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Nestlé China – Creating Shared Value through Fresh Milk Procurement


Nestlé’s Shared Value Initiative

Around the world, Nestlé has taken the approach of working with farmer suppliers in its agricultural raw materials sourcing. Through training and technical assistance, all free of charge and on a long-term basis, Nestlé agronomists help the farmers to constantly enhance both quality and yield of the raw materials. In return, Nestlé buys the products directly from the farmers at a competitive price. The outcome is win-win-win: farmers have acquired a steady source of income; local communities have prospered from the business activities; while Nestlé has secured a reliable supply of quality materials which are the basis to delight consumers with tasty, healthy and nutritious products.

As one of the earliest foreign enterprises to invest in mainland China, Nestlé had the opportunity to apply this Creating Shared Value model in fresh milk sourcing by building its first milk district, in 1987, in Shuangcheng in Northeast China’s Heilongjiang Province. Following Shuangcheng, Nestlé has built two other milk districts, one in Laixi in Shandong Province and the other in Hulunbeir, Inner Mongolia.

Since several years ago, especially after the melamine crisis in 2008, China’s dairy industry has embarked on accelerated and unprecedented transformation from the traditional small farmer to modern and scale farming. As a result, a host of new challenges have emerged, such as farm efficiency, environment impact, disease control. There has been a significant lack of expertise in managing these new farms.

In support of a healthy and sustainable transformation, Nestlé decided to build a dairy farming institute (DFI) in Shuangcheng in October 2014. Consisting of a training centre, three farms and various laboratories, and through a partnership with top universities and leading companies in the dairy value chain, DFI is able to offer world-class training and on-farm practice to around 700 farmers and dairy professionals annually. Since it is open to the entire industry, the DFI is uniquely positioned to support this transformation and be part of the solution to the challenges faced by the industry.

Shared Value for Business and Society

For the past two decades, 30,000 farmers in the Shuangcheng milk district received training by Nestlé agronomists. Shuangcheng which had no tradition of dairy farming prospered on dairy and became the “largest dairy cow county in China”. Over 200,000 local residents benefited directly and indirectly from dairy farming. On the other hand, Nestlé was able to secure a reliable supply of safe and quality milk, a factor that has proved to be extremely important for the consumers amidst various food safety concerns.

The DFI has elevated Nestlé CSV commitment to a new high. DFI creates Shared Value for different stakeholders, from the government, the industry, and the local Shuangcheng community, to farm owners, small farmers, and Nestlé. For the government and the industry, DFI helps to set standards for the transformation. For farmers and farm professionals, DFI provides needed guidance. For Nestlé, DFI earns the respect, the trust and the goodwill that are critical to the long-term business success in this market. It positioned Nestlé as a contributor to the current transformation as the company was widely regarded a pioneer for building the Shuangcheng milk district some 30 years ago.