Mapping the Potential of Private Sector Nutrition Solutions in Latin America
FINAL REPORT
AUTHORS: ANGEL MARCES KATHRYN BEGEAL
SEPTEMBER 2010
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Mapping the Potential of Private Sector Nutrition Solutions in Latin America
EXECUTIVE SUMMARY
This paper summarizes an extensive study that examined the intersection of private sector efforts and nutrition issues in 10 countries of Latin America. The study explored regional nutrition issues and documented private sector approaches to serving low-income populations, Base of the Pyramid (BOP) markets with products that meet basic nutritional needs. The size of the BOP market is estimated to be 70% of the population in Latin America. While the majority of Latin American countries have experienced strong economic growth in the last twenty years, poverty and malnutrition remain a stark reality, especially in rural areas. Government has a predictable and necessary role in dealing with these problems, but the fundamentals factors behind nutrition and poverty issues are so complex that it is imperative to think about a sustainable solution that includes the private sector. This study recognizes that private sector companies play an important role in providing nutrition solutions – products, services and information – to the BOP population and explores the tangible ways to increase and improve this role by fully understanding the context of nutrition issues, private sector models, and the barriers and opportunities to private sector solutions.
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Mapping the Potential of Private Sector Nutrition Solutions in Latin America
Table of Contents Executive Summary ………………………………………………………………………………………………....……….... 2 Background and Motivation …………………………………………………………………....………………………… 4 Methodology ……………………………………………………………………………....……………………………………… 4 Nutrition context and the roles of the actors ……………………………………………....…………………… 5 Mexico ………………………………………………………………………………………………………....……….. 7 Central America …………………………………....……………………………………………………………….. 9 Andean Region …………………………………………………....…………………………………………………. 11 Latin American Region Key Collaborators: NGO’s and Multilateral Institutions …….. 13 Conclusion: Nutrition Context …………………………………………………………………………………..15 Tables: Historical Nutrition Related Laws and Policies in Latin America ……………………16 Nutrition from a market perspective ……………………………………………....…………………………………. 19 General Private Sector Findings ………………..…..…………………………………………....……………………. 20 Business Case Findings ………….…………………….……………………....……………………………………..…….. 21 Value Creation Approach .……………………………………………………....……………………………. 21 Competitive Strategies …………………………………………………………………………....…………….. 22 Cases – Mexico ..……………………………………………………………………....……………………………. 23 Cases – Central America …………………………………………………....……………………………………. 24 Cases – Andean Region …………………………………………………………………....……………..…….. 24 Barriers for Private Sector Solutions……..……………………………………………………………………...……. 26 Opportunities for Private Sector Solutions……………………………....……………………………………..…. 27 Conclusion ……………………………………………………………….…………………………....………………………….. 29
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MOTIVATION AND BACKGROUND The size of the BOP market is estimated to be 70% of the population in Latin America. While the majority of Latin American countries have experienced strong economic growth in the last twenty years, poverty and malnutrition remain a stark reality, especially in rural areas. This is a matter of public interest that affects the quality of life and the opportunities of millions of people and at the same time affects the overall development of societies. In the same way that physical infrastructure is important for economic development, nutrition is the key factor behind “human” infrastructure and behind the capabilities for collective progress. However, nutrition typically gets a lower priority than roads and power plants, probably because of its intangible nature and the unique capability of human beings to adapt to a wide range of situations. It is frequently noticed how BOP population experiment a double “curse” in terms of their unmet nutritional needs and the scarce supply of nutritional solutions. Undoubtedly, immediate solutions exist in the form of traditional knowledge, strategies like “comedores populares” or access to fresh products in rural areas, but sometimes these solutions do little to change cultural practices that perpetuate poor nutrition and hygienic practices. The problem is compounded by BOP population lack of education and access to relevant information around nutrition. Governments have a predictable and necessary role in dealing with these problems, but the fundamentals factors behind nutrition and poverty issues are so complex that it is imperative to think about the sustainable solutions the private sector could provide. Companies of all sizes and types operating through markets constitute the most powerful engine for development and change in societies. This is why business models – the way private sector activities are organized to create value – are so important and have the capacity to generate large impacts. In order to sustainably serve the BOP segment of the market, the effort should be focused on understanding how to do good business with low income populations. METHODOLOGY The methodology for developing this study followed specific stages and sources of information: 1. Review of international literature 2. Review of country statistics and government sources 3. Review of online company information 4. Generation of company database (general food industry in 10 countries) 5. Completed surveys with 94 companies in 10 countries (Mexico, Guatemala, El Salvador, Nicaragua, Costa Rica, Panama, Ecuador, Colombia, Venezuela, Peru) 6. Interviews with managers, directors and relevant staff (CSR and nutrition staff) 7. Interviews and surveys with selected government institutions and NGO’s. 8. Analysis matrix tool to organize information (20 attributes per 94 companies) 9. Application of Value Creation framework for data analysis 4
NUTRITION CONTEXT In Latin America nutrition issues range from chronic child malnutrition to poor nutrition, to “hidden hunger,� and to obesity and overweight problems. These problems affect all income levels but primarily affect lower income children, except for obesity, which is increasing in children but primarily affects adults. Nutrition is widely recognized by both government and the private sector as fundamental need for human development. Malnutrition, in particular, is recognized as a key limiting factor in mental and physical development in children under 5 years old and a contributing cause of poverty and future economic, health and educational costs. This study focuses primarily on understanding the context of malnutrition but also includes the emerging issues of hidden hunger and obesity and where these issues fit within private sector efforts. The following sections provide an overview on nutrition issues in 10 countries in three different regions. The regions are Mexico, Central America and the Andean Region. NUTRITION SPECTRUM GRAPHIC
Malnutrition
Obesity
Malnutrition and Obesity Impact All Income Levels Low Income
Higher Income
NUTRITION DEFINITIONS Malnutrition is a result of inequalities in income and education levels and progress related to socioeconomic, environmental and political factors. There are two different types of malnutrition: global and chronic, both types are rates for children under 5 years old, however experts agree that the window of opportunity for preventing and reversing malnutrition damage is for children 2 years old and younger. Global malnutrition is defined as low weight for age. Chronic malnutrition is defined as low height for age and weight. In most countries, the rates for global nutrition are much lower than chronic malnutrition, as global malnutrition is easier to prevent. For the sake of consistency, this report will focus mainly on chronic malnutrition (low height).
