2020 Cooperative Sustainability Report

2020

COOPERATIVE SUSTAINABILITY REPORT

TABLE OF CONTENTS

FROM OUR LEADERS Welcome to UDA's 2020 Cooperative Sustainability Report. While 2020 was before my tenure started, I am keenly aware of the challenges that the co-op faced throughout the year and am proud to see all the progress we've made since.

In celebration of our 60th anniversary, we are excited to announce our commitment to goals in four key areas:

Greenhouse Gas Emissions: Science-Based Target to reduce total Scope 1 & 2 greenhouse gas emissions by 50% by 2030 from the calendar year 2018 base year; and measure and reduce our Scope 3 emissions by 2030 from a calendar base year.

Energy: Increase the use of renewable energy by 2030 compared to the calendar year 2018 base year mix.

Water: Reduce water withdrawal per million lbs. processed by 15% (to 2014 levels) by 2030 from a calendar year 2018 base year.

Waste: Maintain our calendar year 2018 diversion rate from landfills of 99% for the next 10 years.

As always, UDA is proud to support the Stewardship and Sustainability Framework for U.S. Dairy and contribute to the progress of the industry’s 2050 Environmental Stewardship Goals. We are excited to share our progress on these goals over the next ten years.

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Robert Chesler Chief Executive Officer

FROM OUR LEADERS In January 2020, UDA celebrated its 60th anniversary. Just a few short weeks later, COVID-19 turned the world upside-down. Grocery stores were depleted of supplies, restaurants and other 'non-essential' businesses were closed, and UDA was overcome with milk to the point of needing to dump it down the drain.

Despite the onset of COVID-19, UDA continued to provide its customers with high-quality products. In the calendar year 2020, UDA: Processed nearly 2.2 billion lbs. of milk and whey for its customers, thanks to the tireless efforts by our members and employees.

Lowered its carbon footprint at both the plant and at the farm from the calendar year 2018 base year.

Transformed how it brings quality dairy products to market.

Ensured the safety of its team members.

Thank you for your continued interest in our cooperative and our sustainability efforts. We look forward to sharing continued progress.

Craig Caballero Chairman of the Board

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WHAT WE BELIEVE With each new generation, the food we eat and the products we use come under heavier scrutiny. The desire for more transparency along with consumer demand for high-quality and trustworthy ingredients prompts industries to be innovative to try and capture trust and loyalty from the masses. Everyone wants to create the best, most consistent, and most trusted product on the market.

We believe the only way to provide customers with the best products is to use the best ingredients. Ingredients created by the best Arizona cows on the best Arizona farms, refined using state-of-the-art processing facilities operated under industry-leading certification standards.

As Arizona’s original dairy co-op led by a strong community of Arizona dairy families, we’re dedicated to helping you keep shelves stocked and customers satisfied with the highest quality dairy ingredients possible.

Together with our cows, our farmers, our team, and our community, we are united in excellence.

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OUR VALUES QUALITY

INTEGRITY

United in Excellence

Tried and true

As we live out all of our core values as UDA, we will create, together, an environment of excellence with services and products of the highest quality.

Integrity is important to us, not only because of what it gives us, but also because of what it gives others: a feeling of being true and honorable and right.

STEADFASTNESS

COMMUNITY

Invest for the long haul

Better together

Steadfast organizations last. They’re willing to be patient in achieving quality. Our value of steadfastness speaks to a kind of patience that leads to attention to detail and willingness to put in the hard work needed.

Our community is the bedrock of all we do because of the accountability and passion we all bring into our work.

DRIVE Always moooving forward 4

We value drive: always moving forward, always working, always making the next thing happen. We show up, every day and do the work, no matter what.

UDA'S NEW SUSTAINABILITY GOALS

CARBON

Science-Based Target to reduce total Scope 1 & 2 greenhouse gas emissions by 50% by 2030 from the calendar year 2018 base year; and measure and reduce our Scope 3 emissions by 2030 from a calendar base year.

ENERGY

Plant & Fleet: Increase the use of renewable energy by 2030 compared to CY2018 mix.

