiently track batches of product, the
ingredients that went into them and the primary packaging,
from the raw milk we collect and process right through to the
consumer. Some activities that used to take more than two hours
can now be completed in minutes. All the important inputs are
visible in one system for trace-enabled sites, which is now 92% of
our global manufacturing plants.
This underlying technology allows us to provide new, external
traceability services for consumers. By scanning a unique QR code
on the product they are about to buy, consumers can check that
it is authentic and also find out additional information about its
provenance. Scanning the product after purchasing it will give
them up-to-date status information too.
This service was launched in FY17 across our Anmum™ paediatric
and maternal products in New Zealand and via online sales in
China. During FY18 this has been extended to retails sales of
paediatric products in China and Hong Kong.
Our targets
IndicatorTarget PerformanceCommentary
FY17FY18
Percentage of manufacturing sites certified
by an independent third party to leading food
safety management system (e.g. FSSC22000)
100% by the
end of 2019
81%90%
Good progress and expected to
achieve target on time.
Total electronic traceability from finished
product back to milk supply
All Fonterra products
by the end of 2020
62%92%
Good progress made during the year
and on track to achieve target.
1 A standard recognised by the Global Food Safety Initiative, currently FSSC22000 or BRC.
• We are now looking to influence and support the
third-party manufacturers who provide services to us,
building on the lessons we have learned from our own
sites about the importance of food safety culture.
• We will continue to expand the e
xternal traceability
services available to consumers, with Vietnam,
Indonesia, Singapore and Thailand scheduled for QR
coded Anmum™ and Materna products during FY19.
•
Making use of the underlying technologies tha
t have
been established for traceability, we are now looking
to provide new complementary services to employees
and customers to further increase food safety
practices and give consumers even more confidence
that they are buying authentic, safe products.
• We will also be expanding our us
e of food crime
prevention technologies to further protect our
products, customers and consumers.
WHATʼS NEXT
Our performance
No recalls
During the year, there were no consumer recalls of
product for safety reasons.
Milk
Manufacturing
Packaging and ingredients
DistributionConsumers
Total electronic product traceability
Full electronic traceability
gives consumers rapid
access to provenance
information about
the specific item in
their hand.
QR Codes
•
•

Our Nutrition
37FONTERRA SUSTAINABILITY REPORT 2018
OUR NUTRITION
36FONTERRA SUSTAINABILITY REPORT 2018
KickStart Breakfast
A nutritious breakfast and a nurturing environment can
help kids achieve their potential. The KickStart Breakfast
programme, which we deliver in partnership with the Ministry
of Social Development, Sanitarium, and local community
volunteers, is helping provide this to Kiwi kids who might
otherwise miss out. Fonterra provides the Anchor milk,
Sanitarium provides the Weet-Bix, and local schools are
responsible for running the KickStart Breakfast club.
This year, KickStart grew to 976 breakfast clubs and served
more than 125,000 breakfasts every school week. Thatʼs more
than five million portions of milk for the year.
Fonterra Milk for Schools
Fonterra’s Milk for Schools initiative is helping more than
140,000 school kids aged 5-11 get access to nutritious milk
every day. The programme is funded by Fonterra and our
farmers and delivered in partnership with schools, with
around 1,420 participating across New Zealand.
Since the introduction of the programme, we have been
working with researchers to evaluate the impact of the
programme on the health of participating children and we
have seen positive results. A University of Auckland study of
children participating in Fonterra Milk for Schools showed
that over the first two years of the programme the percentage
of children consuming the recommended minimum amount
had risen from 72% to 84%. Another study by Massey
University found that participating children grew at the same
rate as the control group, in terms of height and weight, but
that they had significantly improved bone health.
We had a lot of fun this year celebrating our fifth birthday
and delivering our 100 millionth portion of milk. We held
a competition for participating schools, with five winning
schools getting a visit from New Zealand rugby legend
Richie McCaw in a helicopter.
Trusted
Goodness
We also listen carefully to our customers and consumers and
recognise the value in New Zealand’s global reputation for its
genetically modified organism (GMO) status, as supported by
the current New Zealand regulatory framework. To date, no
genetically modified plants or animals have been released in
New Zealand, and the use of recombinant growth hormones
on dairy cows is prohibited.
The Non-GMO Project is a mission-driven non-profit
organisation dedicated to building and protecting a non-
GMO food supply in North America. Its Non-GMO Project
Standard is one of the fastest growing voluntary labels in
the United States retail sector. To become verified, all inputs
into an individual product must be evaluated for compliance,
including everything from the cows’ feed, to the activities at
the specific site where the product is manufactured.
This year, a further 19 products were verified for Non-GMO
Project manufacture, taking the total to 37 ingredient
products sold under our NZMP brand into the North
American market. We also completed Non-GMO Project
verification of our organic milk supply and associated
manufacturing sites.
Cared for Cows Standard
This year, we launched our Cared for Cows Standard. While
we already had high standards of animal health and welfare,
by having independent certification against this standard we
will be able to reinforce the good work done by our farmers.
The programme involves some extra annual data collection
from farmers covering key indicators of animal health and
welfare performance and additional verification as part of our
on-farm assessment.
For more information see Animal Health and Welfare on
page 66.
Fonterraʼs commercial strategy is to turn more of our
farmersʼ raw milk into higher value products. As consumers
are becoming increasingly concerned about where their
food comes from, and how itʼs made, in many cases they
are willing to pay a premium when there are assurances
that the company behind that food acts in a responsible
and ethical way.
In FY17, we launched the Trusted Goodness™ quality seal
and on-farm claims as a way to independently demonstrate
specific attributes of our products and the good work by our
supplying farmers.
Independent certification is an important way to give our
customers and consumers confidence. For each specific
claim, our farmers provide information each year. Additional
verification is required and our specific processes must be
certified by an independent party such as AsureQuality who
are accredited by JAS-ANZ.
Grass and Pasture-Fed Standard
New Zealandʼs natural, grass-fed advantage and
non-GMO status are increasingly valued by our customers
and consumers.
To support our grass-fed claim, we developed a Grass and
Pasture-Fed Standard that is third-party verified. This standard
outlines the requirements for our grass-fed dairy:
• a minimum annual average of 80% grass feeding and
•
a minimum of 90% time on pasture.
These are amongst the highest rates in the world.
Non-GMO Project Standard
We see value in maintaining optionality around the use
of technology and the possibilities offered by new and
emerging life science technologies such as gene editing.
Such advances could potentially offer significant benefits
for sustainable nutrition, animal welfare, human health,
biosecurity and the environment.
As well as providing
a healthy breakfast,
the clubs also foster
a safe and nurturing
environment for children
to get the best possible
start to their school day.
KickStart
Breakfast Clubs
This initiative is helping
more than 140,000
school kids get access
to nutritious milk
every school day.
Fonterra Milk
for Schools
In-School
Nutrition

Our CommunitiesOur Environment
Robert Spurway,
Chief Operating Officer,
Global Operations
“As we transition manufacturing
processes to net zero emissions, we
must maintain a secure supply of energy.
Large quantities of energy are required to
pasteurise milk and dry it, turning it into
valuable nutrition with a long life. What
are the best alternative energy sources
to ensure reliable supply so we do not
waste valuable nutrition, or cause other
environmental or animal welfare impacts?”
Matt Bolger,
Director Farm Services
“As we continue to invest in
sustainability on farm, we want to retain
the pasture-based farming model that
farmers, communities and consumers
of New Zealand products value. How do
we help our farmers transition to farming
that regenerates the environment and
reduces greenhouse emissions while
improving productivity?”
Our
Environment
We are working together to
find ways that regenerate
nature and our environment.
By understanding the connection between
land, animals and water, and using resources
wisely we are finding a path to regeneration.
It’s all part of our transition to a more
sustainable way of dairying.
Tiakina te whenua i tēnei rā,
hei oranga tangata mō ngā rā e heke mai nei.
Caring for the land today,
so that the land cares for us tomorrow.
3839FONTERRA SUSTAINABILITY REPORT 2018FONTERRA SUSTAINABILITY REPORT 2018

