Nestlé Rural Development Report 2010 Introduction Opinion Impact Impact of Water Nutrition Responsible Outreach Looking pieces of Nestlé Nestlé farmer sourcing forward factories programmes Nestlé Creating Shared Value and Rural Development Report 2010 Visit the Creating Shared Value site at www.nestle.com/CSV www.nestle.com/CSV Download our summary report Creating Shared This is a summary report. Value and Rural A full online Rural Development Development report is available on our updated Summary Report Creating Shared Value website 2010 at www.nestle.com/csv Table of contents 2 A message from our Chairman and CEO 4 About this report 5 Material issues 6 Global food security and rural poverty 9 Nestlé’s contributions to rural development 10 Overview: Rural impact of Nestlé’s factories and farmer programmes 12 Impact of Nestlé factories on rural development 20 Impact of Nestlé farmer programmes on rural development 32 CSV Advisory Board 34 Challenges and opportunities 36 Nutrition 38 Water Cover: Farmers Jaswinder Singh Accompanying reports and Jasveer Kaur deliver milk to a chilling centre in Nestlé’s milk district in Rajasthan, India. Annual Report 2010 Corporate Governance Report 2010; 2010 Financial Statements Figures highlighted throughout the report The brands in italics are registered with this symbol are tracked as Key trademarks of the Nestlé Group. Performance Indicators and summarised in the Rural Development section of the KPI table inside the front flap. Nestlé Rural Development Report 2010 Introduction Opinion Impact Impact of Water Nutrition Responsible Outreach Looking pieces of Nestlé Nestlé farmer sourcing forward factories programmes Contents Nestlé Creating Shared Value and Rural Development Report 2010 Introduction 3 Rural Development Key Performance Indicators 3 A message from our Chairman and CEO 5 Opinion pieces 7 Global food security and rural poverty 7 Reducing poverty 16 Nestlé’s contributions to rural development 18 Impact of Nestlé factories 23 Milk 29 Coffee, cocoa and other commodities 32 Impact of Nestlé farmer programmes 36 Milk 39 Coffee 45 Cocoa 54 Other commodities 61 Water and rural development 68 Nutrition and rural development 76 Responsible sourcing 81 Outreach 87 Looking forward 89 Assurance statement 91 www.nestle.com/CSV 2 Nestlé Rural Development Report 2010 Introduction Opinion Impact Impact of Water Nutrition Responsible Outreach Looking pieces of Nestlé Nestlé farmer sourcing forward factories programmes Introduction Rural Development Key Performance Indicators Nestlé has developed performance indicators to provide a focus for measuring and reporting Creating Shared Value, sustainability and compliance. This summary of KPIs of relevance to rural development is taken from our full KPI table, which forms part of our communication of progress on the United Nations Global Compact Principles. Unless stated otherwise, performance indicators are for the year ending 31 December 2010. Creating Shared Value key performance indicator 2009 2010 Rural development Farmers trained through capacity-building programmes 165 500 144 900 Markets covered by Sustainable Agriculture Initiative Nestlé (SAIN) programmes 35 45 Direct procurement markets covered by SAIN programmes (%) 89 100 SAIN projects associated with water 10 12 Suppliers audited for food safety, quality and processing 3 864 3 345 Suppliers who received and acknowledged the Nestlé Supplier Code 165 497 164 969 Key vendors within scope of the responsible sourcing audit programme (a) N/A 1 481 Key vendors covered by a responsible sourcing audit (%) (a) N/A 66 Key vendors audited and compliant with Nestlé Supplier Code (%) (a) N/A 56 Quality key suppliers approved through vendor approval process (%) (a) N/A 61 (a) New in 2010. www.nestle.com/CSV 3 Nestlé Rural Development Report 2010 Introduction Opinion Impact Impact of Water Nutrition Responsible Outreach Looking pieces of Nestlé Nestlé farmer sourcing forward factories programmes Rural development impact of Nestlé’s factories 422 factories 195 factories 144 rural2 51 urban responding to in developing factories in factories in survey1 (%) countries (%) developing developing countries (%) countries (%) Sourcing from local/national supplier: Milk 28 33 38 22 Coffee 13 16 17 16 Cocoa 16 19 22 14 Training programmes in past five 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 past five years: Provided clean drinking water to local community 30 33 32 35 Contributed to local educational facilities 53 57 58 55 Invested in other local infrastructure 33 39 41 33 Nestlé-built water treatment plant 53 67 70 59 1. Based on survey conducted in autumn of 2010. Questionnaires were sent out to managers of Nestlé factories. 