PRESENTATION FOR PwC TAIWAN CONFERENCE

Expertise across the food supply chain

AsureQuality in brief

State-Owned Enterprise 100% owned by NZ Government

Fully commercial operation Focused only on food Independent, impartial, third party agency with

market access focus Work across the entire primary production supply

chain

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Industry Multinationals, across all industry

sectors from on farm / orchard production to retailers and hospitality

All New Zealand food farmers, growers, processors and exporters

Industry organisations

100 internationally recognised accreditations across 46 countries

Experienced team of ~1700 many of them scientists Nearly 110 years of experience – many journeys from

emerging market to current best practice Delivering products and services to over 46 countries A critical role in New Zealand’s agricultural export

economy success

Our customers globally

Governments & Government Agencies Research Institutions Consultants Consumer Groups Individuals

Global reach

China

India

Australia

New Zealand

United States Middle East

Germany

Netherlands

Some of our industry customers

The key pillars of a sustainable and healthy food supply

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Availability Is there enough out there?

Dependent on efficiency of supply vs. demand and external factors such as weather and climate change

Accessibility Can people get hold of it?

Dependent on functioning supply chains and efficient markets

Affordability Can people afford it?

Impacted by level of food price inflation and volatility

Utilisation Is it safe and nutritious?

Consumption of safe food in the right volume (calories) and mix (nutrients)

Food Trust

Food scares, health problems and food waste need to be managed

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Utilisation (safety and nutrition)

Safety / contamination scares Health issues, e.g. diabetes and obesity

Substantial food wastage across the supply chain

The impact can be felt across the value chain

▪ Challenges of continued growth and changes in the market landscape are impacting businesses.

90% of companies can not confirm that key suppliers are ready to respond to unexpected events

75% of companies endure at least one ‘significant’ disruption per year

Almost 50% of companies experience a disruption below Tier 1

Over 50% of recalls cost more than $10M, 10% cost more than $100M

15% of companies take 2 years to finalise losses and work related to recalls

Companies can see stock price value fall by more than 5% as the result of an event

Millions invested to ensure integrity throughout the supply chain – however, focus often on reducing cost and not managing risk

A major event typically costs $10-30m in direct costs alone

Product Development & Innovation

Customer Service, Marketing & Sales

Procurement & Sourcing

Supply Chain

Manufacturing & Operations

Operations Value Chain

Fresh produce supply chain – key food safety risks

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Residues from contaminants in soil, water and fertiliser Agri-chemical residues

Contamination during harvest and post harvest handling

Inadequate temperature control

Deliberate sabotage or fraud

Microbiological contamination of soil and water.

Use of unapproved coatings

Cross contamination

Cross contamination

Chinese police seize more than 20,000kg of fake beef By Jeanette Tan | What’s buzzing? – Fri, Sep 20, 2013

▪ Police have confiscated more than 20,000kg of "beef" from a factory in northwest China's Shaanxi province.

▪ The fake beef was found to be actually made from pork, which had been treated with chemicals such as paraffin wax and industrial salts to make it look like beef.

Listeria cost Maple Leaf Foods $43M Based upon www.nowpublic.com 29 October 2008

▪ The listeriosis outbreak in Canada during the summer of 2008 which began with processed meat products from Maple Leaf Foods, has cost the company $42.9 million dollars so far.

Heston Blumenthal's Fat Duck shut over food poisoning scare Based upon The Independent, March 21, 2009

▪ LONDON - Staff at the Fat Duck restaurant should not have been working when they were infected with the highly contagious Norovirus, a Government health watchdog complained yesterday. 529 diners were sickened after eating at the Fat Duck at Bray.

500 million eggs recalled after salmonella outbreak Abcnews.go.com

One of the nation's largest egg producers recalls eggs after cases of salmonella illnesses, Aug 18 2010

▪An Iowa egg producer is recalling millions of eggs after being linked to an outbreak of salmonella poisoning. The Wright County Egg Farm in Galt, Iowa, announced a voluntary recall of 380 million eggs and a related company 170 Million eggs after they were linked to over 2,500 cases of salmonella poisoning in California, Colorado and Minnesota.

Dioxin contamination closes thousands of German farms mnn.com 6 January 2011

▪ Until all the farms are found to be clear of dioxin contamination, which can cause cancer, they will not be allowed to make any deliveries. This follows discovery of dioxin in animal feed…

Bakery closed after salmonella outbreak ABC News Tuesday January 11, 2011

▪ An outbreak of salmonella linked to a bakery in Sydney's west is being investigated by the State Government's public health unit.

▪ Almost 120 people have sought help, suffering from gastroenteritis after eating takeaway food from a bakery at Bankstown.

▪ Twenty-two of those have been admitted to hospital for treatment.

Birmingham inspectors find food poison risk from packaging Birmingham Post January 24 2011

▪ Handling packaging containing raw chicken could cause food poisoning, Birmingham trading standard officers have warned.

▪ The team said 40 percent of all plastic packaging containing the meat in Birmingham contained food poisoning bacteria.

▪ People are now being warned to wash their hands after handling chicken cartons and wrapping to combat the risk of catching the campylobacter bug which can induce vomiting, diarrhoea and abdominal pain.

Tainted cantaloupes behind deadliest food-borne outbreak ABC News 3 November 2011

▪ With 29 people now dead, Listeria-tainted cantaloupe has caused the deadliest recorded U.S. outbreak of food-borne illness, surpassing a 1985 outbreak with similarly tainted Mexican (style) cheese.

Formaldehyde detected in supermarket fish imported from Asia 1 in 4 sampled fish contaminated | By James Andrews | September 11, 2013

▪ A large number of fish imported from China and Vietnam and sold in at least some U.S. supermarkets contain unnatural levels of formaldehyde, a known carcinogen, according to tests performed and verified by researchers at a North Carolina chemical engineering firm and North Carolina State University.

