Thursday, April 26, 2007

Right again - unfortunately

Look, I'm not a cynic. I just understood how Nestlé works. A short while ago I was not joining the fulsome praise from the President of Pakistan for the new Nestlé dairy processing facility that had been opened there.

President Musharraf 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."

I raised a few questions about the impact of Nestlé in the dairy industry, given the evidence from countries such as Brazil, Colombia and Sri Lanka. See:

Even in Pakistan concerns had already been raised about the industry's media campaigns aimed at undermining confidence in the raditional milk distribution system. See:

Now I have learned that Nestlé is taking legal action in an attempt to remove price controls on its tetrapak milk. As the Pakistan Daily Times reports:

---Quote begins
Nestlé Pakistan claimed in the application that the producers of UHT milk packages do not fall under the purview of the Act of 2005 that only includes fresh milk. Nestlé sought to be excluded from the process of price determination on the grounds that milk in tetra packs and milk powder are not an essential commodity.

The other grounds agitated by Nestlé were that their products were value-added and branded. The consumption of tetra pack milk in Pakistan is less than four percent of total milk and fresh milk is just a raw material for tetra packages and thus the business of the intervener does not fall under the definition of hoarding or profiteering. The applicant expressed fears that the CDGK [City District Government] would be fixing the price of tetra pack milk, including that of the intervener.

The division bench heard initial arguments by the counsel for the applicant and then put both the CDGK and Milk Retailers Association on notice for May 3.
---quote ends

As Nestlé executives said repeatedly at the shareholder meeting last week, they are commited to the 'Nestlé model'. Which means concentrating on business that will produce 5-6% growth in turnover per year and increased profits. Any that fails to grow is dumped (as recently hapened with its milk business in Vietnam). In its milk business, it is highly processed and marketed products, such as formula, that generate it the greatest profits and its fights against measures that could impact on sales.

At the same time Nestlé will be working, already is working, to ensure its tetrapak milk does not remain a minority product in Pakistan. Marketing, undermining traditional distribution and becoming a major buyer of milk will see to that. In other countries once other systems of distribution have died, regulatory measures have made it difficult for farmers to resurect them once Nestlé starts increasing the prices it sells its milk for. To be able to increase prices, Nestlé is acting early to try to remove price controls.

Nestlé has its plan. We are seeing it unfold. Maybe someone is cynical in this story, but it ain't me.

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