Fair Value Share Price And Forecast Payout

MEDIA RELEASE
27 MAY 2005

FONTERRA ANNOUNCES FAIR VALUE SHARE PRICE AND FORECAST PAYOUT

Fonterra Co-operative Group has announced its Fair Value Share price and forecast payout for 2005/06.

The Fair Value Share price for 2005/06 is $5.44, compared with 2004/05's $4.69 and the estimated price for 2005/06 of $5.11 announced in December.

Chairman Henry van der Heyden said the increase confirms for farmers the strong financial return from their investment in the Co-operative.

He said the Fair Value Share was not well understood by farmers in the early days of Fonterra, but the recent capital structure debate had brought a new level of understanding.

"Most shareholders now appreciate that the Fair Value Share represents a good long-term investment and that an increasing share price reflects an independent view that our value-add payout will grow," said Mr van der Heyden. "They see that payout is a snapshot of performance for one season while the Fair Value Share price takes into account Fonterra's long-term prospects.

"The Fair Value Share price represents the value that Fonterra is going to return to its shareholders long-term over and above the value of their milk at the farm gate," Mr van der Heyden said.

Fonterra's Fair Value Share price was chosen by the Board of Directors from a range calculated by independent valuer Standard & Poor's Corporate Value Consulting (CVC), in accordance with Fonterra's constitution.

Standard & Poor's CVC valued each share at between $5.03 and $5.85, from which the Board chose the midpoint of $5.44.

The major factor behind the latest increase was the independent valuer's recognition of future gains from Fonterra's medium-term strategy for transforming the operational performance of its ingredients business.

The Co-operative also announced a forecast payout for 2005/06 of $3.85 per kg of milk solids and an advance rate of $2.70 kg/ms.

Mr van der Heyden said the reduced figure was appropriate, and reflected in large part the impact of the strong NZ dollar.

"We have benefited this year from our hedging policy, but next season our forecast hedged conversion rate against the US dollar will be higher, which will hit our NZ-dollar earnings harder.

"We are also monitoring international demand for dairy products and commodity prices. While these are currently stable, at historically high levels, it's not possible to determine whether this situation will continue through the new season."

Advance Rates (2005/06 payout of $3.85 kg/ms)

June 05 to January 06 (paid July 05 to February 06) $2.70
February 06 (paid March 06) $2.90
March 06 (paid April 06) $3.10
April 06 (paid May 06) $3.25
May 06 (paid June 06) $3.50
July 06 $3.65
August 06 $3.85

Background to the Fair Value Share Process

Before the creation of Fonterra, shares in dairy companies had fixed nominal values, which often had little relationship to the underlying value of the company. Fair Value Shares were introduced under Fonterra's Constitution on its formation in 2001 to more accurately reflect the investment of farmers in their company. Farmers are required to hold one Fair Value Share for each kilogram of milksolids they supply to Fonterra.

Fonterra's Board of Directors sets the price from within a valuation range provided by Standard & Poor's Corporate Value Consulting, the independent valuer chosen for the job by Fonterra's Shareholders' Council. The final share price must be set before June 1, the start of the dairy season when most dairy farm and herd transactions occur.

To assist farmers in planning production levels and budgets for the season ahead, Fonterra is also required to provide shareholders with an estimate of the share price by December 15 each year.

Further details on Fonterra shares can be found in the Investment Statement dated 6 May 2005 available on www.fonterra.com.

ENDS

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