10%
of supplying farms in
New Zealand have
environment plans
tailored to the specific
risks and opportunities
on their farm.
97%
of supplying farms
in New Zealand are
participating in nutrient
management reporting
and benchmarking.
2.4%
improvement in water
efficiency at our New
Zealand manufacturing
sites since FY15.
220,000
New Zealand homes
The 19.3% energy efficiency
improvement our New Zealand
Manufacturing team have
achieved since FY03 saved enough
energy this year to power 220,000
residential homes for the year.
BREAKDOWN:
1%
Distribution
10%
Manufacturing
89%
On-farm
22.2M
Total GHG emissions
22.2m tCO
2
-e.
Share our dairy expertise with
small-scale producers (2.3)
Increase productivity through
sustainable practices (2.4)
Fonterra’s contribution to the SDGs
from an environmental perspective.
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)
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)
Reduce emissions across our
supply chain
Support farmers to build
resilience to climate change (13.1)
Reduce impact of farming
and manufacturing on
freshwater ecosystems (15.1)
Our
Environment
Our Environment
4041FONTERRA SUSTAINABILITY REPORT 2018FONTERRA SUSTAINABILITY REPORT 2018
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 but the
industry needs to find more efficiencies and improve its
practices to achieve positive environmental outcomes.
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.
We are working in our sites, with our farmers and our
communities to improve our environmental performance.
To achieve positive environmental outcomes requires
working together to deliver improvements at scale.
How Fonterra is making this happen:
We are focused 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 (GHG) emissions from
our supply chain
Meet the growing nutritional demand through
improvements in productivity and minimising waste
from farm to consumer.
• Protecting New Zealand’s waterways: Our farmers
have essentially excluded all their dairy cattle from
waterways on their farms – see page 50
• Investing in resource-efficient manufacturing:
Investments in our Pahiatua site have improved water
efficiency by 64% since FY15 and lessons are being
shared to accelerate progress across our other sites –
see page 53
•
On-farm GHG emissions: Pilot o
f greenhouse gas
reporting completed with 104 farms to help improve
emissions efficiency on farm – see page 56
•
Biosecurity respons
e: We have helped respond to the
first detection of Mycoplasma bovis into New Zealand,
seeking to minimise its impact and eradicate it if
possible – see page 66
KEY HIGHLIGHTS
-

OUR ENVIRONMENT
Our Environment
4243FONTERRA SUSTAINABILITY REPORT 2018FONTERRA SUSTAINABILITY REPORT 2018
Our Environment
Our farming and
manufacturing activities
New Zealand is our home – it’s where
our shareholder farmers are based
and where we source most of our
milk. We also have operations around
the world.
This map shows the locations of the manufacturing
sites we manage and that we report in this section.
It also shows the small number of farms that we
directly manage around the world. The litres of raw
milk collected refers to the total raw milk that we
collected from farms in the region.
LATIN AMERICA
(CHILE, BRAZIL, VENEZUELA)
SAUDI ARABIANETHERLANDS
1
MANUFACTURING
SITE
1
MANUFACTURING
SITE
7
MANUFACTURING
SITES
497M LITRES
RAW MILK COLLECTED
1
FARM
ETHIOPIA
1
MANUFACTURING
SITE
AUSTRALIA
7
MANUFACTURING
SITES
2,046M LITRES
RAW MILK COLLECTED
NEW ZEALAND
30
MANUFACTURING
SITES
16,985M LITRES
RAW MILK COLLECTED
29
FARMS
SRI LANKA
1
MANUFACTURING
SITE
14 M LITRES
RAW MILK COLLECTED
1
FARM
CHINA
296M LITRES
RAW MILK COLLECTED
7
FARMS
MALAYSIA
2
MANUFACTURING
SITES
INDONESIA
1
MANUFACTURING
SITE
-
)

OUR ENVIRONMENT
In addition to the support provided by our Australian Farm
Source team, we back special projects funded in part by
our Anchor™ Sustainability Fund. In the last year, the fund
approved 25 innovative on-farm projects. These projects
need to provide an environmental or animal welfare benefit,
improve farmer profitability, and be of value in terms of
innovation for the dairy industry.
Fonterra Farm Source™ stores
Fonterra operates a network of 70 Farm Source™
stores throughout New Zealand. These stores operate as
retail farm supply stores for the farming community and
wider public while also offering specific support services
for our supplying shareholders. Farm Source is a
wholly owned subsidiary covered by the same management
systems and policies as our other operations.
In Australia, we do not have retail stores but this year we
introduced a Farm Source™ Partners service, which leverages
our scale to provide special deals and savings for farmers
supplying us in Australia.
On all farms where it is identified that requirements are
not being met, our Sustainable Dairying Advisors (SDAs),
or equivalent, 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.
Sustainable dairying – on-farm
support services
We have farmer engagement and support programmes in
every country we source raw milk from. These programmes
enable us to build relationships with farmers, communicate
our requirements with them and support them to improve
their farming systems. We tailor these programmes to reflect
the priority farming issues in the country and to encourage
performance that goes beyond the minimum requirements.
In New Zealand, our Tiaki sustainable dairying programme
provides our farmers with specialised regional expertise
through our team of SDAs, which we grew from 17 in FY17 to
24 in FY18. It has proven quite difficult to recruit people with
the required skills to fill this role, but by the end of 2018 we
will have 28, just short of our target of 30. A priority for us
is helping farmers establish a Farm Environment Plan (FEP),
unique for their farm. Using digital mapping tools that we
have developed and a suite of good management practices,
we can help the farmer identify risks to the environment
and agree prioritised improvement plans.
We have used our experience from New Zealand to provide
new support services and digital tools to our supplying
farmers in Australia over the past year, with the aim of adding
tangible value to our suppliers. So far, around 85% of our
Australian farmers have signed up to Farm Source™ Digital,
and the new 24/7 service centre is receiving between 200 and
300 calls each week.
Expectations for supplying farms
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. Our Farmer Handbooks set 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
requirements that all farmers must meet. It applies across all
markets we source milk from and forms the basis of the on-
farm audits that we conduct.
Through a combination of our own staff and third parties, we
regularly assess supplying farms around the world:
•
In New Zealand, every supplying f
arm is visited each year
by an independent farm assessor. This year, we adjusted
the approach to help streamline the assessment and
introduced a more detailed assessment to provide greater
value. It is expected that each farm will participate in a
detailed assessment once every five years and this year
we completed 2,087 (21% of supplying farms).
•
In Australia, farmer suppliers are visited multiple times
each year by our own staff and independent assessments
are scheduled based on prior compliance levels. Every
farm is assessed at least once every two years and in FY18,
73% of farmers were assessed.
•
In Latin America, each farm is assess
ed by a combination
of our own staff and third parties. In addition, our
New Zealand based team audits a random selection
of farmers on an annual basis.
•
In China, our farms are under our direct c
ontrol. These
farms are subject to assessments by our New Zealand
Milk Sourcing team and Internal Audit team. These farms
have also been independently assessed to the benchmark
food safety and quality standard for farms called SQF.
Our farmers are at the heart of our
Co-operative. Weʼve built our expertise
on the legacy of thousands of dairy men
and women who have taken their milk
to the world to meet the changing needs
of consumers.
Today, more than 85% of our milk comes from the farmers
in New Zealand who own Fonterra and we also source milk
in other countries around the world (see map on the
previous page).
In this section, we cover farming practices on all farms
directly supplying milk to Fonterraʼs manufacturing
sites globally.
Farms we manage
We directly manage a small number of farms around the
world. In New Zealand, we manage 29 Fonterra owned
farms which neighbour our manufacturing sites. We use
these farms to manage excess water and nutrients from our
manufacturing sites. The irrigation and spreading of nutrients
acts as a fertiliser, improving soil health and supporting
pasture growth. We then grow and supply supplementary
animal feeds to our farmers.
In China, we operate seven large-scale farms and produce raw
milk for use in local products. This complements the dairy
products we export to China from New Zealand and Australia.
These farms use a housed farming system rather than the
pasture-based model most commonly found on the farms
which supply us with milk. We also directly manage farms for
training and demonstration purposes – one in Sri Lanka and
one in Chile (see Dairy Development on page 85).
How we work
with farmers
1 Stock exclusion means keep dairy cattle out of waterways to improve water quality.
See Water section on page 48.
New Zealand on-farm assessments
2016/172017/18Commentary
Number of assessments 9,8919,694This represents more than 99% of supplying farms during
2017/18. The lower number corresponds to fewer supplying farms.
Percentage of farms with
effluent infrastructure
capable of 365-day compliance
82%86%Progress continues to be made towards achieving 100%.
Percentage of farms referred
to SDAs with major or critical
non-compliances
3.2%3.9%There was a slight increase in referrals because we have
included those arising from Farm Environmental Plans as
well as from annual assessments.
Number of milk collection
suspension notices issued
78 farms
due to stock
exclusion
98 farms due to
stock exclusion
8 farms due to
effluent requirements
There was a slight increase in the number issued as we
focussed on completing our stock exclusion
1
targets.
Our Environment
4445FONTERRA SUSTAINABILITY REPORT 2018FONTERRA SUSTAINABILITY REPORT 2018
-