WATER

Plant: Reduce water withdrawal per lb. million pounds processed by 15% (to 2014 levels) by 2030 from a CY2018 baseline year.

WASTE

Plant: Maintain CY2018’s 99% diversion rate of waste from landfill for the next 10 years.

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OUR IMPACT

We know that the best ingredients lead to the best products highest quality and safety. In calendar year 2020 alone, we processed 2 billion lbs. of milk and whey through our manufacturing plant in Tempe, Arizona while ensuring the health, safety, and wellbeing of our team members in a challenging year.

Operating 24 hours a day, 7 days a week, this facility uses state of the art technology to produce high, medium, and low heat nonfat dry milk, MPC, cream, butter, skim milk, condensed skim milk, lactoferrin, and lactose powder.

2 BILLION lbs. of milk processed in 2020 6

IMPACT & LEADERSHIP

U.S. DAIRY STEWARDSHIP COMMITMENT United Dairymen of Arizona is a proud adopter of the U.S. Dairy Stewardship Commitment, affirming to our customers, our consumers, and the global marketplace UDA’s pledge to responsible dairy production as we nourish the communities we serve. We join other dairy cooperatives and companies around the country in working hard to assure best practices in important areas like animal welfare, workforce development and safety, community impact, and product safety and quality.

We strive to continually improve as we listen to end engage with our diverse stakeholders about what is most important to them. And we pledge to contribute to U.S. dairy’s ability to rack and report progress – from farm to table – in the global market place.

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PEOPLE & COMMUNITIES

TEAM MEMBER SAFETY Days Away Restricted Transferred Rate

Our highest priority in calendar year 2020 was the health, safety, and wellbeing of our team members. Despite COVID-19’s challenging circumstances, UDA experienced a 38% drop in its DART rate compared to CY2018 and a 62% drop compared to 1996!

At 2.8, our DART rate is 13% lower than the industry average for dairy product manufacturing in 2020.*

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*Rate as published by the U.S. Bureau of Labor Statistics for Dairy Product Manufacturing (NAICS Code 3115) for 2020.

COVID-19 RESPONSE We credit our success with a robust COVID-19 response that included: Facility-wide cleaning programs Updates to standard operating procedures Use of regular wellness checks Enhancements to health and safety trainings Widespread use of PPE Adoption of close contact tracing Routine team member testing Providing paid sick leave to team members

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TEAM MEMBERS Retention Percentage of Employees who have been employed over 20 years

9.3%

Number of employee receiving health insurance benefits (with employer contributions)

234

Number of employees using wellness program.

307

Since calendar year 2014, the percentage of our workforce that has been employed by UDA for 20 or more years has grown to over 9%.

Benefits: To keep our talent, UDA offers a robust set of benefits that include: Health insurance (with employer contributions) 401k retirement Employee wellness programs In calendar year 2020, our team members’ use of these programs continued to grow.

9% more employees now use co-op health insurance.

35% more employees now use co-op wellness programs.

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COMMUNITY In early 2020 when the pandemic was starting to take hold of the nation, a local food bank saw demand increase from 1.6 million pounds of food per month to 1.2 million pounds of food per week.

At the same time, UDA's food service sales dried up so quickly our farmers were dumping milk because it had nowhere to go.

TOTAL VOLUME OF PRODUCT DONATIONS MADE IN 2020

20,000 GALLONS

Not wanting to see milk wasted, UDA developed an ongoing fundraising partnership with United Food Bank to help those in need during the COVID-19 pandemic. We are proud to announce that with the community we raised nearly $20,000 to provide milk to United Food Bank.

In addition, UDA's farmers donated approximately 5,000 gallons through our partnership with the Dairy Council of Arizona's Milk Matching Program. As well, as coordinating with local schools to help distribute gallons of milk or milk powder to rural locations.

UDA WAS HONORED WITH A 'RECOGNITION OF RESILIENCE' AWARD, FROM ARIZONA STATE UNIVERSITY, FOR DEMONSTRATING FLEXIBLE, INNOVATIVE, AND CREATIVE APPROACHES DURING A TIME OF RAPID CHANGE. 11

OUR ON-FARM GHG FOOTPRINT In calendar year 2020, UDA’s farms emitted 14% fewer greenhouse gas (GHG) emissions and used 13% less energy per lb. FPCM than in its calendar year 2018 base year.

