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The Nestlé Milk District Model-from a Swiss idea to a global concept-

Stefan CanzNestlé Corporate Agriculture

George Page

Who is this person?

Heinrich NestleHenri Nestlé

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What do George Page and Henri Nestlé havein common?

They were bitter rivals and both pioneers!

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From a start up to a rapidly expanding business…

1860 Switzerland: Vevey, Cham1872 Switzerland: Fribourg, St. Gallen1872 England: Chippenham1882 USA: Middletown, New York1882 USA: Dixon, Illinois1895 Norway: Hamar1900 USA: Fulton, New York

Evolution of milk districts 1860 -1900

… with a global vision…

1901 Germany: Hegge1903 England: Staverton1903 Switzerland: Neuenegg1905 Spain: La Penilla1906 Australia: Queensland1910 Australia: Victoria1912 Netherlands: Rotterdam1913 England: Ashborne1920 Brazil: Araras

Evolution of milk districts 1900 -1920

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The Anglo-Swiss Condensed Milk Company, founded by AmericansCharles and George Page, merged with Nestlé after a couple ofdecades as fierce competitors to form the Nestlé and Anglo-Swiss MilkCompany.

… to finally merge both companies in 1905!

The 1920s:

• Economic crisis: Nestlé suffered severedifficulties along with much of the world

• Operations were partially streamlined• Acquisition of Peter, Cailler, Kohler

Swiss Chocolate Company,

Chocolate became an integral part of ourbusiness. This sparked further variety inthe products we offered – including maltedmilk and a powdered drink called Milo.

Grasping opportunities also in difficult times through M&A…

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1938Nescafé coffee was launched.

… as well as innovations.

Early days milk evaporator.

Global expansion continues despites difficult times.

1925 France: Lisieux1925 South Africa: Harrismith1927 France: Boue1930 Jamaica1930 Panama1934 Chile: Graneros1934 Argentina: Magdalena1935 Mexico: Ocotlan1940 Venezuela1940 Peru: Cajamarca1944 Colombia

Evolution of milk districts 1925 -1945

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• Volume• Safety• Quality• Compliance• Cost.

• Brands &Consumers

Expansion was possible due to solid foundations

Ensure long-term supply of safe, quality assured,regulatory compliant & price competitive agricultural

materials, to serve our brands and delight consumers.

Sourcing Objectives

This is the current CO-AGR mission, but ithas been valid right from the beginning.

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Secure availability and supply ofadequate agricultural raw materials

Ensure compliance, safety& quality of raw materials

The concept of Creating Shared Value has beenrecently articulated…

Develop farmers & suppliersbuilding capacity for growth

… but has been part of the Nestlé DNA since its beginning

Technical assistance to farmers in Latin America

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Helping farmers to develop to sustain the business growth

Quality, safety and volume growth as the main drivers

Milk sourcing in Mexico

A multi-national company highly decentralized…

1946 Columbia: Bugalagrande1961 India: Moga1970 Mexico: Chiapas1978 Colombia: Caqueta1982 Sri Lanka1986 Indonesia: East Java1988 Pakistan: Punjab1990 China: Heilongjang1991 Thailand1993 Morocco: El Jadida1995 China: Quingdao2001 Uzbekistan: Namangan2004 China: Inner Mongolia

Evolution of milk districts 1946 -2004

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… until today… and movingMexicoChinaPakistanIndiaChileUSAIndonesiaSouth AfricaSpainColombiaFranceVenezuelaPeruMoroccoSwitzerlandPanamaDominican RepublicSri LankaNicaraguaThailandUzbekistanZimbabweTrinidas & TobagoUnited KingdomBrazilVenezuelaColombiaEcuadorArgentina

Nestlé Milk District YTD

Let’s take a tour around the world

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Pakistan

Pakistan: 4th Biggest Nestlé Milk Collection Market

LAHORE

KARACHI

ISLAMABADSHEIKHUPURA

KABIRWALA

Factory Shed

Switzerland is 42’000 sq km roughly a third of Pakistan’s milk shed area

200km

City Untapped areas (~14%)

146,000 square km

09 Zones

41 Main Centers.

2,250 Chilling Centers.

