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Dairy Industry's Role in Development
1. Dairy Development, the Responsibility of the Dairy Industry
10th African Dairy Conference, Nairobi/Kenya
Manu SCHÄRER, Supplier Development, Nestlé EAR Ltd.
September 24th, 2014
2. 1. Nestlé at a glance
2. Development of the dairy farming sector:
the need to grow a rural based business
3. Nestlé Creating Shared Value:
milk sourcing around the world
4. Nestlé Creating Shared Value:
the example of milk sourcing in Indonesia
4. Nestlé: World’s Leading Nutrition, Health
and Wellness Company
• Founded in 1866 in Switzerland as an infant nutrition company
• CHF 92.2 billion in sales in 2013
• 333,000 employees
• 447 factories in 86 countries
• 34 R&D and technology centers
• 2,000+ brands
• More than 1 billion Nestlé products sold every day
• A product for every moment of every day, from morning to night and
from birth to old age
6. Development of the dairy farming sector:
the need to grow a rural based business
7. Dairy farming, is development sufficient?
What do we aim at?
Who does what?
Who leads and where?
Who decides?
Who talks?
Who knows?
Who pays?
Who has the money?
?
Business relation
8. A viable (profitable) dairy farming sector?
YES
but we need
Progress,
Growth, Profit &
Sustainability
Environment
factors
Rural Community
Dairy Farming
practices
=
Potential for growth of the dairy sector (output) in East Africa
is substantial, considering available resources
needs
Market
absorption
• Suitability for dairy farming
• Seasonality (dry and rainy seasons) &
fodder availability
• Land availability & soil fertility
• Water
• Infrastructure (roads, electricity)
• Capabilities & extension
• Productivity improvement
• Gaps (feeding, calf rearing, breeding,
milking hygiene, health,
management)
• Inputs (on-farm, quality, cost)
• Quality & competitiveness
• Pricing (stable, fair, focused, on time)
• Outlet (choice for supply); competition
• Commitments (contracts, buy & sell)
• Development support (technical &
financial); improved infrastructure
• Surplus absorption (flush & lean)
• Legislation (quality, regulations)
• Dairy farming as an acceptable
alternative (income generation; job
creation)
• Cost of opportunity (cash crops vs.
fodder crops)
• Credits
• Partnerships
Rural
development
The dairy industry, a major player/partner in development
10. Nestlé Milk Sourcing around the world
2013 Milk procurement
Across 4 continents; 30 countries; 59 milk districts
7.1 Mio MT (63.5% direct from farmers)
413’500 dairy farmers: 345’000 direct & 200 via third parties
11’700 sourcing staff active in the field
Largest procurement
operations
Brazil: 5’275
MT/day
Mexico: 2’240
”
China: 1’670
”
Chile: 1’335
”
Pakistan: 1’310
Nestlé in Africa
3 countries
· S-Africa (520 t/d)
· Morocco (185 t/d)
· Zimbabwe (11 t/d)
15’220 farmers
720 MT/day
”I
ndia: 1’090
”
Largest milk districts
Sheikhupura (Pakistan)
Moga (India)
Hulunbeir (China)
Kejayan (Indonesia)
El Jadida (Morocco)
Milk procurement operations (milk districts)
(farmers)
170’000
66’725
50’530
36’000
15’000
11. Nestlé Milk Sourcing: Creating Shared Value
Objective (for a milk sourcing operation)
To ensure long term raw milk supply to Nestlé factories based
on quality specifications, required volumes and at competitive
cost
Develop farmers &
suppliers; building capacity
for growth
Secure availability (timely
and long term) of adequate
agricultural raw materials
Ensure safety and quality
of agricultural raw materials
CCRREEAATTIINNGG
SSHHAARREEDD
VVAALLUUEE
Creating Shared Value begins
with the understanding that for
our business to prosper over
the long term, the
communities we serve must
also prosper
12. How do we (Nestlé) support the dairy farming
community in becoming our long term
business partners?
Indonesia case study
13. Nestlé Milk Sourcing: CSV in Indonesia
Third Party fresh milk supply = Dairy farmers Dairy cooperatives Dairy factory
• Cooperatives with
>35K dairy farmers
• Commercial farms
• Cooperatives owned
• 20-300 km distance to factory
• 24 hours fresh milk reception
• >510 collection points
• >250 cooling centers
• >375 cooling units
• >85% direct cooling
• 2x collection/day
Dairy Farmers
Loans & Training
(Dairy Development)
Dairy Cooperatives
Loans & Training & Control
Payroll
(Milk Procurement)
14. Nestlé Milk Sourcing: CSV in Indonesia
Milk Procurement & Dairy Development
Department with dual function
Milk Procurement
Section
Dairy Development
Section
SHORT TERM
• Volumes
• Quality control
• Suppliers (Coops) operational
set up
• Standards
• Commitments
LONG TERM
• Sustainable growth
• Dairy farmers
• Productivity improvement
• Development projects
• Sustainability of dairy farming
• Commitments
Develop trust of Nestlé FM suppliers for a
long-term sustainable business relationship
15. Nestlé Milk Sourcing: CSV in Indonesia
3 major focus areas for long-term development
Technical support through a team of Field professionals with relevant operational
background: animal husbandry, veterinary sciences, agronomy
Variety of improvement programs aiming at increasing long-term sustainability
performance of dairy Cooperatives & dairy farmers
MILK PROCUREMENT
Focus: milk collection
operational set-up
Objective: fresh milk quality
• Improving operational standards
(Nestlé standards, SOPs)
• Quality based payment system
(TPC base)
• Investment programs (credits)
• Regular supplier operation audits
(compliance with Nestlé standards
& requirements)
• Facilitate import of critical
equipment (cooling tanks)
• Suppliers yearly competition
DAIRY DEVELOPMENT
Focus: sustainability of dairy
farming
Objective: cow productivity
• Feed & fodder: cultivation of
improved fodder; silage; cattle feed
formulation
• Animal health: mastitis prevention;
deworming
• Herd management: recording (to
keep track of performance of dairy
cattle population); water availability
• Competitiveness: establish a
network of dairy farmers for
monitoring of cost of production
(supporting pricing decision making
process)
ENVIRONMENT
Focus: water protection &
renewable energy
Objective: biogas
• Promotion of biogas
• Joint project with HIVOS, set-up of
units in large scale
• Improvement of cattle sheds
• Investment programs
16. Nestlé Milk Sourcing: CSV in Indonesia
Success or not?
Quality is what the
consumer wants
In Indonesia
Fresh milk quality issues Nestlé Minimum Requirements and
Standards (SOP) Operational gap assessment Corrective
action plan Investment plan Quality based payment system
Guidelines – Supply contract – Compliance – On-time payroll –
(Support) Audits – Technical and financial support mechanisms
1. Bacteriological quality as the main driver to develop milk
procurement quality based payment system
2. Quality differentiation as a major payment parameter to
push for quality the better the TPC, the better the price
3. Cooling of fresh milk close to the farmers to guarantee
quality results decentralized (direct) cooling
4. Financial support as key element to sustain Cooperatives
and farmers long-term development affordable funding
17. As conclusion…
A large part of the African continent has a favorable
environment for dairy farming and promising
volumes currently produced
We need now to make this milk attractive, by:
Ensuring its quality and its competitiveness
Positioning it on local and international markets
How is the dairy industry (business) going to include
the dairy farming community in the business
development process?