This reduction in carbon amounts to the equivalent of: 1.7 fewer miles driven on the road per gallon of milk in one year.

80 fewer smartphones charged per gallon of milk in one year.

Greenhouse Gas (GHG) Emissions Intensity: UDA CY2020: 1.04 lbs. CO2e / lb. FPCM UDA CY2018: 1.22 lbs. CO2e lb. FPCM Regional CY2020: 1.35 lbs. CO2e / lb.

FPCM Energy Intensity: UDA CY2020: 2.29 MJ / lb. FPCM UDA CY2018: 2.65 MJ / lb. FPCM

FPCM stands for Fat & Protein Corrected Milk, milk standardized to 4% fat and 3.3% protein. FPCM normalizes milk production to the same scale. We calculated our producers’ GHG emissions and energy use via a weighted average using the latest version of the National Milk Producers Federation’s (NMPF) FARM Environmental Stewardship tool. Key data includes milk production records, herd data, rations, manure management, and energy use.

Our farm-level carbon and energy footprints were calculated as a weighted average from output from the FARM-ES tool from data covering over 85%+ of our member milk supply.”

These equivalencies were calculated using the U.S. Environmental Protection Agency’s Greenhouse Gas Equivalencies Calculator.

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OUR ON-FARM GHG PLAN As we look to 2030, we plan to continue to make reductions in our carbon and energy footprints by working across our membership to scale three main innovations: Solar Energy Our farm-level carbon footprint remains about 19% higher than the national average due to the energy we use to grow feed and keep our cows comfortable. Using renewable energy allows us to continue powering our farms while lowering our impact.

Manure Digesters A methane digester from one dairy can produce up to 5 million kWh of electricity, enough to power over 400 households – all while capturing methane (25 times more powerful than carbon dioxide) and separating out water and solids to make fertilizer grade manure and irrigation water.

Conservation Tillage As an Arizona co-op, our climate – and our cropping systems – are different. We plan to investigate opportunities such as strip tillage, where feasible and appropriate, that can help us maintain yields while increasing soil carbon sequestration.

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ON-FARM WASTE MANAGEMENT/CIRCULARITY Plant & Animal Waste Instead of being sent to a landfill, plant and animal waste can go to a methane digester

Compost Can be used to grow crops that feed cows, which starts the cycle all over again.

Methane Digester Organic materials are broken down into useable products.

End Products Digested material can be made into products like compost, fertilizer, or even animal bedding.

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Energy Processed biogas may be used to produce heat, vehicle fuel, and electricity!

OUR WASTE MANAGEMENT IMPACT Compost In CY2020, six of our member farms converted manure into compost. Composting allows our members to repurpose manure waste as a fertilizer/soil amendment that can also reduce odors, create alternative revenue streams, and reduce on-farm greenhouse gas emissions from manure.*

Distillers Grains In addition, many are using brewer grains on their farms as animal feed. This allows them to use less water and energy to grow crops for feed.

Our Plan As we look to 2030, our members plan to continue using compost and distillers grains on their farms. In addition to diverting waste, these strategies help us to manage our carbon footprint.

*This number is based on the sample of member milk captured in the FARMES tool.

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GHG Emissions

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MMBTUs / million lbs. milk processed

MMBTUs

MT CO2e / million lbs. milk processed

MT CO2e

PLANT ENERGY USE & GHG FOOTPRINT

Energy Use

OUR PLANT ENERGY IMPACT While our energy use intensity has increased by 2% since its calendar year 2018 base year, we are using almost 3% less energy use overall at our Tempe plant and in our fleet compared to our calendar year 2018 base year; and our greenhouse gas emissions intensity and total have both decreased since our base year by 0.3% and 5%, respectively.

OUR DECREASED ENERGY IS EQUAL TO 40 HOMES ELECTRICITY USAGE FOR ONE YEAR!

