Nestles Corporate Social Responsibility and the Farmers Perception

Nestle’s Corporate Social Responsibility and the Farmers’ Perception Thereof A Preliminary Study by J. Sedfrey S. Santiago David Edward G. Jimenez John Carlos B. Clerigo John Gokongwei School of Management Ateneo de Manila University

Outline �Coffee Industry Background �Problem Statement �Method �Results and Analysis �Preliminary Conclusion

Coffee Industry Background �Philippines’ Coffee Situation ◦ Coffee output is less than 1% of global production (95 TMT, P 5. 5 Billion) ◦ Continually declining from 2008 -10 ◦ More than half of total supply of coffee beans are imported ◦ From 2010 to 11, coffee farm area dropped from 131 to 122 thousand hectares (6% drop) Source: Gain Report, USDA-FAS, 2011

Coffee Industry Background �Nestle’s hold of the market (more than 80%) ◦ 75% of local coffee supply is Robusta ◦ Nestle buys about 80% of this ◦ Thus, 60% of the local coffee production is bought by Nestle ◦ Nestle has the power to develop the coffee industry

Background �CSR Programs ◦ Buying Station

Background �Training Program

Problem �Is Nestle’s CSR Program deemed fair by the coffee farmers? �Did Nestle’s CSR Program improve the standard of living of the coffee farmers? �Are the farmers satisfied and what are their suggestions?

Methods �Interviews with key players in the coffee industry (Philippine Coffee Board, Philippine Coffee Alliance, Nestle, Government and Coffee Farmers)

Survey and Interviews

Methods �Survey of Coffee Farmers (based on the objectives) ◦ Purposive sampling method (gathered through contacts gained from interviews) ◦ 45 each island group (Luzon, Visayas and Mindanao) ◦ Currently, we have 33 coffee farmer respondents

Methods � Survey Design � WFTO’s Fairtrade Principles ◦ Creating Opportunities for Economically Disadvantaged Producers ◦ Transparency and Accountability ◦ Capacity Building ◦ Payment of a Fair Price ◦ Non-Discrimination, Gender Equity and Freedom of Association ◦ Working Conditions ◦ Environment ◦ Trading Practices ◦ Child Labor and Forced Labor � Alternative fairness standard ◦ 4 C – Common Code for the Coffee Community

Results: Most coffee farmers are middle-aged 40 35 30 20 15 10 5 Age 80 70 60 50 40 30 0 20 Percent 25

Results: Majority of farmers are male Gender Distribution Female 30% Male 70%

Farm Size (in hectares) 0 19. 0 18. 0 17. 0 16. 0 15. 0 14. 0 13. 0 12. 0 11. 0 10. 0 9. 0 8. 0 7. 0 6. 0 5. 0 4. 0 3. 0 2. 0 1. 0 0. Percent Results: Small farm sizes 50 45 40 35 30 25 20 15 10 5 0

Results: Classification of Respondents Both 24% Buying Station 61% Trainin g Progra m 15% Number of Farmers percent Buying Station only 20 60. 6 Training Program only Both Total 5 8 33 15. 2 24. 2 100. 0

Results: Is the Buying Station Program fair? Not Sure 7% Yes 39% No 54%

Fairness: Buying Station Program �Top 5 Fairness Indicators: Top 5 Fairtrade Principle We are able to use our earnings from the buying station for the education of our children and medicine. Creating Opportunities Frequency of Yes Responses 100% I receive full payment for my beans on time. Payment of a Fair Price 89% All or substantially all of my beans are bought by Nestle. Capacity Building 79% Nestle explains how they compute for the price of my coffee beans. Payment of a Fair Price 64% I have more income from coffee farming (that I can use to buy more land, equipment and materials). Creating Opportunities 64%

Fairness: Buying Station Program �Bottom 5 Fairness Indicators: Frequency of Yes Responses Bottom 5 Fairtrade Principle Nestle informs me how they determine the price of Nescafe instant coffee. Transparency and Accountability 29% I can say that my coffee beans have better quality because of the suggestions of the employees in the buying station. Capacity Building 25% Nestle provides a written contract regarding Transparency and the sale of my coffee beans. Accountability Nestlé buying station employees inform us of the principles of fair trade. Trading Practices Nestle consults farmers when they plan to Transparency and change policies in the buying station program. Accountability 25% 11% 4%

Results: Is the Training Program fair? Not Sure 31% No 8% Yes 61%

Fairness: Training Program �Top 5 Fairness Indicators: Top 5 Frequency of Yes Fairtrade Principle Responses Nestle informed me of the processes and objectives of the training program. Transparency and Accountability 92% Capacity Building 92% Non-discrimination 92% I learned from Nestlé how to add more value to my coffee beans (like processing). I can say that my coffee beans have better quality because of my Nestlé training. I have better support system in farming because of Nestlé (because I know people from the training program who can give me assistance). I can plant other kinds of crops aside from coffee.

