Interview with Samer Chedid, CEO Nestlé Pakistan
Megafarms can improve yields, attract FDI, and reduce carbon footprint
Samer Chedid began his journey in Nestlé back in 1998, as Sales Development Manager in Nestlé Abu Dhabi. He worked in multiple roles in the Middle East, before progressing on to the role of General Business Manager. He later led Nestlé in Ghana as Managing Director, followed by leading the management in Saudi Arabia, taking over the sales and distribution operations in the south. And after that stint, he is now spearheading Nestlé Pakistan as the Chief Executive Office.
Following are the edited excerpt of Mr. Samer Chedid’s the interview with BR Research:
BR Research: With your experience in Middle East and Africa, which market is closer to Pakistan in terms of socio and macroeconomic indicators? What potential do you see here?
Samer Chedid: Being a food and beverage company, we see that the food habits and consumption behavior in Pakistan are much closer to those in the Middle East. Also, the culture is closer to me and maybe that’s also what made it easy for me to integrate quickly into the organization. Then there are similarities with Middle East as well as African terms of demography as all three have a vibrant, young, and growing population. This is something in all three regions to capitalize on whether as an industry or a company or even as the government.
I also believe that Pakistan has digitally connected young generation as well. For this group, it is easier to communicate and innovate because their habits and needs are similar to those trending in the world. Then there is a traditional low-income group where packaged food penetration is still low. This segment is challenged with some nutritional deficiencies, and we try coming up with different nutritious products which we call Popularly Priced Products.
BRR: Lets come to your core business. Where do you see packaged milk heading?
SC: Pakistan is among the top five milk producing countries and it is also a milk loving nation. Around 25 percent of the food expenditure is on milk and milk-based products, which is huge. The challenge is that over 90 percent of the milk that is consumed is loose milk. However, it’s a big opportunity as well not only for packaged food companies but for addressing the nutritional part of consumption as we all knows that loose milk is not safe for human consumption. Punjab Food Authority is bringing in the new pasteurization law which we think is a great step. Though the law is to be implemented by July 2022, the execution has already started, and we see some positive results. I believe the law will have a profound impact on ensuring consumer health and formalizing the informal dairy sector by improving milk yield, livestock’s health and ensuring quality milk supply.
BRR: Do you think that preparation is satisfactory for the pasteurization law to be implemented?
SC: As I already mentioned, we have started seeing some positive steps being taken. But this alone is not going to resolve the challenge. Unfortunately, it’s not a level playing field due to pricing and quality gaps between formal and informal sector. Apart from pasteurization, government should facilitate other interventions to support the transition to formalization. From farmers to consumers to government and investors, everyone will benefit from a growing formal dairy sector.
BRR: What kind of fiscal interventions can reduce the pricing gap?
SC: The most important intervention by the government for removing the pricing gap would be reinstating the zero-rating for the dairy sector. Sales tax on packaged milk is a significant component of the cost for the formal milk sector.
Secondly, taxes and duties on cows and animal feed can be addressed to facilitate farmers, improve availability of high yield cows, enhance quality of milk; thereby positively impacting input cost. This will benefit the farmers and consumers both. Also, it will help the government in formalization of the sector as pricing gap is addressed, create a level playing field and produce jobs and investment opportunities.
BRR: Do you have an example of any other region with minimum pasteurization law that yielded result in terms of foreign investment, revenue generation etc.?
SC: It’s more about a holistic approach. Countries such as Turkey that in the past had mostly loose milk; now has over 80 percent packaged milk in a span of 12-15 years. That is how quick the transition can be. It does not have to be long; certain interventions can yield quick results. Pakistan already has megafarms that are producing 25 to 30 liters per cow versus a normal rural farm producing 3-4 liter per animal. Other solutions could be good quality feed, farm practices, breeds etc. that could speed up the transition; for example, putting in place animal import agreements between governments, and exempting duties on high performing cow’s imports. Further, reduction of duties on imported feed ingredients, farm machinery used for dairy farming, or subsidizing feed (vanda), can also prove to be beneficial. Another aspect would be revision of electricity tariffs for the dairy value chain, similar to the recent power bill relief package for industries. All of this can lead to new foreign direct investments in the country.
BRR: How can we reduce the carbon footprint of the dairy sector?
SC: We all know that agriculture contributes substantially to greenhouse gas emissions in Pakistan, mostly through livestock. Increasing the yield per animal will improve carbon footprint of the sector. This means you can have the same or even more quantity of milk with lesser animals. Also, when you move into a more formal channel and more organized farms, you can educate farmers about good practices across the value chain. However, as long as we remain in the informal and fragmented way of farming it becomes difficult to manage and improve, even though we have many interventions as a company. As an industry I have to say, there has been more than Rs500 million investments to develop rural farming which will take time. But if you have a different approach, you could accelerate the process.
BRR: Let’s pivot to your mode of milk collection. How has Nestlé’s milk collection model changed over the years?
SC: We continue to collect milk from small farmers and have invested heavily in this mode as our objective is to get good quantity and quality milk as well as to support the small farmer. Around 20 percent of the milk produced in the country is wasted because of weather conditions and infrastructure hurdles, even though we try to help as much as possible within the areas that are geographically possible. Megafarms reduce the wastage and are attracting more investors. We try to balance both but the majority of the milk in the country is still coming from small farms. This year as an industry, majority of the Rs100 -120 billion worth of milk came from small and medium farms.
However, megafarms can really help hasten the improvement in yields, attract FDI, bring in good farming practices and reduce carbon footprint. Government can bring in conducive regulations and interventions that can allow megafarms to grow.
