Nestle: Balancing sustainability and growth, aka smart business

With a market capitalisation exceeding $200 bn dollars, and a daily product-use-base of 1 billion people—roughly the current population in India--Nestle is the biggest food company in the world. It reported sales of CHF 41.0 billion, 7.5% organic growth and 4.8% real internal growth for the first half of 2011. Nestle’s trading operating profit for the period stood at a whopping CHF 6.2bn!

In a period characterised by political and economic instability, natural disasters, rising raw material prices and, yes, a strong Swiss franc, Nestle, managed to drive growth not only in emerging markets but also in developed countries, especially in Europe.

Now how many companies can claim such a feat? The company made this happen by leveraging their competitive advantages, investing behind growth drivers and excelling in operational efficiency and effectiveness.

Nestle has been evolving for the past 140 years. (Founded in 1866 by Henri Nestlé in Vevey, Switzerland, the Head Quarters of Nestle still stands tall where it had always been.)

From baby foods to weight management to health care to pet feed, the company is simply iconic. From Cerelac to Kit Kat to Nescafe to Milo, Nestle is part of lifestyle.

The company employs around 280000 people and have factories or operations in almost every country in the world. (Nestlé sales for 2010 were almost CHF 110 bn.)

So with brands exceeding hundred in numbers, what makes Nestle what it is and what keeps Nestle what it has been and what will make Nestle what it wants to be?

One word: sustainability
In the food manufacturing segment one cannot point out a company which follows the principles of sustainability as vigorously as Nestle.

Nestlé’s front-end strategy is simple: In the words of Nestlé CEO, Paul Bulcke, it is well summarised:

Nestle strategy comprises of “…increasing distribution of Popularly Positioned Products (PPPs) and the continued roll-out of premium products in both emerging and developed countries; our focus on adding nutritional value to our products; expanding our reach in the out-of-home market; accelerating innovation and increasing our consumer–facing marketing spend.”

Nestle also “continued to strive for operational excellence from farm to fork, resulting in significant improvements in efficiency and effectiveness.”

One may not notice it initially; Nestle’s continuing efforts for operational excellence from farm to fork defines the company’s back end strategy of sustainability.

Creating Shared Value
“Creating Shared Value is a fundamental part of Nestlé's way of doing business that focuses on specific areas of the Company's core business activities – namely water, nutrition, and rural development – where value can best be created both for society and shareholders.”—says Nestle in its website

The concept originated in Nestle subsequent to a shock treatment which Nestle’s then CEO, Peter Brabeck-Letmathe delivered at World Economic Forum at Davos, five years back:

There he declared that corporate philanthropy is not warranted and corporate houses can add value to the society by default; by just doing their business. He said to Reuters:

"I was just shocked that in a very short period everybody started to say, 'Yes, I agree we have to give back to society,' and I was thinking, 'Well, we're creating value for society,…If you have to give back it means you have taken something that doesn't belong to you."

Subsequently Nestle created Creating Shared Value Advisory Board. According to Nestle, there are about 600,000 poor farmers in the world working for Nestle on an exclusive basis and these farmers earn higher income by providing quality produce to Nestle.

Most of Nestle’s 443 factories are situated in rural areas, adding value to rural economy. The company adds to rural prosperity by providing skill training to farmers, facilitating clean drinking water, providing literacy and numeracy programs.

"It was always difficult to justify the spending of an important amount of money when you had this old concept of corporate social responsibility," Brabeck said to Reuters. "Should the company get into a nonprofit situation and do it as a business purpose? I don't think my shareholders have given me money to do this."

Thus, Nestle is doing business, generating profits, creating value, helping farmers and doing no philanthropy.

Contribution to rural development
“To help farmers to increase output, improve product quality and reduce their environmental impacts, Nestlé has established world-class plant research facilities in France and Côte d’Ivoire, where higher yielding, disease-resistant varieties are being developed. The company also runs field trials and employs a large number of agronomists who provide training and consultation on farming practices.” said Nestle’s 2010 report on its contributions to rural development.

The company sometimes acts as a credit provider to rural households and has also helped farmers to produce and sell higher-value products than they previously grew.

