Better business: Sustainable value chains at Nestlé


Nestlé manufactures, supplies, and produces prepared foods and cooking aids, pharmaceuticals, and ophthalmic goods under brands that include Gerber, Lean Cuisine, Nescafé, Kit Kat, and Häagen-Dazs. The company is at the forefront of the worldwide movement to incorporate sustainability into corporate strategy. Hans Jöhr is at the helm of Nestlé’s efforts to promote sustainable agriculture in its worldwide supply chains and has served as its corporate head of agriculture for over a decade. Jöhr visited CIAT headquarters on 26-27 January 2015 to share Nestlé’s Creating Shared Value approach and to explore the potential for collaboration with CIAT.

If you’ve ordered a cup of coffee at your local café or bought a bag off the supermarket shelf lately, you may have noticed a spike in the price.

Market prices for coffee jumped by 50% in 2014, driven mostly by drought in Brazil, the world’s largest producer, as well as by a plant-choking coffee rust fungus in Central America.

Such incidents expose the depth of society’s vulnerability to the market and climate change, and pinpoint the growing problem of relying on global supply chains: The risks facing suppliers on a local level can have a domino effect until damage is felt in boardrooms, trading floors, and shops thousands of miles away.

A company’s value chain inevitably affects – and is affected by – multiple social issues, such as the use of water and other natural resources, climate change, working conditions, equality, and conflict and instability.

Common sense and business sense merge

“We purchase about 10% of the world’s coffee and cocoa production,” Hans Jöhr explained, “and consequently we depend on healthy ecosystems and flourishing rural communities.”

Mega-corporations, especially those in the food and beverage industry, rely on the quality, quantity, and consistency of the raw and processed materials they source. How can companies be successful in the longer term if they ignore the degradation of natural resources that are vital to their businesses, the well-being of their customers and suppliers, and the economic distress of communities in which they produce and sell?

For companies like Nestlé, safeguarding natural resources and investing in human health, capacity, and resilience makes business sense.

Efforts to minimize social and environmental harm were once thought to inevitably increase business costs. But a paradigm shift is taking place, with some progressive companies recognizing non-financial goals to be in their true long-term business interest.

Nestlé is a leader in this regard. To capture their concept of win-win financial and social value, Nestlé teamed up with Harvard Business School and the social impact consulting firm FSG to coin the term “creating shared value” (CSV).

Setting sail: Know which way the wind is blowing

Nestlé has warmly embraced CSV, identifying key trends to determine strategic directions. The forces changing the global food system are formidable: extreme hunger, obesity, and chronic disease; land degradation; more frequent natural disasters; dwindling water supplies; population growth, along with increased urbanization; and a volatile global economy.

These challenges bring opportunities too, requiring Nestlé to challenge established norms, find new business models, and rethink food provision. Oriented toward the future, Nestlé’s strategy is built around three issues that are vital for their core business: nutrition, rural development, and water.

In relation to each of these three pillars, Hans Jöhr and his team have the enormous responsibility of “ensuring the delivery of safe, quality assured, regulatory compliant, and competitively priced agricultural materials” to serve Nestlé’s brands and consumers. His activities contribute to several other corporate initiatives as well – including the Sustainable Agriculture Initiative at Nestlé (SAIN), Farmer Connect, the Nescafé Plan, the Cocoa Plan, and the RISE tool for dairy production – all of which form part of the company’s CSV approach.

“Lack of investment in the social and agricultural infrastructure in a region or country can make it difficult for farmers to supply us with high-quality, safe, and sustainably-grown crops.” So Nestlé provides people with access to “the knowledge and information they need to sustainably increase productivity,” said Jöhr.

No future without sustainable agriculture

His efforts are structured around Nestlé’s highest-volume agricultural materials: coffee, cocoa, and milk but also vegetables and grain.

“These crops play an absolutely critical role in rural life,” said Mark Lundy, an agroenterprise specialist at CIAT.

But the stakes are high and time is short. CIAT research in Africa, Asia, and Latin America has shown that coffee and cocoa systems are highly vulnerable to climate change due to their sensitivity to temperature changes and some very specific rainfall requirements. Unpredictable rainfall patterns, excessive droughts, and hurricanes caused by climate change are already affecting coffee farmers from Kenya to Vietnam – reducing yields and profits for smallholders, and putting pressure on forests and natural resources at higher altitudes.

Over his 2-day visit to CIAT headquarters, Jöhr met with scientists to discuss opportunities and threats in Nestlé’s value chains, and the actions required to protect against and adapt to threats like climate change.

As a Board Member of the International Institute for Tropical Agriculture (IITA), Jöhr is part of the CGIAR Consortium family and is well acquainted with CIAT’s global partnerships and research capacities.

CIAT’s new LivestockPlus initiative was of particular interest to Jöhr. The Center is putting its weight behind the new approach, which centers on forage-based production systems that can contribute significantly to climate change mitigation, while also delivering benefits such as improved livelihoods, erosion control, soil improvement, and the restoration of degraded lands. The aim is to raise meat and milk output by a factor of two or three within a decade on half the area currently used for livestock production. The potential is enormous for a large company like Nestlé, which buys 1.2% of the fresh milk produced worldwide, and for the 1.3 billion people who work in the livestock industry.

Better business for the future

Better connecting companies’ success with societal progress opens up many opportunities to meet new needs, gain efficiency, create differentiation, and expand markets.

“Enabling efficient, inclusive, and sustainable markets – best done in conjunction with partners – can allow a company to secure reliable supplies, and provide smallholder farmers better incentives for quality and productivity, while also sustainably improving their incomes and purchasing power,” said Lundy.

Demand for products and services that meet societal needs and environmental standards is rapidly growing, opening up new avenues for innovation and shared value creation. Food companies that once concentrated purely on taste and quantity to drive consumption are refocusing in response to the need for heightened nutrition. The tech industry, meanwhile, is harnessing digital intelligence to make plant breeding more efficient.

Because the private sector shows unparalleled efficiency in meeting human needs, creating jobs, and growing wealth, the societal gains can be even greater.

In the time you spent reading this, Nestlé just sold another 700,000 cups of coffee. Imagine what their business approach could mean for society and the environment.