A Global Outlook on Sustainability in the

Dairy Production

VII CONGRESO COOPERATIVAS AGRO-ALIMENTARIAS

Valencia, 27 February 2015

Hans Jöhr

Head Corporate Operations Agriculture

Content Part I:

•The challenge to feed the world

•Urbanization and changes in consumption pattern

•The battle for resources and the make up of waste

•The role of livestock in feeding future generations

Part II:

•Sustainable Agricultural Initiative at Nestlé

•Driving for sustainable dairy at Nestlé (various examples)

•Developing the next generation of dairy farmers

•Summary

Nestlé Corporate Agriculture 5 March 2015 2

Feeding 9+ bio people by 2050 – threats or opportunities?

Policy interventions

Water Management Technical Assistance

Nestlé Corporate Agriculture

Soil fertility Energy pricing Breeding

5 March 2015 3

Changes in consumption pattern

5 March 2015 4

Projected increase 2006 - 2030 / 2050

• Developing countries 27 / 46 (%)

• Developed countries 6 / 10 (%)

• World 11 / 19 (%)

Milk and Dairy Consumption Trends

Developing vs Developed World

(kg

/pe

rso

n/y

r)

Regions

(kg

/pe

rso

n/y

r)

Nestlé Corporate Agriculture

Projected increase 2006 – 2030 / 2050

• East Asia 48 / 68 (%)

• South Asia 32 / 63 (%)

• Latin America/ Caribbean 15 / 25 (%)

Source: FAO, 2012. World Agriculture Towards 2030/2050, Rome

Changes in consumption pattern due to urbanization – the case of China

0

5

10

15

20

25

Pork Beef Poultry Eggs Milk

Urban vs. Rural per capita consumption (kg)Source: China Statistic Yearbook

Rural Urban

3.5

15.418.3

22.626.0

29.2 31.3

05

101520253035

Rural Low income

lower middle income

middle income

upper middle income

high income

highest income

Urban

Per capita milk consumption China (kg)Source: China Statistic Yearbook

• Large urbanization process (urban>rural

pop.)

• Additional 300 - 400 mio people will

move to urban areas in the next years

• Change in consumption pattern due to

fast economic development and

urbanization

• Milk consumption in urban

areas increases with the level

of income

• Avg. milk consumption:

• Urban 15.5 (kg/yr)

• Rural 3.5 (kg/yr)

Nestlé Corporate Agriculture 5 March 2015 5

A strong demand for milk in China

Can China produce

642’000 new dairy cows

per year?

Can the world market

deliver up to 642’000 new

dairy cows per year to

only serve China?

3.85 Mio tons = 12’350 cows/week

13 20

37

64

year

27

27 Mio tons of milk over 7 years

27 Mio tons = 7 year

3.85 Mio tons = 1 year

3.85 Mio tons = 642’000 cows/year

(6 tons milk/cow)

55.8 Mio MT corn

1 Mio MT hay

80 Mio MT corn

6 Mio MT hay

Nestlé Corporate Agriculture 5 March 2015 6

2012

37 Mio MT milk

Milk Milk

2020

64 Mio MT milk

Milk Milk

5,000 Liters/cow 7.5 Mio lactating cows

6,000 Liters/cow 10.7 Mio lactating cows

Milk price and feed price dev. 2006 – 2013

5 March 2015 7

USD/100 kg Milk (ECM)

Source: International Farm Comparison Network (IFCN); ECM: Energy Corrected Milk

Years

(start 2006)

USD/100 kg Concentrate Feed Mix

0

10

20

30

40

50

60

70

6 7 8 9 10 11 12 13

0

10

20

30

40

50

60

70

6 7 8 9 10 11 12 13

Nestlé Corporate Agriculture

Source: World Trade Atlas 2013 & Bloomberg

UAE

14%

HAY

EXPORTERS

Japan

44%

China

9%

S. Korea

19%

Aus.

28%

USA

51%

7%

6%

Global hay trade 2012

HAY

IMPORTERS

Nestlé Corporate Agriculture 5 March 2015 8

Source: HighQuest Partners, USDA and Earth Policy Institute

0

20

40

60

80

100

120

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

Global Pork Consumption (1961 to 2012)

Mill

ion

To

ns

1961

1967

1973

1979

1985

1991

1997

2003

2009 0,0

10,0

20,0

30,0

40,0

50,0

60,0

19

75

19

78

19

81

19

84

19

87

19

90

19

93

19

96

19

99

20

02

20

05

20

08

20

11

China

USMill

ion

To

ns

Pork Consumption in China & US (1975 -2013)

1975

1981

1973

1987

1985

1993

1997

1999

2005

20

11

Pork consumption in China

5 March 2015 9 Nestlé Corporate Agriculture

*2013 based on actual Q1 2013 figures x4.

-

500.000

1.000.000

1.500.000

2.000.000

2.500.000

3.000.000

3.500.000

4.000.000

4.500.000

China’s Soy Imports

6 yrs (1993-1998)

Ton

s

-

100.000

200.000

300.000

400.000

500.000

600.000

700.000

*

Ton

s

China’s Hay Imports

6yrs (2008- 2013)

Source: FAO, USDA & World Trade Atlas (June 2013)

Shall China import soybean and hay / meat and milk?

