September 2012, updated September 2012
One of the pillars of Nestlé’s Creating Shared Value initiative is Rural Development and among the activities undertaken by the Company includes Contract Farming initiatives. This is carried out when there is a need to procure specific quality and regular source to ensure reliable delivery of locally grown agriculture raw materials. Where available and economically feasible, Nestlé sources raw material needs locally and also helps boost the income levels of farmers and promote Good Agricultural Practices (GAP).
QUALITY GRAINS: A traditional red rice farmer in Sarawak, Malaysia, sieves through his crop.
Nestlé’s red rice cultivation was officially launched in October 2007. In 2008, Nestlé Malaysia signed agreements with the Malaysian Agricultural Research and Development Institute (MARDI) for a formal research and development (R&D) collaboration for agriculture, and a Memorandum of Agreement (MoA) for the management and implementation of the Ministry of Science Technology and Innovation (MOSTI) Red Rice Technofund. Full contract farming is in place involving more than 500 farmers, and covering some 350ha of farmland in Sarawak’s 1st Division for Red Rice.
Nestlé’s chilli contract farming scheme was established in Kelantan in 1995. Field demonstration and trainings are organised to focus on increasing productivity, reduce farm costs, minimise environmental impact and enhance farmer work safety. A chilli puree factory has been set up to process fresh chilli in times of overproduction, and thereafter to supply to Nestlé. Nestlé will continue to work closely with the Farmers Association and the farmers to improve their yield and quality of crops to meet global standards.
The Chilli Contract Farming scheme has won the Prime Minister’s Award for Socio-Economic Development; the farmers were accorded the respected and acknowledged SALAM accreditation for excellence in Malaysian farming practices.
SALAM certification is the official recognition that Good Agricultural Practice (GAP) is implemented and abided by. The SALAM accreditation for produce in the local community, is thus a significant testament to the quality of the produce as well as a reflection of the agricultural practices in place, and embodies the principles of Total Quality Management from farm to fork. The SALAM accreditation is also a pre-requisite to the ‘Malaysia Best’ label which was introduced by the Malaysian Ministry of Agriculture to distinguish and identify the best agricultural products in Malaysia, and is a certification that is recognised both locally and internationally; assuring consumers that the product is of international quality and standards.
Value to Society
The contract farming scheme helps to create new and sustainable income opportunities for the poor farmers with an average income of less than RM650 (USD$212) a month. Through the contract farming schemes, the farmers can now earn on average, a net income of US$2,190 per season (6 months), which works out to US$365 per month.
Value to Nestlé
As of 2012, the Chilli Contract Farming scheme has 112 farmers and has a yield of 224MT of fresh chillies over 112 hectares of land.
For the Red Rice Contract Farming scheme the average yield is between 1.5MT to 2MT per hectares.
The chilli contract farming has consistently shown good progress in terms of number of participating farmers and yields. The procurement of chilly supply from the contract farming scheme is ongoing, and will depend on the local market demand to produce MAGGI products.
Due to technicalities, the red rice farming was under a consolidation phase for most of 2011 with only a modest 120 hectares planted over two seasons. Of the total output of 160MT, Nestle took in 100MT, with the balance retained by farmers for future seed source, their own consumption (actively encouraged by Nestle as red rice is very nutritious) and also for their own small sales (which fetched good prices at local bazaars).