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The main causes of malnutrition are poor hygienic practices, poor diet and recurrent diarrhea and respiratory related infections. These causes are driven by lack of education about nutrition, lack of access to clean water and waste disposal, limited health care and limited access to nutritional food. There is no silver bullet remedy for malnutrition, but the solutions are well known and they require multi-sector coordination and long-term commitment. Many of the countries in the study have successful nutrition programs, creating opportunities for cross-country learning. Other associated malnutrition indicators are included in region specific tables later in the report. These indicators are: low birth weight (<2.5 kg), infant mortality, anemia, breastfeeding from 0-6 months and breastfeeding with complimentary food (6-24 months), salt fortification and primary health care attention. Where available, obesity and overweight statistics are also included. These additional indicators give a more complete picture of each countryâ&#x20AC;&#x2122;s nutritional status and enable regional comparisons. Hidden Hunger is a new term coined for the presence of poor nutrition without the traditional red-light indicators of low weight or height. Hidden hunger is most likely to be found in middle-income populations with low education levels and areas without access to fresh protein, vegetables and fruits. Hidden hunger is characterized by a diet high in processed foods (white flour breads, sugary snacks, sodas, etc.) lacking protein, vitamins and minerals but generally with adequate caloric intake. Hidden hunger is an emerging issue in countries with large low to medium income populations and lack of information on this problem hinders effective policies and products. Obesity and overweight problems are at the opposite end of the poor nutrition continuum from chronic malnutrition and this emergent issue has become a serious problem in developing countries with changing diet patterns and economic access to highly processed foods such as pasta, white flour high fat snacks, high sugar and fructose sweetened juices and sodas. Obesity and overweight issues will be discussed on a per country basis as applicable in the regional summaries further in the report.
ACTORS IN NUTRITION The Government Role is critical and required to address nutrition issues and provides requisite legislation and regulation for fortification, nutritional claims and new products. The state also provides important programs and services, fulfilling the roles of food assistance, educator, health care provider and also client for the private sector products that supply school meals and other subsidy â&#x20AC;&#x153;Glass of Milkâ&#x20AC;? type programs. In the last decade the government has increased participation in fighting child malnutrition, a result of unanimous recognition that malnutrition is a powerful contributor to the cycle of poverty resulting in long-term economic and social costs. Legislation is increasingly more sophisticated and targets specific issues, such as obesity, breastfeeding and umbilical cord cutting practices. Government has excelled in mandating fortification and compliance with salt (iodine) and flour fortification (folic acid, vitamins and minerals) is an average of 90% in most countries. This has provided a good start but overall impacts are difficult to measure due to lack of monitoring and enforcement, quality control, and lack of knowledge on use of best technology and efficacy of nutrient absorption. For example, anemia remains high in nearly all countries, while fortified flour rates are in the 90% range. There are many opportunities for innovation in fortification and there is a proliferation of companies that focus on supplement manufacturing for industry and the government. Cases like Bimbo, in Mexico 6
are innovating by using a more bioavailable form of iron in 8 different cookie/cracker products targeted to children that supply 25% of a child’s daily iron dose. Other important actors in nutrition are multilateral institutions and NGO’s that contribute funding and technical assistance to the region. These entities often provide important statistical information and help set the direction for policy and program implementation region wide. These entities also work to build in-country capacity to manage and evaluate nutrition issues through local government and local NGO’s. These entities include but are not limited to: The World Bank, Inter-American Development Bank, World Health Organization, United Nations and UNICEF, the Pan-American Health Organization, NGO’s CARE, PLAN International, Project Concern and many other NGO’s and multilateral organizations. These entities are discussed in greater detail at the end of the Nutrition Context section.
REGIONAL CONTEXTS Mexico Mexico has made significant progress in decreasing malnutrition over the past thirty years and has a 2008 chronic malnutrition rate of 13%, fifty percent lower than their 1988 number of 23%. Mexico’s large population and diverse geographic, socio-economic and cultural context results in wide variations in distribution of malnutrition. Generally, poor rural areas have higher rates due to lack of clean water and proper waste disposal resulting in higher diarrhea and respiratory infections. The Southeast part of the country has the highest rates, although distribution is not uniform and also affects urban populations, especially in the capital city area (Federal District). The two tables below summarize the most common nutrition indicators. The most important statistics to track are in the first table. Chronic malnutrition is the main indicator for poor nourishment and is linked directly to brain and motor skill development and future low scholastic achievement and lower adult wages.
*Per 1,000 live births for children under 5 years old, 2008 UNICEF. All Data from UNICEF unless otherwise indicated, http://www.unicef.org/spanish/infobycountry/mexico_statistics.html#72, March 19, 2010.
Political stability, moderate economic growth and lack of severe internal conflicts have helped Mexico maintain a steady decrease in malnutrition rates. Government investment in drinking water and sanitation infrastructure and food assistance and health programs has made significant impacts, 7
however rural rates of malnutrition are much higher. Rural areas are less likely to have improved sanitation facilities (48% compared to 81% of urban areas) and improved drinking water (85% compared to 95%). Low birth weight, which is an indicator for future malnutrition is low nationally (5%) but is more than double in the D. F. (11.5%) and also varies per state. Low birth weight is correlated with poor prenatal nutrition and lack of prenatal health care. Anemia is a contributing factor to malnutrition and remains high in both urban and rural areas. Nationally, anemia is 24% for children under 5 years old, and anemia rates for children less than 2 years old increases to 38%. Anemia varies sharply throughout the region, with the highest rates in Baja California (37%) and Baja Sur (32%). These numbers suggest that regional differences in diet, education and health care significantly influence anemia and that different strategies are needed in addition to current supplement and fortification programs. At the same time that Mexico fights malnutrition, obesity and overweight status in adults have become increasing problems in the past thirty years. Since 1980, the number of obese (32%) and overweight adults (39.5%) has tripled and these rates are also increasing in children. Mexico now ranks second in the world for obesity and overweight problems, preceded by the United States. This is due to changes in historical eating habits; less consumption of traditional foods such as tortillas, beans and local fruits and vegetables and increased ingestion of white flour breads, sugar, sodas and bottled beverages, pastas, oil, fat-filled snacks and fast food.1 The table below shows the increase in population of obese and overweight adults and children. Due to the sheer size of Mexico’s population, obesity and malnutrition are serious problems. Table 2. Overweight and Obese Population in México 2006 – 2008 Group 2006 2007* 2008* School Age 4,158,800 4,203,765 4,249,217 (5 to 11 years) Adolescents 5,757,400 5,930,799 6,109,420 (12 to 19 years) Adults 41,142,327 41,678,669 42,222,003 (>20 years) TOTAL 51,058,527 51,813,233 52,580,639 Source: ENSANUT, (National Health Survey) 2006 and population projections in México 2005-2050 (CONAPO). Estimates by the General Direction of Health Promotion
GOVERNMENT ROLE & OTHER KEY ACTORS The government has fulfilled key functions in the fight against poor nutrition: legislation, regulation, education and provision of social programs and services. In 1984 the General Health Law was passed and was recently reformed to prohibit the publicity of sodas, carbonated drinks and juice drinks in educational institutions. This law is partially a result of Mexico’s 2004 inscription in the World Health Organization’s worldwide Strategy for Nutritional Diet, Physical Activity and Health, which promotes citizen education and proactive government policies. In 2010 the government also passed a National 1
Casanueva E. y M. Kaufer-Horwitz (2001) “La nutrición en México en los albores del S.XXI (Capítulo 2) Nutriología Médica”. 2da edición. Editorial Médica Panamericana; México.