OUR ENVIRONMENT
Significant spills
In New Zealand, there were two significant spills at our
Whareroa site and one at our Takanini site. At Whareroa,
60,000 litres of skim milk was spilled when a coupling
failed. Additional locking clips have been fitted to prevent a
reoccurrence and sensors adjusted to allow earlier detection.
There was also a spill of 36,000 litres of cream due to human
error. Automation has been added to prevent reoccurence.
At Takanini, 60,000 litres of glycol spilled due to the failure of
a fitting on a rental chilling system. The majority of the
spill was absorbed by soil around the unit but there was
some leakage into the estuary. Auckland Council were
notified and their pollution response team visited the site.
The remediation included monitoring of the water quality in
the estuary for a period of three months.
Five spills were also recorded in New Zealand from separate
tanker incidents, which resulted in an estimated total of
45,500 litres being spilled. The most significant of these was
a tanker accident in Taranaki, which spilled an estimated
20,000 litres. When a tanker accident results in a spill we
have containment and clean-up procedures to minimise
any impact.
In Australia, there were two significant spills. At Dennington,
following a dryer deluge, around 1,000 litres of milk were
discharged into the Merri River. The Environmental Protection
Authority was notified of the incident. On a private property
in Tasmania, around 6,000 litres of milk leaked from a milk
tanker and then into a local creek. In both cases, the clean-
up work we did to minimise any impact to the environment
satisfied local authorities.
Environmental compliance
In the past year, our operational sites had five incidents
of non-compliance with environmental regulations which
resulted in fines or non-monetary sanctions. All occurred
in New Zealand including: a fine of $750 for discharging
stormwater in an unauthorised manner from our Kapuni
site; a fine of $500 for taking more water from a stream than
allowed by our permit at our Whareroa site; a fine of $750
for exceeding wastewater discharge consent limits from our
Whareroa site; and two fines of $750 each for two separate
incidents of discharging milk solids to water at our Whareroa
site (see Significant Spills).
In the past year, our China Farms received three notices
related to environmental non-compliance. The non-
compliance related to a delay in the installation of
environmental monitoring equipment and improper discharge
of effluent. As the negative impacts of the non-compliance
issues were not serious and our China Farms had promptly
taken the necessary measures to eliminate the impacts, the
ultimate fines for each instance were relatively minor, ranging
from RMB20,000 to RMB40,000 ($4,400-8,800).
In addition to the non-compliances list above, there were
some minor non-compliances, which did not result in any
monetary or non-monetary sanctions.
In all cases we have taken action to improve processes and
minimise the risk of further non-compliances.
Independent evaluation and
certification of sites
Our manufacturing sites are subject to regular internal
and third-party audits. Internal audits are conducted by
staff independent of the site and are used to identify areas
for improvement. Third-party audits give regulatory
authorities and our customers independent assessments
of our performance.
For example, independent audits against the Sedex Member
Ethical Trade Audit (SMETA) standard for labour practices,
environment, health and safety and business practices are
required by some of our customers. Other customers require
us to undertake an annual assessment by EcoVadis. This year
we achieved a Gold rating for the first time.
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, or an equivalent
such as EnviroMark Diamond, provides a third-party
evaluation of the performance of our EMS.
Our focus this year has been transitioning existing certified
sites to the updated 14001:2015 standard. This is assessed at
a site level but it now also considers our broader influence
over our value chain. At the end of FY18, we had successfully
transitioned all sites with existing certification to the new
standard. This covers more than 60% of our manufacturing
sites and we are now working to expand this.
Our manufacturing sites share the
same environment as our farmers, with
environmental challenges interconnected
between farms and sites.
We must 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.
About 95% of our processing by raw milk supply happens in
New Zealand or Australia, but we also manage
a number of other sites around the world.
We share some manufacturing sites, which are operated
by 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.
The Fonterra Group Environmental Policy defines Fonterra’s
commitment to safeguarding natural resources through
reducing environmental impacts across our global value
chain, including applying our precautionary approach where
serious threats may exist. The policy is available online.
All sites have a manager specifically responsible for
environmental compliance. At most sites, this is a dedicated
environmental manager and they are often supported by
a site Environmental Management team. Their focus is
on managing site-wide environmental performance and
compliance with local environmental requirements.
How we manage
operations
www.fonterra.com/environmentalpolicy
For a number of
customers, we are
independently assessed
each year by Ecovadis.
This year we achieved
Gold rating.
Our Environment
4647FONTERRA SUSTAINABILITY REPORT 2018FONTERRA SUSTAINABILITY REPORT 2018
Gold rating

OUR ENVIRONMENT
What weʼve been doing
Sustainable catchments
We want to see sustainable water catchments in the regions
where we operate, and this means working with others to
help protect and regenerate the waterways to meet the
specific environmental aspirations of the local community.
To achieve improvements at scale, individual farmers and
single manufacturing sites are not enough. We want to
connect and empower farmers, sites and local communities
so that more can get involved and accelerate progress,
starting in New Zealand.
Our Living Water partnership with the New Zealand
Department of Conservation is focused on five catchments
to identify game-changing and scalable solutions that
demonstrate dairying and freshwater can thrive together.
Living Water is currently working with 39 other groups and
organisations and with 92 Fonterra dairy farms. Across the
five catchments, the farmers involved are implementing
freshwater improvement activities that go beyond regulatory
requirements and 5,823ha of land has already been enhanced
through protection, restoration and pest control.
We are now extending our involvement to support farmer
and community action across a further 50 catchments in
New Zealand. We’ve been working alongside local
stakeholders such as regional councils, the Department
of Conservation, iwi, farming leaders and other industry
members to identify where our help is wanted and what
contribution we can make. We aim to build on existing
community efforts and work with other land users and
businesses to help achieve the community’s environmental
aspirations. In many cases, these include not just water
quality and freshwater biodiversity, but also predator
management and related terrestrial biodiversity.
Healthy freshwater and ecosystems are
essential to the long-term success of our
business, and to the communities where
we live, work and farm.
That’s why we are working to improve our water efficiency
and improve water quality wherever we operate.
This section covers our impact on water arising from the
manufacturing operations that we manage globally and in
relation to the farmers from whom we collect milk.
Our approach
Our manufacturing sites extract water from a range of
sources and create wastewater. Our approach is to make use
of resource-efficient technologies as we build new plants or
upgrade existing ones, and to improve the efficiency of our
operating practices. Manufacturing sites measure their water
use and monitor water quality as part of their regulatory
requirements. By becoming more water-efficient, there is
less wastewater to treat before we discharge it. This means
when we upgrade our wastewater treatment facilities we can
go beyond minimum compliance requirements and aim for
leading industry standards.
On farm, our approach is to work with farmers to identify
their water impact risks and prioritise improvement actions
specific to their situation.
In New Zealand, where we collect and process most of
our milk, the health of waterways 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.
Please refer to “How we work with farmers” on page 44
and “How we manage operations” on page 46 for more
information on our general approach to improving our
environmental performance.
Water
PUKOROKORO-MIRANDA
(LIVING WATER)
ARAIRA-LII RIVER
(LIVING WATER)

WAITUNA
(LIVING WATER)
LAKES AREARE, RUATAUNA,
ROTOMANUKA (LIVING WATER)
WAIRUA RIVER
(LIVING WATER)