Mexican salad-processing plant reopens 3 weeks after tied to food-poisoning outbreak

9:23 AM, August 27, 2013 | by Tony Leys

▪ A mexican salad-processing plant tied to hundreds of severe food-poisoning cases in Iowa and Nebraska has been allowed to resume operations.

▪ The plant was linked to an outbreak of cyclospora poisonings among Iowans and Nebraskans who ate salad at red lobster and olive garden restaurants.

Food fraud: 10 counterfeit products we commonly consume

By Melissa Breyer | Thursday, April 04 2013 at 6:31 PM

Coffee, olive oil and fish are just some of the adulterated and intentionally mislabelled foods regularly passed off as something they’re not.

Exclusive: Group finds more fake ingredients in popular foods

January 22, 2013 | By JIM AVILA and SERENA MARSHALL via Good Morning America

It's what we expect as shoppers—what's in the food will be displayed on the label. But a new scientific examination by the non-profit food fraud detectives the U.S.

Pharmacopeial Convention (USP), discovered rising numbers of fake ingredients in products from olive oil to spices to fruit juice.

Horse-meat scandal exposes weakness in global food chain By the Editors 2013-03-24 22:30:07, Bloomberg View

▪ The horse-meat substitution has struck a nerve, however, as people wonder what else they’re eating that isn’t what they think it is.

▪ The list of counterfeit foods Interpol found in worldwide food-fraud operations during 2011 and 2012 includes olive oil, tomato sauce, cheese, wine, candy bars, coffee, soup cubes, truffles, caviar, vodka, soy sauce and fruit juice.

Case Study

▪ Client : Supermarkets, Hong Kong

▪ Situation : Greenpeace had created media attention about high pesticide residue levels in produce being sold through their stores. Consumers and regulators were demanding immediate action.

▪ Client engaged AsureQuality as independent experts to carry out comprehensive analysis of the residue levels in the produce and assessment of the suppliers’ growing practices and pesticide use.

▪ AsureQuality determined there was inadequate understanding of good practice pesticide use, staff were not trained in proper practices and there were no controls in place. Pesticides were being over-used resulting in additional cost to the grower and unacceptable residue levels.

▪ AsureQuality implemented proper good practice controls and developed a training programme for the staff of the suppliers.

▪ In addition, AsureQuality developed specifications for pesticide use and residue levels for the supermarket in line with international standards, and implemented routine pesticide analysis on produce and audit of suppliers.

▪ This system remains in place - there have been no further concerns raised by Greenpeace (which conducts its own testing randomly), consumers or the regulators.

▪ The suppliers of the produce are now approved suppliers to client and have had significant cost savings in pesticide use.

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Risk Management Where many corporations start

Operation Efficiency Where some corporations are heading

Revenue Growth Where leaders are heading

Operational risk

Regulatory compliance

Reputational risk

Operations cost savings

Supply chain cost savings

Implement reporting systems

Product innovation

Increasing market share

Brand enhancement

Opportunity

Risk

Compliance & Risk Management

Operational Effectiveness Strategic Advantage

1. Performance improvement and strategic alignment

Focusing on the leadership model drives better alignment to executing strategy and reaching the organisation’s strategic potential

Traditional view: linear Alignment view: iterative

‘Organisation-wide Strategy’

Delivering future potential

‘Operating model’ Delivery of Strategic

Initiatives

Management of Business as

Usual

Focus of the organisation’s top leaders (Executive team and direct reports)

Focus of senior and middle management (eg. GMs)

‘White space’

The gap between the strategic intent and what managers deep in business need in order to manage the execution of strategy day to day.

The bigger the white space the more likely that managers at all levels will cascade their own interpretations and agendas instead of the organisation-wide strategic intent.

‘Organisation-wide Strategy’

Delivering future potential

Provide focus and direction

‘Operating model’ Delivery of Strategic

Initiatives

Management of Business as

Usual

Deliver performance outcomes

Leadership model Lens 1:

Strategic priorities and trade offs

Lens 3: Strategic risks

Lens 2: Performance

drivers

Lens 4: Critical behaviours

Drive clarity, unity, alignment and accountability

We will assess against global good practice

Leadership

The tone for the organisation’s risk and safety culture is embedded by leaders “walking the talk”.

Fonterra consistently identifies and escalates business risks

and encourages others to do the same.

Governance & Organisation

Changes are implemented that support stronger partnerships

between the risk and HSEQ function and the business.

Roles and responsibilities with

respect to managing risk and safety are viewed as credible and career

enhancing.

Key risk-related business decisions are assigned to those capable of

recognising risk and managing it.

Communication

Risk and safety awareness and education materials are shared across functions, businesses, and geographies.

Mechanisms are in place to encourage escalation, rapid response, investigation, and attention by all employees.

Talent Management Rewards and consequences demonstrate that safety and risk management is everyone’s responsibility. A rigorous recruiting process that embeds risk culture into hiring requirements is in place.

Technology & Infrastructure Technology supports risk monitoring and enables integrated decision making. Processes mine, manage, and interpret data across different dimensions. Consistent Global Operating Norms Risk Appetite framework established across the business. Risk and safety management practices and policies embedded across all divisions and territories. Global geographic risk managed by assessing how events in one region may trigger risks in another.

Leadership

Governance & Organisation

Communications Talent Management

Consistent Global

Operating Norms

Technology & Infrastructure

Leaders value strong

risk management

Risk management is a core part of

my accountability

Communications about risk should be

consultative and challenging

We’re

incentivised and rewarded for applying

sound risk appetite and tolerance

Risk Culture