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Strategy Against Obesity and Overweight with a special focus on prevention in populations 2-5 years old and a reduction in rates in children and adults. The National Social Development Department (Sedesol) provides a wide variety of public food assistance programs and nationally nearly 40% of all households receive some type of assistance. A 2006 ENSAUT (National Health and Nutrition Survey) study showed that over 60% of the population in the southern states Chiapas and Oaxaca and the state of Mexico receive some type of program assistance. The three main programs are broken down by coverage and scope below: Oportunidades, a cash transfer program linked to school attendance and health clinics, Liconsa, a milk/fortified beverage assistance program and Desayunos Escolares, school breakfasts. Both the Oportunidades and Liconsa program each benefit an estimated 5.8 million families. The government is a significant client for suppliers of these programs, however many medium and small companies complain that ingredient supply is dominated by large companies and hindered by bureaucracy. Although a 2009 study by the National Institute of Health found improvements in school performance related to the Liconsa milk distribution program, most food assistance programs are criticized for poor focalization of resources and inadequate design. A comparative list of Latin American country government laws and policies can be found at the end of the Nutrition Context Section. Table 3. México Government Programs % % Program Type National Region Regional Coverage Coverage North 9.6 Central 30.7 Oportunidades 25.3 (cash transfers) South 45.4 México City 1.3 North 1.7 Social Milk Supply Central 5.3 Program, 7.8 South 2.7 “Liconsa” México City 26.3 North 4.7 Central 7.1 School Breakfasts 7.1 South 8.3 México City 7.9 Source: Data from ENSANUT 2006
Central America: Costa Rica, Panama, El Salvador, Nicaragua and Guatemala Malnutrition rates vary greatly in Central America and are linked directly to socio-economic and political conditions. Similar to Mexico, malnutrition rates also differ within each country. In general, rural areas are more likely to have higher malnutrition; however new data shows chronic malnutrition now affects increasing numbers of children in lower income families, contradicting the traditionally successful strategy that focused on areas with extreme poverty. (CONARE, 2008) Costa Rica has the lowest rates (6%) and Guatemala ranks last with the highest chronic malnutrition rate (49%). The table below shows malnutrition rates and several other nutrition related indicators. 9
Sources: UNICEF and National Statistical Information per country
As the table shows, Costa Rica has been the most successful in reducing malnutrition followed by Panama, El Salvador and Nicaragua with Guatemala in last place, especially considering infant mortality rates. Other indicators tend to follow this same order with the exception of breastfeeding indicators, which are much higher in Nicaragua, El Salvador and Guatemala. This success be attributed to strong health campaign programs in these countries but lack of information prevents conclusions on if breastfeeding indicators correlate as strongly with malnutrition as infant mortality, low birth weight and prenatal care have been proven to correlate. The success in breastfeeding may also correlate with access and availability of infant formulas, where Costa Rica and Panama populations have more income and thus more access to infant formulas and complimentary foods and less cultural pressure for continual breastfeeding. Anemia information is sparse within Central America and has not been included in the table but is an important indicator in nutrition. Along with gaps in statistical knowledge, an inadequate understanding of best practices in prevention and treatment exacerbates anemia problems. Iron fortification in flour is legally required and iron supplement programs for pregnant women receiving prenatal care in Central America are very common. Lack of information about anemia and breastfeeding indicators are both a barrier and opportunity for the public and private sectors to improve nutrition. Increasing obesity and overweight rates in Central America are rising, especially in poor populations that lack the ability to purchase nutrient dense, low calorie food. This study does not examine these factors in depth but more information and education is needed in these areas to focus future efforts. GOVERNMENT ROLE & OTHER KEY ACTORS Government fulfills critical legislative, enforcement and social program roles and all countries have a central political entity that is responsible for this role. Within Central America, socio-political contexts differ greatly and countries with a history of civil conflict, limited economic growth and high poverty such as Guatemala and Nicaragua, for example, are far behind countries such as Costa Rica and Panama. The date when countries joined the International Pact of Economic Rights, which included prenatal attention and steps to counter infant mortality shows a marked difference in countries progress in 10
nutrition. (Central American Institute for Fiscal Study, 2008) Costa Rica, for example, signed the Pact in 1968, El Salvador 1979, Panama, 1977, Nicaragua 1980 and Guatemala 1988. This means that Costa Rica has a twenty-year advantage in implementing nutrition related social policies than Guatemala, a significant advantage since malnutrition programs are statistically shown to decrease by 2% each year. A comparative list of Latin American country government laws and policies can be found at the end of the Nutrition Context Section. A 2005 CEPAL-World Food Program study found a strong correlation between the percent of GDP that a country spends on social programs and malnutrition rates. The regional average is 11% of GDP for social programs, but Costa Rica and Panama, for example, spend 18% while Guatemala spends 6%, Nicaragua 7% and El Salvador 9%. Thus a country’s ability to successfully decrease and prevent malnutrition is highly dependent on its socio-political and economic environment, making nutrition a complex multifaceted issue that spans traditional sector boundaries. Lastly, it is important to recognize the influence of international institutions and non-governmental organizations (NGO’s) in providing funding and technical assistance in Central America. The region has several regional entities that inventory and promote nutrition and international organizations such as the World Food Program, UNICEF, Pan-American Health Organization, the World Bank and many NGO’s. Countries that receive the most assistance from these organizations are Guatemala, Nicaragua and El Salvador.
