Nestle CSV Summary Report 2010

8/7/2019 Nestle CSV Summary Report 2010

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Creating SharedValue and RuralDevelopmentSummary Report

2010


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Figures highlighted throughout the report

with this symbol are tracked as Key

Perormance Indicators and summarised in

the Rural Development section o the KPI

The brands in italics are registered

trademarks o the Nestl Group.

Annual Report 2010

Accompanying reports

A message rom our Chairman and CEO

About this report

Material issues

Global ood security and rural poverty

Nestls contributions to rural development

Overview: Rural impact o Nestls actories and armer programmes

Impact o Nestl actories on rural development

Impact o Nestl armer programmes on rural development

Nestl Creating Shared Value Advisory BoardChallenges and opportunities

Nutrition

Water

Table of contents 2

4

5

6

9

10

12

20

3234

36

38

This is a summary report.A ull online Rural Developmentreport is available on our updateCreating Shared Value websiteat www.nestle.com/csv

Cover: Farmers Jaswinder Singh

and Jasveer Kaur deliver milk to

a chilling centre in Nestls milk

district in Rajasthan, India.

Corporate Governance

Report 2010;

2010 Financial

Statements


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Nestl has developed perormance indicators to provide a ocus or measuring and reporting Creating Shared Value, sustainability

and compliance. The summary below orms part o our Communication on Progress on the United Nations Global Compact Principles.

Unless stated otherwise, perormance indicators are or the year ending 31 December 2010.

Please see www.nestle.com/csv/kpis

Creating Shared Value Key Performance Indicators GRI 2009 2010

Economic

Total Group sales (CHF million) EC1 107 618 109 722

Net proft (CHF million) EC1 10 428 34 233

Nutrition

Nestl Nutrition sales (CHF million) 9 963 10 366

Products meeting or exceeding Nutritional Foundation profling criteria (% o total sales) (a) 71 73.2

Renovated products or nutrition or health considerations (b) 7 252 6 502

Products with increase in nutritious ingredients or essential nutrients (b) 3 878 3 847

Products with reduction o sodium, sugars, trans-atty acids, total at or artifcial colourings (b) 3 374 2 655

Products analysed and improved or confrmed via 60/40+ programme (sales, CHF billion) (c) 16.8 36.4

Products containing Branded Active Benefts (sales, CHF million) 5 045 5 922

Products eaturing Nestl Nutritional Compass labelling (% o sales worldwide) (d) PR3 98 97.

Products in EU with Guideline Daily Amounts (GDA) labelling on ront o pack (% o sales) (e) PR3 91 98.7

Products with specifc portion guidance (sales, CHF billion) () 21 21.3

Nestl television advertising to children under 12 in compliance with policies on responsible marketing (%) (g) (PR7) 99.9 99.5

Nestl contraventions o inant ormula marketing requiring remediation (h) PR7 6 7

Inant ormula marketing sta in higher-risk countries trained in the WHO Code (% o sta) (i) 100 100

Popularly Positioned Product (PPP) SKUs 3 950 4 860

Popularly Positioned Products (sales, CHF million) 8 770 11 070

Employees trained on nutrition (cumulative since 2007) 121 360 145 922

Water and Environmental Sustainability

Production volume

Total production volume (million tonnes) 41.17 43.74

Materials

Total raw materials used (million tonnes) EN1 21.18 23.27

By-products or reuse or recovery (kg per tonne o product) EN22 32.79 32.16

Waste or disposal (kg per tonne o product) EN22 8.72 8.45

Energy

Total on-site energy consumption (petajoules) 85.2 88.6

Total on-site energy consumption (gigajoules per tonne o product) 2.07 2.03

Direct energy consumption by primary energy source (petajoules) EN3 61.0 63.0

Indirect energy consumption by primary energy source (petajoules) EN4 65.1 67.6

On-site energy generated rom renewable sources (% o total) (EN3) 12.2 12.3

2010perormancesummary


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GRI 2009 2010

Greenhouse gases (GHGs)

Direct GHG emissions (million tonnes CO2eq) EN16 3.98 3.98

Direct GHG emissions (kg CO2eq per tonne o product) EN16 96.6 91.0

Indirect GHG emissions (million tonnes CO2) EN16 3.00 3.14

Indirect GHG emissions (kg CO2 per tonne o product) EN16 72.8 71.9

Water

Total water withdrawal (million m3) EN8 143 144

Water withdrawal (m3 per tonne o product) EN8 3.47 3.29

Total water discharge (million m3) EN21 91.3 94

Quality o water discharged (average mg COD/l) EN21 91 78

Safety, health and environment governance

ISO 14001 / OHSAS 18001 certifed sites (% o total manuacturing sites) 83 91

Packaging

Total packaging materials (million tonnes) EN1 4.17 4.59

Packaging weight reduction (tonnes) 58 995 70 828

Reduction o packaging weight (per l o product) Nestl Waters over fve years (%) 24 19

Rural Development

Farmers trained through capacity-building programmes 165 553 144 926

Markets covered by Sustainable Agriculture Initiative Nestl (SAIN) programmes 35 45

Direct procurement markets covered by SAIN programmes (%) 77 100

SAIN projects associated with water 10 12

Suppliers audited or ood saety, quality and processing 3 864 3 345

Suppliers who received and acknowledged the Nestl Supplier Code 165 497 164 969

Key vendors within scope o the responsible sourcing audit programme (j) N/A 1 481

Key vendors covered by a responsible sourcing audit (%) (j) N/A 66

Key vendors audited and compliant with Nestl Supplier Code (%) (j) N/A 56

Quality key suppliers approved through vendor approval process (%) (j) N/A 61

Our People

Total workorce (number o employees) (LA1) 278 165 281 005

Key Business Positions 1 319 1 379

Employees with potential to fll Key Business Positions 3 922 8 741

CARE gaps identifed related to Business Integrit y and HR 500 425

O which: Minor 425 393

Major 75 32Critical 0 0

Lost time injuries among employees and contractors (per million hours worked) LA7 2.0 1.8

Total injury rate among employees and contractors (per million hours worked) LA7 5.1 4.2

Fatalities o employees and contractors LA7 4 11

Employees receiving ormal classroom training in developing countries (LA10) 93 146 102 292

Leadership positions held by women (%) (LA13) 27 27.3

Local Management Committee members native to country in developing countries (%) 42 48

Note: GRI indicators shown in brackets correspond in part to a GRI G3 indicator. Those not in brackets correspond in ull.

(a) 2010 assessment scope: 69.9% total ood and beverages sales.

(b) Based on reports o approximately 75% o worldwide product development teams.

(c) Starting in 2010, this KPI better reects the dynamic nature o our 60/40+ programme. Assessment results are valid or a maximum o three years, only i all

parameters remain equal. Within the repor ted sales, some products were requently re -assessed. The comparable KPI or 2009 would be CHF 32.9 billion.

(d) Excludes total petcare and, or USA only, Dreyers and newly acquired Pizza business.

(e) Across EU 27 plus Norway and Switzerland. Excludes plain coee, tea and water, products or Nestl Proessional, giting chocolate, petcare, and Nestl Nutrition.() Products sold as single servings and meeting/exceeding Nutritional Foundation, OR sold with/via a device or equipment delivering a serving meeting/exceeding

Nutritional Foundation, OR sold to caregivers with detailed instructions on adjusting servings to evolving nutritional needs.

(g) The compliance rate reported in 2009 corresponds solely to Nestls commitment not to advertise to children under 6 years o age.

The compliance rate in 2010 also reects the uller commitment to only advertise better or you products to children aged 612 years.

(h) Based on internal and external audits.

(i) Higher-risk countries are those with mortality rates or under-fves o more than 10 per 1000, or more than 2% acute malnutrition (moderate and severe wasting)

among under-fves. All other countries are lower-risk.

(j) New in 2010.


