Nestlé has improved quality of life and reduced malnutrition in developing countries through its "Creating Shared Value Strategy" of creating value for society and shareholders. It works with over 600,000 small-scale farmers, providing training, microcredit, and steady income. This has built strong brand loyalty while also contributing to economic development. Nestlé's early focus on social responsibility through its milk district model generated jobs, higher incomes, and better health for farmers and communities in emerging markets. However, future challenges include potential limitations on food production from increasing water scarcity.
Nestlé has improved quality of life and reduced malnutrition in developing countries through its "Creating Shared Value Strategy" of creating value for society and shareholders. It works with over 600,000 small-scale farmers, providing training, microcredit, and steady income. This has built strong brand loyalty while also contributing to economic development. Nestlé's early focus on social responsibility through its milk district model generated jobs, higher incomes, and better health for farmers and communities in emerging markets. However, future challenges include potential limitations on food production from increasing water scarcity.
Nestlé has improved quality of life and reduced malnutrition in developing countries through its "Creating Shared Value Strategy" of creating value for society and shareholders. It works with over 600,000 small-scale farmers, providing training, microcredit, and steady income. This has built strong brand loyalty while also contributing to economic development. Nestlé's early focus on social responsibility through its milk district model generated jobs, higher incomes, and better health for farmers and communities in emerging markets. However, future challenges include potential limitations on food production from increasing water scarcity.
Nestlé has improved quality of life and reduced malnutrition in developing countries through its "Creating Shared Value Strategy" of creating value for society and shareholders. It works with over 600,000 small-scale farmers, providing training, microcredit, and steady income. This has built strong brand loyalty while also contributing to economic development. Nestlé's early focus on social responsibility through its milk district model generated jobs, higher incomes, and better health for farmers and communities in emerging markets. However, future challenges include potential limitations on food production from increasing water scarcity.
Basic Business Strategy BY NIELS CHRISTIANSEN and the worlds largest milk company since the early 1900s, Nestl has improved the quality of life for local partners and constituents in developing countries, decreased malnutrition within emerging markets, and contributed to economic development in these countries around the world. Through its 650 agronomists and 3,000 direct buyers, it provides free technical advice and 25 million dollars of micro credit to over 600,000 farmers. Nestl built its longterm strategy around its commitment to health and wellness whereby it supplied milk products in developing countries
FOUNDED IN 1866,
Street stallholder sells Nestl dairy products in Cameroon.
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while providing training in improved milk production, crop
and feed management, hygienic practices, and free breeding assistance. As evidenced in Latin America as early as the 1920s, local farmers embraced the education, training, and commitment from a well-established company who, in return, provided steady income, resulting in an extremely strong brand name. Outside research has shown that no global company matches Nestl in terms of the public rating of the company in social responsibility, in the developing world as well as globally. By launching initiatives to ameliorate poverty and nutrition concerns in emerging markets at an early point in the
companys history, Nestl spearheaded a global campaign that
most major corporations have only recently started thinking about. Nestl refers to this as its Creating Shared Value Strategycreating value for society as a means to creating value for shareholders. This has been a key element in building brand strength and customer loyalty. Nestl is today the worlds largest food and beverage company, building rapid growth on a nutrition, health and wellness strategy. It is larger than its next two competitors combined and more recently, it reported sales of over $100 billion in 2007.
Milk district model: Implementation
strategy H AV I N G E M E R G E D in the late 1800s, Nestls original milk district model, developed in Switzerland, initially involved delivering the raw materials needed for an infant food made of grain and milk, and for condensed milk.1 In order to operate efficiently, Nestl established contracts with several farmers to ensure a constant supply of materials. As the demand for milk products increased, Nestl began opening more factories and working with more farmers. As Nestl began exploring opportunities in emerging markets, the company faced new challenges and was forced to develop a milk production process from scratch. Nestl utilized its previous work in Australia to develop an efficient process in Latin America which involved securing a milk-producing area, building new factories with little resources, importing appropriate equipment, and training local workers. As the process developed, Nestl replicated it in other regions including Asia, Africa and the Middle East. In setting up a milk district, Nestl focused on negotiating contracts with farmers for twice-daily collection of milk, installing or adapting milk collection and chilling infrastructure, coordinating appropriate transportation from collection centers to the districts factory, and developing a program to continuously improve the overall quality of milk. Contemplating the location of the milk district, Nestl considered production quantity, production costs, potential income earned from milk production by local farmers versus earning from other alternatives, and competition within the area.
Impact on poverty reduction
in developing milk districts was largely a result of its continuous presence in the various communities where opportunity was scarce. More specifically, Nestl entered areas prepared to train the locals, provide long-term jobs, guarantee wages, and develop a quality end-product. According to Nestls technical director of global dairy operations, It is always the most remote area that is the poorest and less developed. So bringing a milk collection center to an area like that is a blessing for the village, and starts the whole economic development of the place. By identifying the regions with the greatest need for assistance, Nestl fostered a mutually symbiotic relationship with partner countries. Farmers valued the steady income provided by the company which was
NESTLS SUCCESS
used to increase their standard of living while Nestl valued
the long-term commitment and steady supply of milk provided by local farmers. As a result, Nestls initiatives in developing milk districts were a first step towards social responsibility and poverty reduction. Nestl has since been distinguished for its ability to capitalize on its socially conscious behavior. As Michael Porter and Mark Kramer recognize, Ifcorporations were to analyze their prospects for social responsibility using the same frameworks that guide their core business choices, they would discover that CSR can be much more than a cost, a constraint, or a charitable deedit can be a source of opportunity, innovation, and competitive advantage.2 Nestl integrated its corporate objectives into one model that was responsive to poverty alleviation and malnutrition while simultaneously attaining its corporate strategic long-term revenue and profit goals.