Andean Region: Colombia, Venezuela, Ecuador and Peru The Andean Region countries examined in the study are very diverse, yet all share similarities with the nutritional status of Mexico and the Central American Region. In the past twenty years, the region has made progress in decreasing malnutrition, although some countries struggle more than others. Similar to Central America, economic progress and political stability have greatly influenced a country’s ability to decrease malnutrition. All countries have policies and laws that address fortification, food security and breastfeeding. Colombia has the lowest rates of chronic malnutrition at 12%, followed by Peru, Venezuela and Ecuador (23%). Malnutrition measured by weight only is much lower, with Ecuador again ranking last at 9% followed by Colombia (7%), Peru (6%) and Venezuela (5%). With the exception of Venezuela, national statistical information is widely available in all countries, enabling a clear understanding of nutritional status and related programs. Venezuela data comes mainly from UNICEF and differs from Venezuela data, which states that chronic malnutrition is at 4%. The table below offers a snapshot of nutrition related indicators.
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The table shows several trends in the Andean Region: anemia is high, regardless of country, and low birth weight is low. Infant Mortality remains relatively high despite gains in reducing malnutrition and fortification programs are strong. The following paragraphs will briefly cover each country and a comparative list of Latin American country government laws and policies can be found at the end of the Nutrition Context Section. SPECIFIC COUNTRY SOCIO-POLITICAL CONTEXTS Colombia has the lowest rates of malnutrition and is also one of the few Andean countries to have policies that specifically address obesity. Approximately 3% of children under 5 years old are overweight and the government recognizes this in its obesity policies. Colombia has a strong network of food security programs and statistical information is readily available. The national policy for Food Security and Nutrition was passed in 2008 and provides a comprehensive framework for treating nutrition. Anemia is a problem, especially in children 0-2 years old (53%), as the rate decreases to 33% and then 22% between 2-5 years old. Overall, Colombia has made more progress than fellow Andean Regions, which can be attributed to economic growth and government leadership. Venezuela has a National Nutrition Plan and a law that protects breastfeeding that may attribute to the high breastfeeding statistic (70%). Venezuela also has a series of programs and strategies that focus on local production and subsidies for better food access, a key focus of food policy is sovereignty and the country has a goal of nutritional self-sufficiency by 2015. Despite many programs, lack of information on program results and lack of statistical information hinders further analysis. Ecuador has the highest malnutrition rates in the region and a fifty-year patchwork history of short-term nutrition related programs and initiatives. Ecuador’s nutrition rates vary sharply throughout the country, with the highest rates in the rural mountain “Sierra” areas thus the current National Child Nutrition Project targets specific Sierra areas. Unlike past initiatives, this strategy is a long-term, phased multi-sector approach and targets the most vulnerable populations with educational and macro and 12
micro nutrient programs administered by the Institute for Children and the Family. The Ecuadoran government also has passed fortification regulations and has a range of food assistance programs. Historically, nutrition in Ecuador has decreased slowly, moving from 34% in 1986 to 23% in 2004. Most other countries report a 2% decrease per year however this varies steeply according to poverty indicators. Anemia is high 55% and nearly 6% of children under five years old are overweight, juxtaposing indicators that are a historical problem like anemia and emergent, such as obesity and overweight status among children. Peru decreased chronic malnutrition from 25% in 2000 to 19% in 2009 but struggles with much higher malnutrition rates in rural Sierra areas (32%) and among the poorest fifth “Quintil,” rates are more than double the national average at 47%. Anemia remains high at 56% nationally and is decreasing very slowly (2000, 61%). In rural areas anemia has not decreased and mirrors the same gap in nutrition rates with a high figure of 66%. In order to address these alarming figures, in 2007 the government passed CRECER, which means “to grow”, a National Strategy to fight poverty and malnutrition that prioritizes public sector programs in the most vulnerable regions and seeks to reduce malnutrition by 11% by 2011. In addition to this strategy, Peru has legally mandated fortification, food assistance through the PRONAA program, and a cash transfer for health services program called Juntos. Peru also has a milk assistance program, Vaso de Leche that began in 1985 and is criticized for inefficient administration and poor population targeting. In 2009 Peru passed a universal insurance law extending health care to all citizens and the public health sector is in the decentralization process. While Peru has significant barriers to reducing malnutrition, mainly related to inequities in income and education, the government plays a proactive role and the country is well equipped with statistical information for future decision-making. Peru’s strong economic growth and political stability also favor a continued decrease in malnutrition rates.
Latin American Region Key Collaborators: NGO’s and Multilateral Institutions Non-governmental and multilateral institutions are an important stakeholder in nutrition issues: they provide funding, technical assistance and serve as a credible facilitator and powerful advocate. Survey results showed that 30% (30 out of 94 responses) of companies have some type of partnership with an NGO or other similar organization in addition to partnerships with the government. These NGO’s range from local to international organizations and often implement nutrition education and health care programs for a variety of companies. NGO’s work on the front lines, they visit mothers with malnourished children and help build local capacity for problem solving.
In Peru, Alicorp Corporation funds NGO Caritas to provide household educational visits to mothers with children under 2 years old and increase technical skills at local health clinics. Alicorp compliments this with a radio program that promotes nutrition on a popular national radio station, RPP.
Alongside NGO’s, multilateral institutions play similar powerful role by leveraging financing, government policies, and technical cooperation in favor of nutrition. These entities include but are not limited to the World Bank, the Inter-American Development Bank, the World Health Organization, Pan American Health Organization, the United Nations, UNICEF and many other international organizations. Many of these institutions provide credible leadership for public and private sector projects through financing and technical assistance. Due to their institutional histories and resources, these multilateral entities 13
In Ecuador the Reybanpac/ Grupo Wong Company is partnering with the International Finance Corporation and international fortification NGO, GAIN, to develop a fortified yogurt for children 6-24 months.
are able to effect structural changes and advocate for regional strategies and action. In some countries, private sector companies are developing nutritional products with NGO and multilateral partnerships.