3,000 VMC,s

190,000 Milk Suppliers in 2013

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1988120 tons of milk /day

26,000 farmers2010

1,450 tons of milk/day150,000 farmers

Direct Ice Addition

2,150 ChillingStations

Evolution over 22 yearsFrom:

To:

Flow of Milk

Dire

ct S

ourc

esIn

dire

ct S

ourc

es

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At Field Level: Village, Chiller, Main Center; Rapid screening testsAt Field Level: Village, Chiller, Main Center; Rapid screening tests

Factory Level: Comprehensive testing; Tanker wise & region wiseFactory Level: Comprehensive testing; Tanker wise & region wise

OrganolapticAPTCOBpH

AcidityMBRT

FatDensity

Total SolidProteinSodium

Physico-chemical

Test

AdulterationTest

SugarStarch

GlucoseSorbitol

Ref. Index

UreaYoghurt

CO3/HCO3Formalin

Am. Sulphate

Antibiotics Aflatoxin M 1Added powder TPCMelamine

in additionto above

Fresh milk quality tests

26Tests!

The 6 Pillars of Agri-Services

1. Feeding2. Breeding3. Health4. Finance5. Training6. Management

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….from traditional farming…

….to commercial dairy farms…

Supporting rural development and transformational change…

UNDP Project…and social change.

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Mexico

Evolution of milk volumes in Mexico

Technical support to increase dairy farm productivity and profitability

1990 = 70 lts/day ave 2009 = 450 lts/day ave

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Mexico: Extension services for different size offarms and ways of milking cows

•Good milking practices•Artificial insemination courses•Silages and forages usage

38 agricultural coordinators

> 3,200 farmers trained in 2012

An indicator-based method for holistic sustainabilityassessment of agricultural production at farm level,

attempting to make sustainability measurable,communicable and tangible. RISE is not a control or

certification system.

“RISE is like a mirror of my farm.” (a farmer)

Running sustainability assessments for more than 10 years

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Implementing RISE for 10 years at Nestlé

Energy

Water

Soil

Bio- diversity

N&P EmissionPotential

Plant Protection

Waste

Economic Stability

Economic Efficiency

Local Economy

Working Conditions

Social Security

-100-80-60-40-20020406080100

economy

ecology

RISE

socio-culturalaspects action!

Study Regions and Farms, RISE* México 2009 – 2012Study Regions and Farms, RISE* México 2009 – 2012

Torréon: 13 farms

Jalisco: 33 farms

Querétaro: 19 farms

Veracruz: 20 farms

Chiapas: 14 farms

*Response Inducing Sustainability Evaluation

Total number of farms: 99Total number of farms: 99

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1Identificación del ranchoNombre del productor 1

Código del rancho 1

Proyecto Nestllé Mexico

Año de referencia 2008

Entrevistador/a Mathias Bamert

Fecha de la entrevista 01/02/2009

Fecha de laretroalimentación

2Polígono de Sostenibilidad

020406080

100

020406080

100Uso del suelo

Producción animal

Flujo de nutrientes

Uso del agua

Energía & Clima

Biodiversidad &Protección de…

Condiciones detrabajo

Calidad de vida

Viabilidadeconómica

Administración delrancho

Positivo Crítico: Verificación necesaria

Problemático: Acción necesaria Grado de sostenibilidad

3Puntuación de los parámetros desostenibilidad del RISE

1Uso del suelo 54 2Producción animal 94

3Flujo de nutrientes 5 4Uso del agua 80

5Energía & Clima 1 6Biodiversidad &Protección de cultivos 44

7Condiciones detrabajo 77 8Calidad de vida 85

9Viabilidad económica 100 10Administración delrancho 60

60Promedio Índice de S.

Distrito Torreón

2009

Biogas plants in Mexico.2012 >49% of milk production for

Nestlé linked to biogas plants

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Informe de Sostenibilidad de la Finca (RISE 2.0)HAFL School of Agricultural, Forest and Food Sciences, Bern

Switzerland

1Identificación del ranchoNombre del productor 1Nombre de la finca 1Proyecto Nestlé MexicoAño de referencia 2013Entrevistador/a rapuFecha de la entrevista 31/01/2013Fecha de laretroalimentación

2Polígono de Sostenibilidad

3Puntuación de los parámetros desostenibilidad del RISE

1 Uso del suelo 84 2 Producción animal 94

3 Flujo de nutrientes 55 4 Uso del agua 65

5 Energía & Clima 19 6 Biodiversidad &Protección de cultivos 44

7 Condiciones detrabajo 72 8 Calidad de vida 82

9 Viabilidad económica 78 10 Administración delrancho 78

67Promedio Índice de S.

