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PepsiCo Improves Products, Stabilizes Communities and Helps the Environment

| Friday February 25th, 2011 | 1 Comment

PepsiCo was looking for a way to improve the nutritional quality of the snacks it offers. Its solution will improve the economy of a region and the financial means of 850 families, as well as lessen its environmental impact and stabilize operating costs. And, if that isn’t enough, its effects will ripple outward in less tangible ways like access to better education, less illegal immigration and reduced marijuana production. PepsiCo’s decision to work toward replacing 80,000 tons of palm oil with 40,000 tons of high-oleic sunflower oil (HOSO) has the potential to benefit not only the company and its consumers, but communities and economies in developing countries.

If the program hasn’t begun, how do we know it will reap these rewards? Because PepsiCo has already proven it will through a similar corn purchasing relationship with 300 other Mexican farmers. Stephanie Strom of the NYT reported that the corn program began as a pilot run by the foundation associated with PepsiCo’s Sabritas snack foods division. Now PepsiCo is stepping in, expanding the scope and partnering with the largest development finance provider for Latin America and the Caribbean, Inter-American Development Bank (IDB), to create the Sustainable Agriculture Project.

Signed into Effect
On February 22, in Mexico City, Mexican President Felipe Calderon, IDB Group President Luis Alberto Moreno and PepsiCo Chairman and CEO Indra Nooyi signed the five-year alliance between the snack giant and the bank into being. Over the next seven years, PepsiCo has committed to purchasing 100 percent of the sunflower crop for an estimated $52 million. The company will also invest $2.6 million to support the crop and train the farmers.

As part of a broader partnership, PepsiCo says that the PepsiCo Foundation and the IDB will address many other crucial social issues in the region, including water and sanitation, recycling, youth development, disaster relief and recovery, sustainable agriculture, nutrition and food security. The two entities will also share lessons learned and best practices about sustainability.

The Corn Farmers
During the corn program, farmers told NYT that the guaranteed price for their crop gave them the financial security to secure credit to invest in their farm, eliminated middlemen who dictated when the farmers could plant and how much crop the middlemen would then buy, sometimes not enough to cover initial expenses. This stable price has led to bigger and better crops, money in the bank after the crops were sold – taking away the necessity of some farmers to illegally immigrate to the U.S. or manufacture marijuana to try earn more money – and the beginning of a credit history for some.

Trackable income results in more taxes being paid to Mexico and with a good credit history, farmers could even take out a loan to send their children on to higher education. Some estimate that their output has increased by 160 percent and the farmers’ incomes have tripled during the three years since the program began.

What PepsiCo Gets Out of It
By using local farms, PepsiCo drastically reduced its transportation costs, which lessens its environmental impact, but also eliminates an unpredictable line item on their budget sheet. Corn prices don’t fluctuate nearly as much as transportation costs can due to gas prices and other factors. Other environmental benefits came from teaching the farmers to use the correct fertilizers and safely dispose of pesticide containers, which some farmers had been re-using to store water and other items. Farmers now use the pesticide containers to build fences instead of cutting down trees that are needed to combat soil erosion. For the new program, sunflower crops are known to improve soil quality and require less water to grow, and HOSO is heart healthier than palm oil.

Did You Hear About Nestle and the Indian Cow Farmers?
Although the NYT reports that PepsiCo’s work with these farmers is a “relatively new approach,” this story is strikingly similar to the Nestle story Michael Porter and Michael Kramer related in their 2006 HBR article, Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility, to underscore the importance of the relationship between business and community.

In 1962, Nestle attempted to enter the milk market in Moga, India. The company soon realized that they needed to invest in the cow farmers in order to foster a symbiotic relationship that would benefit both the business and the region. As a result, the community flourished and Nestle received better quality milk. The company was later able to replicate the same success in Brazil, Thailand and several other countries including China.

But, This is Not CSR?
Although Gaurav Gupta, regional director for Asia at Dalberg Global Development Advisors, told Strom that more and more companies are looking to “use their core capabilities for public good rather than simply writing a big check,” in his next breath he called CSR “largely nonsense.”

But, it sure seems like this program is an excellent example of how an integrated business relationship between a corporation and local communities can benefit both while also reducing the company’s environmental impact. And isn’t that pretty close to the definition of corporate social responsibility?

image credit: tradevv.com


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  • Fred

    Regardless whether Gaurav Gupta believes in CSR or not this program is a great example of a large corporation making a business decision that hits all the legs of the CSR stool. As the article points out, 1) Pepsico gains stable commodity pricing and reduces production costs, 2) local farmers and the community benefit on many levels – socially, economically, environmentally, etc.. and lastly 3) not only does the Mexican environment benefit but also those where forests would have been destroyed in the interests of palm production. As palm oil production is proving to be too destructive in such areas as Indonesia and Malaysia just ask Nestle (see WSJ article http://online.wsj.com/article/SB10001424052702304434404575149883850508158.html).

    I so happened to have seen Tim Carey – Pepsico Dir. of Sustainability speak yesterday at the Green Business Summit in Chicago. Playing devils advocate I questioned some of the anecdotes he told. But in spite of what I think this proves that Pepsico continues to move its CSR efforts forward.