Many companies also have their own Foundations and implement education programs with internal staff from their social responsibility departments. This trait is more likely found with larger corporations with the financial means to fund The company is also interested in activities and develop corporate policies oriented towards social developing a banana papilla. responsibility and community involvement. Social responsibility activities are also good business and are critical components of these companies’ business models. Table 6. Company Social Programs Types of Company Social Programs Donations
Education Programs
Research & Partnerships
Details Funding for educational programs and nutritional rehabilitation centers. Ingredients and/or products to school meal programs and poor communities Transportation for government programs Partnerships with local churches, orphanages and NGO’s to distribute donated food. Local schools in health and nutrition practices Workshops and home visits with mothers Outreach to other community stakeholders with education programs: churches, etc. Technical assistance to health centers Vocational training in industry specialty (baking, food service, etc.) With professional institutions to fund, research and promote specific products. With government entities regarding fortification With Company founded Foundations for education, donation and research activities.
Throughout the Latin American Region there are many examples of company foundations. The Guatemalan Ceveceria Centro Americana, for example has founded the Castillo Cordova Foundation and they have a large educational program that trains 300,000 women per year in nutrition and several nutrition centers that treat malnourished children. These efforts are linked to their nutritional drink, Malta Gallo. In Mexico, Grupo Lala, a milk products, juice and beverage company, has education programs and their foundation donates products to an estimated 830,000 beneficiaries. The company has partnerships with NGO’s, government and other organizations, a reflection of their diverse social responsibility activities. These examples are a snapshot of the relationships between NGO’s, multilateral entities and private sector companies in the nutrition context. The private sector is very active yet there are many 14
opportunities to strengthen coordination between all parties. NGOâ&#x20AC;&#x2122;s and multilateral entities are a natural ally for developing further nutrition related projects with the private sector.
CONCLUSION: NUTRITION CONTEXT
In summary, the nutritional status of Latin America is as varied as the countries that comprise the region and inequalities in education, economic growth and political stability directly affect each countryâ&#x20AC;&#x2122;s nutritional status. Overall there is a lack of information and lack of knowledge sharing to achieve efficient analysis, focus and implementation of programs. Many countries, especially Mexico, are at a critical cross roads with both malnutrition and obesity and overweight problems that now affect significant percentages of the population. Within all countries, rural areas and the poorest populations have the highest and most persistent rates of malnutrition, a reflection of poor infrastructure, education, health care services and differences in cultural practices from urban areas. Despite these challenges, the region has many success stories that should be shared and adapted for future action. All countries have proactive governments and a historical foundation of legislation and social programs and legislation is increasingly sophisticated to address specific nutritional issues. Many countries have new nutrition strategies that better integrate the various public sectors that affect nutrition and target vulnerable populations; nutrition is now a widely recognized, legitimate issue with clear social and economic costs. Nearly all countries also have social assistance and meal programs that are ripe for evaluation, refocus and more efficient implementation. In short, the nutritional context of Latin America is the result of multiple factors and presents a series of well-defined barriers and opportunities for both the public sector and the private sector. There are many opportunities for mutual partnership, empowerment and business among all parties.
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NUTRITION FROM A MARKET PERSPECTIVE Standard economic welfare theory provides an adequate framework to describe the importance of the nutrition market. The first fundamental welfare theorem says competition leads to an efficient allocation of resources in the economy if markets are complete. Markets are complete when there are not imperfections, such as information asymmetries or other market failures. In short, the private sector is a powerful engine for generating positive change in the lives of millions of people, if there is a level playing field between consumers and suppliers, especially in terms of information. Everyone wants to have good nutrition, but not everyone is aware of what good nutrition means, how to achieve it, and the losses that are caused by poor nutrition. This is an paradigmatic example of market failure. Government efforts are aimed towards the goal of reducing these asymmetries through laws, regulations, supervision, assistance programs and other means. These efforts, while elaborate and sometimes effective, will never be more than an interpretation of real consumer demand. Generalized lack of knowledge about nutrition diminishes the consumersâ&#x20AC;&#x2122; ability to acknowledge their real needs and express them appropriately as market decisions. The dim signals that emerge from consumer behavior regarding nutritional attributes are interpreted by the private sector and translated as nutritional claims in products or other nutrition related actions. Predictably, the speed and accuracy of the process towards better nutrition for consumers, particularly BOP consumers, is poor and sometimes nonexistent. This dilemma begs the question: is it possible to support the process of more and better nutrition in the BOP population through market and private sector solutions? The study uses a supply side approach in order to answer this question. The study methodology focused on 94 companies in 10 countries, analyzing aggregate patterns and describing individual business cases with a supply side perspective. The importance of demand characteristics is acknowledged beyond doubt, as they are the critical input for most private sector decisions. However, the strategy used in this study focuses on private companies because of the feasibility of interventions, as companies can be visualized as vectors that can be supported to achieve specific results. The fact that companies tend to work with well known incentives and rules improves the likelihood of finding specific strategies that support the growth of private sector nutritional solutions for BOP markets. It is important to note that the progress of private sector solutions in nutrition is neither linear nor straightforward. It is common to find efforts in different stages of maturity, happening in different types of companies, relevant only within the specific context where they exist. There are several ways to analyze this diversity, but we have used a two-pronged approach: (i)
Categorization: is explained in the General Private Sector Findings section and attempts to show general patterns (trends) that emerge from the aggregate survey data that was collected. Two or three criteria are used to â&#x20AC;&#x153;clusterâ&#x20AC;? the results.
(ii)
Individual analysis: uses a case-by-case approach and will be explained in the Business Cases section. Case analysis is important for two reasons: it helps understand the business case in itself and also helps to find patterns within the firm, in order to explain regularities.
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GENERAL PRIVATE SECTOR FINDINGS The company survey sample criteria focused on the food industry; balancing large, medium and small sized companies and different roles in the market (supplier, producer, intermediary or distributor). In order of frequency, the industries were: (i)
Milk and dairy products
(ii)
Flour / grains / pasta
(iii)
Beverages and juices
(iv)
Nutritional ingredients and supplements
(v)
Snacks, cereal, poultry, meat, fish and eggs (less frequent)
TRENDS AND “STAND OUT” FINDINGS BOP Related: o
Most companies in the sample receive 40% or more of their revenue from BOP consumers.
o
There is a high correlation between % of revenue from the BOP and children targeted products.
o
Most companies that serve BOP markets also serve wealthier segments of the market.
o
The larger the country, the more BOP targeted products.
o
The shorter the value chain, the more likely to work with BOP suppliers,
Nutrition specific: o
High incidence of nutrition claims, fortification and investment in own nutritional staff (versus outsourced or no staff).
