Coffee - The Supply Chain
A Nestlé case study

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Page 6: Buying Direct

Nestle 5 Image 3In coffee-growing countries where Nestlé also manufactures for export or local consumption, it has a policy of buying coffee direct from the farmers. The company offers a fair price to the farmers, and so ensures regular supplies of guaranteed quality for its own factories. Higher quality commands a higher price - a premium that Nestlé is happy to pay, since good quality raw materials are essential to its business. In countries where direct buying takes place, there is a widely advertised Nestlé price, and a minimum base price. By providing a reference level for growers, other traders are forced to keep their offer prices competitive.

Nestlé began its direct buying policy in 1986 and the amounts involved have steadily increased. In 1998, around 15 per cent of its green coffee purchases were bought directly. As an example, in the Philippines, farmers bring their produce to Nestlé's buying centres situated in the coffee growing regions. Quality is analysed while they wait and growers are paid on the spot. In 1998, direct purchases accounted for over 90 per cent of the green coffee destined for its two instant coffee factories in the country.

Nestlé | Coffee - The Supply Chain