Fonterra comment on Commerce Com. determination

For Immediate Release 13 June 2003

Fonterra comment on Commerce Commission determination

The Commerce Commission's final determination on discount rates for setting the Default Milk Price is irrelevant for the future and involves negligible financial impact, Fonterra's General Counsel, David Matthews, said today.

"Fonterra continues to maintain that the Commerce Commission has misunderstood the Dairy Industry Restructuring Act (Raw Milk) Regulations," said Mr Mathews.

The default milk price is set using a complex prescribed statutory formula that includes a discount rate. >From the 2002/03 season onwards, the discount rate will be the cost of capital used to calculate Fonterra's share price under the formula recommended by its advisers, the international credit rating and financial advisory agency, Standard & Poor's. However, there was no applicable discount rate for the 2001/02 season because, at the time of Fonterra's creation, the group's share price was set by the co-operative companies under the Merger Agreement.

"Now that a share price is being set annually, this issue will not arise again," said Mr Matthews."

"In particular, it is important to recognise that the Commission's determination relates only to the Raw Milk Regulations, and is unrelated to the Fonterra Fair Value Share Price process itself," Mr Matthews said.

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