Company specific: o
Global companies have developed a strong presence throughout the regions’ BOP nutrition markets.
o
The larger the company, the more likely to develop educational and public awareness programs.
o
Several companies donate product to government school programs and provide educational programs to poor mothers and to schoolchildren.
o
Several national companies export their production, probably due to higher margin and less transaction cost.
o
Main channels of distribution are supermarkets, bodegas and government programs. 20
o
There are several educational/social initiatives that are currently developed or implemented in partnership with Government or NGOs.
BUSINESS CASE FINDINGS As indicated earlier, the business case approach helps understand the decision making process of companies and also helps identify patterns of behavior that emerge from them. We introduce the Value Creation Approach and the Competitive Strategy Matrix as two helpful frameworks to organize individual company findings.
VALUE CREATION APPROACH How do companies create value? The current gold standard in academia to answer this question is the DCF (Discounted Cash Flow) Model. DCF is a model for business valuation based on the estimation of the benefit stream generated during the life of the business or the project. Although there are other widely known models that use different assumptions (asset-based approaches like the Net Asset Value Model), DCF is a more versatile approach because it provides room for dynamic assumptions, which is helpful when considering future performance of certain variables.
Value = - initial investment +
∑
future cash flows (1+i) t
Future cash flows are, in their simplest form, revenues minus costs in each period of time. The “i” between parentheses is the discount rate, which is used to represent the “risk” of the cash flow it affects – high rates “punish” cash flows, reducing their contribution to the overall value. The letter “t” represents the period of analysis and also affects the “risk” of the cash flow it affects, since as “t” grows progressively larger, the cash flows it affects is more uncertain. With this first framework in mind, it is straightforward to see there are very few actions that create value: to grow revenues (net Growth), to reduce costs (Margin increase) or to lower “i” and/or “t” (less Risk). Since future (longer time) cash flows are by definition more uncertain than immediate ones (shorter time lapse), any effort to decrease the uncertainty of future cash flows also increases the value (which we will call Positioning). Depending on market and internal conditions, companies tend to favor one (or a combination of more) of these actions (highlighted in bold) to create value. Companies also tend to perceive trade-offs between these variables (basically between growth and risk) that drive them to adopt specific value creation strategies. An intuitive example for this kind of reasoning is the fact that large companies typically favor efficiency (Margin) over growth in order to create value. Given their size, it is harder to achieve significant growth rates than it is to reduce costs and/or risks. Small companies, on the other hand, tend to prioritize growth over margins, and they are prone to take more risks.
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These strategies for value creationâ&#x20AC;&#x201D;Growth, Margin Increase, Less Risk and better Positioning â&#x20AC;&#x201C; will be applied to individual company case studies further in this report. These strategies are a useful organizing tool for showing patterns among companies and explaining individual behavior. COMPETITIVE STRATEGY MATRIX How does growth happen in a competitive context? A very simple tool to address this question was designed by Igor Ansoff in 1956 that helps companies decide the course of action given their current performance and alternatives of growth. Market penetration happens when companies decide to increase their current market share by selling more to actual customers, driving non-users to buy their products or by simply taking over competitorsâ&#x20AC;&#x2122; client base. Product development consists of selling new products to existing markets (products need not be new for the customers but new for the company). Market Development implies selling to a new client base with current or slightly modified products, while Diversification implies catering to a new market with new products. Ansoff Competitive Strategy Matrix
Markets
Products Present
New
Present
Market Penetration
Product Development
New
Market Development
Diversification
How do large companies compete? Large companies tend to generate value by becoming more efficient in current markets with current products, which is a Market Penetration strategy. This strategy resembles the Margin approach of the value creation section. When they decide to grow past their current set of products, the less risky strategy is to offer new products to the already known market (Product Development). Since the interest in preserving margins remains intact, new products are typically offered to high-income segments of the market. As a company becomes more efficient manufacturing the new product, it lowers unit costs and is able to produce larger volumes and reach lower income market segments. At the same time, current markets are more served. This is how companies begin to seriously consider lower income market segments. As time goes by and more products reach lower income segments, the BOP segment becomes important in itself, moving towards a Market Development strategy or even to a Diversification one. How do medium size companies compete? Since medium companies are more eager to take risks to grow, they move forward with Product Development or Market Development. Market Penetration strategies are often not possible for these firms because they generally cannot compete with larger companies for market share.
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Smaller companies and aggressive medium-size companies venture with Diversification, accepting the higher risks of unknown technologies, production factors and consumer demand. Embedded in this diagram there is a risk sequence: Market Penetration is less risky than Product Development, which is also less risky than Market Development. Diversification is the riskiest strategy since it implies several sources of uncertainty.
Markets
Products Present
New
Present
Market Penetration
Product Development
New
Market Development
Diversification
CASES – MEXICO 1. NUTRICENTRO is a small bread maker, with sales in the range of US$ 25 million and 12% of their sales to BOP. They declare they do not have a clear BOP strategy and they do not have child-targeted products. They sell mainly in supermarkets. Doing business with the Government is considered difficult because of the cumbersome access to the government purchase process. Nutricentro is looking for new opportunities in traditional bread markets.
STRATEGY: Growth and Diversification (new products in new markets) 2. ALIMENTOS DE LA GRANJA is a small egg company that has developed a product; Dehydrated Eggs enriched with Spinach specifically for populations with the highest malnutrition rates in the southeast region of Mexico. They did a study and determined the need to develop a product enriched with vitamins that has a good taste and appearance before developing the product.
STRATEGY: Growth and Market Development strategy (Govt. program works as platform for market development) 3. SAMPLING INNOVATION & MULTIPACKING is a small company that makes fruit and vegetable pulps, specifically adding fruit that has soluble and insoluble fiber to decrease the product’s glycemic index. Products are fortified with iron, calcium and folic acid depending on the specific deficiencies in geographic zones or depending on the time of year. They produce a fruit pulp that is used in Mexico’s school meal program, DIF, and offer a product that is 100% natural, without preservatives, low sugar content that has a decent shelf life at an appropriate cost to generate regular consumption. 23
STRATEGY: Growth, high product development (possibly related to economies of scale of production for Government DIF program) 4. GRUPO LALA is a large company (sales above US$ 1 billion) and with 40% BOP participation in their revenues. GL has three social programs: Feeding Hope, which gives a two daily milk drinks per day for 25,0000 orphans, United Against Hunger, which donates milk and milk products to poor populations and specifically children who are reached through 38 Food Banks in 25 states in Colombia. Lastly, their program Hand in Hand contributes to the diet of poor families in Coahuila state through a state government subsidy of one million liters of milk.
