“the decision to merge”

“The Decision To Merge”

Daniel Wolf

November 18, 2008

Company Backgrounds

Upstate Farms Cooperative, Inc.

Niagara Milk Producers Cooperative, Inc.

Pre-Merger Structure

Farmer Members Farmer Members

Niagara DFA Upstate Farms

O-AT-KA Milk Products Cooperative

Niagara Milk Cooperative

Upstate Farms Cooperative

Wendt’s Dairy

- Fluid milk

Bulk Sales

- Niagara Milk Coop.

Upstate Commercial

- Fluid milk

- Cultured

Bulk Sales Market Balancing

Commercial Activity

Reasons to Consider Merger

The primary missions of both Niagara Cooperative and Upstate Farms Cooperative were to be value-added marketers of raw milk:

Generate above class price returns for their members Stable competitive milk markets Return on Equity

Through many years of working together at O-AT-KA, Niagara Cooperative and Upstate Farms had come to know and respect one another

We had merger conversations in the past

■ Timing Seemed To Be Right■ Both companies were at similar earnings level.■ Each company would receive full value of their members’

equity shares in the combined company.■ Apparently without the need for any adjustments to that equity.

Reasons to Consider Merger

The merger of the two cooperatives would lead to even higher returns on milk marketing activities for both cooperatives versus what they could accomplish on their own:

A strong leadership position in Western New York; Synergies in milk hauling, processing and administration; A sound capital base for more effective execution of growth

initiatives (product and geographic) Increased competitive position to better serve our customers

Reasons to Consider Merger

Operational Opportunities

Utilization or rationalization of excess plant capacity:■ Combined entity likely will not require 3 fluid milk plants serving

the same geography■ Consolidation of fluid production should yield substantial

savings ■ Fluid milk production consolidation will create an opportunity to

examine new production; such as, specialty products not currently manufactured by either company.

Other Potential Synergies:■ Savings in administrative costs■ Savings in distribution network may be possible

Reasons to Consider Merger

Our World Is Changing

Merge or Retreat

Reasons to Consider Merger

Strategic Opportunities

■ Niagara and Upstate operate similar businesses with similar goals:

■ Profitably market member milk long-term, including downstream profits

■ Greater business value■ Operate essentially in the same geography

Reasons to Consider Merger

Niagara Milk Production by Zip Code

Highest

High

Low

Lowest

Upstate Milk Production by Zip Code

Highest

High

Low

Lowest Lowest

Low

High

Highest

Lowest

Low

High

Highest

Combined Milk Production by Zip Code

Lowest

Low

High

Highest

Lowest

Low

High

Highest

Upstate Farms Cooperative and Niagara Milk Cooperative Pre-Merger

Membership Issues - Benefits

Premium programs offered by both cooperatives include:

Volume Incentive Premium Quality Incentive Premium Hauling Volume Discounts

Membership Issues – Equity Investment

Upstate Base capital plan; $4.00 per

cwt. annual production. Current average member

equity investment of both organizations is near equal on most recent annual production.

No membership dues. No capital deduction.

Niagara Five year revolving plan. Current average member

equity investment of both organizations is near equal on most recent annual production.

Membership dues.

Pre-merger Governance Structure

Upstate 3 areas 12 person board; staggered

3 year terms Current 47 person delegate

body

Niagara 12 districts 12 person board; annually

elected by districts No delegate body

Board Representation Proposal

Board Interim Board For 3 Years

From Upstate: 12 Existing Members From Niagara: 5 Existing Members For A Total Of: 17 Members

After 3 Years Likely 12 – 15 Person Board Elected From The Delegate

Body Determined By Interim Board

Delegate Representation Proposal

Interim Upstate Delegates; 47 Members Niagara Board; 12 Members For Total Of 59 Members

After 3 Years From Each Area, Based On Delegate To Member Ratio

As Determined By Delegate Body and By-Laws.