“In Yunnan Province, China, for example, Nestlé introduced the opportunity for farmers to produce Coffee in an area with no previous history of coffee-growing.” The report adds. There, Nestlé has been encouraging and supporting coffee cultivation for almost twenty years, and nearly 4,100 farmers have received direct training on planting, quality control and processing techniques.

Nestle also runs processing and packaging facilities close to the point of raw material supply, improving food safety and reducing spoilage.

“These plants add to the local tax base, diversify the local economy and create non-farm employment opportunities close to farm households, an essential step towards eliminating rural poverty. Individuals’ earning potential increases, and the area becomes more attractive to other employers, suppliers and service providers.” the report adds.

“When the majority of the world’s poor live in rural areas and most are farmers, focusing more attention on agricultural development and rural poverty reduction will both ensure a sustainable supply of raw materials for Nestlé’s factories, and also accelerate poverty reduction and growth in demand for food products.”, the report says.

In India, Nestlé has invested close to CHF 11 mn in storage tanks, chilling centres, veterinary aid and other dairy development projects for the farmers in Moga. There, Nestle’s milk factory procures over 887 tons of milk per day from over 110 000 farmers, and works with them to increase their yields through improved farming methods, better irrigation, and scientific crop management practices.

Nestlé has been present in China for over twenty years and today operates 23 factories, two R&D Centres and employs 14,000 people. Nestlé in the China region achieved sales of CHF 2.8 billion in 2010. Nestlé buys fresh milk from thousands of farmers across the country, offering them assistance to increase the quality, quantity and efficiency of their production.

Smart business
By adopting the various sustainability measures Nestle also plays a smart business game.

Setting up factories in rural areas make good business sense as perishables like milk can be gathered at the point of origin to be processed, incurring nil logistical costs.

Buying raw materials in bulk and from rural areas is a win-win scenario for Nestle and farmers as middle-men get eliminated.

By empowering the rural households through many measures and by providing them credit, local support can be elicited in place of local dissent and protests.

Also, the company gets the lethal edge by setting its own standards and can even eliminate competition by raising the bar.

“In many countries, Nestlé was the first company to set up a wastewater treatment facility. While these investments have added to production costs in the short term, they have raised expectations and led to stricter regulations over time, thus leveling the playing field and giving Nestlé a competitive advantage.” The Nestle report says.

You can be good, and you can admit the same and you can still grow and needs to carry out no philanthropy.

As published in: http://www.commodityonline.com/news/Nestle-Balancing-sustainability-and-growth-aka-smart-business-41944-2-1.html

Plantation Overview: Coffee--Brazilian frost damage adjudged minimal

This post was last updated on : 13 August 2011 at 22:00 IST

Commodity Online
You can breathe easy, as the damage to Brazilian Coffee plants subjected to a cold burst is adjudged minimal. The event was reported on August 5 when frost struck heart of Brazil’s southeastern coffee growing belt in the early hours of Friday.

Brazilian coffee catching cold necessarily sends shivers down the spines of players like Starbucks and all coffee lovers. In a bout of cold attack in 1970s and 1990s, coffee crops in Brazil were decimated.

But, the current cold attack which came calling has however spared the crops this time around, according to coffee co-operatives there.

“Damage from a frost that swept over Brazil's southeastern coffee belt on August 5 should be light in some of the areas hit in the south of Minas Gerais state, cooperative Minasul said Monday”, Reuters reported, adding, “few of its members' plantations were affected by the freeze.”

Minas Gerais coffee output accounts for half of the coffee production in the world's No. 1 producer. Minasul co-operative alone handles about 1 million bags (almost 2 percent) of Brazil's crop each year.

The news was widely welcomed as the coffee supplies have been tight for the year and prices had breached record levels.

But Cooxupe, Brazil’s largest cooperative which alone trades around a tenth of the Brazilian crop each year, admitted later that around 4,400 hectares (10,870 acres) of its members' plantations were affected in Minas Gerais and in neighboring Sao Paulo.

Finally, on Wednesday, Somar, the weather forecaster of Brazil predicted that the cold front could bring some rain but no frost, and no further cold spells at least until late August.

Meanwhile Coffee climbed in London on Friday charting the biggest weekly jump as on June 2010 attributed to fall in European stocks-- tracked by NYSE Liffe--for a second time, Bloomberg reported. This is despite the slid in S&P GSCI Index of raw materials for a third day this week.