STRATEGY: positioning (FUTURE sales), FUTURE market development
CASES – CENTRAL AMERICA 5. SOCIEDAD DE ALIMENTOS DE PRIMERA (BONLAC) is a small company in Panama, with over US$ 25 million in sales, 12% of them come from BOP segment of market. It produces milk, yogurt and juice products with accessible prices for consumer direct sales. Currently, they do not operate with a deliberate BOP strategy; however they are trying to develop products for the sale of reconstituted milk at accessible prices, especially for low-income families.
STRATEGY: Growth, market development (BOP) 6. MEAD JOHNSON NUTRITION (MJN) is a large multinational company with sales above US$ 1 billion and an unknown participation of BOP segment in their revenues. It produces a wide variety of products (supplements and food additives) directed at children during different growth stages. They have large-scale production and distribution in nearly all of Latin America and restrict the publicity of some of their mother-targeted products in order not to compete with breast-feeding. In Asia, they specifically develop products for poor communities, such as individual packages of fortified products. In February 2008, Bristol-Myers Squibb established a strategic alliance to support Un Kilo de Ayuda Integral Nutrition Program by supplying 130,000 iron supplement units of Ferinsol to distribute and eliminate the problem of anemia and fight malnutrition in poor pregnant mothers and children under five years old.
STRATEGY: Margin (they have several lines of products and are concerned about partnerships giving unfair advantages to competitors), product development
CASES – ANDEAN REGION 7. LAIVE is a medium size milk and juice company in Peru; with sales in the range of US$ 120 million and around 30% BOP participation in sales. They are interested in developing BOP targeted products. They are a supplier of the “Vaso de Leche” government program.
STRATEGY: growth and margin, interest in taking risk of BOP targeted products because of strong sales base from government programs 8. GRUPO MODERNA is a medium size flour, pasta, and grains company with sales of above US $120 million and BOP participation of over 40%. They are in a constant process of innovation and design of new products oriented to the low income market that are distributed through different government 24
programs, a line of business that they began 14 years ago that is the largest Ecuadoran business in this sector. The large variety of high nutrition infant products include an instant protein mix for children 6-24 months, a protein rich cereal based drink directed to pregnant and breastfeeding women and a fortified pulp/juice cereal meant to complement the nutrition of children 6 months to 3 years old.
STRATEGY: growth, strong product development because of significant sales base from government programs 9. GRUPO WONG is a medium size company (US$ 120 million) with 30% or more of their revenue coming from BOP sales. They are developing a project with GAIN and IFC to produce a fortified yogurt for children ages 6-24 months. The product is specifically targeted for Ecuadoran population and is fortified with vitamin A, B Complex (B1,B2, B3, B12), iron, selenium, zinc, copper, Vitamin D and iodine. They have also developed a fortified yogurt that is distributed through a network of small stores “tiendas” that number more than 66,000. This helps company maintain national leadership in milk that is marketed in this population segment.
STRATEGY: growth, product development (with support from IFC and GAIN) 10. CORN INDUSTRIES is a large company (more than US$ 500 million in sales) with a small participation of BOP in their revenues (12%). CI has worked in an alliance with the government for eight years to produce high value food products for children and has the necessary infrastructure and technology to develop complementary infant formulas and complete innovation and design for enriched cereal mixes. They identify infant nutrition as one of their primary business lines and have their own programs and participate in government programs. With the government, they administrate, operate and maintain production plants for Bienestarina, a leading product in Colombia, which is owned by the Colombian Institute of Family Wellbeing. Bienestarina is distributed to the poorest people in large cities, rural areas, to pregnant and nursing women, preschool children and people affected by natural disasters and violence and indigenous families through more than 5,000 distribution points in the country. They use a large network of social programs from the Colombian Institute for Family Wellbeing, including community homes, infant homes and preschools. They are a primary provider of food products for the Colombian government.
STRATEGY: growth, product development based on strong partnerships with the government 11. ALICORP is a large Peruvian company (sales of more than US$ 1 billion). ALICORP does not have specific nutritional products targeted to the BOP market but has a nation-wide communication and social responsibility strategy directly targeted to the BOP and reducing malnutrition. They fund both a malnutrition reduction program and a local crop production and value chain program with local NGO’s PRISMA and Caritas and sponsor a nutrition radio program on a large network of local radio stations. They also implement an awareness campaign on national TV that promotes good health and food habits.