Improved standard of living
Job Creation of Nestls long-term strategy involved economic development and job security. By the end of 2004, Nestl assisted nearly 500,000 dairy farmers supplying Nestl factories directly. Of the 500K, 130K farmers were in Pakistan, 70K in India, 30K in China, 12K in Morocco, 2K in Uzbekistan, 9K in Sri Lanka, 3.5K in Peru, and 3.5K in Panama. Mostly all the dairy farmers were small-scale producers of milk. More specifically, small-scale producers (producing less than 50 liters/day) contributed to 33 percent of Nestls fresh milk supply in a given year, while large-scale producers (producing more than 4,000 liters/day) supplied less than 15 percent of the yearly milk supply. As consumption of dairy products increased annually, opportunity for farmers expanded and job security became less of a concern. A V I TA L A S P E C T
Higher disposable income
Nestls milk districts generated higher incomes for farmers and the community at large. On average, these milk districts were growing by 2-5 percent annually with some of the districts growing as much as 10 percent. In most regions, over 90 percent of the total cost of milk delivered at the factory was paid to farmers. As consumption of milk products and sales increased dramatically in most emerging markets, farmers were doubling their output and increasing their disposable income. For example, in China, milk sales per farmer had increased by 30 percent from 20022005; as a result, farmers earned on average $300/month; 12x the national average farm income in that country. Nestls business model demonstrated that providing ongoing cash flow to rural areas through private funding and sponsorship improved family living conditions, provided consistent education to children, and cultivated stronger livelihoods. Hans Joehr, Nestls corporate head of Agriculture, confirmed that normally one dollar flowing back to a rural area gives another three or four dollars to the local economy.
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counter rising oil prices as well as unstable political and economic conditions.
Health and wellness
did not only result in higher income for farmers, but, the districts rigid criteria played an important role in consumer health and nutrition by providing energy, protein, calcium, and other essential vitamins. An improved state of health among local residents also had a positive impact on poverty reduction. Milk product consumption increased dramatically in most emerging markets, averaging a 2 percent increase per year. The increased consumption of healthier dairy products resulted in lower death rates and an overall improved state of health. THE MILK DISTRICT MODEL
Prospective growth and sustainability
in emerging markets gave it a first-mover advantage against its competition. Nestl created partnerships with local dairy producers as well as farmers, which prevented competition from successfully producing milk products in the same regions. By 2005, Nestl had sales of $68 billion, with 500 factories in 83 countries and 247,000 employees around the world. Nestls extensive global network provided the assurance of product development. Additionally, Nestls commitment to education, training, and regulation guaranteed the ongoing quality assurance of its milk products. Ultimately, prospective growth and sustainability will be determined by the companys ability to produce milk products at the same pace as products are consumed. A potential bottleneck that many districts face is the continuous availability of cows and fresh milk. As a result, the price of cows has started to increase significantly. The availability of herds in the future will be a direct determinant of the companys ongoing success. N E S T L S E A R LY P R E S E N C E
Scalability and global application
contemplates whether its success within the dairy industry can be adapted to other food systems. In the late 1900s, Nestl diversified its business into other ventures such as cosmetics, pharmaceuticals, bottled water, pet food, and ice cream. Diversification in product type has helped balance Nestls current activities and helped N E S T L S M A N AG E M E N T T E A M
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Long-term challenge: Water scarcity and limitations on
food production A contemporary hurdle that has the potential to impede Nestls success in curtailing poverty and advancing nutritional concerns is the growing crisis in water availability in many parts of the world, and the growing gap between supply and demand for basic commodities, including milk. This can be attributed to over extraction of water in agriculture (though aggressive pumping) which is not being replaced, water pollution, wastage of water at many levels, and global warming. For this reason, Nestl has become a strong advocate for water preservation and proper management. It was a founding member of the United Nations Global Compact Water mandate, and has taken significant actions to reduce its own consumption of water. While increasing its food and beverage production in the last 9 years by 76 percent and at the same time reduced its water consumption by 28 percent. To guard against the negative impact of green gas emissions on global warming, Nestl ahs reduced its greenhouse gas emissions by 17 percent in the last 4 years. While these environmental constraints can have a limiting impact of food companies, Nestl has a very long term approach to planning and is better able than most to take precautionary measures which cushion the impact of environmental factors. Nestl is also protected by negative occurrences in individual countries due to its superior global presence. It has been rated number one by Barrons magazine for global strength, and is present in virtually every country around the world, with about 500 factories in over 100 countries. With about 1 billion customers daily choosing Nestl products, it is at the same time operating in a very competitive environment, where consumers can readily choose alternatives. The Nestl strategy of Creating Shared Value is one of the factors that have led to its brand strength globally, as well a philosophy of long term development which raises people out of poverty while creating a cadre of loyal supplies and consumers. Niels Christiansen is Director of Public Affairs, Nestl S.A. Endnotes 1 Goldberg, Ray A. & Herman, Kerry. Nestls Milk District Model: Economic Development for a Value-Added Food Chain and Improved Nutrition ed. Havard Business School. 2 Porter, Michael E. & Kramer, Mark R. Stategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility Ed. HBR Spotlight Making a Real Difference, 80.