Monday, March 26, 2007

Nestlé, the dairy industry, winners and losers

The thing with promoting a boycott is people can get the idea you are anti-business. And what I am about to say regarding Nestlé’s new business ventures in Pakistan and Brazil may be misinterpreted. So first let me say I am not anti-business. I rejoice at the inventive capacity of human beings, even if I do believe there needs to be a new social contract better defining the responsibilities and checks on power of the organisations people form to exploit their ideas, particularly of those organisations whose power now rivals that of governments.

But that does not make me anti-business. Baby Milk Action tries to be good at business as a way to bring in some money to fund the campaign. While we appeal to people to support our work by becoming members, making donations and buying merchandise, it is actually necessary to provide products that people want. A new innovation is t-shirts with a cool image of the breastfeeding and pregnant fridge magnets which have proved so popular. These were launched at a conference last Saturday and sold extremely well. We’ll be launching them in our on-line Virtual Shop shortly. All profits go to the campaign.

The boycott has very clear aims: to compel Nestlé to abide by the World Health Assembly marketing requirements for baby foods so breastfeeding is protected and all mothers receive accurate information free from commercial pressure. Nestlé, the worst company in terms of violations of the marketing requirements, is so far rejecting our four-point plan aimed at saving infant lives and ultimately ending the boycott.

The boycott keeps Nestlé malpractice in the public eye, in the UK and globally.

An article about Nestlé in Pakistan today states: "The company remains one of the most boycotted in the world, mainly due to allegations regarding infant formula marketing tactics in developing countries. "

The article was prompted by Nestlé opening a factory for processing milk in Pakistan. As reported elsewhere, this is a US$70 million investment, opened by the President of Pakistan, General Musharraf who said to Nestlé's Chief Executive Officer at the ceremony: “You are assisting the poor of Pakistan and this helps us fight the root cause of extremism and terrorism."

Wow! It is difficult to argue with such an endorsement and I won’t, but would like to raise a few questions. Having tracked Nestlé’s use of public relations in trying to divert criticism and to promote its own agenda, sometimes things do not ring true. When it comes to Nestlé’s impact on dairy farmers, there are, country after country, concerns raised by those affected.

In pakistan Nestlé claims it collects milk from 140,000 dairy farmers and the new milk factory is the largest in Asia and the largest milk collection centre in the world. So how is this centralisation of the milk industry and position as a dominant buyer of milk going to affect farmers?

I first came across these isses when contacted by the Movement for Land Reform in Sri Lanka.

According to Sarath Fernando who I interviewed by telephone, Nestlé campaigned for the end of the Sri Lankan National Milk Board, which had in the past collected milk from smallholder farmers. With the monopoly broken, Nestlé and other transnational corporations began importing milk and selling it in powdered form, under cutting Sri Lankan farmers who, over a period of time, went out of business. Nestlé then began increasing the price of its milk. At the time of the Boxing Day tsunami in 2005 it was lobbying the government to have the price cap on milk lifted, so it could raise prices still further, prompting further mass demonstrations. You can hear the interview I recorded in 2002 in our broadcasts section.

For campaign details from the Asian Human Rights Commission from that time see:

They explained:

---Quote begins
Just two decades ago, Sri Lanka was a country where fresh milk was freely available and very cheap. In 1981, under the policy of liberalisation and privatisation, the government took a decision to close the National Milk Board and signed an agreement with Nestle to develop the dairy industry. After 20 years, there is no fresh milk available in the market, and the entire milk foods sector is in the hands of just two or three large companies, such as Nestle, Anchor and Maliban, which market only milk powders imported from the West.
---quote ends

The situation in Pakistan, however, seems more akin to that in Latin America and does not bode well for the farmers that President Musharraf is encouraging to provide their milk to Nestlé’s new factory rather than selling it in their communities or through existing collecting networks.

The situation in Brazil serves as two case studies. One is in the UK Food Group report Food Inc. Corporate Concentration from Farm to Consumer. This states:

---Quote begins
Before the 1990s, most of the main dairy processing firms were central cooperatives. Deregulation of the dairy market between 1989 and 1993 saw almost all of these cooperatives sold to multinationals. Nestlé, Parmalat and Fleischmann Royal control around 60% of the Brazilian diary market. The top three dairy processing companies in Brazil – Nestlé, Parmalat and Brazilian-owned Vigor – had 53% of the market in 1996. By 2000, eight of the 10 largest food companies in Brazil were multinationals, with Nestlé the biggest.

As a result of higher price competition, dairy companies have consolidated their supply bases to reduce transaction costs. The number of farmers delivering milk to the top 12 companies, for example, decreased by 35% between 1997 and 2000, and the average size of those farm suppliers has increased by 55%. Nestlé alone shed 26,000 farmers from its supply list in the same period – a drop of 75%.

Stronger competition rather than concentration has compelled the adoption and diffusion of new technology and quality standards. Use of production contracts (already common in pork and poultry) has expanded to milk. Private standards instituted by leading processors require the adoption of refrigeration tanks at farm level, which in turn demands a minimum scale of operation. Half of Brazilian milk producers immediately found themselves out of the supply system of the leading companies, though processors have encouraged collective tanks in regions dominated by small dairy farms. However, processors report a diminishing number of these collective tanks because of the higher transaction costs of managing these systems.
---quote ends

The Brazilian dairy industry also appears as a case study in Nestlé’s publication ‘Nestlé’s vision of Corporate Social Responsibility as practised in Latin America’. There its impact on the diary industry is dressed up as beneficial. Nestlé gives a case study of a dairy farmer who has done well out of the arrangement and has seen his milk yields expand markedly thanks to new farming techniques. No doubt there are winners as farms consolidate. Those who can’t compete lose their livelihoods. In Brazil it is estimated 26,000 farmers lost their livelihoods due to Nestlé trading practices. Colombian trade unionists told me 100,000 families dependent on diary farming lost their livelihoods due to Nestlé. You can hear an interview with a Colombian trade unionist by clicking here.