Farm Environment Plans (FEPs) are tailored improvement plans for each farm.
To help accelerate progress at a catchment level, we are clustering the development of FEPs.
Waiotahi Catchment, Bay of Plenty
As part of wider community action, FEPs have been developed for all
16 dairy farmers in this catchment and the farmers have started to
implement their improvement actions. The Bay of Plenty Regional Council
have been pleased with the work completed and see the importance of
rolling out FEPs in other catchments.
Tutira Catchment, Hawkeʼs Bay
Community groups and iwi have been working together to improve
the water quality of the lake, particularly given its use for recreational
activities. Dairy farmers are one of the smaller land users but have shown
strong buy-in to establishing FEPs. Six of the seven farms in the immediate
lake catchment now have FEPs and another seven farms in the wider
region have them too.
Kaikoura Catchment
A government restoration fund was set up to help the 21 farmers in this
catchment get further ahead than they were before the November 2016
earthquake. The farmers have been keen to demonstrate how they’re
moving towards good management practice. The 21 farms not only have
FEPs, they have also installed soil moisture probes to support on-farm
management decisions.
Waituna Catchment (Living Water Programme)
Waituna is a wetland, internationally recognised by the RAMSAR
Convention. This catchment is managed in a holistic way by a Joint
Governance Group involving Fonterra, Department of Conservation,
Southland District Council, Environment Southland and iwi. This group
makes decisions on what work needs to happen to ensure the water
quality improves.
Living Water Catchments
50 catchments
Collective action
on catchments
Our Living Water partnership with
the New Zealand Department of
Conservation is focused on five
catchments. We are now extending
our involvement to support farmer
and community action across a
further 50 catchments.
Example of clustered FEPs
Credit: Gary Philip
Our Environment
4849FONTERRA SUSTAINABILITY REPORT 2018FONTERRA SUSTAINABILITY REPORT 2018
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@
@
@
•
0
•

1 A permanent waterway is any waterway or drain that is wider than 1m and deeper than
30 cm or significant wetlands.
OUR ENVIRONMENT
Improving water quality and use on farm
In New Zealand, our farmers have fenced 99.6% of
permanent
1
waterways and installed bridges or culverts at
99.9% of regular crossings that keep cows out of waterways.
This stops cows from excreting into the water and avoids
the potential damage to river and stream banks, which
can contribute to erosion and sediment. The next step for
improved riparian management is having documented plans
describing the specific planting and maintenance activities
for each farm. We’ve made significant progress this year, up
from 4% to 25% of our farms, but we’ve deliberately shifted
our focus to establishing Farm Environment Plans (FEPs). An
FEP not only considers the riparian management activities
but also the wider environmental priorities specific to the
farm. At the end of FY18, we reached our target of 10% of
farmers having an FEP. Meanwhile the rollout of our nutrient
management programme has taken longer than originally
planned, but 97% of our New Zealand farmers are now taking
part. This helps them identify if and where they can reduce
their nutrient use and, as a result, minimise the risk of excess
nutrients moving from their soil into waterways.
Water continued.
In Australia, in addition to on-farm support services provided by
our Farm Source™ team, we support special projects funded in
part by our Anchor™ Fund. For example, this year we have been
working with Rigneys’ farm in Tasmania on a trial to re-introduce
dung beetles. Dung beetles are great at transferring cow manure
from the surface into the root zone of pasture. Unfortunately,
dung beetle colonies have been eliminated from some regions
due to some farming activities such as the use of certain animal
health products. We are working with the Rigneys to trial the
introduction of four different species of dung beetle. The primary
goal is to improve soil health by using the natural cow manure and
reduce the need for added fertilisers. This will not only reduce the
risk of potential nutrient run-off to waterways, it is also anticipated
to reduce fly numbers, lower the occurrence of intestinal worm
parasites and save the farmer money.












Reducing water use and
improving wastewater quality at
our manufacturing operations
This year, we have continued several years of investment in
our Pahiatua site, making it our most water-efficient site in
New Zealand (see Case Study on page 53). We also improved
water efficiency at a number of other sites including Hautapu,
Lichfield, Te Awamutu and Waitoa.
In New Zealand, our target is to improve water efficiency
by 20% by 2020 (from a 2015 baseline). For several years,
we had been trending in the wrong direction but we have
reversed the trend and achieved improvement. We still have
significant work to meet our original target, but we have
multiple improvements being made and a prioritised plan for
further progress.
Our Nutrient Management team have been changing the
way we treat excess nutrients retrieved from wastewater
treatment at some of our sites. Taking these nutrients,
which originally came from collected milk, and using them
to improve soil health on our farms supports the growth of
valuable and nutritious grass and maize silage. This means we
can ʻclose the loopʼ back to some of our supplying farmers,
who use the sileage to help their cows produce quality milk. It
also means that the risk of nutrients leaching into waterways
is further reduced.
WHATʼS NEXT
On farm
• We will continue to support our New Zealand farmers
as they establish Farm Environment Plans (FEP),
focusing on the specific priorities for their farm.
• We will use this approach to not only drive
improvements in water quality but also increase
the focus on water usage, especially in water
stressed regions.
• We will investigate applying our approach to tailored
farm environment planning in other countries where
we source milk, and aim to set new targets that cover
our global on-farm activities around water.
Manufacturing
•
We will continue to focus on oper
ational
improvements within our manufacturing sites, sharing
lessons from sites that successfully improve water
efficiency with our other sites around the world.
•
We will also inv
est in new water processing technology
such as reverse osmosis – a membrane filtration
system which can be used to purify the water
extracted from cow’s milk during processing. This
technology will go live in FY19 at our Darfield site
and is expected to significantly reduce the amount of
water drawn in and decrease the amount of water the
site discharges for irrigation.
•
We will progress a prioritis
ed sequence of such
investments to reduce our water usage and upgrade
our wastewater treatment to leading standards.
Participation of New Zealand farmers
in our nitrogen manag
ement programme (%)
Credit: Karen Marlow
Inspecting the dung
beetles reintroduced
onto Rigneys' farm,
Tasmania to help
improve soil health.
Dung beetles
Our Environment
5051FONTERRA SUSTAINABILITY REPORT 2018FONTERRA SUSTAINABILITY REPORT 2018
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CASE STUDY
Water efficiency at Pahiatua
Our Pahiatua site is located
in a water-sensitive zone of
New Zealand, so when we
started investing to increase
its capacity, we knew it needed
to be resource-efficient. The
site now processes up to four
million litres of milk per day,
producing milk powder that is
exported around the world. It
is now our most water-efficient
site in New Zealand.
Since FY15, we have completed
multiple initiatives to reduce
water use including the newest
and largest dryer. As the milk
is dried into powder, we can
capture the water evaporated
from the milk as steam,
condense it, and use it instead
of ground water.
Improving water efficiency
not only reduces the amount
of water drawn in, it also
generally reduces the amount
of wastewater that needs to
be treated and discharged.
However, when capturing
steam to reuse it, we found that
we sometimes ended up with
more water than we needed.
This was a problem in FY18
when wet weather restricted
our ability to use the treated
wastewater for irrigation.
We needed to reduce

our wastewater volumes
by finding new ways to use
the condensate water. For
each new usage we also
needed to meet stakeholder
expec
tations such as food
safety and health standards,
regulatory and religious
compliance, legal requirements
and market access.
During FY18, the site resolved
all stakeholder concerns
and installed the necessary
infrastructure to increase reuse.
With the changes made, we
expect further savings of about
500,000 litres per day during
the peak season for FY19 – the
equivalent of 18 tanker loads.
We are now looking at options
to expand the solution to the
other two powder plants at
Pahiatua and to rollout the
learnings from Pahiatua to
several other sites in New
Zealand. The estimate savings
are likely to be several million
litres of water every day.
OUR ENVIRONMENT
Our Environment
52FONTERRA SUSTAINABILITY REPORT 201853FONTERRA SUSTAINABILITY REPORT 2018
On-farm New Zealand
IndicatorTarget PerformanceCommentary
FY16FY17FY18
Length of defined
waterways with dairy
cattle permanently
excluded
100% by
31 May 2017
9 7. 4 %98.4%99.6 %
This major investment by farmers is now considered
complete, although continued investment will be
required to maintain the exclusion.
Regular crossing points
on farm have bridge
or culvert
100% by
31 May 2018
99.5%99.8%99.9%
This major investment by farmers is now
considered complete.
Farms with
waterways have
documented riparian
management plan
100% by
31 May 2020
n/a4%25%
A significant improvement this year reflecting our
ability to capture data about those plans completed
by credible parties other than our own Sustainable
Dairying Advisors.
This is now being progressed with Farm Environment
Plans (see below) and we intend to revise the target to
2025 for alignment.
Farms with water
meters on significant
water intakes
85% by
2020
50%51%53%
Potential impacts on water quality have been treated
as higher priority, so progress has been slow here. The
largest users of water are those farmers with irrigation
and we know that they all have water meters. We will
use our focus on FEPs to accelerate progress.
Farms participating in
nutrient management
reporting and
benchmarking
100% by
30 Nov 2015
86%95%97%
The effort required to achieve this was initially
under-estimated but full adoption level has now
almost been achieved, allowing almost all farms to
benefit from the information.
Farm Environment
Plans (FEPs)
100% by
end 2025
––10%
This new target was set in FY17 and our aim to
achieve 1,000 farms by the end of FY18 has been
achieved. Our goal for FY18 is for a further 1,000
farms to have completed an FEP.
Manufacturing
Improvement in
water efficiency (water
used per cubic metre
of milk processed)
20% reduction
by 2020 from
FY15 baseline
1