November Robusta Coffee jumped $26, or 1.2% , to touch $2,246 a ton by 9:46 a.m. on NYSE Liffe in London on August 12. Prices of the variety are up 8.9% this week and on Friday marched ahead for a fourth day, the longest winning streak since June.

December Arabica climbed 0.85 cent, or 0.3 percent, to $2.449 a pound on ICE Futures U.S. in New York, Bloomberg report added.

Colombian coffee: Farmers fret

In the meantime Colombian coffee farmers—makers of high quality Arabica beans and pillars that perches the country’s status as the No.1 producer of the same--are fretting over main harvest as they may miss the 2011 output target of 9 to 9.5 million bags subsequent to heavy La Nina rains battering the country.

Later, reports suggested that the country saw a fall in coffee output for July at 530,000 60-kg bags, a dip at least by 33% Y-O-Y. Also, exports declined by about 25 percent as only 458,000 sacks could be shipped.

“Output in the first seven months of 2011 decreased to 4.6 million bags, from 4.8 million in the same period last year.” Reuters reported.

Meanwhile on Friday, a Bloomberg report informed that Colombia has trimmed its production forecast for the year by about 5.6 percent to 9 million bags. The report cited Colombia's National Coffee Growers Federation Chief Executive Officer Luis Munoz.

In fact, Colombia experienced a decline in Coffee harvests in 2009 and 2010 as bad weather and tree renovation programs kicked in.

Uganda coffee export figures revised up

Now some mixed bag from Uganda:

The country, dilly dallying with statistics, has revised upwards its coffee export forecast for 2010-11 to 2.8 million 60 kg bags from 2.67 million bags in April, taking cues from good harvests.

Reuters said, “Exports of the beans rose in July compared with the same month last year after good harvests in the southwestern part of the country”. The August 5 report cited the state-run Uganda Coffee Development Authority (UCDA).

Meanwhile, on Friday, Ugandan Shilling hit an 18- year low vs Dollar.

“The currency of Africa’s second-biggest coffee producer has fallen 17 percent against the dollar this year, making it the world’s worst-performing currency. A surge in food and fuel prices pushed inflation to a more than 18-year high of 18.7 percent in July from 15.7 percent in June.” Said a Bloomberg report. (The Ugandan Shilling dipped 4.5% for the past week alone.)

Uganda is East Africa’s third biggest economy. Dollar inflows are tight even as there exists significant demand for dollar in Uganda’s market as multinational companies and importers seek dollar.

The Central Bank of Uganda is being blamed for its inability to sell dollar frequently in the market.

Nestle’s foray into Vietnamese coffee space

Thin stocks and high-prices have brought Vietnamese coffee exports to a halt: the world’s second largest producer after Brazil. As a result, its shipments in calendar 2011 can drop by more than 5%, a Tuesday report said.

“Exports are estimated to reach 1.15 million tons, or 19.17 million bags, in calendar 2011, down 5.43 percent from last year, the Vietnam Coffee and Cocoa Association (Vicofa) said after a meeting last Friday to review export activities.” reported Reuters. The figure is tad below the forecast of 1.2 mn tons (20 million bags) as tabulated by the Agriculture Ministry.

Meanwhile, Nestle, the world’s biggest food company has announced it would invest $270mn in a factory in southern Vietnam aimed at addressing domestic and foreign consumption needs. (Vietnam is the planet’s top robusta coffee producing nation). Nestle intends to source around 30,000 tons of coffee a year over the next five years.

Nestle has been buying around 20-25% of coffee exports of Vietnam on an annual basis. Going by this figure, the company may buy at least 230,000 tons this year from Vietnam.

Honduras to become Central America’s biggest coffee producer

As farmers, encouraged by high prices of coffee go on a planting binge, Honduras will become Central America's biggest coffee producer next year, surpassing neighboring Guatemala and that too with record exports.

The national coffee institute of Honduras IHCAFE has “revised its forecast for exports during the 2011/12 harvesting season -- which begins in November -- by 12 percent to 4.6 million 60-kg bags” a Reuters report said on Wednesday.

In June, the forecasts put exports at 4.1mn bags

As published in: http://www.commodityonline.com/news/Plantation-Overview-Coffee--Brazilian-frost-damage-adjudged-minimal-41650-3-1.html