For Nestlé the concept of Creating Shared Value is nothing new: in India the company has been building a sustainable business for five decades
Nestlé stands out in the “Shared Value” world since its work in Moga, Punjab, precedes contemporary business trends by five decades. The slow pace of economic development created significant shortfalls in the delivery of services that hurt the depressed region of Punjab.
Nestlé set up in Moga in 1961 and, recognising Punjab’s unfulfilled milk-producing potential, its local initiatives were designed to improve dairy producers’ capacities in order to provide higher-quality products in larger volumes to the Moga factory.
Sustained over half a century, these have had a significant and cascading impact not only on the dairy industry but on social mobility and the economy at all levels. The initiatives and assistance have given Nestlé significant competitive advantages. Moreover, they have generated substantial wealth through mutually beneficial synergies with suppliers, employees and communities.
Objectives and Delivery
Nestlé’s success and trusted position within both the industry and communities are derived from its transparent, fair and timely payment system for the farmers who provide its factory with milk. Nestlé makes all efforts to purchase a farmer’s entire output, however big or small, as long as it meets Nestlé’s stringent quality standards. Farmers are paid fortnightly, guaranteeing them a regular income. Given the continuous demand for milk, that is the basis of a long-term relationship with Nestlé.
But Nestlé’s success is also down to a raft of social services that were not expected and that a private company was in no way obliged to provide. From 1961, Nestlé invested in establishing long-term relationships with employees, suppliers, customers and communities, building infrastructure including educational facilities and technical services.
There has been a clear link between its corporate objectives and local needs: ultimately, the success or failure of the factory was intertwined with improving the lives of its milk suppliers. As a result it’s social and community engagement has focused on poverty alleviation, improved standards of living and environmental conservation.
Nestlé established the Agricultural Extension Services to provide free, cutting-edge veterinary, animal husbandry, dairy and agricultural advice as well as technical assistance, education and capacity-building sessions. It also partnered with local educational institutions to pass on the lessons that had been learned and best practices.
This has cascaded through the network of suppliers as Nestlé’s business has expanded. Nestlé’s platform of complementary services and facilities for suppliers has given the factory a competitive edge in securing raw supplies. Farmers in turn have enlarged their occupational flexibility and mobility.
Nestlé has also developed household-level initiatives to facilitate poverty alleviation. This includes improved health and nutritional training, community-building, employment-related benefits and support for educational institutions that villages have requested. Nestlé has also intervened at times of extreme events, providing direct assistance, veterinary care and fodder during disastrous floods in 1988, for example.
Nestlé remains the favoured buyer for farmers despite growing national demand for dairy products that has led competitors to offer better purchase prices. Nestlé’s programme of engagement with the community has given it the social and political standing to support its growth as a profitable enterprise. It has bolstered its credibility, reputation and thereby its market share. Nestlé’s supplier base has grown from 4,600 farmers providing 2,000 tonnes of milk to 100,000 farmers in 2,600 villages producing more than 300,000 tonnes.
More broadly, by imposing higher quality standards than other local producers, Nestlé has had a broad impact on industry and the economy in the Punjab. As it has consistently provided support to maintain and improve those standards, local communities have begun to demand and enforce higher standards for their own foodstuffs. This has generated greater investment in agro-businesses and improvements in animal and crop husbandry and farming in general. This in turn has led to the development of ancillary services to serve the local population’s growing needs and economic means.
The Moga factory employs 2,300 people and provids indirect employment for around 86,000 more at 147 suppliers. It is estimated to have generated secondary employment opportunities equivalent to 45 somewhere in the region of 65 per cent of this total. Contributions to taxation were 20 to 35 per cent of the Moga municipality’s total income. between 1997 and 2006. A decade later, Nestlé’s contribution to the State exchequer remains fairly significant.
Under the Village Women Dairy Development Programme, Nestlé has provided dairy farming training to 51,000 women, which has helped to reshape gender expectations in the male-dominated society. Hygiene and sanitation programmes have also benefited 5,300 women, while 41,000 children have been given improved water supplies in over 100 schools.
Immunisation programmes and medical camps have been positively received by the local communities, along with a tuberculosis clinic. Finally, more than 7,000 girls have benefited from the Nestlé Healthy Kids Programme, which is focused on good nutrition practices and physical fitness.
This case study was written by SharingValueAsia in consultation with Nestlé and its partners. It will appear in special report entitled “Partnership in Action” produced in association with Hewlett-Packard in August 2014
Nestlé, local government, educational and healthcare institutions