for NZ
We are pleased that an improvement in water
efficiency has been achieved this year. Our priority
now is to accelerate this good trend.
Manufacturing
sites are treating
wastewater to leading
industry standards
100% of
sites by 2026
(global target)
25%25%26%
Another site qualified as leading standards this year.
We have also upgraded a number of wastewater
treatment plants and have a plan of upgrades
for the coming years.
Water withdrawn by source FY18
Volume (000 m
3
)Percentage
Surface water (including water from
wetlands, rivers, lakes and oceans)
25,066
46%
Groundwater19,165
35%
Municipal water supplies or other
public or private water utilities
9,782
18%
Other (e.g. rainwater collection)0 0%
Total54,013
Water discharge FY18
Volume (000 m
3
)Quality (COD
2
mg/L)
Discharged to irrigation15,591
1,417
Discharged to river23,671
80
3


Discharged to ocean14,041 2,049
Discharged to municipal5,274
1,864
Discharged to other0 0
Grand Total58,577

1 In prior reporting water withdrawn for cooling at our Kapuni site had been omitted from our FY15 baseline, and this has now been corrected.
2
Chemical Oxy
gen Demand – an indicator of water quality measuring chemicals in water that can be oxidised.
3
The main reason for worsening average quality to river is the inclusion of data for Chile. Edgecumbe infrastructure was upgraded during
FY18 but Edgecumbe remains a high contributor to this average.
1.6%1.3%2.4%
reduction
from baseline
Our performance
Water continued.
reduction
from baseline
reduction
from baseline
•
•
•
•
•
•
•
•
...
...
,,

OUR ENVIRONMENT
Within our own operations, the majority of our GHG
emissions arise from the energy we use, particularly to
pasteurise products for food safety and to dry them for
long-life and efficient transportation.
As a result, the GHG emissions from the distribution of
our finished products to our customers and consumers
around the world only account for about 1% of our total
GHG emissions.
Based on climate change projections, food production in
many parts of the world is expected to experience negative
impacts from resulting changes in natural resources.
However, a large proportion of Fonterraʼs existing supply
base is in regions where less significant changes are expected.
For example, in New Zealand the climate is conducive to
pasture-based farming and this is likely to continue under
most climate change projections, albeit there may be some
regional shifts. This provides Fonterra with opportunities to
continue to produce safe, world-class quality food products.
We have conducted initial vulnerability assessments and are
using the results to help us plan.
We have set specific targets for GHG emissions arising from
our farming and manufacturing operations and we have
initiatives underway to help achieve these.
Please refer to “How we work with farmers” on page 44 and
“How we manage operations” on page 46 for further details
of our approach.
Climate change has a critical influence
on feeding the world into the future.
Food producers must help mitigate the impact of climate
change through reducing emissions, and adapt to the effects
a changing climate has on agricultural production.
Agriculture and associated land use change account for
about 24%
1
of global greenhouse gas (GHG) emissions.
It is likely that agricultural production will face significant
disruption from changes to climate and increased variability
in weather patterns.
There is a huge variance between the most and least efficient
producers of each food type. Our less-intensive pasture-based
farming model places us as one of the most efficient dairy
producers in the world. At the same time, as New Zealand is
a large agricultural exporter, agricultural emissions represent
50% of the country’s GHG emissions, with dairy accounting
for approximately half of this.
The majority of our emissions remain on farm. Our challenge
is to continue to drive on-farm efficiency, to transition to
lower emission energy sources – and to consider the role of
dairy foods in efficient diets of the future.
Our approach
The GHG emissions associated with dairy products primarily
come from the cows on the farms. Dairy cows produce
methane during digestion, emitted mainly through burping.
Nitrous oxide emissions also occur from urine, dung and
fertilisers applied to the pasture. Other sources of on-farm
emissions include use of energy in farm operations and milk
cooling, and emissions relating to farm inputs such as feed
and fertiliser.
1 IPCC (2014) Contribution of Working Group III to the Fifth Assessment Report
of the Intergovernmental Panel on Climate Change.
Climate
Change
Caring for dairy cows throughout their lives, from the minute
they are born, not only improves the quality of the milk they
produce, it also sees each cow continue to produce more
milk year-on-year over a longer lifespan (see Animal health
and biosecurity on page 66).
Feed management is not just about growing grass – it’s about
choosing the right combination of grass and other feed crops
to grow on the farm, optimising the use of fertiliser, managing
pests and maintaining soil health. Improving the quality of
the feed to the cows and getting the mix right increases
production and improves emissions efficiency. Optimising
fertiliser use not only reduces the risk of nutrients entering
waterways, it also decreases the amount of brought-in
fertiliser needed to achieve the same level of production,
thereby reducing the production of nitrous oxide.
In New Zealand, we completed a pilot of farm-specific GHG
reporting with over 100 farmers this year (see Case Study on
page 56 for further details).
In Australia, the renewable energy content of electricity
is much lower than New Zealand. This means considering
energy management on farm is much more important, and
seeking alternative fuel sources for heating water on farm
makes sense. Rod and Clive Orgill are farmers in Gippsland
who received support through one of our Anchor™ Fund
projects this year to install a biomass boiler. Waste wood from
their firewood business is used to generate hot water for their
dairy shed wash down. This saves money, reduces emissions
and is providing a more reliable hot water supply.
In China, where our dairy cows are housed and provided with
a mixed diet of brought-in feeds, choosing where the feed is
sourced from is important. Increasingly we are working with
local farmers (see Dairy Development on page 85) and this
year we successfully trialled sourcing alfalfa (lucerne) locally
rather than importing it internationally.
What weʼve been doing
Reducing on-farm emissions
On-farm life cycle assessments
To help us understand the full carbon life cycle to the farm-
gate for our main milk supply regions, and identify areas for
improvement, we commission regular independent analysis.
In New Zealand, for the 2016/17 season, the estimated
cradle-to-farm-gate carbon intensity, including land use
