Lessons from Business

CARGILL INDIA PRIVATE LIMITED: LEADING BY EXAMPLE IN FORTIFYING EDIBLE OIL

SUMMARY
of Indias children are malnourished.1 Micronutrient deficiencies alone are estimated to cost India $2.5 billion annually,2 while total productivity loss due to malnourishment is about $29 billion.3 Given the countrys high incidence of malnutrition and its detrimental impact on development, ensuring that the required levels of vitamins and minerals reach the population at large is critical. Among the relevant deficiencies are vitamins A and D due to their proven link to increased disease burden and impaired human development. Vitamin A is essential for healthy sight, growth, and immune system function, and sub-clinical Vitamin A deficiency (VAD)4 can cause eye disorders leading to blindness. VAD is a critical health problem in India. For instance, the rate of the deficiency among pre-school children is as high as 57 percent, and is estimated to precipitate the deaths of 300,000 children per year.5 Vitamin D plays an important role in the absorption and deposition of dietary calcium in the bone mass. Vitamin D deficiency (VDD) is also prevalent in India,6 with recent studies revealing significant levels of VDD among all age groups. The deficiency is associated with rickets and several other bonerelated diseases. The International Life Sciences Institute (ILSI)-India underlines that the country has a high level of micronutrient malnutrition and there is an urgent need for corrective action, such as diet diversification, fortification and supplementation. Of these three approaches fortification is often seen as true efficient because it has the potential to reach all income groups through basic food items, with minimal changes in eating habits required. It also carries a comparatively lower cost to implement, and has been proven to yield significant results in a short period of time. The Global Alliance for Improved Nutrition (GAIN) agrees that fortification is an effective approach to fighting malnutrition in India. GAIN supports large-scale fortification of staple foods and condiments through National Food Fortification Programs in countries with high levels of vitamin and mineral deficiencies. GAINs projects are designed to cater to the specific nutritional needs and dietary preferences of individual countries to ensure that micronutrient requirements are met. Through the GAIN Business Alliance, the organization also mobilizes the private sector to deliver high quality, nutritious and affordable food to low income consumers, and facilitates transfer of best practices and lessons learned amongst member companies committed to the fight against malnutrition. The ideal vehicle for fortification must be consumed widely and regularly enough to be considered a staple food, for example, flour, sugar, salt or condiments.

In July 2008, Cargill India Private Ltd. publicly announced its decision to fortify its top selling edible oil brands in India with the essential vitamins A, D, and E. Oil fortification as a method to provide nutritional benefits is not a new concept, but a private company willingly and independently offering fortified products as part of its core portfolio is commendable. Most commonly, fortification efforts involve government-sponsored programs coordinated with the private sector through partnerships, grants and incentives, in order to improve levels of nutrition on a national scale. In this case, a private company committed to engage in the fight against malnutrition, by offering a healthier choice to its consumers in a country with the most significant levels of malnutrition in the world. This program was Cargills first and most significant step towards achieving the goals of Nourishing India, a set of programs designed to improve nutrition in the country. As a result of this innovative approach to community engagement, Cargill is improving brand value, setting a standard for competitors, and creating impact in a sustainable and profitable way.

INDIAS NUTRITIONAL PARADOX

212 million of the 1.14 billion Indians are undernourished the highest incidence in the world by far. - Kuldip Nar, Managing Director, Aidmatrix India

FORTIFICATION: A STEP IN THE RIGHT DIRECTION

Fortification is definitely needed in India. Cargills initiative of fortifying its edible oils is targeting critical public health issues. - Rekha Sinha, Executive Director, International Life Sciences Institute (ILSI), New Delhi

In recent years, India has seen unprecedented economic growth and is one of the global leaders in agricultural production. Although the country is a selfsufficient food producer, it is still home to one quarter of the worlds hungry population, and an estimated 40 percent

In India, cooking oil is used nearly universally, with a 99 percent household penetration rate. Furthermore, oil can carry fat-soluble vitamins such as A, D, and E. Food fortification is the most efficient approach to delivering micronutrients because it is generally socially acceptable, requires minimal changes in eating habits, is low-cost, and often has a delivery system already in place. How can a large-scale producer of edible oil translate these facts into creating an impact?