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Rural development 25 million+ people involved in

Nestls entire upstream value chain

USD 45 million in fnancial ass

extended to armers in 2010

The Nescaf Plan CHF 500 million investment by 2020

220 million high-yield coee plantlets

distributed to armers by 2020

90 000 tonnes o Nescaf coe

grown according to Rainorest A

and Sustainable Agriculture Net

(SAN) principles, to be procured

by 2020

The Cocoa Plan CHF 110 million investment over the

next decade

600 000 high-yield, disease-resistant

plantlets distributed to armers byJune 2011

1 million plants will be distribut

to armers in 2012

10 million plants will be distrib

to armers within ten years

Highlights 2010

144 rurally located Nestl factories

in developing countries

33% oer literacy and numeracy

programmes

37% run entrepreneurshipprogrammes

44% provide skilled trades

58% oer ormal apprenticeships

32% provide clean drinking wat

to local communities

58% contribute to local educatiacilities

41% invest in other local inrast

70% have a Nestl-built water

treatment plant


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Creating Shared Value and Rural Development Summary Report 202

It is our frm belie that, or a company

to be successul over time and create

value or its shareholders, it must also

create value or society. We call this

Creating Shared Value. Based on

strong oundations o compliance and

sustainable business practices, this

is our basic way o doing business.

Given the nature o our activities

and our ambition to be the worlds

leading Nutrition, Health and Wellness

company, we have identifed three

areas where Nestl can, in particular,

optimise the creation o shared value:

nutrition, water and rural development.

In this report, we will ocusspecifcally on rural development, which

is one o the most important drivers o

global development. With an estimated

70% o global poverty concentrated

in rural areas, investment in building

agricultural capacity is crucial, as the

world additionally aces the serious

challenge o providing ood security

or growing populations. Indeed, global

poverty reduction eorts must ocus

increasingly on rural development.

Nestl has been engaging witharmers and rural communities since

its inception over 140 years ago. As

early as the 1920s, we were building

actories in rural areas in Brazil and

South Arica; and creating milk districts

to supply them. Today, we deal

directly with nearly 600 000 armers

worldwide, aecting the lives o

A messagerom ourChairmanand CEO

millions more by helping to create bet

living conditions or them or exam

by establishing milk districts in about

30 countries, training armers in anim

husbandry, water and eed technique

and extending about USD 45 million

fnancial assistance in 2010.

Today, we have 443 actories

all over the world. Most o them are

in rural areas and more than hal are

in developing countries. We have

long been aware that they are magne

or development, creating a large

skilled labour orce in rural areas,

but also educating small business

operators who supply our actories,as well as acilitating the building

o inrastructure such as roads and

water treatment systems.

Specifcally in 2010, we made

signifcant new commitments in rural

development. In addition to new

actory investments in Indonesia,

southern Chile, India, the Philippines,

Sri Lanka, Mexico, Ghana and Equato

Arica, we launched The Nescaf

Plan, with substantial investments in

coee-growing regions worldwide.The Nescaf Plan takes a holistic

approach to arming which includes:

doubling the amount o coee

bought or Nescaf directly rom

armers to 180 000 tonnes over the

next fve years;

sourcing 90 000 tonnes o coee

according to Rainorest Alliance and


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Peter BrabeckLetmathe

Chairman o the Board

Paul Bulcke

Chie Executive Ofcer

Sustainable Agriculture Network

principles by 2020;

distributing 220 million high-yield

coee plantlets in order to raise quality

and hence revenues to armers.

The Nescaf Plan ollows closely

in the ootsteps o The Cocoa Plan,

where we are:

working closely with cocoa-arming

communities, particularly in West

Arica and South America, to improve

their livelihoods, including access to

schools or their children;

putting our plant science

expertise to work and distributing

millions o high-yield, disease-resistantcocoa plantlets.

Together, The Cocoa Plan and

The Nescaf Plan will see over

CHF 600 million invested in these key

rural development initiatives between

now and 2020.

Meanwhile, the Nespresso AAA

Sustainable Quality Program a part

o the wider Nespresso Ecolaboration

platorm with high-quality coee

armers in Latin America, streng

collaboration with a cluster o

organisations, including the Rai

Alliance. In addition, we have en

in various bilateral and multi-late

consultations with international

organisations and NGOs such a

partnership with The Forest Tru

to ensure that Nestl products d

have a deorestation ootprint.We know that all these are po

steps. But we also know that m

has to be done. We are perman

challenging ourselves to look o

answers to the many problems

all acing together. In the ollow

pages, we describe key challeng

rom locating actories in rural a

the issue o child labour in agric

to deorestation. There has been

progress to date, but we need t

continue our eorts, because th

is still considerable work to be d

Conscious that we do not ha

all the answers, we remain open

new ideas rom outside stakeho

and the Nestl Creating Shared

Advisory Board, comprised o g

experts in nutrition, water and r

development, has given us inva

outside perspectives and challe

us on where we can do better.

recommendations this year incl

increased advocacy to stimulate

based investment in rural develowhile continuing to raise serious

concerns about issues such as t

deorestation eects o biouels

As a global community, we a

with the need to double ood pro

by 2050, and Nestl is committe

playing its part in a multi-stakeh

eort. We welcome your input a

ideas, and hope that you fnd th

to be stimulating and inormativ

Opposite: Nestl Chairman

Peter BrabeckLetmathe visits the

Reta Grande dairy farm in Brazil,

where Nestl provides technical

assistance and advice on farming

best practice.

Above: Nestl CEO Paul Bulcke

attends a school in Peru, where the

children learn about healthy eating

in an enjoyable way through NestlsCrecer Bien programme.


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Company profle

Nestl is the worlds leading

Nutrition, Health and Wellness

company. It was ounded in 1866,

and is headquartered in Vevey,

Switzerland.

CHF 109 722 million total Group sales

CHF 34 233 million net proft

281005 employees worldwide

More than 4 million people

beneft economically rom Nestls

commercial operations

443 actories

29 research and development centres

Nestls uture reporting with the

Global Reporting Initiative (GRI) G3

guidelines and have been involved

in the development o the GRI Food

Processing Sector Supplement.

Furthermore, James Singh, Nestl

Chie Financial Ofcer, became a

member o the International Integrate

Reporting Committee (IIRC), ormed

by The Princes Accounting orSustainability Project (A4S set up b

HRH The Prince o Wales in 2004) an

the Global Reporting Initiative (GRI) in

August 2010.

Boundary and scope

The inormation contained in our

latest online report and this summary

covers Nestls global operations

or the year ending 31 December 201

unless otherwise stated, and has

been subject to external assurance

by an independent third party

(see www.nestle.com/csv/

assurancestatement or the ull

assurance statement) with the

exceptions o the opinion pieces

by Robert L. Thompson and the

orward-looking recommendations

o the CSV Advisory Board. Data is

provided or Nestls wholly owned

companies and subsidiaries, excludin

joint ventures and suppliers, unless

specifcally stated. The environmenta

data reers to actories only, andhealth and saety fgures cover all

281 005 Nestl employees, as well

as the equivalent o more than

25 000 contractors working on

Nestl sites.

About this reportOur reporting history

Our aim is to report on Nestls

long-term impact on society and

how that relates to the creation o a

successul long-term business. Since

1995, we have regularly published

reports on environmental matters

(see www.nestle.com/csv/downloads)

and in 2001, we began to report on

issues related to rural developmentand armers, employees and social

and economic development in Latin

America and Arica. We have been

issuing global Creating Shared Value

Reports every two years since 2007,

since whenwe have continued

to ocus on progress against key

perormance indicators (KPI) across

our value chain and outline the actions

we have taken to address the key

challenges acing our business.

In alternate years, we have reported

in more depth on one o our three

ocus areas: nutrition, water and rural

development. These in-depth reviews

included the Nestl Water Management

Reportin 2006, Nutritional Needs and

Quality Diets in 2008 and this current

report on Rural Development.

To enable stakeholders to more

easily analyse our reports and make

comparisons between them, we have

replicated the ull KPI table rom our

2010 Annual Reportinside the ront

cover o this summary, and have alsoincluded short sections at the back o

this report on our other key ocus areas:

nutrition and water (pages 3640).

Our wider communications

This summary, and the case studies,

audio content, videos and downloads

that accompany our ull CSV update

online (www.nestle.com/csv), are

companions to our 2010 Annual

Report, which outlines our overall

business and fnancial perormance.Together, they orm an integral part o

our overall communication on Creating

Shared Value perormance.

Future reporting

Our objective is to align our external

reporting with good practice

guidelines. We plan to urther align


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For several years, Nestl has

worked with SustainAbility,

an independent think tank and

strategy consultancy, to undertake

a systematic prioritisation of the

issues deemed most critical to

the Company. This draws on the

opinions of investors, civil society

groups and the media, assessing

them with Nestl executives.

