Growing fatter

Today Nestlé has announced its good news. It financial figures for the past 9 months show it is on target to grow by 6.1% this year. Chief Executive, Peter Brabeck-Letmathé, is well pleased. He has promised investors growth of 5 or 6% per year. 'Organic growth' they call it, though it has nothing to do with organic food, just the opposite. Organic growth means increasing the money it takes by selling more stuff, not through buying up other companies. Buying up other companies was the main strategy a few years ago. Now the focus is rationalising the business, increasing efficiency, getting rid of the dead wood and marketing, marketing, marketing.

One of the 'main strategic pillars' in Nestlé's strategy for continual expansion is its infant food business. In the latest figures the company reports that Nestlé Nutrition grew by a whopping 8% in the last 9 months - if China is excluded. That is an amazing achievement, considering that countries such as Brazil and India now have strong laws stopping companies from using the promotional methods banned by the World Health Assembly. The type of methods Nestlé uses where it can get away with it.

The press release explains "Nestlé Nutrition's organic growth was impacted by infant formula sales in Greater China which are continuing to recover." In China infant formula sales were hit after Nestlé's Neslac milk (a milk for older babies) was found to have too high levels of iodine. Nestlé at first refused to abide by the order to remove the milk from sale, prompting a consumer boycott. Mr. Brabeck launched a campaign last year putting health workers into retail outlets to assure people about the quality of Neslac. While they were careful not to promote infant formula openly, due to China's regulations implementing the World Health Assembly marketing requirements, they targeted pregnant women and breastfeeding mothers with nutritional supplements. This undermines breastfeeding by implying mothers need to buy the expensive products to breastfeed successfully. It appears that Mr. Brabeck's strategy is working - but at what cost to infant health?

Something else in the press release struck me. Mr. Brabeck says: "We have also continued to make progress in our transformation into a nutrition, health and wellness company through our active business portfolio management and the announced changes in our top management."

Why is the world's largest food company attempting to transform into a nutrition, health and wellness company, whatever that is supposed to mean? Well, we have a clue from the investment bank UBS Warburg which reported in 2002 that an estimated 46% of Nestlé's income comes from 'less healthy' foods and would be at risk if regulations restricting promotion or marketing of such foods was introduced. Its study suggested that 18% of a company's value could be lost by a fall of just 3% in sales. See Fat is a Financial Issue in The Guardian.

Regulations requiring Nestlé and other companies to stop promoting unhealthy foods to children or to remove cheap, but unhealthy ingredients, such as transfats, could throw a serious spanner into Mr. Brabeck's growth plans if they are introduced. So Nestlé and other companies are trying to persuade politicians not to legislate, claiming they will change their practices voluntarily.

Some countries are introducing laws, however. In Denmark it is illegal to sell foods containing more than a small amount of transfats (no more than 2% of fats and oil can be transfatty acids). There are even the powers to imprison people for up to two years if they break the law. Yet the European Commission has been persuaded to go the route of voluntary codes. It has set up a Platform for Action, where companies give commitments to make changes. The commitments are not independently monitored, because the companies object to this.

A typical commitment is from the European Snacks Association, of which Nestlé is a member. This has given an undertaking to improve product labeling and: "Furthermore they commit to further develop products reduced in fat, saturated fat or salt and to make these products more available."

So while Denmark's regulatory approach has forced companies to cut levels of some unhealthy ingredients in their products, the voluntary approach says it is for the purchaser's responsibility to watch out.

Nestlé is very happy to offer 'healthy' options, because they can market them as superior and sell them at a higher price. They also divert attention from the unhealthy junk foods that make up most of its product range and which it will continue to promote, particularly to children.

It is not only Nestlé's that will continue to grow fatter.