Award: Conscious capitalist for the Year
Why it won this award: For weaving business imperatives with social projects that end up serving the disadvantaged without sacrificing shareholder interest.
“My yield has tripled and my income has risen even more,” says a visibly excited Nandu Laxman Dhatrak. A farmer in Umrale near Nashik, Maharashtra, Dhatrak has been growing tomatoes on his two-acre plot for as long as he can remember.
But his enthusiasm is relatively new-found. Till some time ago, with a yield of a mere five to six tonnes per acre, business was hardly remunerative. Transport was a challenge as were the logistics of getting fresh produce to the market. Once there, he was at the mercy of middlemen who decided what to accept and, more importantly, what they would pay. He grimly recalls that a few years ago, prices at the Nashik wholesale market crashed to Re 1 per kilogram, sending incomes plummeting.
All that changed in May 2012 when Hindustan Unilever (HUL), the Indian subsidiary of the $65 billion consumer goods giant Unilever, decided to work with the farmers to source tomato paste for its range of Kissan tomato ketchup. Unilever, which buys 3 percent of tomatoes produced globally, had so far relied on imports; it was a lost opportunity for Indian farmers to earn more and also to get educated in modern farming techniques.
Last year, the company launched a wide-ranging programme to improve the quality of tomatoes. HUL now sources 60 percent of its tomato requirements from India, most of it from an area of 800 hectares in and around Nashik, Ahmednagar and Pune in Maharashtra. The consequences: Yields are up, agricultural practices have improved and farmers are no longer at the mercy of middlemen.
The initiative is a key part of HUL’s plan to make its business practices more relevant for the communities they operate in. “Businesses in the 21st century cannot be divorced from their social responsibility,” Nitin Paranjpe, former HUL CEO and now president of Unilever’s home care division, had said in a September 2012 interview with Forbes India. Paranjpe was only echoing the vision as defined by his boss, Unilever CEO Paul Polman. Launched in 2010, the Unilever Sustainable Living Plan is arguably the most ambitious plan yet for any global corporation. Under the programme, Unilever aims to double the size of its business by 2020 while halving its environmental footprint. It also targets improving the health and hygiene of a billion people around the globe and source 100 percent of its raw materials in a sustainable manner.
In doing so, Polman is taking on the conventional notion that businesses have a fiduciary responsibility to maximise profits for their shareholders. In an April 2012 interview with The Guardian, the British daily, he tried to disabuse the notion and said it was, “too narrow a model of Milton Friedman’s old thinking. The world has moved on and these people need to broaden their education with the reality of today’s world”. However, he is apprehensive that the markets may not take too kindly to this approach and has reached out to longer term investors like pension funds, rather than hedge funds that owned 15 percent of the company’s stock (that number is now down to 5 percent), to invest in the stock.
Back home in India, HUL has wholeheartedly jumped onto the sustainability bandwagon. The company has done this while remaining a darling of the stock market. As sales have zoomed 18.8 percent to Rs 28,172 crore in 2013, profits have kept pace and moved from Rs 2,800 crore to Rs 3,839 crore. Apart from the local sourcing of tomatoes, it also reaches out to 119 million people through its Lifebuoy handwash programme and procures tea from Rainforest Alliance Certified estates in the country.
HUL’s latest push mirrors that of other multinationals in India who had earlier found it hard to source good quality agricultural produce. McDonald’s, for instance, started by importing its stock for French fries. Due to stringent foreign exchange controls, the company changed tack and began to work with farmers in Mehsana, Gujarat. After almost a decade, it has reached a stage where it is able to obtain potatoes locally. Pepsico’s Frito Lay also, eventually, had to work with farmers in Punjab. With both these companies too, the programmes have widened and evolved into sustainable sourcing initiatives.
Earlier this month, Forbes India visited HUL’s tomato sourcing operations in Umrale near Nashik. There, the company has trained farmers in the best practices for growing high-yielding varieties, provided them with the right agricultural inputs (fertiliser and pesticides) and also promised to buy their produce. HUL is also supporting a bright young entrepreneur couple who took a chance and set up a 5,000-metric tonne processing plant.
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(This story appears in the 01 November, 2013 issue of Forbes India. To visit our Archives, click here.)
Certainly a good step taken by the company. This,I trust will benefit the farmers.on Nov 6, 2013
If Giants enter into the social markets ,the procument will benefit Farmers in India. Unilever,Hindustan Lever are giants in Consumer Products and vast scope in food business. Dr.A.Jagadeesh Nellore(AP),Indiaon Nov 3, 2013
social good ? http://www.tehelka.com/one-gram-mercury-can-kill-a-25-acre-lake-a-plant-has-leached-mercury-for-10-years-into-kodai/on Oct 31, 2013