change (LUC) is 0.87 kilograms of carbon dioxide equivalent
per kilogram of fat-and-protein-corrected milk (kg CO
2
-e/kg
FPCM). A recent change in methodology by the Ministry for
Primary Industries equates to an increase of approximately
17% in the LUC component compared to that used previously.
Given its significance, we have used this to recalculate and
restate prior years so the underlying trend can be viewed. The
underlying average carbon intensity has been trending down
from a high in the 2010/11 season, primarily due to increased
production per cow and a decrease in the use of animal feeds
brought onto the farm during the last two years. However,
compared to the baseline 2014/15 season for our target, the
on-farm emissions intensity in 2016/17 was worse by 0.8%.
In China, for the 2016/17 season, the estimated cradle-to-
farm-gate carbon intensity ranged from 1.24 – 1.48 kg CO
2
-e/
kg FPCM across the seven farms with the overall weighted
average being 1.35 kg CO
2
-e/kg FPCM, down from 1.62 kg
CO
2
-e/kg FPCM in the previous year. This improvement
has arisen primarily from higher feed conversion efficiency
– more milk for the same amount of feed.
Our most recent assessment for Australia was in FY17 for the
2015/16 season, at 0.92 kg CO
2
-e/kg FPCM.
On-farm improvements
Our primary focus is on improving on-farm productivity, with
good animal husbandry and feed management examples of
where we can continue to improve emissions intensity. In
New Zealand, milk solids produced by each cow increased
by 1.4% per year on average over the last 28 years, with the
strongest improvements from 2007 to 2016.
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OUR ENVIRONMENT
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5657FONTERRA SUSTAINABILITY REPORT 2018FONTERRA SUSTAINABILITY REPORT 2018
Investing in breakthrough technologies
We continue to invest in research and development, primarily
through the Pastoral Greenhouse Gas Research Consortium
(PGgRC). We want to identify breakthrough technologies
which can provide a step reduction in the biological emissions
produced by cows. Our intention is to not only use such
solutions to reduce emissions in regions where we farm, but
also increase the impact by promoting them more widely.
While there are some promising pathways being investigated,
such as breeding of cows, vaccines and inhibitors, we
also face some dilemmas. For example, to maximise
the effectiveness of inhibitors administered through
supplementary feed, the cows would need to spend more
time in sheds or on feed pads being fed the special feed. This
not only increases the farming costs, it is at odds with the
growing demand from consumers for dairy produced from
grass-fed cows. This means our focus is on inhibitors that can
be fed at milking time, and then reduce emissions while the
cow is back out on the pasture.
We strongly support innovation based on sound science
and we continue to monitor the possibilities offered by new
and emerging life science technologies such as gene editing.
Such advances could offer significant benefits for sustainable
nutrition and the environment. We also listen carefully to our
customers and consumers and recognise the value in New
Zealand’s genetic modification status. To date, no genetically
modified plants or animals have been released in New
Zealand (see Trusted Goodness on page 37).
Reducing manufacturing emissions
Energy efficiency
Improving energy efficiency in our manufacturing operations
has been a long-term strategy and it remains a priority.
Benefits include reducing the amount of energy we consume,
saving costs and reducing emissions. Reducing the energy
we consume will also help reduce some of the hurdles in
our transition to lower emission energy sources. Less energy
potentially means less capital and less additional operating
costs, and it is more likely that an alternative energy source
will be available at the scale required.
Through our long-running focus on energy efficiency in
New Zealand manufacturing, we have achieved a 19.3%
reduction in energy intensity since 2003 against a target of
20% by 2020. This year, that is saving 5.7 petajoules, enough
energy to power over 220,000 households in New Zealand.
In Australia, we started to transition our product storage
and logistics to a purpose-built, energy-efficient facility,
operated by a third party in Melbourne. The facility operates
in low oxygen conditions and needs minimal lighting. The
high-bay pallet stacking also allows for a smaller footprint
than conventional warehouses. Only once the transition is
completed and historic facilities are decommissioned will
the energy savings be fully realised.
Around the world, our energy efficiency improved in six
countries while declining in another five, giving an overall
improvement of just over 1%. While there was a similar
pattern for emissions intensity, overall our emissions
intensity from manufacturing has remained unchanged
at 0.53 tonnes of carbon dioxide equivalent per tonne
of dispatched production.
Climate
Change
continued.
OUR ENVIRONMENT
56
CASE STUDY
Farm-specific GHG reporting pilot
The New Zealand Dairy
Action for Climate Change
Plan was launched in June
2017 by DairyNZ, the
industry-wide organisation
representing New Zealand
dairy farmers, in partnership
with Fonterra and supported
by the Ministry for the
Environment and the Ministry
for Primary Industries.
This year, collaborating
with DairyNZ and other
experts, we set up an on-
farm pilot involving more
than 100 Fonterra farmers
to investigate farm-specific
GHG emissions reporting.
The primary objective of
the pilot is to assess the
type and quality of data that
needs to be captured on
farm to provide farmers with
reporting that helps them
reduce GHG emissions
over time. A secondary
objective is to train the
selected group of farmers
on biological emissions and
methods to reduce these so
that they can engage and
then share that knowledge
with other farmers.
We already had an
established nitrogen
reporting programme with
our farmers so it made sense
to build on this to collect a
small amount of additional
information and provide
reporting in a similar style
and format.
At this stage, only the major
direct GHG emissions
from dairy animals are
compared. These include
methane (CH
4
) emissions
from enteric fermentation
and manure management as
well as nitrous oxide (N
2
O)
emissions from urine, dung
and fertilisers. From past
lifecycle analysis we know
that these account for more
than 90% of the total on-
farm footprint.
The resulting report (see
below right) provides the
farmers with total emissions
(in kilograms of carbon
dioxide equivalents) per
hectare per year, broken
down by source.
We have evaluated the
use of different models
to estimate the GHG
emissions and we are now
looking to evaluate a second
year of data for the same
farmers so we can see the
quality of trend information
to help with on-farm
decision making.
-
2 JJ