was discussing how to integrate this new requirement when Mr. Chaudhry had a breakthrough: If we are already modifying our process to fortify our production for Gujarat, why not take this opportunity to fortify all of our oils across the country? Thinking back to earlier in the year, Mr. Chaudhry had attended GAIN Indias CEO forum, where he had first learned about the possibility of oil fortification. As an active Business Alliance member, Cargill India would also be attending the 2007 GAIN Business Alliance Global Forum, an annual event that brings together business leaders to learn how to apply their resources to accelerate and scale the improvement of nutrition for lowincome consumers. Here, the company would have the opportunity to learn from like-minded companies who are active in the fight against malnutrition. INDIA OIL CONSUMPTION FACTS Average oil consumption per person is about 33g per day,7 and rising gradually along with rising income levels and GDP growth. Consumption levels are widely varied according to income levels the populations richest 10 percent consume four times more than the poorest 30 percent.8 Refined oil sold in individual packages (branded oil) accounts for over one fifth of total oil consumption, and is growing 15 percent annually as consumers shift to refined oils from other cooking fats due to increasing health consciousness.9

REALIZING THE VISION

Feasibility and long-term outlook were there from the start. - Shailesh Khurana, Head Marketing and Regional Business Manager Fortification of Cargills core product offering would not only demonstrate the companys commitment to Nourishing India, but would potentially enhance brand loyalty over time through increasing consumer awareness of the added value. In order to succeed in these objectives, a comprehensive and sustainable model had to be implemented. Change in strategy and process was necessary for the entire business, including legal, production, packaging, marketing and sales. After the initial decision to fortify was taken, several hurdles remained to be cleared: would regulatory authorities approve the change? Did the companys refineries have the capacity to add a step to their process? How should the branding and packaging be changed? Would consumers be receptive? The first challenge was obtaining certification from the regulatory authorities. This initial step involved several months of negotiation with different levels of government including the health secretary and the newly constituted Food Safety and Standard Authority of India (FSSAI). The company eventually received approval from all necessary officials and pushed ahead with the program.

FIT WITH CORE BUSINESS

Why not fortify nationally? - Siraj Chaudhry, Country Head, Cargill India Cargill is an international producer and marketer of agricultural products and services. Its wholly owned subsidiary, Cargill India Private, Ltd. (Cargill India), has had a presence in-country since 1987 and entered Indias edible oils business in 1998. In 2004, Cargill India consolidated its several other packaged food businesses to focus solely on refined oil products, and has since been successful in expanding its two brands, Nature Fresh and Gemini, as well as its market share. While growing the business, the company has increasingly leveraged its position as a food producer to participate in Indias fight against malnutrition through a series of actions including collaboration with government and NGOs, donations, and awareness creation through advocacy. These initiatives have recently been coordinated into a single concept the company refers to as Nourishing India, which fits with the parent companys mission, to become the global leader in nourishing people. The GAIN Business Alliance is an alliance of member companies committed to the fight against malnutrition. The Alliance serves as a platform for networking, knowledge sharing and partnership building to drive market-based solutions to addressing malnutrition. In early 2006, Siraj Chaudhry, Country Head, called together his top management team to discuss strategy for recent changes in Indian food regulations. Fortification had just become mandatory for edible oils produced and sold in the state of Gujarat, where the company had a large plant operation. The team

The managers contemplated the idea of making additional investments in a competitive environment. How would this affect their market position? Their bottom line? Mr. Chaudhry emphasized the obvious fit with the companys mission and scope. Cargills oil products already reached an estimated 25 million consumers, and by including micronutrients, the company could provide a more nutritious product to those consumers relatively quickly. Management understood that the company had the opportunity to take part in the fight against malnutrition as part of its core business and came on board. Now, remaining technical details would need to be resolved. Cargill gathered scientific data regarding dosage and recommended daily allowances of vitamins A, D, and E, and prepared to modify its entire business operation to incorporate fortification.

Repackaging a large number of SKUs proved to be a challenge. Market research and product testing were conducted while the addition of micronutrients was pending approval. Consumer surveys and interviews revealed a general interest in improving health through diet, which would be a useful insight for branding and sales forecasting. In the laboratory, technicians tested fortified samples for taste and quality to prepare for the pilot launch. Operations were adjusted at the companys refinery in Kandla, Gujarat, in

order to integrate vitamin procurement, storage, mixing and labeling into the plants processes. While the mixing step was a simple add-on at the end of the refining process, storage and packaging were more complicated to modify. After about six months, however, a seamless process was achieved and ready for replication. One of the key successes of the project was winning management buy-in from global headquarters in Minnesota. Head office proved its support for Indias initiative by committing funds for a large infrastructural improvement, a portion of which would be allocated to fortification. This global backing strengthened the subsidiarys sense of purpose in carrying the initiative forward. At the time fortification went live, Cargill estimates that its edible oils were reaching about 25 million consumers per month. In a highly competitive and price-sensitive market, raising awareness among those consumers would be the next strategic step in building the fortification business model.