Materiality analysis

For our 2009 report, SustainAbility

concluded that external interest had

increased or all issues and that climate

change had become a major priority

alongside water, across each stage o

the value chain. In 2010, SustainAbilitys

qualitative review again examined major

global developments, NGO campaigns

and industry activity. Given Nestlscommitment to long-term leadership in

Creating Shared Value, SustainAbility

also commented on how Nestls

material issues are expected to change

in the medium term and how industry

leadership is evolving.

External interest continues to

heighten or all issues particularly

with respect to Nestls impacts on

its value chain (consumers, producers

and suppliers) and the broader natural

and social environment in which it

operates (environment and community).

Environment, or example, has once

again become a major priority due to

increasing ocus on the societal and

business value o ecosystem services

(the resources and processes that are

supplied by natural ecosystems)

and biodiversity.

This year, global ood security is

taking centre stage as an overarching

theme, requiring Nestl to take an

integrated approach to managing

its CSV ocus areas (nutrition, ruraldevelopment and water) as well

as certain material issues (climate,

agriculture, supply chain and

community impacts). Furthermore,

while security o supply will remain

important, distribution and availability

will also matter, particularly in urban

areas due to an increasing ocus on

ood waste and the impact o poverty

on access to nutritious ood.

Other important themesPressure continues rom government

and NGOs on the ood and beverage

industry to reormulate products in

response to the obesity epidemic;

meanwhile, global organisations are

looking to the industry to partner on

addressing malnutrition. In 2009-2010,

marketing responsibly and making

accurate claims remained a cha

or the industry overall, with Ne

no exception. Food and beverag

industry leaders are seen as tho

who are transorming product

portolios to contribute to bette

health outcomes and using mar

and branding to infuence consu

values and behaviour towards m

positive choices.Water and climate change

continue to rise in importance a

linked regional and global issue

that also relate strongly to publi

health and agriculture. Agricultu

increasingly being viewed throu

a value lens (what contribution

can agriculture make to improve

health / livelihoods / climate / wate

as well as a risk lens (how do w

manage environmental and labo

risks?). In 2009-2010, palm oil,

child labour in cocoa, and bottle

water were also high-prole top

or Nestl.

O the remaining issues,

environment, community impac

and workplace wellness have

all risen in relative importance a

companies are increasingly exp

to address issues outside o the

direct ootprint and immediate

value chain.

Material issues

Please note: This section is based on the advice

and opinion o SustainAbility and represents

their views and recommendations.


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Global oodsecurity andrural poverty

Global challenges and

opportunities

There are two principal ways to expand

agricultural production: increase the

area planted or increase the production

per unit o land. Firstly, most o the

potentially arable land is inerior to that

already in production and is located

in remote areas o sub-Saharan Arica

and South America, where localinrastructure is minimal. Secondly,

to double agricultural production

sustainably, it will be necessary to

increase the production per unit o

land already in production.

The availability o resh water to

agriculture may be an even greater

constraint to doubling production than

the availability o land. Farmers use

about 70% o the worlds resh water.

As urbanisation increases, cities will

outbid armers or available water

and 60% o the worlds population

will live in cities by 2030.

Variations in crop yield

There are great dierences among

regions o the world in crop yields,

which should mean that it is possible

to signicantly increase productivity

per unit o land. These dierences

refect dierent genetic potential

embodied in the seeds planted;

availability o water in the root zone

o the plants rom precipitation orirrigation; the adequacy o the nutrition

available to the plants rom the soil

or ertiliser; and the eectiveness o

control o weeds, insects, birds and

disease that reduce productivity.

Farming is inherently risky, as revenue

depends on two random variables that

armers cannot control: price and yield.

Low household incomes

Most o the worlds agricultural

production is conducted on amilyarms, where the arm household

provides most o the labour. In addition

to providing part o the amilys

annual ood supply, arming provides

the household cash income. Most

o the worlds arm households earn

signicantly less than those whose

income comes rom other economic

activities. In act, 75% o the extreme

poverty and associated hunger in the

world is in rural areas where people

live ar away rom roads, markets,

schools and health services.

Rural poverty and rural

development

The objective o rural development

in low-income countries is to reducepoverty and hunger, and improve

the quality o lie in non-urban areas,

where the majority o poverty resides

Increasing productivity in agriculture

essential to reduce rural poverty and

ensure greater national ood security

and a global supply o ood.

However, rural development

must also create non-arm earning

opportunities to diversiy the

economic base o rural communities

and to benet national economic

development. This could involve

working away rom the arm, or

moving out o agriculture completely

to non-arm employment. By reducin

the number o people working on

small pieces o land, outmigration

enables both those who leave as wel

as those who continue arming to

have higher incomes. It is essential to

create more non-arm employment

opportunities within rural areas to

avoid urban problems o overcrowdin

unemployment, crime and pollutionassociated with excessive rural to

urban migration.

To solve the problem o poverty

in low-income countries, the private

sector needs to create jobs and

governments need to provide a

positive investment climate beore

local or international investments

will be made. There must also be

reasonable macroeconomic and

political stability, rule o law, denitio

and protection o property rights, andenorcement o contracts.

In addition, a number o rural publ

goods need investment rom the pub

sector, ocial development assistanc

(oreign aid), and / or international

development bank lending. Investme

in rural inrastructure, education

and health services, and agricultural

Global demand or ood is

expected to double in the frst

hal o this century, as a result

o population growth, poverty

reduction and urbanisation. Will

the worlds armers be able to

meet this doubled demand without

damaging the environment?

By Robert L. Thompson

Robert L. Thompson holds the Gardner

Endowed Chair in Agricultural Policy Emeritus,University o Illinois at Urbana-Champaign,USA; member, Nestl CSV Advisory Board.

Please note: The views expressed in this article

are the authors alone and are not necessarilyshared by Nestl. Its content has not beenveried by our independent assurers.


11/45


research and technology transe

help to reduce rural poverty thro

development o agriculture and

rural non-arm sector.

Rural infrastructure

Poorly developed inrastructure

the requent lack o roads imped

rural development as it raises th

o transporting goods and peopand rom the area. Most improv

technologies are embodied in in

the armer must purchase. High

transport cost raises the cost o

and reduces the price armers r

or the products they sell, makin

it unproftable to adopt improve

technologies that could otherw

increase their household incom

Until recently, rural areas o m

low-income countries have had

little, i any, telecommunication

with the outside world. Such m

do not work very well as they c

opportunities or unscrupulous

middlemen to exploit armers w

have no way o knowing the pri

in other markets. However, this

has changed rapidly with the ad

o the cellular telephone and

construction o towers througho

many low-income countries.

Education and health

Education and health services aless accessible in rural areas o

most low-income countries. Ma

areas lack sae drinking water a

sanitation, which can lead to dis

and nutritional defciencies can

to stunting o mental and physic

development. There may be no

available source o certain esse

nutrients in the diet, or example

vitamin A, iron, iodine or zinc.

Educational opportunities are

oten limited or rural children.Illiteracy is widespread among

populations, particularly among

women, and educating girls hel

to reduce the rate o population

growth in low-income countries

In addition, educating the arme

the uture will acilitate adoption

improved agricultural technique

The objective o ruraldevelopment in low-incomecountries is to reduce povertyand hunger, and improve the

quality o lie in non-urbanareas, where the majority opoverty resides.


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health, and in agricultural research

is extremely high. In low-income

countries 75% o the people in extrem

poverty and hunger are in rural areas

and those countries agricultural

sectors are contributing less to their

national ood supply and to world oo

security than would be economically

efcient and environmentally

sustainable. Nevertheless, over thelast several decades, investment in

agricultural and rural development

has declined to negligible levels.

Moreover, until recently the

governments o many low-income

countries, through policy intervention

in markets, turned the terms o trade

against their armers, orcing them to

pay more than the world market price

or their inputs and receive less than

the world market price or their outpu

This reduced the incentive or armer

to adopt productivity-enhancing

technologies. This discrimination

against armers has been remedied in

the developing world, except sub-

Saharan Arica and Argentina.