Our success is due in large part to the increased use of supertankers in our fleet, which has enabled us to use 25,295 fewer gallons of fuel and drive 1.4 million fewer miles since calendar year 2018 – the equivalent of over 40 homes’ electricity usage for one year!

In addition, we’ve worked hard to reduce our usage of natural gas, LPG, and electricity throughout our Tempe plant.

We track and comply with all air quality regulations as required by the state of Arizona and the U.S. federal government.

These equivalencies were calculated using the U.S. Environmental Protection Agency’s Greenhouse Gas Equivalencies Calculator.

GHG emissions at the plant include Scope 1 and Scope 2 emissions calculated based on on-site- and fleet-specific data and EPA emissions factors.

Energy use and GHG emissions from trucking activities were calculated using EPA’s SmartWay Truck Carrier Partner Tool, and they reflect member milk hauled from farms to our processing facilities only (UDA does not process all of its members’ milk). Total GHG emissions exclude refrigerants and refrigerant leaks as well as the transport of finished products, waste, and other materials (not within UDA’s operational control).

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OUR PLANT ENERGY PLAN

As we look to 2030, we plan to make progress on our goals by working across our team to scale two main innovations:

On-Site Process Efficiencies Making upgrades to process equipment at our Tempe plant could reduce the amount of fuels we use.

Renewable Energy Where possible, using innovations such as solar energy and renewable natural gas could reduce the amount of energy we purchase and the carbon we emit.

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PLANT WATER USE Percentage of water reused and recycled.

11.9%

Number of Olympic-sized swimming pools you could fill with water savings.

OUR IMPACT Our freshwater withdrawal intensity and overall intake have both increased since our calendar year 2018 base year, largely due to our changing product mix.

However, we now recycle over 11.9% of our total water usage at the Tempe plant. This volume is equivalent to nearly 52 Olympicsized swimming pools!

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Our Plan As we look to 2030, we plan to make progress on our goals by working across our team to scale two main innovations:

Smart Metering Making upgrades to our metering systems at the Tempe plant could create additional efficiencies in the water we withdraw into our equipment.

Reuse and Recycling Where possible, we hope to uncover additional opportunities to reuse and recycle seal water for pumps and water used in rinses. *In 2020, we changed how we track water reuse and recycling due to the installation of meters. As such, water reuse and recycling data disclosed in previous years should not be directly compared to this value.

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HOW WE RECYCLE WATER Step 1: Milk comes into the plant from the dairy and goes to a dryer.

NFDM

Step 3: The dried milk is packaged and sent to customers all over the world.

Step 4: The water in the milk is saved and reused in the plant for cleaning and heating boilers.

Step 2: Milk is dried into a powder and the water in the milk is pulled out.

Water back to plant!

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PLANT WASTE/RESOURCE RECOVERY Percent of waste diverted from landfill.

Percent waste that is Recycled Metal, Recycled Paper, and Whey Solids.

Percent waste that is sent to on-farm anaerobic digesters.

The majority of our waste is repurposed in Categories 2 and 3 of the waste management hierarchy.

99.35%

Over 96% (Category 2) of it is paper or metal that is recycled or whey solids that are repurposed as animal feed.

96.72%

2.6% (Category 3) of it is sent to on-farm anaerobic digesters for energy recovery.

2.62%

OUR PLAN As we look to 2030, we plan to make progress on our goals by working across our team to uncover additional recycling opportunities in our business by gathering more recallable plastics and purchasing more supplies that use recyclable packaging.

2030

The scope of the resource recovery indicators includes waste produced from a manufacturing facility during normal manufacturing processes.

Boundaries of the indicators are the point where recycling, treatment, or disposal facility accepts the facility’s waste.

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WASTE MANAGEMENT & FOOD RECOVERY HIERARCHY

1

SOURCE REDUCTION & REUSE

Most Preferred

FEED HUNGRY PEOPLE RECYCLING OR COMPOSTING

2 FEED ANIMALS

3

INDUSTRIAL USES ENERGY RECOVERY COMPOST

FOOD Merged hierarchy of waste management and food recovery from most preferred (top) to least preferred (bottom).

Note: Both waste management and food recovery recommend incineration and/or landfill as a last resort option.