Nestlé Corporate Agriculture 5 March 2015 10

Rising imports of feed corn – rethinking self-sufficiency?

5 March 2015 11

Financial Time, Sept. 2013

2011 12 14 13 15 16 17 19 18 21 20 22

0

5

10

15

20

Chinese corn imports

(Forecast in million tons)

0 2 4 6 8 10 14 16 12

Taiwan

Japan

South Korea

Mexico

EU

China

Egypt

Iran

Colombia

Malaysia

The world biggest corn importers

(2013/14 forecast in million tons)

Nestlé Corporate Agriculture

The makeup of food waste (1/2)

Source: Lundquist et al. 2008

Field Household

1000

2000

3000

4000

Edible Crop

before Harvest

4600 kcal

Harvested crop

4000 kcal

Meat / Dairy

2800 kcal Food

consumed

2000 kcal

2600

kcal

5 March 2015 Nestlé Corporate Agriculture 12

The makeup of food waste (2/2)

Source: Source: H. Charles, J. Godfray et al. 2010

0 100

Developing

Countries

UK

USA

20 40 60 80

On-Farm Transport /

Processing

Retail Food

Service

Home and

Municipal

5 March 2015 Nestlé Corporate Agriculture 13

PEOPLE

LAND

WATER

ENERGY

CLIMATE

To ensure supply we have to smarter use natural

resources by

• Not wasting

• Not polluting

• Not destroying

and a good start is eradicating the worst and

promoting better

Sustainable Agricultural Practices.

Producing more food from the same area of land

while reducing the environmental impacts requires

what we call “Sustainable intensification of

Agriculture”.

Sustainable Agriculture Initiative Nestlé (SAIN)

NO FOOD WASTE

14 Nestlé Corporate Agriculture 5 March 2015

SAIN support instruments in Farmer Connect

5 March 2015 15

Financial Support

Schemes • Pre-financing

• Investment credits

• Bank guarantees

Technologies • Fodder/feed production &

conservation, planting material

• Animal health and welfare

• Biodigesters, irrigation

Economy of Scale • Bargaining power

• Price reductions through scale effects in procurement of agricultural inputs

Market Access and Price Stability • Organisation of Supply

Chain, Logistics

• Transparent pricing schemes and improve price stability

Education, Training & Extension • Good agricultural practices

• Standards (e.g. 4C, Utz, Rainforest Alliance, Organic)

• Vocational schooling, further education, agripreneurship

Nestlé Corporate Agriculture

Developing the next generation of farmers

Agripreneurship as a rural

development concept that…

• Focusses on developing

progressive farmers in rural

entrepreneurship

• Dairy farmers

Agripreneur Skills

* an agripreneur is and entrepreneur whose main business is in farming related activities

Nestlé Corporate Agriculture 5 March 2015 16

Expected outcome of Agripreneurship

• Social and economic benefits: Economically challenged agripreneurs are

providing their families nutritious food that is affordable, medical care and

schooling for their children

• Net income: They are selling their quality produce generating income and free

cash flow to sustain their family and grow their business

• Sustainability: Agripreneurs are learning and embracing sustainable farming

methods, and becoming players in the cyclicity of the agripreneurship system

• Next generation farmers: Farmers enabled to cope with future challenges of

sustainable farm development and production of raw materials such as cocoa

and coffee

Nestlé Corporate Agriculture 5 March 2015 17

Nestlé Dairy Farming Center, Shuangcheng

Nestlé Corporate Agriculture 18

The Nestlé Dairy Farming Centre (DFC) shall become

a center of competence that addresses the need of

creating the required human resources of trained farm

staff, dairy professionals and farm managers.

The center consist of:

• The Dairy Farming Institute (DFI)

teaches the theory and links up with

farm equipment and service

providers.

• Dairy Farms teach the practice;

students and professionals work on

the farms and get trained on

practical matters.

Opening 2014

5 March 2015

Nestlé supports self-sufficient agricultural school model in Paraguay

Self-Sufficient Agricultural Schools combine the teaching of traditional high

school subjects with high-quality technical and business training through a

hands-on education approach.

Nestlé Corporate Agriculture 5 March 2015 19

Business and practical skills are taught to

run profitable small businesses.

The school enterprises generate enough

income to cover the school’s operating costs

ensuring the affordability of education and

long-term financial sustainability.

This entrepreneurial model gives a platform

for students to lift themselves out of poverty.

Partner: Fundación Paraguaya

Opening 2013

Summary

• Dairy farmers shall become true agripreneurs, that are business orientated

and do farming by choice;

• Dairy farmers operate business models that make efficient use of resources

be it human or natural renewable resources;

• Dairy farmers are aware of the sensitivity of their produce and comply with

global safety and quality standards.

5 March 2015 20 Nestlé Corporate Agriculture

Dairy farmers produce a precious, high grade raw material with a

excellent nutrient composition for human consumption at all ages!

¡Siéntete orgulloso de ser un productor de leche!

Nestlé Corporate Agriculture 5 March 2015 21