Win-Win-Win Partnership between Farmers, Local Government and Nestl Nestls high quality dairy production always begins

at the source with milk farmers. To build long-term, direct relationships, Nestl has established a unique milk collection model called 'factory and farmers' through solid efforts over the past 20 years. Based on a Win-Win-Win partnership between farmers, the local government and Nestl, this model ensures each party takes its responsibility and works together to achieve highest quality and safety. Government supports have been instrumental in the successful implementation of this model, which also effectively eliminates the 'middleman' and ensures the traceability and accountability of the overall supply chain. Most importantly, through this model Nestl dairy farmers are provided with continuous training, technology and skill development from cow selection, quality feed, breeding practices, disease prevention, milking, storage and transportation to bring world-class standards and processes to local communities, which in turn produces high quality milk and promotes positive development of the local industry. Every year, for the last 20 years, Nestl conducts more than 300 free training sessions for farmers. Milk Collection Model The unique milk collection model employed by Nestl and its farmers includes a computerized system where information on each farmer, cow and batch of raw fresh milk is tracked from pickup to delivery and production. In this model, every batch of milk received needs to pass a series of strict quality checks before it is 'lead sealed' prior to being transported to the factory. In order to ensure freshness of the source milk, every Nestl farmer is approximately one-hour from the milk stations, which are managed by Nestle-trained staff. World-class Production and Processing Over the past 20 years, the Shuangcheng factory has undergone rapid growth and consistent enhancement to become one of the most technologically advanced and largest Nestl factories in the world. Its highly efficient quality and safety management and stringent regulation over its milk supply chain has ensured the consistent supply of high-quality products made from fresh milk that comply with world standards. In fact, this process includes over 70 international quality and safety tests developed through Nestls worldwide network of dairy scientists and engineers. As a result, the Shuangcheng milk district has been rated as the number one county in China for milk cow production by the China Dairy Association. Advanced Research and Development As the worlds foremost dairy and nutrition expert for over 140 years, Nestl is committed to investing in advanced research and development to ensure the quality and safety of products in China. This commitment includes leveraging its 23 global R&D centers, with one in Shanghai and another with the opening of a new state-of-the-art Beijing Research and Development Centre. With an initial set-up investment of RMB 70million, the new Beijing R&D Center provides high-tech quality testing, safety technical and scientific support. The Beijing R&D Center also strengthens Nestls ability to further adapt its products to local taste preferences, and address the nutritional and health needs of future generations of Chinese consumers. For more than 140 years, families have trusted Nestl for the best milk and infant nutrition products, said Mr. Bula. At Nestle, consumer safety is an uncompromising priority. Thats why we have been employing these best practices that set the standard for the industry. Mr. Bula also noted that during the current milk

crisis in China, Nestl undertook immediate, decisive actions to ensure continuous and uncompromised quality and safety of its products.

Since Sept 14th, no milk products are released to the market before passing internal tests and government lab certifications. To deliver our commitment to our consumers about product safety and quality, immediate voluntary testing is being conducted on all Nestl milk products produced before Sept 2008. As of today, Nestl has passed all tests and received more than 16,000 government certifications. This allowed Nestl to respond speedily ahead of our competitors in making sure that our products remain available on store shelves after the Chinese authorities issued recently its 'Green sticker' policy to satisfy consumer needs. Nestl massively invested in the quality control of its fresh milk supply in order to achieve best-inclass standard of fresh milk quality. Nestl has made immediate investment to equip its factories with 20 state-of-the-art analytical machines, including some of the most sophisticated equipment used during the Beijing Olympics. The Nestl headquarters in Switzerland has sent more than 20 of its leading scientists from Europe who are working on the ground with the local team as well as relevant authorities to ensure the highest product quality and safety. These actions, plus the already existing world class operations in Shuangcheng factory, enabled Nestl to comply with all government standards and requirements, and ensure that Chinese consumers continued to enjoy our high