How much this is undesirable and how much it is an inevitability of moving to a modern, industrialised economy is open to debate. For the President of Pakistan it is much desired investment and a sign of progress. For the farmers who don’t survive it is the end of a way of life that has gone on for generations. For those that buy up their neighbours' farms so they can succeed in making a profit under Nestlé contract conditions, it is a new way of doing business. Links with their local communities are lost, replaced by the mass transport and distribution system introduced by Nestlé. It is perhaps viewed as the modern, western way, because the same business model has been rolled out here too. As the Food Inc. report records, in the UK dairy farmers are also finding it hard to make a living.

An inevitability or not, Nestlé is particularly ruthless in pursuing its business model. In Colombia it effectively starved farmers into submission when they refused to sell milk to its distribution network, by importing milk. Trade unionists reported to a tribunal held in Switzerland in 2005 that expired milk from Uruguary, Argentina and New Zealand was even repackaged. The authorities confiscated expired milk from Nestlé on 6 separate occasions.

Investment also serves strategic purposes for Nestlé. No doubt it is interested in making money out of milk in Pakistan, but this is also a country where its image has suffered because of exposure of its aggressive baby food marketing. In the 1990s a former employee, Syed Aamir Raza, blew the whistle on practices such as the bribing of doctors to promote formula to mothers. He said he was threatened by senior staff and after leaving the country to publicise his documentary evidence was unable to return after threats from doctors implicated in the malpractice and shots fired at his house. While an anti-corruption body set up by President Musharraf soon after seizing power in a bloodless coup, investigated and said it would protect Aamir’s family, the President’s office welcomed Nestlé’s investment and Nestlé obtained a police report alleging the shooting never took place. Nestlé also went on the offensive suggesting Aamir had tried to blackmail the company, but refused to offer substantiation despite repeated requests from Baby Milk Action and Aamir, who said he would respond in detail to any evidence presented. This story received significant publicity in Pakistan and elsewhere and led to legislation being introduced, regulating the market of baby foods, though not to the degree called for by the World Health Assembly.

Nestlé’s investment in Brazil has similarly been used strategically. When the monopolies commission blocked the company’s takeover of the Garoto chocolate company, Nestlé said it felt 'uncomfortable' about making further investment in Brazil (article in Portuguese). However, a planned Nescafé factory went ahead and was opened subsequently by Brazil’s President Lula. A court has this month over turned the monopoly commission's decision on a technical point.

When I participated in a public debate with the Fairtrade Foundation last year, it was admitted that Nestlé was sourcing coffee for its one Fairtrade product, a coffee, from El Salvador and Ethiopia for political reasons. In El Salvador it had been much criticised for the way it had closed down a factory and in Ethiopia it had caused outrage by demanding a compensation payment from the government at a time of famine for a business nationalised 27 years before.

More recently, Nestlé opened a factory in Brazil to produce processed foods for poor people. It describes them as Popularly Positioned Products aimed a people with an income of less than US$10 per day. Again, President Lula joined Nestlé Chief Executive, Peter Brabeck-Letmathé, for the opening ceremony (click here for article). While it could be argued it is undemocratic to suggest the poor should not have access to processed foods, there is another side to the story.

I have sat on the beach in Brazil on many occasions while vendors have walked backwards and forwards. Often they have ice boxes with ice creams, either from Nestlé or Unilever (known as Kibon in Brazil, Wall’s in many other countries). Or from companies that are still Brazilian enterprises. Some are running their own small business, carrying white cheese on sticks, which is roasted over a small charcoal fire they carry. Or prawns, or peanuts. Or empada – small pies with very light pastry containing chicken, prawns or palmito (heart of palm). Delicious.

Which is an important point to remember. Nestlé is not filling a vacuum, it is competing with locally produced foods from small, often family, businesses.

But Nestlé has marketing clout that most hawking their wares on the beach do not have. Such as a plane flying back and forth with a banner. Here is a picture from January 2007.

The banner, which you can read the hi-resolution version, says : “Join in the summer promotion of good”. People on the beach were handing out promotional leaflets, with details of how to win prizes by buying Nestlé products.

The promotion will be a boost for those working as Nestlé vendors, but is perhaps bad news for the self-employed vendors and those working for small or not-so-small Brazilian businesses who cannot compete on the same terms.

My point is, Nestlé portrays itself as a force for good in developing countries, but there are losers as well as winners. Not only in terms of people's livelihoods, but the environmental impact of centralising collection and processing, the health impacts of processed foods and the growth in power of corporations that gain the ear of Presidents and succeed in overturning public-interest rulings that impact on their profits.

Why laud Nestlé as if it is leading the fight against poverty, when in all its activities it puts its own growth and profits before others? It is not anti-business to view businesses with clarity - organisations to make profit within the regulatory framework society puts upon them.

What we need to debate honestly is how that framework can best serve people and the planet.

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