STRATEGY: positioning (FUTURE sales), FUTURE market development
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BARRIERS FOR PRIVATE SECTOR SOLUTIONS It is important to explain what constitutes a barrier for private sector solutions in the context of this study. There are certain factors, like geographical distribution of the market, population density, ingredient cost, innovation costs or cumbersome government policies, that are barriers because they prevent the existence of better/more nutritional solutions. The barriers that are most useful for the purpose of this study are the barriers that can be solved or mitigated. This study is interested in the barriers that have solutions within the scope of company actions. For example, ingredient cost can be lowered with volume purchases, but there is not much that can be done with this study regarding the population density in a certain city or country. The study focus is on solvable barriers. The following section identifies key barriers for private sector companies in BOP nutrition markets. Some of the limitations listed focus directly on private sector factors, and others are a reflection of the public sector, consumers and the overall nutritional context in Latin America. Following the barriers section is a discussion of opportunities, as these hurdles are also a starting point for further discussion, collaboration and some are a call to action. 1. Product Development Capabilities was unanimously named a barrier for small to medium companies but also for large companies. Not surprisingly, this barrier is related to the size of the market segment the company expects to serve. The smaller the market segment, the more uncertain the return, which causes a higher risk aversion and a return to known segments of the market. Product development will occur if tolerance for risk is large or if there are resources to hedge the risk and absorb potential losses. Cost of raw materials: even when the size of the market is adequate, the cost of raw materials can make it economically impossible to develop a new product. Technology and Know-How: this is a barrier for small to medium companies for product development and correlates with their lack of R&D and nutrition personnel. 2. Consumer Education was unanimously prioritized by the private sector. Education relates to both low-income populations where illiteracy and low educational levels are high, and urban, higher-income populations with adequate education. In both cases, the consumerâ&#x20AC;&#x2122;s ability to make purchase decisions based on a healthy diet is limited. "Mexico has a high percentage of soda and snack consumption which means these companies have tremendous potential to make healthy and nutritious food impacts." (MĂŠxico, Flour and Fish Products Processor, Grupo Pando)
3. Distribution is expensive due to transaction costs (long distances, low urban density, informality) and was consistently mentioned as one of the leading challenges in getting products to the BOP market. 4. Lack of Knowledge about BOP market size and BOP spending power prevents some companies from entering the market. They need more information to determine if volume and economies of scale allows for the low-price strategy required for new BOP products. "A top challenge is achieving a balance between nutritive value, price accessibility and financial profitability, we need to define the market potential to evaluate volume and economies of scale." (MĂŠxico, Milk derivatives, juices and beverages, Lala Group) 26
5. Government Regulation is not an actual barrier, and there is genuine evidence of evolution towards a more sophisticated regulatory framework. However, the government could have a more proactive stance towards product development, nutritional claims, and redesign the supply chain process for its food assistance programs to be more competitive and efficient. There is also room for sustainable promotion mechanisms, like indirect subsidies. "Consumer Acceptance, Regulatory Incentives and Alliances create a favorable context for consumer demand." (México, Flour and Fish Products Processor, Grupo Pando)
6. Non-BOP Markets are still underserved and are preferred for product introduction (margin beats volume), thus BOP markets take a backseat to wealthier markets and higher product margins. This preference explains the prevalence of “trickle down” sub-brands and the dominance of global companies in the region.
OPPORTUNITIES FOR PRIVATE SECTOR SOLUTIONS As mentioned in barriers, this section focuses on opportunities that are specific to the private sector and represent feasible starting points for collaboration between different sectors. These opportunities are a result of detailed surveys, interviews and research and are categorized in a series of bullets and subbullets below. Consumer Education is a unanimous starting point for partnership between public and private sector and a clear need. Leverage public campaigns with private product offerings and AGREE on a clear, consistent message that educates and empowers consumers. “.... Education should go beyond one brand and be joined by an institutional (Gov't) campaign that has credibility. Without education to make people understand that balanced nutrition is the base of child development, whatever efforts to offer fortified foods just become more confusing to people.... (General Mills, Venezuela)
Better Information that provides better knowledge of BOP market, its different subsegments and size. o
Fill Nutrition Information Gaps- lack of information on some nutrition problems limits the public and private sectors ability to develop solutions. More information may result in product development opportunities. Examples of information gaps: anemia, “hidden hunger/poor nutrition,” relationship between breastfeeding statistics and malnutrition, efficacy of iron fortification and fortification innovations.
"What is the potential income and profit that the BOP market represents?" How can we optimize our cost of production to reach the BOP".- (El Salvador Juice and Beverage Company (LivSmart)
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o
Sharing Lessons Learned-between countries and within countries on successful and unsuccessful public and private initiatives will encourage innovation and adaptation. Publicly recognize successful programs, partners and products to promote a “culture of nutrition” and educate across sectors.
Product & Market Development: companies should be rewarded or compensated for taking the riskier decision to create new products or to expand their ability to new BOP markets; these areas are likely to receive support from institutions like GAIN and IADB. o
Local Products: that combine BOP producers and BOP value chain with technology and know-how of larger companies (hybrid value chains) such as: panela, papilla de banano, quinoa, amaranth, choclo, local fruits and vegetables, amaranto, agave, etc.
"Use the cheese processing, liquid byproduct to make a high protein product for BOP market. This "suero de leche" is generally only used for animal food. Small, rural cheese producers could be trained to do this… (Panamá, Bonlac, Milk products) o
Accessible Technology: technical assistance to small and medium size companies to address resource gaps. Addresses commentary by small businesses that the BOP market by nature favors multinational, large companies. What tools will make best use of small-med company opportunities?
Partnerships for education & positioning of firms. There is value in partnerships with the Government, but it is key to move from alliances and photos to tangible coordination efforts. o
Private-private/NGO- partnerships that leverage government education efforts (coordinated) and link education with private sector products
Government Decisions that really promote private sector investment in nutritional solutions. Advocate for indirect intervention: fortification innovation incentives, distribution advantages, positioning promotion and clearly targeted social programs. "There should be an agreement between government health institutions and business to define an objective and follow it with complimentary regulations. Currently there is not a greater commitment nor interest by both parties to develop this market, it least not for our type of products" (Panama Meat company, Kiener)
o
Distribution networks-that are tailored to hard to reach BOP areas, combine several private businesses and products into one distribution route. Piggyback on top of government food assistance channels.
o
Fortification Enforcement- for fortification related products in order to understand impact of fortified products. Design enforcement to combine both internal and external monitoring and give rewards and incentives to companies that exceed standards. (Publish a Best Fortified Products List, etc.) 28
"The more businesses that join this initiative, the better and more options there will be for the population"( Qualtia, Xignux, Meat and cheese Company, MĂŠxico)
o
Monitoring & Evaluation-that measures results of nutrition initiatives and provides participative roles for the private sector and consumers. M&E is currently sporadic and program impact is difficult to quantify. Develop indicators that help the public and private sector measure success, with both quantitative and qualitative data.
BOP Value Chains-further development of products that incorporate BOP producers and distribution networks into the conventional value chain. Share successful examples of companies that use these techniques and establish a criterion of conditions that enable successful BOP value chains. Show â&#x20AC;&#x201D; with tangible results â&#x20AC;&#x201C; that BOP value chains result in increased impacts for BOP consumers (increased income means better nutrition, education, health care, etc.)
CONCLUSION Private sector opportunities for further investment in nutrition solutions exist and require a better understanding of the BOP market advantages and the return-risk relationships involved, both in the short and in the long term. There is ample capacity in larger companies to invest in positioning through educational efforts and develop products with a long term perspective, but there are also opportunities for medium and small companies to serve specific needs that are underserved by larger companies, possibly caused by minimum return hurdles. There is also a broad space for profitable coordination between public and private sector and among private players, as synergies from dialogue remain to be discovered.
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