CHAIRMAN's REPORT for 2016 Presented at the Annual General Meeting on 31 May 2017

CHAIRMAN'S REPORT FOR 2016 – Presented at the Annual General Meeting on 31 May 2017

The company remained as strong as ever in terms of concerted efforts in its Advisory Committees and Work Groups to brainstorm the challenges in every discipline and to pursue Milk SA’s vision. The Advisory Committees comprise persons nominated by the MPO and SAMPRO as well as expert persons.

Transformation is a significant focus area of Milk SA. Whereas the development of skills and knowledge played a major part in our transformation portfolio, our focus will be increasingly towards enterprise development, such as the harmonization of national efforts towards the "commercialization" of dairy entrepreneurs.

The core business of the office of Milk SA is to ensure optimal administration of the statutory regulations.Therefore, given the lean staff component at Milk SA, external structures were created to take care of the administrative functions of Customs & Market Access and Research & Development.

The Board took a sharper view on the financials - especially debt management - which was becoming increasingly important in the current economic climate. The levy inspectors, appointed by the Minister of Agriculture, Forestry and Fisheries, contributed greatlyto ensuring optimal levy payments and the supply of correct industry information.

The projects of Milk SA, which are linked with the work areas of the International Dairy Federation, played their part in creating immense value for the South African and international dairy communities.

While the global economic environment remained uncertain, indications were that the country had entered a period of recovery, with an anticipated economic growth rate of 1.3 percent in 2017, following an estimated 0.5 percent growth rate in 2016. However, the outlook for consumer spending remained weak as consumers faced rising inflation, interest rate hikes and high unemployment rates. As a result, consumer confidence was at a low level. Political uncertainty and the related volatility of the Rand aggravated this outlook.

In spite of the grim view and uncertainties, the overall performance of the South African dairy industry has remained positive.Dairy products continued to perform well against competitive products in the market and our primary sector remained one of the most competitive internationally.

Milk SA remains committed to high standards of corporate governance, with accountability and transparency being key building principles in all decision-making.

As I approach the end of my term on30 June 2017,I wish to salute everyone with whom my path crossed as independent chairman of the Board of Directors of Milk South Africa.

Up to 1998 I was constantly amazed as a civil servant by the loyalty, entrepreneurship, humbleness and dedication of the agro family towards the goal of feeding the nation and nurturing our natural resources.

Nothing has changed.

All the role players in the dairy value chain echo this experience.

Only the noble can work with the noble product of milk with the respect it deserves.

I am thankful for the opportunity the dairy industry once again afforded me to be a memberof this magnificent industry called the dairy industry.