STEP 
Optimising electrication
ThermalElectrical
STEP 
ThermalElectricalThermalElectrical
ENERGY
EFFICIENCY
TRANSITION
THERMAL TO
ELECTRIC
Grow load
within
existing
grid
capacity.
OUR ENVIRONMENT
Our Environment
5859FONTERRA SUSTAINABILITY REPORT 2018
before the end of 2018. This co-firing is estimated to reduce
factory emissions by about 2,400 tCO
2
-e per year or the
equivalent of taking about 530 petrol cars off the road.
To better understand the challenges with increased electricity
use, we conducted a feasibility study to consider fully
electrifying milk processing at Edendale (see Case Study
opposite). This has identified an approach that we can apply
across all our sites and we plan to apply this at our Stirling
site as a pilot to transition away from coal.
Divesting from coal
Reinforcing our commitment toward renewable energy, our
subsidiary Glencoal Energy Limited has stopped all coal
mining operations completely.
For the proposed Mangatangi mine, we have sold the land
and surrendered the mining permit.
For the Kopako 3 mine, we have stopped extracting coal and
we are completing rehabilitation of the site. The coal pit
has been transformed into a lake with hundreds of natives
planted around the edge. The majority of the mine land has
been restored as farmland.
Reducing logistics emissions
By removing the water content from milk by drying it,
we remove weight and bulk. This also preserves the
nutritional content for a long time without the need for
refrigeration, reduces waste and makes it very efficient
for export.
International trade will continue to play a vital role in
achieving a sustainable global food system. With climate
change, some parts of the world such as New Zealand will
be better placed to grow food efficiently for consumption.
It is therefore important that, although only 1% of our total
emissions, we continue to look for opportunities to further
improve logistics, reduce emissions and save costs.
Transitioning to cleaner sources of energy
In addition to energy efficiency improvements, we are also
progressing changes to alternative, lower emission energy
sources. Finding viable alternatives to coal is the first priority
in our transition to a low-carbon future and achieving our
goal of net zero emissions from manufacturing by 2050.
Our coal use now only occurs in New Zealand, where
a third of our sites still rely on it, primarily in the South
Island. Our use of coal increased slightly this year due to
changes in the mix of products made and where these were
made. Fluctuations in the volume of milk to be processed
in different regions and the need to retain a secure supply
of energy means our usage of coal is likely to change from
season to season. We have already started the transition
towards other fuels, but the scale of our coal use and the lack
of economically viable alternatives means that we will remain
reliant on coal for longer than we would like. Our intention is
that no new coal boilers will be installed at any sites. We are
confident that this will be the case from 2030, but prior to
that there is a small risk that our legal obligations
1
to process
milk may require us to, and this will only be as a last resort.
In the North Island, we are looking at options to transition
our coal sites, including to natural gas as this is a more
emissions-efficient source of energy, but we recognise
that transitioning to renewable sources of energy is the
best option.
In the South Island, where natural gas is not available, we are
investing in a combination of wood biomass and increased
use of electricity.
The challenge with adopting wood biomass in New Zealand
and Australia is the security of supply and obtaining sufficient
volumes within a reasonable distance of the sites. Running
out of energy and being unable to process large volumes
of milk generates its own environmental impacts and
transporting biomass over long distances quickly diminishes
its emissions reduction benefit. As a first step, we are
converting the boiler at our Brightwater site to co-fire wood
biomass with coal. This is on track to be up and running
1 The Dairy Industry Restructuring Act (2001) (DIRA) places legal obligations on Fonterra
that limits our influence over where, when and how milk volume growth occurs and
requires us to expand our processing capacity to meet all potential demand.
Climate
Change
continued.
CASE STUDY
Electric milk
In FY17, we developed a
‘Roadmap to transition to a
low emission future’ with the
New Zealand Ministry for the
Environment. This year, as part
of that roadmap, we conducted
a study to investigate how we
could displace all coal use
at our Edendale site
with electricity.
Working with a project team,
including representatives
from a range of industry and
academic organisations, we
undertook the study knowing
that what was learned from
our Edendale site – the largest
in the Southern hemisphere –
could be applied more widely.
Numerous electrification
steps were identified. Each
of these would reduce the
thermal energy used, thereby
reducing emissions, but
increase electricity usage.
Understanding the capacity
of the electricity supply to the
site allows combinations of
steps and their sequence to be
assessed to see which could
be achieved before triggering
a distribution or transmission
grid upgrade.
The study identified two
phases for transition. The
first “optimisation” phase,
uses predominantly known
technologies to improve
energy efficiency and reduce
the thermal energy while
increasing electricity use.
The second “transformational”
phase will require technology
development and
demonstration to occur.
Overall, this study showed
that while technically possible
to fully displace coal use at
Edendale with electricity, it
would trigger a transmission
grid upgrade and there would
be significant capital costs and
ongoing costs.
The study has provided a
comprehensive approach to
guide further improvements
to our manufacturing
processes to reduce both
energy and emissions and
help us transition towards
net zero emissions.
This approach has been
applied at three further
sites and in August 2018
we announced our plan to
electrify our Stirling site. This
will eliminate about 10,000
tonnes of coal use per year.
Credit: Tim Snow
-
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OUR ENVIRONMENT
Our Environment
6061FONTERRA SUSTAINABILITY REPORT 2018FONTERRA SUSTAINABILITY REPORT 2018
Climate targets
IndicatorTarget PerformanceCommentary
FY16FY17FY18
Reduction in manufacturing
energy intensity (energy per
tonne of production)
20% reduction by
2020 from FY03
baseline (NZ)
18.1%
reduction
17.8%
reduction
19.3%
reduction
We continue to make good progress
and we remain on track to deliver
by 2020.
Reduction in absolute
manufacturing emissions
30% reduction by
2030 from FY15
baseline (Global)
3.6%
reduction
4.7%
reduction
3.0%
reduction
Our overall manufacturing emissions
intensity remained constant. Increased
production, particularly in Australia,
where the emissions intensity of
grid electricity is higher, means our
progress on absolute reduction has
been impacted.
Net change in GHG emissions
from dairy farming since
14/15 (NZ)
(Pre-farm gate tCO
2
-e)
Neutral to 2030
–252,000
below
baseline
817,000
below
baseline
Our estimated absolute GHG
emissions have reduced. This is
due to a reduction in the volume of
milk collected. Emissions efficiency
on farm is 0.8% worse than 14/15
baseline but 3.2% better than the
high of 10/11.
Milk collection
In New Zealand, our milk collection activities are already
highly efficient. Our fleet of tankers are regularly upgraded
to use the latest technology and innovations. One example
is on-board sensors, which help with driver training and have
improved driving efficiency and fuel efficiency. The activities
of the tankers are planned and managed by a sophisticated
computer system that helps us collect the milk from the
farms and deliver it to the factories, while ensuring legal
compliance and minimising the total time and distance
required to achieve it.
This year, a legislative change increased the maximum gross
weight for heavy vehicles from 44 to 46 tonnes for 8 axle
vehicles such as our tankers. Over the year, we have modified
each of the tankers slightly, extending the draw bar, so that
we can make use of this extra carrying capacity safely. Being
able to plan for and transport approximately 2,000 extra litres
of milk per load means we can complete work in fewer trips,
saving time, costs and emissions.
In Australia, in response to a growing volume of milk, we
introduced eight new, more efficient milk tankers. These truck
and trailer tankers have 40% more capacity to carry milk and
are also more fuel efficient compared to the existing single
trailer tankers.
Electrifying the fleet
We are also investigating electrification of our light fleet,
forklifts and heavy fleet. Electricity in New Zealand is
generated by more than 80% renewables and is therefore
a good alternative to petrol and diesel.
We have 113 hybrid vehicles and we have purchased our first
four electric vehicles. This is part of our commitment to have
30% of our corporate fleet using electric vehicles and thereby
help increase the wider adoption of electric vehicles. Based
on other priorities for capital, we will only be introducing
electric vehicles gradually and it will take us longer than the
original target set for the end of 2019.
In New Zealand we also have a fleet of over 650 forklifts
ranging up to 14 tonnes that we are progressively converting
to electric power, which generate less GHG emissions than
the LPG forklifts we are replacing. In FY18, we introduced
lithium-ion battery technology for the first time, growing the
total electric fleet to 13 lithium-ion and 254 lead acid battery.
Lithium-ion batteries last longer than lead acid, and because
they allow on-demand charging only one battery is required
per forklift.
To investigate heavy fleet solutions, our land logistics partner
Coda successfully applied for a grant from New Zealand’s
Energy Efficiency and Conservation Authority (EECA) to
help develop and trial an electric truck to transport finished
goods between sites in New Zealand. Unfortunately, after six
months of collaboration and consultation with like-minded
companies looking at different opportunities in Waikato and
Auckland, we concluded that the overall risk is unacceptable
to proceed further at this time. We do plan to keep reviewing
options for more sustainable heavy vehicle solutions and
we will continue to engage with EECA and our partners in
this process.
WHATʼS NEXT
• On farm our primary focus will remain supporting
our farmers around the world to improve on-farm
productivity. We will continue to evaluate on-farm
GHG reporting and its ability to inform on-farm
decision-making that reduces biological emissions.
We will also continue to invest in research and
development to investigate breakthrough
mitigation technologies.
•
For our manufacturing operations we will continue
to progress our energy efficiency improvements and
our transition to lower emission energy sources.
In particular, the go-live of our biomass co-firing
solution at Brightwater and the planning phase for
electrification at Stirling.
For detailed information on the scope, methodology and assumptions used in reporting these emissions, including corrections
to prior reporting, see Fonterra Sustainability Reporting 2018 – Environmental Data Reporting Notes.
Transmission losses for FY18 of 66,000 tC0
2
-e are excluded from manufacturing breakdown but included in total by value chain.
Emissions from biofuels are not shown as protocol excludes them from the total. Biofuels emissions in FY18 were 262 tC0
2
-e.
Climate
Change
continued.
Our performance
On-farm GHG emissions
by scope (000, tCO
2
-e)
Manufacturing GHG emissions
by source (000, tCO
2
-e)
Scope 
Scope 
Scope 
FY
reported
( season)
Total
,
FY
reported
( season)
FY
reported
( season)
,
,
,

