Nestlé plans to reduce prices by dealing directly with farmers

Nestlé, the largest food and beverage company in the world, has started contract farming in Malaysia.  Last March, Tesco contract-farmed its prawns, cut off the middleman, thereby lowering the price. A price drop is so unheard of these days that when it happened, there was some disbelief. Tesco had repeat customers and the average prawn price dropped further.

Yong Lee Keng, Manager for Agricultural Services, said Nestlé chose this region because it wanted to go into the lesser-developed places and provide opportunities to farmers there. Contract farming provides local farmers with a steady income, while allowing companies like Nestlé to control practices right from the farm level.

Yong claims price isn’t the sole benefit of contract farming.  "This allows us to look at food safety and monitor the food 'from the farm to the fork.' We can control the amount of pesticides used and how it’s sprayed and so on. We can also make sure the environment is not harmed by taking care of the waterways and ensuring the proper disposal of pesticide canisters," Yong added.

Similarly, Tesco used to source their fresh produce from wholesalers, but when it realised product quality could not be controlled, it got farmers to plant according to its specifications. Now, 20 to 25% of Tesco's fresh produce including poultry, fruits, vegetables and meat, are contract farmed.

Yong said Nestlé was the first to start contract farming in 1985 when they decided to stop buying chillies for their famous Maggi Chilli Sauce from wholesalers: "When the price was high, the wholesalers would not deliver to us and when the price was very low, they would dump the chillies on us. It was then that we decided to implement the first ever contract farming.'