Distrito Torreón

0

20

40

60

80

100

0

20

40

60

80

100Uso del suelo

Producción animal

Flujo de nutrientes

Uso del agua

Energía & Clima

Biodiversidad &Protección de

cultivos

Condiciones detrabajo

Calidad de vida

Viabilidadeconómica

Administración delrancho

Positivo Crítico: Verificación necesaria

Problemático: Acción necesaria Grado de sostenibilidad

2012

Farms in Nestlé milk district assessed with RISE tool

Mexicoo Dom.

Rep

Morocco Pakistan

Chile

ChinaSpain

00 Farms in Nestlé milk district assessed with Quick RISE toolOngoing RISE assessments

Rolling out RISE assessments

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China

Where we are locatedWe are here

We are here

We are here

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Erguna City

28444 Km2 = 2/3 of Switzerland areaPopulation 86000

Latitude 50。 01’- 53

。 26’ north;longitude 119

。 07’ -121。 49’ east

Summer average +19.60C, RH 71%. Summer highest +360C.Winter average –25.60C, RH 78%. Winter lowest -480C.Annual average: - 3.20CPermanent frozen depth: - 3.5m below groundNon-frost period: 82 days (June 6th --- August 28th)Non-snow period: 133 days (May---Sep.) (last snow in 2005:18/5)Heavy windy period: 21 days (the strongest wind: 14/8/2005 &6/5/2006)Average annual rainfall: 351mm.Outdoor fire work forbidden period: April 5th-15th June

15th Sep.- Snow fall start

Erguna City

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• State of the art spray dryer

• NESTLE Sweetened Milk Powder• NESTLE Hi-Cal Sweetened Milk

Powder• FCMP• MSK

New Factory - Grand Opening on 5th July 2007

Milk Collection Show at Opening

Fresh Milk collection – starting from the scratch…

Shuang Cheng Milk District

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… but adapted to the local conditions!

For good road conditions For poor road conditions

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Practical On-Farm Training奶户现场培训

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Expanding the milk district concept into other areas

Cote D’Ivoire

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Abidjan Factory

A coffee plot in Côte d’Ivoire 2013

A coffee plot in Eastern Cote d’Ivoire

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Competing crops for the same land: A rubber tree (Hevea) well established in the coffeeplantation

Any issues?

Ensured supply becomes the bottleneck

Coffee trees are uprooted once rubber reaches certain heights

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We need to act, if we want to grow the business

Rubber plantation is fully functional, only coffee stumps remain

Nescafé Plan: Current approachCôte d'Ivoire

Sustainability

Verification against the 4CCode of Conduct

Plant science

Varieties according toagronomic performance

AND consumer taste

Formalized partnershipswith local institutions

Partnerships Plant propagation

Coffee plantlet propagationand distribution to farmers

Farmer training

Training of the NescaféBetter Farming Practices

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Nestlé agriservice teams working directly with farmers…

# direct sourcing staff: 1’ 180# supply chain support staff: 12’130# farmers supplying directly to Nestlé: 690’000# farmers received training: 273’800# collection centers: 10’000# crop demonstration plots: 187# farmers benefitting from financial assistance: 44’200Budget for financial assistance: US$ 37.8 MioSource: CSV Report 2012

Markets with “Farmer Connect” /Direct Procurement activities• 32 milk markets• 8 coffee markets• 3 cocoa markets• 51 countries

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… delighting consumers….

Conclusions (1):

• We are still relying on the basic fundamentals asthe pioneers

…exploring opportunities….

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Case for Popularly Positioned Products:Iron Deficiency in Pre-School Age Children

Products according to the consumers’ demands

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Conclusions (2):

• The pioneers were facing the same problems aswe are facing (quality, safety, loyalty, volumegrowth, etc.)

• Maybe things got a bit more complex… e.g.analytical tools going into ppb (= parts per billion!),

• On the other side complexity was always there…

…I guess we were just able to adapt fast to newrealities without loosing our basic values…

… and we need to go on…

Thank you!