SHIFTING ATTITUDES
This is a competitive advantage that were happy to lose. - Siraj Chaudhry, Country Head Market studies have shown that consumers primarily value quality of oil, with added micronutrients as an extra benefit. Cargill aims to increase the perceived value of fortification to consumers while maintaining each brands reputation for quality. According to ILSI, television is the best medium for educating the Indian population, and Cargill estimates its television advertising campaigns reach about 65 percent of the population. Branding was an important vehicle used to foster demand for the fortified product. The brands were redesigned in order to emphasize the oils health benefits, with the ultimate goal to internalize the importance of consuming fortified products vs. unfortified. But since household consumers only account for one quarter of total sales, a large-scale training campaign was necessary for educating commercial distributors and sales agents. The company put a high level of priority on ensuring that its sales agents were thoroughly capable of communicating the importance and benefits of fortification to customers. Generating demand for fortified products will be a long process, but management has an optimistic outlook for the future. Both to keep the price point competitive and to emphasize the social motive behind the program, the company refuses to pass on the cost of fortification (an estimated $3-4 million) to the customer. And the business is already beginning to see results. Since fortification began, retailers have experienced a 10 to 20 percent increase in sales of Nature Fresh and Gemini, and attribute fortification as one of the reasons for the increase. These promising initial results have led to at least one competitors decision to fortify. This may detract from the fortification-brand association the company is building. However, Mr. Chaudhry believes that considering fortification as a competitive advantage would be missing the point. He sees Cargill as an example for others, with a long-term vision that every oil will eventually be fortified. The lack of government incentives and low consumer demand for fortified products discourage other companies from fortifying, and Cargill hopes its program will pave the path for them. Cargill and GAIN also engage in advocacy efforts

with the central and state governments to promote fortification, which has resulted in some positive developments with the FSSAI in creating fortification policies.

This consumer, wife and mother of two, has recently switched to buying Nature Fresh due to its additional health benefits she learned about from an advertisement on TV. The ad prompted her to speak with her doctor about how to ensure her family consumes the right amount of daily vitamins and minerals. According to Mr. Chaudhry, Cargill, in this scheme, is an enabler more than a doer an enabler to creating greater value for the Indian population

DELIVERING A FORTIFIED PRODUCT

ENVISION Commit to undertake change

REACHING THE BoP

In a country as diverse, paradoxical, and vast as India you need to have multiple solutions. We started with fortification. - Ishteyaque Amjad, Director of Corporate Affairs, Cargill India

AUTHORIZE Seek and gain regulatory clearance RESEARCH

Conduct consumer surveys for acceptability

TEST

Test feasibility and run pilot plant project

TRAIN Educate sales force about fortification

DELIVER Roll out sales and distribution of fortified product

The companys ultimate challenge remains that the severely malnourished segments at the base of the pyramid (BoP) still have little to no ability to afford or access fortified products. The company sees its role in this area as a partner with government, aid organizations, and other stakeholders to improve the countrys nutritional indices. Given that Cargill is a significant producer of a basic food commodity used by all socio-economic segments, the company realizes it has an important role to play in nutrition. Fortifying its core product offering is the companys first step in fighting malnutrition more comprehensively through its Nourishing India initiatives. Through these programs, the company aims to reach Indias most disadvantaged areas in order to make a sustainable health impact.

MARKET Launch brands and advertising campaign

INVEST Build and maintain new infrastructure PUBLICIZE

Engage in formal media campaign Nourishing India announced

REPLICATE

Apply fortification across all units

GROW Expand distribution channels

PARTNER
Leverage resources to improve nutrition through partnerships with NGOs, IOs, and government

actors across sectors must cooperate to create general awareness about meeting daily nutritional needs and strengthening existing distribution channels, and introducing financially sustainable models for fortification. What started as a purely social initiative transformed into a serious business commitment to Nourishing India. And the company is not acting alone: its partnerships with international players in the nutrition sphere such as GAIN, WFP, and others are generating initiatives NOURISHING INDIA In line with Cargills vision to be the global leader in nourishing people, the company is committed to leveraging the companys leadership in food and agriculture to tackle complex challenges of nutrition and hunger. Nourishing India is Cargills multipronged concept to carry micronutrients to the masses through collaboration, donations, advocacy and corporate engagement with government and NGOs. Cargill provides grants for research, education, and food and nutrition programs, and supports several programs aiming to make a sustainable health impact, e.g.: Collaborates with the World Food Programme (WFP) to conduct a fast track strategy to improve nutrition in Madhya Pradesh Partners with CARE in Kutch region of Gujarat to address education and livelihood issues, reaching out to more than 45,000 children and 9,000 households. Plays a leadership role in collaborating with the Global FoodBanking Network and Aidmatrix to establish the India Food Banking Network Supports the NGO Akshaya Patra via an international grant for its school feeding programs