422 responses were received from 443 factories (95%). When calculating these figures, 21 factories were discounted: eight dairy factories in Latin America are joint ventures with Dairy Partners America; 10 factories were opened or acquired in 2010 and are not yet fully functional; and the responses from three pharmaceutical factories were not considered relevant to the CSV Report. 2. Our factories are defined as “rural” if: they were originally located in an area defined as rural by national statistics concepts; they are located in an agricultural region; they are not located in or within 5 kilometres of a large centre of population (above 100 000 inhabitants). Factories where the number of farms or other entities that directly supply our facilities with commodities exceeds the number of factory employees – such as our dairy factories – are also categorised as having a significant rural development impact. Using these criteria, 60% of our factories are in locations defined as “rural”. www.nestle.com/CSV 4 Nestlé Rural Development Report 2010 Introduction Opinion Impact Impact of Water Nutrition Responsible Outreach Looking pieces of Nestlé Nestlé farmer sourcing forward factories programmes A message from our Chairman and CEO It is our firm belief that, for a company to be successful over time and create value for its shareholders, it must also create value for society. We call this “Creating Shared Value”. Based on strong foundations of compliance and sustainable business practices, this is our basic way of doing business. Given the nature of our activities and our ambition to be the world’s leading Nutrition, Health and Wellness Company, we have identified three areas where Nestlé can in particular optimise the creation of shared value: nutrition, water and rural development. In this report, we will focus specifically on rural development, which is one of the most important drivers of global development. With an estimated 70% of global poverty concentrated in rural areas, investment in building agricultural capacity Nestlé Chairman Peter Brabeck- is crucial, as the world additionally faces the serious challenge of providing food Letmathe visits the Reta Grande security for growing populations. Indeed, global poverty reduction efforts must dairy farm in Brazil, where Nestlé focus increasingly on rural development. provides technical assistance and advice on farming best practice. Nestlé has been engaging with farmers and rural communities since its inception over 140 years ago. As early as the 1920s, we were building factories in rural areas in Brazil and South Africa; and creating milk districts to supply them. Today, we deal directly with nearly 600 000 farmers worldwide, affecting the lives of millions more by helping to create better living conditions for them – for example by establishing milk districts in over 30 countries, training farmers in animal husbandry, water and feed techniques; and extending about USD 45 million in financial assistance in 2010. Today, we have 443 factories all over the world. Most of them are in rural areas and more than half are in developing countries. We have long been aware that they are magnets for development, creating a large skilled labour force in rural areas, but also educating small business operators who supply our factories, as well as facilitating the building of infrastructure such as roads and water treatment systems. Specifically in 2010, we made significant new commitments in rural development. In addition to new factory investments in Indonesia, southern Chile, India, the Philippines, Sri Lanka, Mexico, Ghana and Equatorial Africa, we launched The Nescafé Plan, with substantial investments in coffee-growing regions worldwide. The Nescafé Plan takes a holistic approach to farming which includes: • doubling the amount of coffee bought directly from farmers to 180 000 tonnes over the next five years; • sourcing 90 000 tonnes of coffee according to Rainforest Alliance and Sustainable Agriculture Network principles by 2020; • distributing hundreds of millions of high-yield coffee plantlets in order to raise quality and hence revenues to farmers. www.nestle.com/CSV 5 Nestlé Rural Development Report 2010 Introduction Opinion Impact Impact of Water Nutrition Responsible Outreach Looking pieces of Nestlé Nestlé farmer sourcing forward factories programmes The Nescafé Plan follows closely in the footsteps of The Cocoa Plan, where we are: • working closely with cocoa-farming communities, particularly in West Africa and South America, to improve their livelihoods, including access to schools for their children; • putting our plant science expertise to work and distributing millions of high-yield, disease-resistant cocoa plantlets. Together, The Cocoa