Nestle spends big in ASEAN despite economic uncertainty

June 15th, 2009 | by rarzi |

Undeterred by people’s weakening purchasing power amid the global economic downturn, the world’s largest food and beverage producer Nestl* S.A. is investing on a large scale in the ASEAN region, including completing a capacity-enhancement project in its Indonesian dairy processing plant.

The company will invest 260 million Swiss francs (US$240 million) in the region this year, an increase of about 15 to 20 percent since 2008, CEO Paul Bulcke said in Singapore on Saturday, following a tour in some of ASEAN countries.

“I see more opportunities than problems. When there is conflict, when there is turbulence, we see huge potential,” Bulcke told ASEAN reporters in a media briefing.

“Turbulence is affecting everybody, but we are well-positioned to cope with it. As a company, we are in *the business* for a long-run. What we don’t do as a result of the crisis is drop our business and investment plans,” he said.

Bulcke said the company experienced a 15 percent growth in sales in Southeast Asia in 2008, which amounted to 5 billion Swiss francs, and expected growth to accelerate this year.

Despite the company’s regional sales being less than 5 percent of its worldwide sales last year, a trend toward growth, coupled with heavy investment to expand its production and distribution capacity, has raised the company’s expectations the region could play a much bigger role.

Last year, the company worldwide sales grew by 5 to 6 percent.

Nestl* currently manufactures in 10 countries in Southeast Asia with a total of 23 factories and around 15,000 employees.

The company boasts 456 factories in 84 countries with around 280,000 workers.

In Indonesia, Nestl*’s investment is mostly allocated to the expansion of the Kejayan milk factory’s capacity, a project that began last year at a total cost of 130 million Swiss francs.

Once the expansion is completed at the end of the year, the company will have to double the amount of fresh milk it purchases from local milk farmers to 1 million liters per day, making it one of Nestl*’s ten largest milk factory in the world.

At present, the company purchases some 500,000 liters of fresh milk a day from close to 30,000 farmers spreading across the province, representing about a third of the company’s needs to process its dairy brands.

Peter Vogt, president director of Nestl* Indonesia, said the company had been working with local administrations to develop the capacity of existing farms and encourage new ones so they could meet Nestl*’s demand.

“It also shows our long-tem commitment to and confidence in the country,” Vogt said.

In addition to the milk factory, the company also has a confectionery plant in Cikupa, Banten, and a coffee factory in Lampung that absorbs coffee from Robusta coffee plantations in the province.

Vogt added a partnership was currently being developed between Nestl*’s R&D center in Tours, France, and the Indonesian Coffee and Cocoa Research Institute ,on the large-scale plantation of cocoa and coffee trees.

So far, over a million high-yield, disease-resistant cocoa plantlets have already been distributed through local partners, with the Ministry of Agriculture targeting the figure to reach 70 million by 2011.

“Research and development is always a big part of our business operation. This benefits both sides. For local farmers, they will have products that are of higher yield and disease-resistant, which means more income.

“While for us, this will eventually help ensure a sustainable supply of top-quality raw materials,” Vogt said.

The company has a research and development center in Singapore, forming part of the company’s global network of 27 research and development centers.

Nestl*’s products are divided into premium, mainstream and so-called popularly positioned products categories.

In Indonesia, according to the Milk Processing Industry (IPS), sales of dairy products in the country dropped by close to 20 percent in the first quarter of 2009 from a year earlier, due to a weakening of Indonesians’ purchasing power.

However, the IPS expects a recovery in subsequent quarters, betting on an improving economy.

The IPS groups PT Nestl* Indonesia, PT Ultra Jaya, PT Frisian Flag Indonesia, PT Sari Husada, PT Indomilk-Indolakto and PT Mirota, which together command about 65 to 70 percent of the country’s Rp 19 trillion (US$1.89 billion) processed milk market.

The IPS absorbs about 1.3 million liters of fresh milk from local cattle farmers every day.

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