BRR: There are two kinds of models: co-operative farming that is followed in India and Netherlands, and the other is megafarm model being followed in Saudi Arabia. Why should Pakistan move towards mega farming and not the other?
SC: Both models can work in Pakistan. The challenge with co-operative farming is that it is very fragmented, and I assume it would be a bigger challenge to bring together millions of farmers. What is important is how all stakeholders are able to benefit from improvements in quality and yield.
BRR: What kind of recommendations do you have for the policy makers to transition towards a progressive dairy sector?
The immediate one would be the zero-rating of the sales tax, so that we can have a breathing space as an industry. And then I would repeat relaxation of duties on cows and the relaxation of duties or elimination of duties on animal feed. Also, government intervention is needed to allow import of cows at scale as well as facilitation for investors to invest in megafarms. Currently, whatever we collect, and produce is mostly sold locally; exports are negligible. The direction should be to make the sector competitive and ready to explore the exporting opportunities for 2-3 billion prospective market in the neighborhood. The ground work is already done: the industry has MNCs, good local companies, and a suitable environment. What Pakistan also needs to address is Foot-and-Mouth Disease (FMD) to enter the international market.
BRR: How much does illicit trade affect you?
SC: It is a big challenge to level playing field as country borders are huge and products are not only counterfeit, but they enter without paying any duties and taxes, negatively impacting government revenues. The government issued Statutory Regulatory Order (SRO) 237 and 437 implemented from 1st July 2019, which has proven to be effective in stopping products coming through informal/grey channels. There are some enforcement issues which are slowly getting addressed by the authorities. However, we require proactive and continuous actions by the government to ensure that the illicit trade is combated.
BRR: Let’s talk about your other businesses: Water. What is your strategy in this segment?
SC: It’s a valued category. Bottled water is available across the world. It is the right hydration for the consumer. So, from a nutrition health and wellness perspective, it is one of the products that we are immensely proud of. Penetration of the category of branded packaged water is however not high and this is where we see the opportunity to grow. We have a very robust home and office system deliveries. We cater to more than a hundred thousand households. Pakistan was the first country where we launched Nestlé Pure Life, and we have continued to innovate with products like Pure Life Active. From sustainability perspective, all our factories are Alliance for Water Stewardship certified, so we’re quite proud of what we do for conserving water in our operations and also providing safe and clean drinking water for the communities that we operate in.
BRR: There is a lot of controversy around PET bottles. How sustainable are these bottles?
SC: There is some misconception regarding PET bottles. PET bottles are 100 percent recyclable. We are in a country where recycling of it is probably one of the highest in the world. Our objective is that none of our plastic ends up in landfill or in oceans, rivers, lakes, and that 100 percent of our plastic is recyclable or reusable. Our Clean Hunza project that got delayed due to COVID-19 will be on track soon where we aim for waste management of 150,000 kgs of plastics annually in Phase I, followed by collection of 50,000 kgs paper packaging (used beverage cartons) in Phase II in the area with an increase of 10 percent annually. We are very proud to be a founding member of Collect and Recycle (CoRe), an alliance between major international and local players in Pakistan with the mission to eliminate packaging waste by enabling formal collection and recycling, while also raising awareness at a mass level.
BRR: How has COVID-19 impacted your business overall? What is your strategy to combat?
SC: COVID-19 pandemic took the world by surprise. It changed the way we live, work, interact and consume food. It touched every aspect of life and activity. And we are no different. But I’m proud to say that Nestlé Pakistan was able adapt to the changing environment and circumstances with agility and compliance mindset. From the beginning, we had three clear priorities. First was ensuring the safety of our workforce. Second was business continuity; we had to make sure we were sustainable because we are a food company, and we have a responsibility towards our consumers during the pressing times of COVID-19. This meant continued production to support our farmers and vendors, uninterrupted supply chain, same quality assurance and adequate availability. And the third was to contribute to the society and offer a helping hand during the global pandemic, by donating 4 million servings of nutritious products to frontline workers and the communities in need.
BRR: Please shed light on Nestlé Pakistan’s creating shared value philosophy? What is Nestlé Pakistan doing in terms of environmental sustainability?
SC: It is our belief that for a company to be able to create value for its shareholders, it must also create value for society. Nestlé Pakistan, as part of its global and local obligations, believes in Creating Shared Value for the communities it works with. Individuals and families, communities and our planet are the three focus areas in which we strive to make a positive difference, contributing to the attainment of UN Sustainable Development Goals.
Our Caring for Water (C4W) initiative undertakes collective approach to help protect shared knowledge and reduce water consumption inside and outside our fence. The initiative has three pillars: Factories, Communities and Agriculture. All of our factories in Pakistan have been awarded Alliance for Water Stewardship Certification with the partnership of WWF Pakistan.
In collaboration with the Agriculture Department, Government of Punjab, we have installed drip irrigation systems on 152 acres with water savings of at least 428 million liters as of today. I’ve already discussed our global goals with respect to plastic packaging, but on the climate change front, an important pillar of our sustainability drive, we believe Nestlé is well placed to help address the challenges.
Agriculture is responsible for 41 percent of greenhouse gas emissions in Pakistan mostly through livestock. With our milk suppliers, we have been inducting high-performing cows, making shed amendments, building biogas digesters, installing solar panels and making plantations for carbon sequestration. We currently have 61 sites that are running on solar power, with 77 commercial dairy farms with biogas digesters and plan to plant 30,000 trees annually nationwide until 2022. Our aim is to ensure the continuity of our own business and those in our supply chain while protecting the wider environment.