For Pepsi, a Business Decision With Social Benefit

Tuesday, February 22, 2011

SAN GABRIEL, Mexico – In the past, farmers would make the dangerous trek north from this tiny town hidden in the rugged folds of the Jalisco mountain range to the United States, hoping to earn enough money doing odd jobs to cover debts incurred while cultivating the small plots of land that have been in their families for generations.

But more recently, many have managed to avoid the trips, staying home as the result of a new venture with PepsiCo, which buys their crops.

“Some of us used to go north to work to make money to pay off debts, but no longer,” said Martín Ramos Torres, a farmer, adding that at least two members of the cooperative he leads had been caught by United States border patrol agents and deported. “In just three years, everything has changed.”

Mr. Ramos and some 300 small farmers here no longer sell their corn to middlemen but directly to PepsiCo, which guarantees the price it will pay for their crops upfront. The deal enables the small farmers to secure credit to buy seeds and fertilizers, crop insurance and equipment.

“Before, I had to sell my cow to buy what I needed,” said José Guzmán Santana, another farmer selling to Pepsi. “Now I keep the cow and my family has milk while I grow my crop.”

PepsiCo’s work with the corn farmers reflects a relatively new approach by corporations trying to maintain a business edge while helping out small communities and farmers. Begun as a pilot project by the foundation affiliated with the company’s Sabritas snack foods division, it is expanding to about 850 farmers to develop a local source of sunflower oil, which the company needs to improve the nutritional quality of its products.

The corn project saved PepsiCo transportation costs because the farms were close to two of its factories, and the use of local farms assured it access to types of corn best suited to its products and processes. “That gives us great leverage because corn prices don’t fluctuate so much, but transportation costs do,” said Pedro Padierna, president of PepsiCo’s operations in Mexico, Central America and the Caribbean.

The social benefits of the corn program are obvious in higher incomes that have improved nutritional and educational standards among the participating farmers, not to mention its impact on illegal immigration and possibly even the reduction of marijuana production.

The sunflower farmers are expected to see similar benefits – but PepsiCo insists those benefits are ancillary to the business rationale for the program.

A growing number of major companies have adopted similar business tacks aimed at profitability that also prove to be economically and socially beneficial for needy people. One of the earliest examples was Danone’s development of a vitamin-enhanced yogurt product that sells for 11 cents in Bangladesh. The product is profit-neutral, but has given the company valuable insights into the 2.5 billion potential consumers who live on less than $2.50 a day.

Source: The New York Times (link opens in a new window)