In 2000, 189 countries meeting at

the United Nations adopted several

Millennium Development Goals

(MDGs), the frst o which was to

reduce hunger and poverty in the

world by hal by 2015. To achieve

this, poverty and hunger must

be reduced in rural areas, where themajority o them reside requiring

a much stronger commitment to

agricultural and rural development in

low-income countries.

With the projected doubling o

global ood demand, low-income

countries, with their history o

underperormance in their agricultura

sectors, need to undergo change and

improvement so they can contribute

more signifcantly to their national an

the global ood supply.

Educating the next generation can

also help outmigration rom agriculture

to non-arm employment.

Agricultural research

and technology

Public and private investment in

agricultural research and technology

transer are important actors when

looking at global dierences in cropyields per hectare. Agricultural research

can increase the genetic potential

o the varieties planted, improve

understanding o crop nutrition and

develop better, more cost-eective

ways o controlling weeds, insects

and diseases that reduce productivity.

A century ago, cereal grain yields in

Western Europe and the United States

were little higher than those observed

in sub-Saharan Arica today. The

large increases in productivity since

then have reduced the unit cost o

production and kept the price o ood

lower, beneftting armers through

higher household incomes and

low-income consumers who spend

the largest raction o their incomes on

ood. Moreover, this has made amine

a rarity in the world and has allowed

millions o hectares o trees to remain

standing in the worlds orests instead

o being cut to make way or an

expanded area under cultivation.

However, there is no point inincreasing productivity or shiting

to higher value per hectare crops i

there is no market to buy the output

at a remunerative price. Thereore,

marketing institutions are necessary

to connect armers to regional and

national markets or their products.

Finding buyers or their products is a

particular problem or smallholders

who only have a small quantity o

product to sell. Securing credit to buy

inputs at planting time is a particularproblem to smallholders who have

little or no collateral to pledge against

the loan, i credit providers exist at all.

Investing in the uture

The social rate o return on public

sector investment in rural

inrastructure, education and

Reducing poverty

the fve ways

There are fve ways or a poor arm

household to increase its income

other than rom social welare

support, which rarely exists in rural

areas o low-income countries:

increasing productivity by

growing varieties with greatergenetic potential, irrigating crops

i water is available, providing

sufcient nutrients and controlling

weeds, insects, birds and disease;

changing to higher value crops

per hectare, replacing staples such

as cereals, roots and tubers, with

ruits, vegetables and livestock;

gaining access to more land

through purchase, rental or land

reorm, or other income-generating

assets, e.g., literacy, numeracy

and specialised skills;

members o the household

obtaining non-arm income, by

producing something at home

or sale or getting alternative

employment away rom the arm;

members o the household

moving to non-arm employment,

reducing the number o people

trying to make a living on

uneconomically small pieces o

land and increasing the incomes

o those who stay behind.


13/45


Nestlscontributionsto ruraldevelopment

To help armers to increase output,

improve product quality and reduce

their environmental impacts, Nestl

has established world-class plant

research acilities in France and

Cte dIvoire, where higher yielding,

disease-resistant varieties are

being developed. The Company

also runs feld trials and employs a

large number o agronomists whoprovide training and consultation

on arming practices.

Because rural credit markets are

not always developed, and small

armers may have little or no collateral

to pledge to get a loan, Nestl has

oten acted as the provider o credit

so that armers could use improved

technologies. The Company has

also helped armers to produce and

sell higher-value products than they

previously grew. In Yunnan Province,

China, or example, Nestl introduced

the opportunity or armers to produce

coee in an area with no previous

history o coee-growing.

Nestl buys over 40% o the milk

it processes directly rom armers,

and much o it rom smallholders.

This increases armer income and

improves the nutritional status o

children in the household.

Nestl also has processing and

packaging unctions close to the point

o raw material supply, improvingood saety and reducing spoilage.

These plants add to the local tax base,

diversiy the local economy and create

non-arm employment opportunities

close to arm households, an essential

step towards eliminating rural poverty.

Individuals earning potential increases,

and the area becomes more attractive

to other employers, suppliers and

service providers.

Quality o lie has improved in

the rural communities where Nestlhas actories, with investments in

inrastructure, education and sae

drinking water (see page 10). Its

Popularly Positioned Product (PPP)

programme also provides aordable

sources o nutrition or lower-income

consumers, oten ortifed with

essential nutrients such as iodine,

vitamin A, iron, and zinc to over

defciencies in the local diet (rea

on page 36).

When the majority o the wo

poor live in rural areas and mos

armers, ocusing more attentio

agricultural development and ru

poverty reduction will both ensu

sustainable supply o raw mater

Nestls actories, and also accepoverty reduction and growth in

demand or ood products tru

example o creating shared valu

Value or Nestl

More secure supply o better-qu

raw materials; lower procureme

costs; consumer preerence or

products; proftable growth.

Value or society

Advice and technical assistance

greater yields; higher-quality cro

lower resource use; increased

income and reduced rural pove

wider employment and econom

development opportunities; con

aware our products are sae and

high quality.

Read our Creating Shared Value

Advisory Boards opinion on wh

Nestl could or should do more

page 34.

Nestl has contributed

signifcantly to poverty reduction

and rural development in a number

o lowincome countries, while

ensuring an ample uture supply

o raw materials or its actories

to satisy the global demand

or ood. By doing this, Nestls

sustained, longterm commitment

is helping to ensure ood security

at household, national and global

levels, creating shared value

or everyone.

By Robert L. Thompson

Robert L. Thompson holds the Gardner

Endowed Chair in Agricultural Policy Emeritus,University o Illinois at Urbana-Champaign,USA; member, Nestl CSV Advisory Board.

Please note: The views expressed in this article

are the authors alone and are not necessarilyshared by Nestl. Its content has not beenverifed by our independent assurers.


14/45


Overview:Nestls factoriesin rural areas

Direct employment Indirect

employment

(contractors,

collection agents)

Direct purchasing

o locally grown

commodities

Energyefcient

equipment and

practices

Procurement o

local services

Contributions to

local educational

acilities

Employee

volunteering

and charitable

donations

Nestl products

or local sale and

consumption

Investment in local

transport

inrastructure

Employee training

and apprenticeships

Clean drinking

water and hygiene

projects

Nestlbuilt waste

water treatment

plants


15/45


Overview:Nestls farmer programmesin rural areas

Improved status

o women

Creation o

demonstration and

training arms

Investment in

collection, cooling

and storage

acilities

Technical

assistance by

Nestl agronomists

Improved a

to educatio

children

Water conservation

and irrigation

programmes

Research

& Development

o highyield,

diseasetolerant

plants

Direct purchasing

o locally grown

commodities

Distribution o

plants to armers

Access to f

assistance


16/45


Impact o Nestl actorieson rural development

Performance

Roughly hal our 443 actories are

located in the developing world and

60% are located in rural areas.

They provide local employment to

148 370 people, give local consumers

greater access to Nestl productsand oer other indirect economic

benets across the community.

Goals

The wellbeing o the communities

rom which we draw our agricultural

commodities and local labour is vital

to our success as a business and to

delivering value to our shareholders.

Actions

In contributing to the reduction

o poverty (see page 9), Nestl

considers two approaches to be

the major growth engines or rural

areas: investing in new actories,

and strengthening the links between

armers and markets through

Key challenges

As well as nding actory sites with

access to energy, water, transport and

capable, trainable human resources,

we also need to engage with the

relevant local authorities to build trust

and ensure our presence meets local

needs. We nance low-cost biogas

Through rural development, providing

local employment and encouraging

sustainable production practices, we

not only seek to protect the supply and

quality o our raw materials, but also

ecient supply chains. All over the

world, Nestl actories drive rural

development and high environmental

standards, especially in developing

countries. Our principle is to source

commodities, where possible, in

the countries in which we have

A typical actory is a long-term

investment and has many touch

points with society, rom employment

creation and inrastructure to

environmental management, training,

education and community involvement(see page 10). Based on a recent

sample o 422 actories (summarised

digesters, which collect the methane

emitted rom cattle manure as energy,

to provide dairy armers with an

economic incentive to manage manure

more eectively thereby avoiding the

contamination o groundwater and

where access to clean drinking water

to have a positive, long-term impact

on the local economy and standards

o living o rural people.

manuacturing acilities. In this way,

quality improves, supply is ensured

and higher margins at the arm level

are obtained, thereby generating cas

fow into rural areas.

on page 16), around 70% o our rural

actories in developing countries

have a Nestl-built waste water

treatment plant, 58% have contribute

to educational programmes in the

local community and 58% oerapprenticeships.

is limited, we und wells, storage tank

and drinking ountains. We also run

awareness campaigns about water a

hygiene in schools and villages near

our actories.

