SIX DECADES OF NESTLE MOGA (INDIA) MILK PLANT 2: DEVELOPING ANCILLARY ENTERPRISES
In the context of the narrative denigrating corporate/private sector by farming, political, academic, and bureaucratic circles of Punjab, Part 1 in this series examined how Nestle has consistently provided competitive milk prices and several free services (which the much vaunted Government Cooperative Sector does not provide) to 90 thousand households in 1900 villages spread over 25% area of Punjab, and full time employment to 2,400 persons from Moga area. This Blog analyses how the global food major has indirectly contributed to Punjab economy by developing ancillary enterprises which employ another 86,000 persons. From the beginning in 1961 Nestle focussed on getting raw materials locally instead of imports. By 1982 the only imports were of proprietary lactose, vitamins, and enzymes, constituting 0.03% of the total purchase value.
PARAS SPICES PVT. LTD MOGA (Photo 1)
Pioneering ‘Indianization’ food recipes such as Maggie Masala, Nestle has opened new opportunities for spice producers, processors, and suppliers. One example is transforming a small mom-and-pop store into the biggest Indian supplier of spices, herbs, chicory, and speciality ingredients to major global brands in 15 countries with an annual processing capacity and turnover of more than 12,000 tons and Rs 500 crores, respectively. Starting with an emergency purchase of 2 kg turmeric in 1982, Nestle developed a mutually re-enforcing partnership with the family business. Paras adopted Nestle’s business model and the global best practices, streamlining fragmented and geographically scattered spices supply chain of heterogenous quality into a compact high quality value chain. Phenomenal growth of the company was supported by Nestle’s know-how, technical assistance, financial support, and assured market, particularly during the formative years. Paras now provides technical backstopping and procures chilli and spices from 40,000–45,000 small holders in south, west and north-west India.
Capitalizing on the mounting demand, it has started chicory cultivation by 500 farmers around Moga. Different units of Paras employ more than 500 persons, 90% from Moga area. It has also set up a manufacturing factory at Pantnagar. By developing state-of-the-art infrastructure (Photo 2 and 3), meeting stringent global quality standards, and consistently adopting good management practices, the former mom-and-pop Karyana shop in Moga is now a successful mini-conglomerate.
BRAR ENTERPRISES LTD (BEL) BAGHAPURANA
Starting as a small trucking company, BEL has been transporting milk for Nestle since 1961. Responding to Nestle’s requirements, expectations, and standards, the company has markedly expanded and modernized its equipment and technology. Over the years Nestle has raised the business practices of BEL to a much higher level than its competitors. Brar’s reputation for providing high quality and reliable services has opened doors for additional work with local and multinational companies, including Nestle’s competitors. With technical assistance and mentoring by Nestle, Brar has expanded to new areas like packing sachets, dairy creamers, and pasta. For ensuring compliance with its stringent requirements, for several years Nestle maintained an office within Brar Enterprises. At the same time, it encouraged Brar to explore commercial ventures with other companies.
CATTLE FEED SUPPLIERS
Before the arrival of Nestle in 1961, supply of cattle feed as an organised business activity was unknown in Punjab. Together with PAU, Nestle developed and refined the formula for feed concentrates to provide balanced diet to dairy animals. For manufacturing concentrated feed, a mustard oil production company, P. Marka, was encouraged to enter cattle feed business. The feed was procured in bulk, providing assured market to the company, and sold to Nestle farmers on cost recovery basis. Nestle kept a strict control over all the inputs and outputs, including aflatoxins, so that there is no health hazard for humans. Consequently, the plant had two separate production lines — one manufacturing high quality feed exclusively for Nestle and the other somewhat inferior quality cheap feed for the local market.
With encouragement from Nestle, the above captioned Paras Spice Group has set up a cattle feed factory. It has a capacity to produce 200 ton feed per day and employs 100 workers. For the feed factory, Paras procures agro-commodities from more than 5,000 farmers.
OTHER ENTERPRISES SUPPORTING NESTLE-RELATED ACTIVITIES
Expansion of Nestle building from 1980 to 2005 ensured about 350 jobs per year for the construction-related companies. In 1992, 77 workshops were providing electric and mechanical support to Moga factory. Nestle has also supported the printing and packaging industry. For example, 58,000 tons of finished products in 1992 needed card-board containers, tin cans, sachets, labels, bottles, and other packaging materials. These requirements resulted in the growth of ancillary support industries and creation of new jobs. Hoteliers, builders and other craftsmen and entrepreneurs settled in Moga and seized the emerging business opportunities.
Livelihood improvement of milk producers was accompanied by huge positive externalities. The relationship primary producers, agents, employees, and management of the ancillary enterprises had established with Nestle surrounded them with brand-associated social prestige and trustworthiness. This reputational capital was built from the interplay of organizational, economic, physical, human, and technological resources Nestle invested in and required from the partner companies and people. The resulting reliability, and quality-by-proxy was true for an impressive array of service industries that sprung up around Nestle’s activities, production lines and the overall ecosystem.
There are good, not-so-good, and bad entities both in public and private sectors. The Swiss company is not flawless and may have cut corners. However, no one can deny the key role of Nestle in promoting dairy and allied sectors in Punjab. Painting all corporate and private sector black is already hurting Punjab and will hurt more in future. Even before the farmer agitation, industry and trade were leaving in droves as Punjab became increasingly inhospitable for business because of deepening corruption, official sloth, rising electricity costs, deteriorating infrastructure, and the ‘gangster culture’ built on easy availability of drugs, and political patronage. No surprise, Nestle Moga Plant had stopped expansion around 2007.
ACKNOWLEDGEMENTS: This Blog greatly benefitted from the third-party impact assessment of Nestle: Biswas, A.K., C. Tortajada, A. Biswas-Tortajada, Y.K. Joshi with A. Gupta (2014) Creating Shared Value: Impact of Nestle in Moga, India. Springer Briefs on Case Studies of Sustainable Development.