 , 
 ,
 ,
 ,
Total
,
Total
, 


,
,
,





Farms we manage
Supplying Farms
}
Purchased Steam
Electricity
Liquid Fossil Fuels
Non-energy
(e.g. packing CO

)
Natural Gas
Coal
FYFYFY




,
,
,
,
,
,
Total ,
Total ,
Total ,


















Distribution
Manufacturing
Farming
FY






Total
.



Total GHG emissions
by value chain segment
(000, tCO
2
-e)
■
■
■
■
■
■
■
■
■
■
■
•
•
•

OUR ENVIRONMENT
Our Group Environment Policy requires all sites to: manage
hazardous substances responsibly; minimise the production
and disposal of waste products; and increase our use of
recyclable materials, including packaging. Backing this, we
have packaging design guidelines and a cross-functional
group of experts to set direction and support progress.
We continue to investigate the use of recycled materials in
our packaging, but the risk of contaminants impacting food
safety significantly limits our options. In most cases, we seek
to use sustainably sourced input materials instead, such as
fibre from sustainably managed forests.
Collaboration and co-operation
Generally, the rural communities where our farmers operate
do not have the same access to waste and recycling services
as urban areas do. We are therefore working with others to
develop waste management and recycling solutions that
improve environmental outcomes and enable greater access
for others to those services.
With recycling and minimising waste to landfill, we have
already completed what could be considered the easier items.
For New Zealand, we achieved our previous target of 90%
diversion from landfill several years ago. We are now in a
more challenging phase, where it is important for businesses
and other organisations to collaborate and work together.
One person's waste can be another person’s raw material, or
the combined waste from multiple organisations can reach a
scale that makes new innovations viable.
We host an annual Recycling Forum to facilitate new
relationships and encourage innovation. We also work closely
with our customers and, for example, this year we worked
with SKYCITY in New Zealand to recycle milk bottles into
shampoo bottles.
Considering and stimulating demand for the recycled content
is also important. For example, the plastic crates we use for
milk bottles and the recycling bins we provide to schools
through Fonterra Milk for Schools, include a high percentage
of recycled plastic from our own milk bottles.
Packaging is vital for delivering safe
and quality nutrition.
For us, the primary job of packaging is to protect the
nutritional value of the natural and perishable product it
contains. It also needs to be practical, appealing, provide key
information and, ideally, sustainable.
This year, we’ve seen public interest in plastic grow
considerably. It is likely that a combination of factors have
driven this such as: media coverage of the plastic in our
oceans and how long it lasts; China significantly reducing its
recycling of internationally recovered plastics; and the fact
that plastic packaging is something consumers interact with
on a daily basis.
The majority of our finished goods are ingredients for use by
business customers, but we also produce packaged goods for
foodservice and consumers.
This section covers the packaging used for all finished goods
manufactured at the sites we manage and at third-party
manufacturing sites who make finished goods for us. It also
covers the solid waste related to all sites that we manage,
including manufacturing sites, offices, retail stores and farms.
Our approach
To maximise the nutritional value we deliver, we focus on
minimising food loss across our supply chain, from the farm
to the consumer. This also helps us deliver the maximum
return to our farmers and get better outcomes for
the environment.
Improving performance
Our aim is to deliver products right-first-time and capture
by-products that were previously considered waste, such as
whey, to make them into new valuable products. You can
call this minimising waste or maximising yield. We regularly
monitor this and a specialist centralised team provides
support to manufacturing sites where the performance is
falling behind the best.
Packaging
and waste
Investigating solutions
We continue to investigate packaging and recycling solutions
for the more challenging items.
At our Takanini site, one of the largest items left in our waste
to landfill stream is the plastic backing from the labels applied
to products. There is nowhere to recycle this in New Zealand
and alternative backings do not work in our current labelling
equipment. We are investigating a recycling solution overseas
that we can use until we upgrade our labelling equipment.
For several years, we have been investigating the potential of
turning waste plastic into fence posts to use on farms. Trials
were successfully completed this year in collaboration with
Kiwi start-up Future Post, and we are now looking to retail
these through our Farm Source™ stores.
Fonterra Milk for Schools features a recycling programme
that has achieved product stewardship accreditation
from the New Zealand Ministry for the Environment.
The packaging is currently not recyclable in New Zealand
so we ship it overseas where it is recycled into products
such as school books and roofing tiles. We are working with
partners to explore options for local recycling, and looking
at alternatives to the plastic straws.
Supporting food banks
Around the world, we support a number of food
bank initiatives. This helps us reduce food waste and
provides good nutrition for those who need it most.
In New Zealand, we donated more than 100 tonnes of
food to the Salvation Army, the Auckland City Mission
and Kiwi Harvest this year. In Australia, we continued
to support Foodbank, Australia’s largest hunger relief
organisation, donating over 260,000 meals in 2017.
In Chile, we continued to support Red Alimentos.
Many consumers now want access to safe food out of
home with the convenience of single serve portions and
in packaging that is recyclable. Many manufacturers want
the efficiency of scale that comes from a single packaging
solution that is sold into different markets. Finding solutions
that work for a sustainable future is challenging and will take
collaboration and co-operation to solve.
What weʼve been doing
Using less materials
When designing new packaging, we seek to reduce the
amount of materials to an optimal level. This is a delicate
balance. Reducing the materials used not only improves
transport efficiency, it also means less materials to be
recycled, reused or disposed of after consumption. However,
we must ensure that packaging is robust enough to avoid
damage to our products, which leads to wasted food.
In New Zealand, by collaborating with other industry players,
we modified the caps on all our fresh white milk and cream
products this year. This involved a change to the caps, the
bottles and the filling equipment at multiple sites, reducing
the plastic (HDPE) used per cap by 33%. This equates to
about 144 tonnes less material per year.
Multi-walled bags in different sizes and different
configurations are the most common form of packaging
we use. This year, we further optimised the amount of glue
used in each bag, and standardised the paper used, reducing
adhesive by about 14 tonnes per year and paper by around 60
tonnes per year.
In Australia, we saved more than 125 tonnes of materials by
working with the packaging providers for our main cheese
and butter products through weight reductions in corrugated
cardboard and cheese bags.
In Malaysia, we reduced the weight of the plastic bottle used
for cultured milk products, saving about 30 tonnes per year.
Our Environment
6263FONTERRA SUSTAINABILITY REPORT 2018FONTERRA SUSTAINABILITY REPORT 2018
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OUR ENVIRONMENT
Our targets
IndicatorTarget PerformanceCommentary
FY17FY18
Solid waste sent to
landfill (tonnes)
(New Zealand )
20% reduction by
2020 from FY15
baseline (NZ)
5,295
7%
1

cumulative
increase
5,663
14%
cumulative
increase
During FY17 we transitioned to a new waste provider and they
measure waste from some of our sites differently to the previous
provider. This makes it difficult to meaningfully compare against
the FY15 baseline and has contributed to the increase. We are
now focused on reducing significantly from our FY18 levels.
Solid waste sent to
landfill (tonnes)
(Global)
Monitor and report
with the aim of
significant reduction
15,113
1
15,430
2%

increase
Given the difficulties we have encountered with data quality in
this area, we have not set a global target yet but we intend to in
the near future.
1 700 tonnes of waste to landfill was previously overlooked in FY17 when a change to the

main service provider led t
o a gap in the reporting coverage.
• We are aiming to set new global targets for our own
solid waste to landfill and the packaging we use for
finished goods. Ultimately, we aspire to play our part in
achieving the concept of ʻzero waste.ʼ
•
To achieve this, we are initia
ting a research
programme to evaluate the performance and safety
of alternative sustainable packaging materials, and
how packaging materials might be manufactured
from locally-sourced by-products, waste streams
and low-impact renewable sources.
• We will continue to reduc
e the quantities of materials
we use and increase yield by minimising waste across
our full value chain.
WHATʼS NEXT
Packaging
and waste
continued.
DEFINITION
Zero waste:
Is where products and processes are designed to
minimise resource use, seeking to conserve and
recover resources rather than burn or bury them, and
influencing people to change their lifestyle to better
emulate natural cycles.
Our performance
In Australia, we are becoming a Redcycle Partner. Redcycle collect
soft plastics from special bins located at major supermarkets.
This scheme makes it possible for consumers to return previously
non-recyclable soft plastics. A similar scheme already exists in
New Zealand, operated by the Packaging Forum and covering
approximately 70% of the country.
In Australia, the Packaging Technology Team were first time
finalists in the 2018 Australian Packaging Covenant Organisation
sustainable packaging awards.
In New Zealand, our Farm Source™ stores have stopped providing
plastic bags to customers. It is estimated this will eliminate
approximately 365,000 plastic bags per year.
CASE STUDY
Pallets – lighter and longer living
Most of our pallets are
made from radiata pine,
a renewable natural
resource locally sourced
in New Zealand. We have
over 900,000 pallets in
circulation in New Zealand
at any one time and every
year we send about 150,000
pallets overseas.
We try not to ship the
pallet but in some cases
a pallet is mandatory.
Working with our supplier
Timpack, we re-designed
one of the pallets used for
export. The new design
uses fewer and narrower
boards, needing 25 less nails
and reducing the weight by
almost 5kg per pallet.
This has been achieved
without impacting the safe
load-carrying capacity,
performance or life
expectancy.
Not only is this a great
cost saving, it also results
in an annual saving of
approximately 190 trees and
five tonnes of steel.
At the end of its useful life,
Timpack sends the pallet
to Reharvest Enviromulch
who chip them for reuse in
children’s playgrounds or for
landscaping. In FY18, over
760,000 replaced boards
and almost 14,000 pallets
went to Reharvest – that’s
more than 1,600 tonnes of
wood that was diverted
from landfill.
CASE STUDY
Going Circular
We established NZAgbiz in
2005 to create value from
by-products that would
otherwise go to landfill.
Waste products that are
not suitable for human
consumption are re-worked
into animal nutrition
products that are then sold
to farmers to help their
livestock thrive.
The materials that NZAgbiz
collects from Fonterra and
other dairy manufacturing
sites are turned into useful
animal nutrition products
like calf milk replacers, pig
feed products and specialist
animal health supplements
such as probiotics,
colostrum powder and
electrolyte replacements.
Any waste product NZAgbiz
cannot re-work is sold as
ingredients for other stock
feeds, soaps and bio fuels.
At NZAgbiz, we also
recycle the packaging
which historically
would have gone to
landfill because it was
contaminated with food.
For example, for infant
formula which cannot
be released, we de-can
the product and recycle
everything from the
plastic lid to the plastic
scoop and aluminium
seal. The tin itself is
crushed and collected
by metal recyclers.
During FY18, we produced
about 12,000 tonnes of
finished goods for sale
and sent the following for
recycling:
•
104 tonnes of metal
• 60 tonnes of paper
and cardboar
d
•
120 tonnes of plastic.
Our Environment
64FONTERRA SUSTAINABILITY REPORT 201865
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•
•