Driver Leonel Lpez Gonzlez and transport

coordinator Enrique Lozano Muoz at the

Lagos de Moreno dairy factory in Mexico,

which provides employment and invests

in transport infrastructure.


17/45


18/45


Nestl dairy actories

The dairy industry is one o the most

powerul engines or rural development,

and many o Nestls rural actories are

within our milk districts. In 2010, 87 o

our 254 rural actories were linked to

our milk business and o these, 62%

were located in developing countries.

The impact of rural factories

Although 40% o our actories are

now dened as being in urban

areas, their developmental eects

over time have attracted businesses,

investment and inrastructure into

a cluster around them and made

their once-rural locations increasingly

urban or industrialised in nature.

For example, when it was rst built,

local people built their houses against

the wall around the Nestl actory

in Moga, India.

Such an eect takes time to evolve,

but as rural actories expand, they oer

more opportunities or contractors,

suppliers and other businesses as

well as employees themselves.

For example, the Rumo Seguro

programme coordinated by Nestl,

Fonterra and Dairy Partners o America

has improved the saety perormance

o contractor drivers serving the dairy

industry in several South Americancountries by 25%, by helping to set

international standards o excellence

regarding rest periods, sae behaviour,

medical and alcohol testing, vehicle

inspections and feet maintenance.

The project led to a similar road

saety programme or the drivers

that serve Nestl Pakistan, or which

Nestl nanced a purpose-built track,

classrooms and high-tech simulator at

the National Highway and Motorway

Police (NHMP) centre. Since 2008,

when the training centre opened,

888 Nestl contract drivers, as well as

more than 500 drivers rom 14 other

organisations, have been trained

and Nestl-related road accidentshave allen by 40%. The programme

also won the Gold Award in Nestls

Workplace Saety awards in 2010.

Factories in urban areas

Even when our actories are located

in urban areas, they can have a

signicant development impact on the

rural communities they source rom.

One example our Kejayan actory

in Indonesia is supplied by around

32 000 dairy armers and in addition

to improving arming practices to

increase productivity and to comman

a premium or higher-quality milk, the

actory has also:

provided employment inthe production process ranging

rom cooperative managers to

grass collectors;

ormed a three-year partnership

with the Humanist Institute or

Development Cooperation to give

dairy cooperatives access to biogas

units, to capture and convert

443Nestl actories worldwide. 46%o Nestls actories are locatedin developing countries. 74%o actories in developing countriesare located in rural areas. 58%o Nestls rural actories indeveloping countries contributeto local educational acilities.

On arrival at the Lagos de Moreno factory, tanker driver Leonel Lpez Gonzlez takes

a sample of milk for testing.


19/45


20/45


Rural development impact of Nestls factories

422 actories

respondingto survey(1)

195 actories

in developingcountries

144 rural(2) actories


51 urban actories


Sourcing from local/national supplier:

Milk 28% 33% 38% 22%

Coee 13% 16% 17% 16%

Cocoa 16% 19% 22% 14%

Training programmes in past ve years:Literacy and numeracy 25% 30% 33% 22%

Entrepreneurship 26% 33% 37% 24%

Skilled trades 48% 43% 44% 39%

Formal apprenticeship 52% 57% 58% 55%

In the past ve years:

Provided clean drinking water to local community 30% 33% 32% 35%

Contributed to local educational acilities 53% 57% 58% 55%

Invested in other local inrastructure 33% 39% 41% 33%

Nestl-built water treatment plant 53% 67% 70% 59%

(1) Based on a survey conducted in autumn o 2010. Questionnaires were sent out to managers o Nestl actories. 422 responses were received rom 443 actories (95%

When calculating these igures, 21 actories were discounted: 8 dairy actories in Latin America are joint ventures w ith Dairy Partners America; 10 actories were openor acquired in 2010 and are not yet ully unctional; and the responses rom 3 pharmaceutical actories were not considered relevant to the CSV Report.

(2) Our actories are deined as rural i: they were originally located in an area deined as rural by national statistics concepts; they are located in an agricultural region;

they are not located in or within 5 kilometres o a large centre o population (above 100 000 inhabitants). Factories where the number o arms or other entities that

directly supply our acilities with commodities exceeds the number o actory employees such as our dairy actories are also categorised as having a signiicant

rural development impact. Using these criteria, 60% o our actories are in locations deined as rural.

methane rom their cattles manure

into useable energy, as well as improve

groundwater quality;

renovated the local State

Elementary School, in partnership with

the Indonesian non-proft organisation

Yayasan Nurani Dunia, donated

books to other schools in the area,repaired the main road near the actory

and donated 1000 trees or a local

reorestation project.

Key challenge

Water and hygiene

Many dairy communities are located

in rural areas with limited access to

clean drinking water, and low levels

o awareness about water scarcity,

conservation and pollution. Improving

rural community access to clean

drinking water and hygiene is an

important impact o our actories. For

example, in Sri Lanka, we und water

acilities and run awareness campaignsin villages near our manuacturing

operations, and our School Sanitation

Project develops basic acilities such

as toilets in schools surrounding

our Kurunegala actory. And around

our Moga actory in India, we

have provided local schools with

113 drinking water ountains.

40%reduction in accidents througha road saety programme or thedrivers serving our Kabirwala andSheikupura actories in Pakistan.

58%o Nestls rural actoriesin developing countriesprovide ormalapprenticeships.

887tonnes o milk bought daily romlocal dairy armers by our actoryin the Moga milk district, India.

70%o Nestls rural actories indeveloping countries have aNestl-built watertreatment plant.

Nestls Harmandeep Kaur leads a water

awareness programme at a primary scho

in Bilaspur village, near our Moga factory

in India.


21/45


15%reduction in ossil uelconsumption by using the latestood processing technology at ourCerelac actory in Tema, Ghana.

Other Nestl actories

The remainder o our rural acilities

are linked to the processing o other

commodities, including coee,

cocoa, cereals, vegetables, ruit and

spices. Ninety (67%) o these are

located in developing countries. Like

our dairy actories, these plants helpto drive socio-economic development

in local economies, through direct

and indirect employment, training

and education, inrastructure and

community investment.

Environmental benets

In many countries, Nestl was the

frst company to set up a wastewater

treatment acility. While these

investments have added to production

costs in the short term, they have

raised expectations and led to stricter

regulations over time, thus levelling

the playing feld and giving Nestl a

competitive advantage.

We have used spent coee grounds

as a renewable energy source or many

years, and at the same time, beneftted

rom a reduction in waste. Currently,

21 Nestl actories use spent coee

grounds as a renewable energy source.

One o the most recent acilities to

make this investment, the Cagayan de

Oro Nescaf actory in the Philippines,uses a state-o-the-art boiler to recycle

and burn spent coee grounds and

other biomass such as sawdust and

coconut shells. In 2010, the emissions

associated with the combustion o

ossil uels ell by 62%. The actory

also has a solid waste management

programme and a communal eco-

garden, which sells recyclable

materials made rom household waste

and organic ertiliser made rom

biodegradable waste.

Direct and indirect employment

Our manuacturing plants naturally

bring direct employment to local

people, such as our ready-to-drink

acility in Anderson, Indiana, whichhas been a signifcant stimulus to the

local economy since the decline o

the US car industry in the region.

We have also generated 25 000 indirect

jobs in Chiapas state, Mexico, where

our renovated Chiapa de Corzo

Coffee-mate actory is located. In

addition, a CHF 150 million investment

in Equatorial Arica over the nex

years will see new actories bui

Angola, the Democratic Republ

Congo and Mozambique, and e

actories expanded. Nestl will

increase its distribution capacity

the region with 13 new distribut

acilities and 750 new jobs by 20

more than doubling its workorc

In many cases, other, moreentrepreneurial job opportunitie

are also created as a result o ou

presence. For example, when N

built a manuacturing plant in L

in the Philippines, local unemplo

women were given unding by

Nestl to have sewing training.