across the country to target the neediest segments of Indias population. Cargill India has also succeeded in mobilizing its human capital behind fortification and its meaning. The internal results are clear: the staff is motivated, aware, and engaged. The sense of pride and personal ownership is tangible: employees, even the new recruits, look forward to their volunteering activities within Nourishing India. In their words, they get a different kind of feeling when interacting with the local surrounding communities. Nourishing India is about how people can fortify themselves. - Manish Mishra, Packaging Manager, Cargill India Other multinational companies in India are noticing. The US-India Business Council (USIBC), a business advocacy organization comprised of the United States and Indias top companies, highlights Cargills efforts as an example to its members. As Anku Nath, Director, Trade Policy Advocacy, points out, Cargill is one of the best examples of how a company can go beyond the regular scope of social activities: Instead of helping just one small community, Cargill India impacts millions of people, she says. Through its efforts, Cargill hopes to raise awareness among other leaders in business and politics to help win the fight against malnutrition in India. In the meantime, because the company has positioned its corporate engagement at the heart of its business model, Cargill is improving its brand value, inspiring its employees, and setting the standard for its competitors. In its own way and capacity, the company is creating a lasting impact.

In a country where informal distribution channels account for up to 90 percent of sales, word of mouth is key to success.

THE BIG PICTURE

Wherever we do business, we must also serve those communities. Corporate engagement is not just a fad, its essential. Shailesh Khurana, Head of Marketing and Regional Business Manager Cargill India has proactively assumed its role in the fight against malnutrition in the country. The company found a match where its core business strengths and corporate values match a vital need in society. As an international leader in the food industry, Cargill India has overcome challenges to add social value to its business by providing fortified products in a market-driven and sustainable way. While the companys fortification efforts address a certain level of Indias undernourishment, the company considers this initiative a first step. In order to fully meet the countrys nutritional needs,

This case was prepared by Nisrine Danaf and Rebecca Spohrer (University of Geneva, HEC, IOMBA), and Simon Hagemann. The field research and compilation of this case was made possible by financial and logistical support from the Global Alliance for Improved Nutrition and Cargill India Private Limited. The authors would like to thank the following people for their time and invaluable contributions to their research: Siraj Chaudhry, Country Head Ishteyaque Amjad, Director, Corporate Affairs S. Viraraghavan- Sales & Marketing Director Shailesh Khurana, Head, Marketing and Regional Business Manager Ravi Parmeshwar, Head, HR Ajay Sudevan, Head Sales Development John Joseph, General Manager, Operations Cargill Cares Council members Kandla plant employees Gurgaon office employees Sumi Sood Rita Kabra Anu Malhotra Shobha Jain Gina Saini Matthew Mcilvenna, Deputy Country Director, World Food Program, India Gunjan Kohli, Donor Relations Assistant, World Food Programme, India Kuldip Nar, Managing Director, AidMatrix Angela Nar, Vice President Programmes, Aidmatrix Rekha Sinha, Executive Director, International Life Sciences Institute (ILSI), New Delhi Anku Nath, Director, Trade Policy Advocacy, USIBC Manish Agarwal Ajay Sharma Rajiv Joshi, Category Head Staples, Spencers Gurgaon Kirstin Wulczyn, Associate, Business Alliance, GAIN Ruchika Sachdeva, Partnerships Associate, GAIN India
Gragnolati, M., Shekar, M., Das Gupta, M., Bredenkamp, C., and Lee, Y. Indias Undernourished Children: A Call for Reform and Action. HNP Discussion Paper, August, 2005. 2 Gragnolati, M., Shekar, M., Das Gupta, M., Bredenkamp, C., and Lee, Y. Indias Undernourished Children: A Call for Reform and Action. HNP Discussion Paper, August, 2005. 3 Rao, V. Tackling Indias Malnutrition Problem, Economic Times Mumbai, June 18, 2009 4 Subclinical VAD, defined by a serum retinol concentration of less than 0.7 mol/L, is associated with increased vulnerability to a variety of infectious diseases and, therefore, an increased risk of mortality and morbidity among young children and pregnant women. 5 Gragnolati, M., Shekar, M., Das Gupta, M., Bredenkamp, C., and Lee, Y. Indias Undernourished Children: A Call for Reform and Action. HNP Discussion Paper, August, 2005. 6 Alok Sachan. Vitamin D Deficiency in pregnant women. Department of Endocrinology, Sri Venkateswara Institute of Medical Sciences, Tirupati) 7 Cargill Nourishing People Nourishing India write up 8 Ramesh, P. and Murughan, M. Edible Oil Consumption in India. Asia and Middle East Food Trade Journal (AMEFT), March 2008, p. 3. 9 Cargill Nourishing People, Nourishing India Power Point Presentation
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