A Path to Prosperity New Directions for African Livestock

Box 7 Contract Farming – Case Studies
Nestlé Milk Procurement and Farm Assurance Schemes
Milk marketing has been at the core of Nestlé’s business interests since 1866. After expanding
through Europe and the USA, Nestlé started businesses in South America and the Caribbean from
1921 and in Asia from 1961. Globally Nestlé purchase five million tonnes of milk daily, primarily direct
from farmers. The company is very aware that small-scale milk producers have competitive
production costs and thus, if organized, have the potential to compete with large-scale,
capital-intensive “high-tech,” dairy farming systems in developed and developing countries.
Over the decades the company has come to understand that the challenges of buying direct from
small farmers vary with the level of development of the country. For example, in middle income
countries where production of livestock is rapidly increasing along with demand, there is greater use
of agro-chemicals, whilst effective regulation of their use is still weak. The company therefore invests
in developing monitoring schemes for contaminants in raw materials, often in close collaboration
with the authorities. In least developed countries, where the purchasing power of the population is
limited and farmers are still producing for informal markets, more emphasis is placed on supporting
farmers to achieve good agricultural practices. Less emphasis is required on contaminants in milk,
but there may be more feed contamination e.g. mycotoxins due to poor storage conditions.
To manage challenges, Nestlé have developed five key tools:
1 Quality control schemes, including monitoring of contaminants
2 Specifications for acceptance and rejection of raw materials
3 Farm quality assurance schemes
4 Supplier assessment and selection
5 Supplier education and development
In Pakistan, for example, Nestlé works with farmers in 3000 villages over an area of 70,000km 2 with
each farm providing on average 10kg of milk per day. Nestlé is responsible for the collection and
processing of the milk and employs a further 2000 people in that process. The company also works
with the farmers to increase their expertise and has recorded increasing yields per farm. These have
increased significantly over the past decade, obliging Nestlé to open a new milk processing plant 132 .
The Impetus Strategy Paper I Page 47