Cut and Sew project that was c

25 000indirect jobs currently generatedby Nestl in the Chiapas state,Mexico.

62%reduction in oil consumption byour Nescaf actory in thePhilippines by using spent coeegrounds and biomass or energy.

150minvestment in new and exactories in Angola, the DeRepublic o Congo andMozambique over the nexyears, in CHF.

Discarded coconut shells are used as a source of renewable fuel for the boiler at t

Nanjangud factory in India.


22/45


now handles sewing jobs or the

actory, such as uniorms, lab coats,

hairnets and shoe covers, worth

around CHF 33 000 every year. The

actory also has a Yard and Garden

project, where women produce

organic vegetables or sale to the

canteen, and ornamental plants which

they rent to the actory and even

individual employees.

Other indirect benefts to the

communities around our actories arealso evident. For instance:

delivered in partnership with the

NGO Gawad Kalinga, 50 disadvantaged

amilies live in a Nestl-built

eco-village in Lipa City where rainwater

is recycled, reed bed technology

processes sewage without the use

o chemicals and Nestl-sponsored

educational activities and livelihood

programmes are delivered;

at our Antigua actory in Guatema

sta helped to reconstruct buildings

ater an earthquake and provide

350 schoolchildren with a glass o m

and a bowl o soup every day;

ollowing the earthquake in

February 2010, our actories in Chile

assisted communities by supplyingwater, providing access to electricity

and using their gyms and social

areas as shelters and stores or

peoples belongings.

Key challenge

Factories in rural areas

Having made a strategic decision to

locate a actory in a particular locatio

we need to identiy a site with suitab

access to energy supplies, water,

transport networks and capable,

trainable human resources. The early

engagement o, and communication

with, the relevant local authorities an

agencies is also crucial to building

trust and gaining a greater

understanding o what the local

community actually wants.

Aligning new ood production

processes with the needs and culture

o those who live in those locations

also remains a challenge, especially

where new actories are sited in area

dominated by small villages, poorsanitation and limited inrastructure,

and employees used to dierent way

o doing things oten need ongoing

support to ensure they can maintain

Nestls standards.

41%o Nestls rural actories indeveloping countries invest in localinrastructure.

67%o Nestls non-dairy actorieslocated in developing countries. 32%o Nestls rural actories indeveloping countries provideclean drinking water to localcommunities.

18 000tonnes o inant cereal per year wbe produced by Nestl Ghana,double its current capacity.

Farmer Emmanuel Lefebvre harvests potatoes grown for the Nestl Maggi Mousline

factory at Rosires-en-Santerre, northern France.

Nestl agronomist Bertrand Rault (left)

advises local potato farmer Pierre Buisset

on water use and soil fertility.


23/45


Above: Nestl agronomist

Klutse Kudomor (left) with

farmer Nesa Abdulai, whose

grain is checked for mycotoxin

levels at our infant cereal

factory in Tema, Ghana.

Local sourcingand environmental

improvementsin Ghana

emissions and production

costs. This production

acility is closely connected

to Nestls Grains QualityImprovement Project, which

is designed to ensure our

A CHF 36.2 million

investment in our Cerelac

inant cereal production

plant in Tema, Ghana,will double its production

capacity and oster rural

development by sourcing

more locally produced

maize, rice, wheat, four

and sugar rom local

Ghanaian suppliers.

Nestl Ghana aims

to double its capacity to

18 000 tonnes o inant cereal

per year, having increased

production to 9000 tonnesalready. The plant is also

equipped with the latest

ood processing technology,

which will reduce ossil

energy consumption by

around 15%, while the

new chillers use natural

rerigerants to lower both

actories receive a ste

supply o sae, high-q

agricultural commod

and allow rural commto generate higher in

as a result.


24/45


Impact o Nestl armerprogrammes on rural development

PerformanceIn 2010, Nestls 1014 agronomists

and 17 273 extension workers and

contractors supported 144 926 direct

armer suppliers through

capacity-building programmes ,

technical assistance and knowledge

transer, and provided fnancial

assistance, without conditions or

GoalsIncreasing agricultural productivity is

essential to reducing rural poverty and

ensuring greater ood security, both

nationally and globally. Strengthening

ActionsDuring the year, we enhanced our

approach to supplier development

and armer training, and developed

more Sustainable Agriculture Initiative

Nestl (SAIN) initiatives, alongside

the ongoing communication o,

Key challengesMany raw materials have a high

potential impact on orests, but

we have publicly committed to

ensuring our products do not have a

deorestation ootprint. To this end,

our Chairman Peter Brabeck-Letmathe

repeated our support or a moratorium

on the destruction o rainorests at

our April Annual General Meeting,

our eorts to link armers and

smallholders to markets through

efcient supply chains thereore leads

to greater yields o higher-quality

and assessment against, our Nestl

Supplier Code. SAIN now covers

45 markets and 100% o our direct

procurement markets . We also

consolidated our support or the cocoa

industry under The Cocoa Plan and,

obligation, worth CHF 45.3 million to

more than 32 000 armers. In parallel,

976 key suppliers have undergone

independent, third-party audits to

demonstrate their compliance with

our Supplier Code, which has been

communicated to 164 969 suppliers

and displayed at 65% o collection

and in May 2010, we announced a

partnership with The Forest Trust,

through which we have established

Responsible Sourcing Guidelines.

In coee- and cocoa-growing areas,

child labour remains a signifcant

challenge, and we partner with

organisations such as the International

Cocoa Initiative (ICI) on projects that

crops or Nestl, and higher incomes

and living standards or our suppliers

(see pages 68).

under a similar ramework, we are

committing CHF 350 million over the

next ten years to coee initiatives

through The Nescaf Plan.

and buying stations . Combined with

ongoing dialogue with government

agencies and NGO partners, this

assistance leads to long-term poverty

reduction and rural development on

a wide scale.

combat unacceptable labour practice

Advocating against the production

o crops such as palm oil as biouels

rather than ood, and ensuring the

traceability o commodities rom

small-scale arming systems, are also

ongoing issues.

In Colombia,Nespresso agronomistLiliana Franco Rodrguez (right) helpscoffee farmer Luis Alfonso ngel Jaramilloto meet the standards of the NespressoAAA Sustainable Quality Program.


25/45


26/45


Farmer programmes: milk

The milk district model

In terms o sales value, Nestl is the

worlds largest milk company, sourcing

almost 12 million tonnes o resh milk

equivalent rom about 30 countries

in 2010. Our approach involves the

widespread use o our milk districtmodel, which dates back to the

1870s. The essence o the model is to

work directly with smallholder dairy

producers and cooperatives to build

a supply chain.

Nestl purchased 3.4 million tonnes

o resh milk directly rom armers

and cooperatives in 2009, helping to

ensure a better price or their milk,

regular payment and a sustainable

link to the processing industry, and

providing Nestl with a regular supply

o high-quality milk with which to

meet consumer demand. Nestls

close relationships with armers mean

we can advise them continuously on

the quality o milk production. We

also have the same stringent quality

control system in place across all our

actories around the world, and more

than 70 dierent tests are routinely

conducted when producing inant

ormula and other milk products toensure the highest-possible quality and

avoid the risk o contamination.

Our direct milk sourcing

programmes help to address rural

development and poverty in many

developing countries, including

Brazil, Chile, China, India, Mexico

and Pakistan. In addition to a secure

market or their milk, communities

beneft rom local collection, storage

and chilling acilities, better transport

networks, technical assistance by

Nestl specialists (agronomists and

veterinarians), and feld technicians

to improve their arming practices,

quality control systems and access

to fnancial assistance.

Milk districts in action:

India and China

In India, or example, Nestl has

invested approximately CHF 11 million

in storage tanks, chilling centres,

veterinary aid and other dairy

development projects or the armersin Moga. Our milk actory collects

over 887 tonnes o milk per day rom

over 110 000 armers, and works

with them to increase their yields

through improved arming methods,

better irrigation, and scientifc crop

management practices. In this vibrant

milk district, Company veterinarians

and agronomists advise dairy

armers on a range o issues, and

provide assistance with artifcial

insemination, subsidise the purchase

o equipment and help with access

to fnancial assistance.

