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CreatingCompetitiveGaps inupstreamsupply chainsfMr. Hans JöhrHead of CorporateAgricultureJune 7, 2011Nestlé Investor Seminar
DisclaimerThis presentation contains forward lookingstatements which reflect Management’s currentviews and estimates. The forward lookingstatements involve certain risks and uncertaintiesthat could cause actual results to differ materiallyfrom those contained in the forward lookingstatements. Potential risks and uncertaintiesinclude such factors as general economicconditions, foreign exchange fluctuations,competitive product and pricing pressures andregulatory developments.1June 7, 2011Nestlé Investor Seminar
Agenda Threats and opportunities to feed 9-10bi people Sourcing objectives How do we create competitive gaps – different cases Sustainable Agricultural Initiative at Nestlé “Farmer Connect” presence and impact Conclusion2June 7, 2011Nestlé Investor Seminar
Threats and opportunities to feed 9-10bi people3Soil fertilityBreedingEnergy pricingWater ManagementTechnical AssistancePolicy interventionsJune 7, 2011Nestlé Investor Seminar
Sourcing objectivesEnsure long-term supply of safe, quality assured, regulatory compliant andprice competitive agricultural materials to serve our brands to delightconsumersHow do we operate?With lean upstream supply chains from farm gate to factory gate,called “Farmer Connect”What is “Farmer Connect”?Traceability up to farmers’ level by buying either directly from farmers,cooperatives or selective traders, applying Nestlé good agricultural standards,principles and practices with engagement in capacity building and training.Why and where?46% of Nestlé factories are located in emerging countries – the fastdeveloping world and74% of those Nestlé factories are located in rural areas4June 7, 2011Nestlé Investor Seminar
Sourcing at NestléCorporate Agriculture / ProcurementFor high risk spend categoriesDirectengagement with556,000 farmersAuditProgrammevs. NSCE.g. coffee,cocoa, milk,vegetables,fruits, 5June 7, 20112010/2011:1735 3rd partyaudits of keysuppliersNestlé Investor SeminarNestlé Responsible SourcingTraceabilityProgramme
How do we create competitive gaps in the upstreamsupply chain?With “Farmer Connect”, where we have direct contacts with producers to: Ensure traceability up to farmers’ level Assure quality, safety and volume growth of raw materials Mitigate price volatility exposure Reduce transaction costs and serving our brands guaranteeing access to specific raw materialsOptimise Value StreamOperations Management SystemConsumer& CustomerMarketing& SalesSupply ChainManufacturingProcurementOTPM LEAN6June 7, 2011Nestlé Investor SeminarAgriculture
Creating competitive gaps in the upstream supplychain (1/3)Quality Assurance and volume growth by managing milk districts (China)7June 7, 2011Nestlé Investor Seminar
Creating competitive gaps in the upstream supplychain (1/3)Video showCopyright: Financial Times Ltd8June 7, 2011Nestlé Investor Seminar
Case “end-to-end”: Sourcing grains in AustraliaCommunication of needs uality s. onsafety &qualityquantityMillStoragee.g.soil & water conservationoptimized use of inputsCommunication of activities9June 7, 2011Nestlé Investor SeminarTransportCustomerConsumerFunctional &EmotionalBenefits
Creating competitive gaps in the upstream supplychain (2/3)Ensure supply, farmers’ loyalty and consumer benefits in thecase of oat sourcing for breakfast cereals (Australia)10June 7, 2011Nestlé Investor Seminar
Creating competitive gaps in the upstream supplychain (2/3)Video show11June 7, 2011Nestlé Investor Seminar
Creating competitive gaps in the upstream supplychain (3/3): Local sourcing of grains in West Africa* More than 10’000 farmers trained in WesternAfrica on “Good Agricultural Practices & GoodStorage Practices” Farmers produce now grains with mycotoxinslevels within Nestlé norms (4ppb) Farmers achieve a price premium Market access created for locally producedgrains in West Africa with a farm base valueof USD 20 mio* In Partnership with the International Institutefor Tropical Agriculture12June 7, 2011Nestlé Investor Seminar
Creating competitive gaps in the upstream supplychain (3/3): Local sourcing of grains in West AfricaVideo show13June 7, 2011Nestlé Investor Seminar
Serving our brands: Nescafé PlanTHE NESCAFE PLAN: USD 380 MioMaking the difference from farmer to consumerA 3 pillar plan: Responsible productionand supplyResponsible farming Farmers: Farmer Connect: Soluble: -20% energy / ton 180 000T 170 000 farmers 100% 4C compliant -30% water / ton Systems 90 000 T of SAN Training Plantlets :220 mio plantletsdistributed by 2020(Nescafé Dolce Gusto) Nestlé Professional Develop socioeconomic impact Better yield Better Quality Disease resistant Promote bio-diversityResponsibleconsumption Promote consumption Educate consumer onissue coffee is facing Help consumer toreduce its footprintTo fuel the growth and give a competitive advantage314June 7, 2011Making the difference from farmer to youNestlé Investor Seminar
The Nescafe Plan in action: MexicoPlant scienceSupporting farmersCommunicationstrategy for local andinternational marketto be developedVarieties selected accordingto agronomic performanceAND consumer tasteprofilesPartnershipsPlantlet distributionWorking relationship withlocal partners andcommunities formalised15June 7, 2011Nestlé Investor SeminarStarted coffee plantletdistribution to farmersSuccessful verificationand granting of the first4C License to Nestle MexicoFarmer trainingTraining according to 4Crequirements
Nespresso AAA: Differentiated supply ofspeciality beans16June 7, 2011Nestlé Investor Seminar
Nespresso AAA: Differentiated supply ofspeciality beans17June 7, 2011Nestlé Investor Seminar
Serving our brands:The Cocoa Plan Ecuador in actionWinning consumerpreferences on60/40 Managing thesupply chain /monitoring criticalcontrol pointsPurchasing beanswith Arriba tasteSupporting farmers“Farmer Connect”Linking back to producer through claimstowards health, origin, and purity18June 7, 2011Nestlé Investor Seminar
The Sustainable Agricultural Initiative at Nestlé“SAIN” is the enabler to “Farmer Connect ” Food safety Quality assurance Regulatory compliance Farm income generation Crop and yield improvements Animal health issues Logistic support / Transport Water management & irrigation Farm management guidance Technical training Etc. Rural Development & Water and Agriculture19June 7, 2011Nestlé Investor Seminar
“Farmer Connect ” presence and impactMarkets with “FarmerConnect” activities# direct sourcing staff:# supply chain support staff:# farmers supplying directly to Nestlé:# farmers received training:# collection centers:# experimental farm sites:# crop demonstration plots:# farmers benefitting from financial assistance:Budget for financial assistance:Source: CSV Report 201020June 7, 2011Nestlé Investor CHF 45,4 Mio
To conclude:“Farmers Connect” sourcing model contribute to Replicable and consistentquality and food safety Predictable timing andvolume Develop farmers& suppliers Building capacityfor growth Increased price stability Sustainable production Farmer loyalty Long-term accessto raw materialsat competitiveprices andspecificquality21June 7, 2011Nestlé Investor SeminarSustainabilityComplianceAll daily Sourcing ActivitiesSecure availability ofadequate agriculturalraw materialsEnsure safety & qualityof raw materials
Thank you!Hans JöhrCorporate Agriculture22June 7, 2011Nestlé Investor Seminar
supply chain? With “Farmer Connect”,where we have direct contacts with producers to: Ensure traceability up to farmers’ level Assure quality, safety and volume growth of raw materials Mitigate price volatility exposure Reduce transaction costs and serving