4

INCINERATION OR LANDFILL

NON-FOOD BOTH

Least Preferred

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PRODUCT SAFETY & FOOD QUALITY Our Focus Our co-op is committed to the safety of our products. We adhere to the highest certifications and accreditations, including:

SQF We participate in the Safe Quality Food Institute’s certification program to ensure that our products meet the highest standards.

We are currently certified SQF Level 2.

A2LA We are accredited in the A2LA certification program to provide confidence that our systems support quality services.

We currently hold both chemical and biological accreditations through A2LA. We have validated, verifiable food safety programs and management systems in place. We reassess our food safety programs to ensure efficacy and to reflect new food safety tools/practices and ensure continuous improvement on a regular basis.

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ANIMAL WELL-BEING Our Focus: Our farmers understand that when they take good care of their cows, they get high quality milk. Our co-op prioritizes: Health care Treatment plans 24/7 care Keeping cool Nutrition Early disbudding Hornless cows

Standards: 100% of our member farms participate in the National Dairy FARM animal care program – a nationwide, verifiable animal well-being program that brings consistency and uniformity to on-farm animal care and production practices.

In addition, we’ve committed to using the DairyKind training platform to assist in training all of our dairy employees.

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CONCLUSION Calendar year 2020 was a challenging year, but we are excited to continue creating an impact for our members, our communities, our employees, our customers, and our world. As an adopter of the Stewardship Commitment, we look forward to creating progress on the U.S. Dairy Industry’s 2050 goals with our own cooperative-wide targets.

As we look ahead, we will work to report on our progress on an annual basis.

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CONCLUSION 2018

2020

18-20 Change

FARM Energy use intensity. (MMBTUs / lb. FPCM)

2.65

2.29

-13.5%

FARM GHG emissions intensity. (lb. CO2e / lb. FPCM)

1.22

1.04

-14.5%

506.79

517.47

2.11%

34.88

34.76

-.03%

94.53

116.49

23.23%

32.25%

51.14%

Percentage of permits complied with for water discharge

58.5% -14.5%

100%

100%

0.0%

% of total waste stream diverted from landfill

99.06%

99.35%

.3%

Percent of total waste stream sent to landfill or incineration without energy recovery

.94%

.65%

-30.4%

Number of jobs supplied

300

307

2.3%

Total number of consulting firms hired

20

9

-55%

DART Rate

4.5

2.85

-37.78%

PLANT Energy use intensity. (MMBTUs / million lbs. processed) PLANT GHG emissions intensity. (metric tons CO2e / million lbs. processed) Freshwater use intensity. (Gallons / million lbs. processed) Percentage of re-claimed water used in the plant

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ABOUT THIS

REPORT

This report is the United Dairymen of Arizona’s fourth Cooperative Sustainability Report (CSR). The sustainability efforts at United Dairymen of Arizona (UDA) are aligned with the U.S. dairy industry efforts presented in the Innovation Center for U.S. Dairy’s Stewardship and Sustainability Framework.

Our on-farm sustainability data include the full range of material environmental and animal care measures. The farm-level data are presented as aggregated results in the form of weighted averages from farms representing over 85% of the milk received by our plant for processing and over 90% of the milk produced by our co-op as a whole. Sustainability performance data from our processing plant reflect the full range of material environmental, community, and employee topics. This report summarizes the full calendar year of 2020, as well as 4-year trends across calendar years 2014, 2016, 2018, and 2020, where relevant. We have attempted to follow scientific protocols that are used as the basis of industry measures, and those emerging as recommended standards within the dairy industry. We have taken significant efforts to ensure the accuracy and reliability of this information. However, this information has not been audited and is not guaranteed. UDA does not have direct control over its member farms. The report is not intended to be a solicitation or advertisement of UDA dairy products. This report does not include specifications, characteristics, uses, or benefits of UDA’s dairy products and cannot be relied upon for such purposes. Forward-looking statements, opinions, valuations, and estimates provided in this report are based on assumptions and contingencies, which are subject to change without notice.

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2020 Cooperative Sustainability Report 2008 S Hardy Drive Tempe, AZ 85282 www.uda.coop @UDAMilk