Additional programmes have

ocused on technical support o

irrigation techniques, rainwater

harvesting and water management

on dairy arms; the supply o clean

drinking water in local schools; and t

promotion o sanitation and hygiene

the villages that surround the actory

Similarly, some 25 000 dairy arme

supply three Nestl actories in China

One, our milk actory in Hulunbeir,

in the Inner Mongolia Autonomous

Region, is situated in an area o

high-quality natural grasslands, and

provides a reliable market or locally

produced resh milk, which is used tomeet the rising local demand or milk

powder and other dry, condensed

and evaporated dairy products. Nestl

also provides 54 collection centres in

the milk district, and aims to transer

milk rom each collection centre to th

actory within two hours.

12mtonnes, approx. o resh milkequivalent sourced by Nestl romabout 30 countries in 2010.

38%increase in average monthly armprofts since 2008 through theSilvopasture project in Colombia,as new cattle breeds and betteragricultural practices improvepasture land, and milk qualityand quantity.

17 273Nestl extension workerswork directly with armers. 155 000amilies in Kenya and Ugandawill receive arming advicethrough Nestls partnershipwith the East Arican DairyDevelopment Board.

At a Nestl chilling centre in Rajasthan,

India, milk is tested and added to the chilling

tank, ready for transport to our factory.

Dairy farmers in Kenya receive technical

advice through Nestls partnership with

the East African Dairy Development Boar


27/45


Above: Dr Maria Mubarak,

dairy hub manager (right), with

Naseem Akhtar, a livestock

worker and village milk

collection agent in Pakistan.

Right: Dr Muhammad Qasim,

a Nestl vet, offers advice,

feed and vaccines to help

farmers to rebuild agricultural

capacity in ood-affected

areas of Pakistan.

Farmer trainingin Pakistan

involves the three-year

project teaching rural

women about livestock

healthcare and giving

them access to nancial

assistance. Around 60% o

the 3400 women trainednow work as sel-employed

livestock managers, milk

collection agents and animal

eed suppliers, and more

than 600 have direct links

with the dairy industry.

In August 2010, foods

across Pakistan killed more

than 1600 people. The

Companys nancial support

o CHF 700 000 has brought

ood and relie to mo

than 50 000 people a

unded the vaccinatio

300 000 animals.

Working with the

Agency or Developm

and Cooperation (SDwe jointly committed

CHF 440 000 in mone

and resources to ben

10 000 people in sout

Punjab, in the orm o

rations, eed concent

vaccinations and vete

support or 14 000 co

and bualoes, and se

and ertilisers or bot

and grazing pasture.

response exempliesour approach suppor

term reconstruction a

enables capacity-bui

The Rural Poverty Reduction

Through Livestock

Development Project,

launched in March 2009

and co-unded by Nestl

Pakistan and the Swiss

Agency or Developmentand Cooperation (SDC),

oers dairy armers training,

technical assistance and

veterinary services, and links

with local businesses.

Nestl Pakistan has

built two demonstration

and training arms. Under

our Farmers Development

Programme, over 4000

armers have been trained

and are part o the milkvalue chain.

Community

Empowerment through

Livestock Development

and Credit (CELDAC), a

public-private partnership

between UNDP-Pakistan

and Nestl Pakistan,


28/45


In Puebla, Mexico, coffee seedlings provided through The Nescaf Plan are loaded onto

a truck, ready to be planted.

Farmer programmes:coee

Our approach

The coee supply chain is extremely

complex, with 80% o all armers

being smallholders. Around 25 million

smallholders depend directly on

coee arming or their livelihoods,and a urther 100 million people

are involved in the industry as a

whole. Nestl is the worlds largest

purchaser o coee.

Through our direct buying system,

our long-term commitment allows

tens o thousands o armers and

small-scale intermediaries to deliver

coee directly to our buying stations.

They also secure a higher price

and gain access to ree technical

assistance. This is a win-win-win

partnership, as it:

helps armers to improve the quality

o their yields and to diversiy their

activities, giving them higher incomes

and improving their living standards;

provides Nestl with a reliable

supply o high-quality raw materials;

brings sustained growth or the

local economy.

It also helps to train the next

generation o coee growers,

and ensures that coee remains a

commercially attractive crop to grow.In 2010, Nestl purchased

82 000 tonnes o green coee directly

rom armers and intermediaries

in China, Cte dIvoire, Indonesia,

Mexico, the Philippines, Thailand and

Vietnam. Around 10% o the coee

beans used in Nescaf are acquired

through direct procurement.

The Nescaf Plan

In August 2010, we launched

The Nescaf Plan, bringing together

all our Creating Shared Value coee

arming and production practices

throughout the value chain, under

one umbrella. This global initiative,

urther strengthened by external

partnerships, will help us to optimise

our coee supply chain and reach

specifc targets on coee arming,production and consumption

(see below).

By increasing our direct

procurement operations (which we

term Farmers Connect), we will

enable armers to increase production,

quality and processing techniques and

generate higher incomes; it will also

ensure Nestl continues to receive a

supply o high-quality raw materials.

In addition to the CHF 200 million

we have invested in coee projects

over the past fteen years, we will

invest a urther CHF 500 million

by 2020. Around CHF 350 million wil

support The Nescaf Plan and a urth

CHF 150 million will be invested in

Nespresso. Through this investment,

we will: double the amount o directly

procured Nescaf coee by 2015;

by 2015, ensure all directly

purchased coee meets the

sustainability standards o the

Common Code or the Coee

Community (4C) Association,

a voluntary code o conduct to

350minvested in The Nescaf Planby 2020, in CHF. 220mhigh-yield plantlets distributedto coee armers by 2020. 1500coee growers rom Tezonapa,one o Mexicos poorestlocations, trained through theMicro-Region SupportingProgramme, a governmentinitiative supported by Nestl.

80%reduction in water consumptionat Nestl Chinas Experimental aDemonstration Farm in JinghongYunnan Province, through newcoee-processing equipment.


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At the Nestl Experimental

and Demonstration Farm

near Jinghong, Yunnan

Province, China, the coffee

cherries are picked (above),

washed and processed.

CSV initiativesin China

procurement supports up

to 19 000 people, and since

1995, nearly 4100 farmers

have received training on

planting, quality control and

processing techniques.

Traditional coffee-processing methods require

a lot of water approximately

150 litres per kilogramme

Even before the opening

of the Nescaf factory in

Dongguan in 1992, Nestl

China had established

an Agriculture Technical

Assistance Service in

Yunnan Province toencourage and support

coffee cultivation, and

created an Experimental

and Demonstration

(E&D) Farm in Jinghong.

Almost twenty years on,

Yunnan traditionally a

tea-growing area has

become a quality Arabica

coffee-growing region.

Nestl purchases

directly from localfarmers, 80% of whom are

smallholders. Nestl also

supplies plantlets suited

to local soil conditions

and climate, and advises

farmers on techniques

to improve both quality

and yield. Nestls coffee

of green coffee. New

equipment introduce

2003 and 2010 at the

E&D Farm has decrea

water consumption b

than 80% and also se

demonstrate best prato other coffee farme

the region.


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90 000tonnes o Nescaf coee grownaccording to Rainorest Allianceand Sustainable AgricultureNetwork (SAN) Principles to beprocured by 2020.

27 000litres o water per arm will besaved by the Jardn Antioqua millin Colombia, a joint undertakingbetween Nespresso, local NGOsand coee cooperatives to providecoee-milling services or armersin the region to share.

60%o the total green coee beansNespressopurchased came via itsAAA Sustainable Quality Programin 2010.

1-2%o the worlds green coee cropmeets the specifc taste and aromprofles and the demanding qualstandards o Nespresso.

improve efciency, proftability,

transparency and sustainability in theproduction, processing and trading o

coee through training and verifcation

(see www.4c-coeeassociation.org

or more inormation);

by 2020, procure 90 000 tonnes o

Nescaf coee grown according to

Rainorest Alliance and Sustainable

Agriculture Network (SAN) principles.

Nespresso

Only the top 12% o the worlds greencoee crop meets the specifc taste

and aroma profles and the demanding

quality standards o Nespresso. Over

the last seven years, we have worked

with the Rainorest Alliance to develop

the Nespresso AAA Sustainable

Quality Program o integrated

coee arm management practices,

ensuring compliance with quality and

sustainability requirements.The programme encourages

armers to adopt best practice

in sustainability, requiring certifcatio

to the Sustainable Agriculture

Network (Rainorest Alliance)

standard; and Nespresso pays a

premium to the armers who supply

the highest-quality beans.