Other Strategic Considerations

O-AT-KA Included in the Consolidation Tax Considerations Potential Pension Withdrawal Liability

The Merger – Unity/Issues

Delegates of Upstate Farms and members of Niagara Milk Cooperatives voted and approved the merger

A few Niagara Milk members left Even fewer Niagara Milk members became “dissenters”

using NY State Law Asking court to be paid more than the amount in their equity

account

UPSTATE NIAGARA

The Cooperative

That’s Just

A Little Different

Upstate Niagara Cooperative, Inc. Created by the Merger of Upstate Farms & Niagara

Milk on July 1, 2006 USF created by merger of local Cooperatives in 1972 Niagara Milk created by farmers in Niagara County in 1933

Included 90% ownership of O-AT-KA Owned by Farmers & Cooperatives

400+ Individual Dairy Farmers Other Cooperatives

Dairy Farmers of America (DFA) Dairylea

The Merger

O-AT-KA Created to clear markets and ensure home for all

member milk Founded in 1958 by Genesee Valley Cooperative & WNY

Cooperative of the Rochester market Frontier Federated joined in 1961 Dairylea joined in 1962 Niagara County Cooperative (Niagara Milk) joined 1967 O-AT-KA Board approved the sale of Dairylea ownership to

Dairy Farmers of America (DFA) in 2005

The Merger

The Milk Marketing System

Upstate Niagara Commercial Division

Farmer Members Upstate Niagara Coop.

O-AT-KA Milk Products

DFA

Other Coops

Dairylea Bulk Truckload Sales (Other processors)

The Milk Marketing System

Corner Stones of:

The Milk Marketing System

Packaged Fluid Milk

Market Balancing

The Milk Marketing System

O-AT-KA provides security by guaranteeing markets and adding value in three key areas Market Balancing (dairy commodities) Core Products (evap milk 30% US/PR market) Value Added Specialty Beverages

The Milk Marketing System

The Milk Marketing System

Upstate Niagara Governance

MembersNominate and Elect

Area Delegates = Delegate Body

9 Area Directors 6 At-Large Directors (elected by Area Delegates) (elected by all Delegates)

____________________________________15 Member Board of Directors

Transition Period

Directors

2008 2009 2010 2011

Total Directors 16 15 15 15

After Election

Delegates

2008 2009 2010 2011

Total Delegates 57 55 53 51

After Election

AREA I

AREA II

AREA III

HUME

Area IITown/County (not shown)Addison/Steuben Fayette/Seneca

ThompsonOH

CorryPA

RUSHFORD CANEADEA

NUNDAPORTAGE

OSSIAN

SPARTA

BENTON

138 Voting Units/

Members

131 Voting Units/

Members

129 Voting Units/

Members

Revised

2008 Member/Voting Units

Upstate Niagara 3 Areas Board of Directors

3 Area Directors from each area 6 At-Large Directors Staggered 3 year terms

Delegate Body Area Delegates, based on delegate to member ratio as

determined by Delegate Body and By-Laws Approximately 50 delegates Staggered 3 year terms Current Ratio 1:7 (1 delegate to 7 members)

Upstate Niagara Governance

Goals for transition from Interim to Permanent Governance Structure:•Approx. 57 delegates after 2008 elections and approx. 55 delegates after 2009 elections•16 directors after 2008 elections and 15 directors after 2009 elections

398 Voting UnitsOctober 2007

387 Voting Units

October 2008

CurrentGovernance Information

Representation7 to 1

Area I 138 Voting Units 134 Voting Units 20 Delegates 19 Delegates

5 Directors

Area II 129 Voting Units 125 Voting Units 18 Delegates 18 Delegates

6 Directors

Area III 131 Voting Units 128 Voting Units 19 Delegates 18 Delegates

5 Directors

Directors 12

Dir-at-large 4

Total Board 16

Total Delegates 57 55

Voting Units/Representation

Upstate Niagara/ O-AT-KA Structure

Members

Delegates

U-N Board

CEO

Executive Secretary Executive Assistant

COOGM

MembershipCFO

Chief Dairy Economist

Human Resources

O-AT-KA Board

CEO

CFOVP Business Development

Legal Counsel

COO

Together Toward

Tomorrow

Upstate Niagara Simply Working,

Thank You