Tag: Nestle

OM in the News: Why Chocolate Prices are Soaring

Starting the end of 2024, chocolate makers that sell or produce in the EU will have to show that the cocoa they use wasn’t grown on land cut from forests since the end of 2020, reports The Wall Street Journal (May 20, 2024). In practice, it means that each morsel of cocoa that makes its way into the bloc will need to be linked to the GPS coordinates of the farm where it was harvested. Because the EU is the world’s largest chocolate market, the law will also apply to global confection giants like U.S.-based Mars, the maker of M&M’s, or Switzerland-based Nestlé.

A farmer cuts a cocoa pod to collect the beans inside in Ivory Coast

Ivory Coast, the world’s no. 1 cocoa producer, has mapped 80% of the country’s 1.55 million cocoa farms. Failure to map all  farms could take more beans out of the market, worsening current shortages. Farmers have traditionally responded to cocoa shortages by clearing forests to make way for more farmland. That’s not an option under the new EU legislation.

The EU initiative is part of a growing movement (see Supp.5) to make raw materials—including agricultural products and minerals used in smartphones and electric cars—traceable, with the goal of reducing the potential harm they inflict on the environment and local populations.

Ivory Coast was once covered in dense rainforest. But over the past 60 years, 90% of the country’s forest cover has disappeared, making it one of the countries with the highest annual rates of deforestation in the world.

For consumers, the EU law couldn’t have landed at a worse time. Unseasonable weather as well as cocoa-tree diseases have hit harvests across West Africa, the source of 70% of the world’s cocoa beans. Stockpiles this season are the lowest in 45 years, as demand outstrips supply for a fourth consecutive season. Prices for cocoa recently touched a record high of nearly $11,500 a ton, about four times as high as they were a year ago.  Those increases will come on top of a 12% rise in the price of U.S. chocolate candies in 2023 and a 14% increase in 2022.

In times of high prices, companies also often shrink the size of their products or tweak recipes to use less cocoa.

Classroom discussion questions:

  1. What are the advantages and disadvantages of this EU plan?
  2. What options do supply chain managers at Marrs and Nestle have?

OM in the News: Nestlé Tries to Tackle Big Food’s Plastic Problem

Nestle just pledged to cut its use of plastic made from fossil fuels by 1/3 in 5 years and said it would invest $2 billion to find more recycled material, a particularly big challenge for the food industry. Sellers of everything from soap to soft drinks are under pressure from consumers and regulators to use less fossil-fuel-based plastic, as well as prevent plastic trash ending up in the ocean. In response, some big consumer-goods firms, like P&G and Unilever, have rushed to promise reductions in plastic, saying they will switch to recycled material, use refillable containers or scrap packaging entirely.

But changing to recycled plastic is especially challenging for companies that need high-quality material that is safe for direct contact with food, writes The Wall Street Journal (Jan. 16, 2020). Recycling the packaging typically used for coffee, instant noodles or candy bars is difficult and expensive because it is often made from multiple types of material, like plastic melded with aluminum or paper. Sellers of fresh food also rely on plastic film—used to wrap cucumber and broccoli—and thin plastic bags for loose items, that often can’t be recycled.

Even when plastic is technically recyclable, it often isn’t collected and recycled. That is partly because, until recently, there has been little demand for recycled plastic, so even highly recyclable plastic—like drinks bottles—leak into the environment. Nestlé’s target of reducing the 1.67 million tons of plastic it uses is a challenge. Just 2% of its plastic packaging is currently made from recycled material.

To date, there is almost no market for the hard-to-recycle material often used in food packaging. Recycling efforts are being further challenged by China’s ban on scrap imports. For decades, the country took many of the world’s recyclables and turned them into new products. Its absence from the market has hit demand and raised costs for municipalities, propelling some to scrap their recycling programs entirely. This important topic is discussed in detail in Supp. 5 in your text, Sustainability in the Supply Chain.

Classroom discussion questions:

  1. Why has China reversed its position vis a vis importing plastics?
  2.  What suggestions do students have for dealing with this serious issue?

OM in the News: Nestle’s Shifting Warehouse Model

Nestle  will lay off about 4,000 workers as it stops delivering frozen pizza and ice cream directly to stores and instead transitions to a warehouse model that’s becoming an industry standard for Big Food companies looking to trim costs. The company is shutting down its direct-to-store delivery network for products like DiGiorno and Skinny Cow. The change means the elimination of an operation that now includes 230 facilities, 1,400 trucks and 2,000 different routes. The firm was able to reduce costs but ultimately, the direct-to-store model was too expensive, reports Material Handling & Logistics (May 8, 2019).

Shipping directly to grocery stores used to be more common, as it gave suppliers like Nestle eyes on the store and helped them quickly get products to shelf. But as companies look to cut costs, it often makes more sense to ship to warehouses. Nestle USA already uses the warehouse model for its frozen meals and snacks. Nestle isn’t concerned with losing space to sell its products without its own delivery people in stores. “Every inch of the freezer is controlled very tightly,” said the CEO. “As retailers have become more sophisticated, as the retail industry has consolidated some, that bit of Wild West where you could kind of move and push your competitor to the side, that’s not the case anymore.”

In 2017, Kellogg announced plans to eliminate 1,200 distribution jobs as it exited direct-store-delivery as part of a bid to cut costs. That means the company is relying more heavily on retailers to put its products on shelves. Snack giants Mondelez International and PepsiCo’s Frito-Lay both still rely on “DSD,” arguing it helps boost sales to have employees in stores stocking products..

Classroom discussion questions:

  1. What are the advantages and disadvantages of DSD?
  2. What has changed in the retail industry that allowed Nestle to make this move?

OM in the News: Human Rights Abuse Investigated by Nestle

Most of Thailand's seafood workers are migrants brought in illegally by traffickers
Most of Thailand’s seafood workers are migrants brought in illegally by traffickers

The seafood industry in Thailand suffers from widespread labor and human rights abuses, exposing virtually all American and European companies that buy seafood from there to the “endemic risk” of having these problems as part of their supply chain, according to a report just released by the food giant Nestlé. The report cataloged deceptive recruitment practices, hazardous working conditions and violence on fishing boats and in processing factories. It also faulted the industry for taking insufficient steps to ensure that workers were not underage. (Nestle had been sued in August, with the claim that its Fancy Feast cat food was the product of forced labor, reports The New York Times–Nov. 24, 2015).

Most of Thailand’s seafood workers are migrants from neighboring Cambodia or Myanmar; they were provided fake documents and often sold to boat captains. On fishing boats, these workers routinely faced limited access to medical care for injuries or infection; worked 16-hour days, 7 days a week; endured chronic sleep deprivation; and suffered from an insufficient supply of water for drinking, showering or cooking. “Sometimes, the net is too heavy, and workers get pulled into the water and just disappear,” one Burmese worker said. “When someone dies, he gets thrown into the water.”

Workers sometimes went a year before receiving any wages, and some faced physical and verbal abuse if they did not meet production quotas. Nestlé said that next year it would announce new requirements for all potential suppliers as well as the details of a plan for hiring auditors to check for compliance with new rules. Because Nestlé is the world’s biggest food company, it is seen as a leader in the industry, and could have a positive impact on the whole industry by raising the bar on labor protection.

Classroom discussion questions:

  1. Why did Nestle issue this report?
  2. What can be done to stop worker abuse?