A coffee mill at Jardn Antioqua, Colombia an initiative between Nespresso, local NGOs and coffee cooperatives avoids the need

for milling equipment at each farm.


31/45


Farmer programmes:cocoa

Our approach

As a major buyer o cocoa

(380 000 tonnes last year, or 10% o

the worlds supply), we play a key

role in improving the cocoa industry

and the wellbeing o the armerswho supply us, as well as the rural

communities they live in. We strive

to reduce poverty in cocoa-arming

regions, ensuring we have reliable

access to the high-quality, responsibly

armed materials we need or our

chocolate businesses.

Nestl has undertaken a range

o initiatives to improve arm

proftability, cocoa quality and

traceability in the cocoa supply chain.

In 2009, we brought them together

under one programme: The Cocoa

Plan. While The Cocoa Plan initially

covers just 1.5% o our cocoa supply,

we will use our learnings rom the

frst year to roll it out to have a more

substantial impact.

The Cocoa Plan

In committing CHF 110 million over

the next decade, Nestls investment

under The Cocoa Plan will ocus

on plant science and sustainable

production in Cte dIvoire andEcuador (the worlds largest sources o

cocoa and fne cocoa respectively).

This investment builds on the

CHF 56 million already invested in

the past fteen years and ocuses on

our key areas:

training armers to increase

their yields, reduce cocoa disease,

adopt better agricultural arming

practices and produce a better quality

crop through armer feld schools and

group sessions;

investing in plant research to

improve the quality, quantity and

sustainability o cocoa production

around 225 000 plants were

produced in 2010 in Ecuador and

Cte dIvoire, and we aim to

produce 600 000 plants in 2011; improving the supply chain

by working closely with armer

cooperatives, simpliying the supply

chain, increasing armers incomes

and improving the quality o cocoa

or Nestl;

partnerships to improve access

to education, water and sanitation.

110minvestment in The Cocoa Planover the next decade, in CHF. 40 000cocoa armers tobe trained on armingand post-harvestpractices.

10mhigh-yield, disease-resistantplantlets to be distributed toarmers over the next ten years.

50-200more cocoa (up to 1500 kgcocoa beans per hectare) trees typically provided thThe Cocoa Plan.

These partnerships include

being a ounding participant in

International Cocoa Initiative (IC

up specifcally to address orced

child labour practices, and work

with the International Federatio

Red Cross and Red Crescent So

(IFRC), in support o its Global W

and Sanitation Initiative, to und

water and sanitation in schools

cocoa-growing areas o Cte d(see page 28).

Nestl also co-ounded the

World Cocoa Foundation (WCF

and supports the Sustainable Tr

Crops Programme, which trains

armers across West Arica and

educates them about HIV/AIDS

and malaria prevention.

The Cocoa Plan boosts the quantity and quality of cocoa produced by a womens

cooperative in Divo, Cte dIvoire.


32/45


in Cte dIvoire that supply cocoa or

our conectionery business.

Nestl recognises that child labou

is an issue that also concerns other

agricultural commodities. Using our

RISE (Response-Inducing Sustainabil

Evaluation) tool, we have already

made labour conditions assessments

in around 200 dairy arms, covering

production systems that represent

over 70% o our milk supply. In coe

we address the issue o child labour

under The Nescaf Plan. Beyond this,

we will continue over the next two

years to assess a range o social and

environmental actors including child

labour in other commodities supply

chains. This includes assessmentsat arm level and action plans with

suppliers and their supplying armers

We also recognise that, in addition

to individual actions along the supply

chain, companies, governments and

NGOs need to work together to creat

the conditions to eectively address

the root causes o this issue.

International Federation of Red

Cross and Red Crescent Societies

As part o its overall partnership with

the International Federation o Red

Cross and Red Crescent Societies

(IFRC), Nestl has been working

with the IFRC and the Red Cross

Society o Cte dIvoire since 2007,

beginning with a project to construct

and rehabilitate water and sanitationacilities (50 water points and

8 hygiene blocks) or 50 000 people.

A second project in 2009-2010, with

some 10 000 beneciaries, ocused on

access to clean water and sanitation

in the schools o 10 cocoa-growing

villages, as well as participatory

hygiene and sanitary transormation

(PHAST) training or children and

teachers, the establishment o school

hygiene clubs and the training o

50 masons to build amily latrines.

In November 2010, Nestl and the

IFRC signed a new global three-year

partnership agreement to contribute

CHF 2.25 million to water and sanitation,

ood security and emergency relie

initiatives, and to explore cooperation

between Nestl markets and Red

Cross and Red Crescent Societies.

Nestl will also sponsor the production

o the IFRCs fagship publication, the

annual World Disasters Report (WDR).

CHF 1.5 million o the partnerships

unds will be dedicated to urther

developing the school water, sanitation

and hygiene work in Cte dIvoireover the next three years, expanding

it to 55 schools, with 65 water

points and sanitation acilities or

53 000 beneciaries.

Key challenge

Child labour in the

agricultural sector

The International Labour Organization

(ILO) estimates that 132 million

children aged 514 work in agriculture

around the world. In industries such

as cocoa and coee, smallholder

armers ace many pressures. The root

causes o child labour are poverty, low

incomes, inadequate inrastructure

and lack o awareness. In Cte dIvoire,

or example, where we source much

o our cocoa, over 50% o armers

have not had a primary education.

Schools are oten ar rom villages and

where they do exist, lack capacity.

Child labour is unlikely to be totally

eliminated but at Nestl, we can

make a contribution to reducing itsincidence in our supply chain.

As a ounding participant in the

International Cocoa Initiative (ICI),

Nestl is helping to address child

labour and its causes, and improve

access to education. For example, a

new anti-child labour initiative with the

ICI will support 20 communities

53 000beneciaries o water andsanitation acilities at 55 schoolsin Cte dIvoire, through apartnership with the IFRC and theRed Cross Society o Cte dIvoire.

20communities in Cte dIvoirethat supply cocoa or ourFairtrade-certiedKitKatsupported by a new anti-childlabour programme with the ICI.

10 000hectares o old cocoa treesreplaced with varieties thatproduce three times morecocoa beans.

70amilies rom cocoa-armingcommunities given ree healthchecks and dietary advice througa Nutrimovilinormation standset up in Ecuador.

Nestls clean drinking water projects help

to provide facilities wells and hand-pumps

like this one in Ghana.

Schoolchildren in Divo, Cte dIvoire,

where local farmers receive technical

advice and high-yield plantlets through

The Cocoa Plan.


33/45


A farmer in Cte dIvoire

tends to cocoa plants (above)

that were developed using

somatic embryogenesis at

Nestls R&D Centre in Abidjan.

Research andDevelopmentin Cte dIvoire

An agreement with the

Ivorian Government, via

the National Agronomical

Research Institute (CNRA),

to contribute to the renewalo old cocoa plantations has

seen our state-o-the-art

Research & Development

Centre in Abidjan become

a centre o excellence or

plant propagation and a

ocus or our work with

armer cooperatives.

As part o the frst

large-scale cocoa plant

propagation in Cte dIvoire,

our laboratory produceshigh-yielding, disease-

resistant plants via somatic

embryogenesis (SE). By

June 2011, 600 000 cocoa

plants will have been

distributed to about

1245 armers, rising to

1 million plants in 2012.

By promoting best

practice techniques or

harvesting, ermenting,

drying and storing cocoa to

over 30 000 cocoa armers,the R&D Centre will drive a

qualitative improvement in

the cocoa beans supplied

to Nestls actories and

an increase in production

levels. And by replac

10 000 hectares o ol

trees with varieties th

produce three times

cocoa beans, annual incomes are likely to

rom USD 480 per he

to USD 1800.


34/45


Other Nestl armerprogrammes

More than hal o Nestls expenditure

on raw materials goes towards the

procurement o commodities other

than milk, coee and cocoa.

This includes the purchase o ruit,

vegetables, grains and cereals, sugar,edible oils, meat and spices. S

Nestle CSV Summary Report 2010

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