Fairness: Training Program �Bottom 5 Fairness Indicators Bottom 5 Fairtrade Principle Transparency and Accountability Nestle consults farmers when they plan to change policies in the training program. Nestlé teaches us to allow our children to go to school and play even if they are used for Child Labor and Forced our farming. Labor Child Labor and Forced Nestlé tells us not to use forced labor. Labor Nestlé employees regularly visit my farm to check on the status of/update on my farming. Trading Practices Nestlé has sent employees to my farm in order to inquire about how satisfied I am with their program. Trading Practices Frequency of Yes Responses 23% 31% 38%

Results: Did the programs of Nestle improve the farmers’ standard of living? Missing Values Worsened 3% 3% No Change 15% Improved 79%

Results: Are the Farmers satisfied with the CSR programs of Nestle? Missing Values 3% No 21% Yes 76%

Results: Comments/Suggestions of Farmers �On Pricing: �On Payment: �On the Training: ◦ Increase price or make prices stable ◦ Questions on the coffee grading system ◦ Why are Arabica and Robusta priced the same? ◦ Direct payment instead of thru the bank ◦ Increase participants ◦ Organic farming ◦ Field Visits �Other Comments: ◦ Location of Buying Station

Conclusion �Coffee farmers are generally satisfied. �The beneficiaries perceive that the programs gave a positive effect to their standard of living. �But, there are some issues regarding fairness. ◦ Buying Station Program ◦ Transparency and Accountability �In order to be a true CSR program, Nestle must improve on its fairness.

Reserve Slides

Related Work �The basic responsibility of a company toward its suppliers like coffee farmers is to be fair in its dealings (Jamali, 2008 citing Papasolomou, 2005 at 218). �Thus, following the stakeholder approach, which asserts that “organizations are not only accountable to its shareholders but should also balance a multiplicity of stakeholders interests that can affect or are affected by the achievement of an organization’s objectives” (van Marrewijk, 2003 at 96 citing Freeman), it is important to determine whether Nestlé’s CSR programs address said inequities, or if they perpetuate the inequities despite the programs’ good intentions.

Methods � 10 Fair Trade Principles ◦ Creating Opportunities for Economically Disadvantaged Producers ◦ Transparency and Accountability ◦ Capacity Building ◦ Payment of a Fair Price ◦ Non-Discrimination, Gender Equity and Freedom of Association ◦ Working Conditions ◦ Environment ◦ Trading Practices ◦ Child Labor and Forced Labor

Fairness: Buying Station Program �Top 5 Fairness Indicators: Top 5 We are able to use our earnings from the buying station for the education of our children and medicine. Fairtrade Principle Yes Creating Opportunities No Miss Not ing Sure data Total 100% 0% 100% I receive full payment for my beans Payment of a Fair on time. Price 89% 4% 0% 7% 100% All or substantially all of my beans are bought by Nestle. Capacity Building 79% 18% 0% 4% 100% Nestle explains how they compute Payment of a Fair for the price of my coffee beans. Price 64% 32% 0% 4% 100% I have more income from coffee farming (that I can use to buy more Creating land, equipment and materials). Opportunities 64% 32% 4% 0% 100%

Fairness: Buying Station Program �Bottom 5 Fairness Indicators: Fairtrade Principle Bottom 5 Transparenc y and Nestle informs me how they determine Accountabilit y the price of Nescafe instant coffee. I can say that my coffee beans have better quality because of the suggestions of the employees in the Capacity buying station. Building Transparenc y and Accountabilit Nestle provides a written contract regarding the sale of my coffee beans. y Nestlé buying station employees Trading inform us of the principles of fair trade. Practices Transparenc Yes No Not Sure Total 29% 71% 0% 100% 25% 68% 7% 100% 25% 75% 0% 100% 11% 71% 18% 100%

Fairness: Training Program �Top 5 5 Fairness Indicators: Fairtrade Principle Transparency and Accountability Nestle informed me of the processes and objectives of the training program. I learned from Nestlé how to add more value to my coffee beans (like processing). Capacity Building I can say that my coffee beans have better quality because of my Nestlé training. Capacity Building I have better support system in farming because of Nestlé (because I know people from the training program who can give me assistance). Capacity Building I can plant other kinds of crops Nonaside from coffee. discrimination Missin Not g Yes No Sure Values Total 92% 8% 0% 0% 100% 92% 0% 0% 8% 100%

Fairness: Training Program �Bottom 5 Fairness Indicators Perception of Training Nestle consults farmers when they plan to change policies in the training program. Nestlé teaches us to allow our children to go to school and play even if they are used for our farming. Nestlé tells us not to use forced labor. Nestlé employees regularly visit my farm to check on the status of/update on my farming. Nestlé has sent employees to my farm in order to inquire about how satisfied I am with their program. Because of the training program, I have more income from coffee Missin Not g Fairtrade Principle Yes No Sure. Values Total Transparency and Accountability 23% 31% 46% 0%100% 31% 69% 0% 0%100% 31% 62% 0% 8%100% Trading Practices 38% 62% 0% 0%100% Child Labor and Forced Labor