OBG talks to John Martin Miller, Chairman and CEO, Nestlé Philippines

Interview: John Martin Miller

What has been done to modernise the sector and facilitate the development of coffee production?

JOHN MARTIN MILLER: As the largest buyer of Robusta coffee in the Philippines, currently purchasing 80% of domestic crop, we are only able to source between 20% to 30% of our needs locally. While in terms of yield, the Philippine coffee bean is very good quality, and the country’s topography generates the right conditions and climate for coffee farming, production does not compare to Vietnam. There, annual output exceeds 1m tonnes, whereas the Philippines produces around 20,000 tonnes. Modernisation of Philippine agriculture is perhaps still an aspiration at the moment.

The main effort is to get people back into the agriculture sector given that the country remains largely rural. The government has acknowledged the importance of agriculture for employment generation in these areas, particularly in Mindanao, where it accounts for 60% of the economy.

In terms of the importance of agriculture in nation-building, the government’s agenda is aligned with the private sector. Both recognise that for businesses to progress over an extended period of time the community and nation they operate in also has to do well. The government has brought together a number of stakeholders under a national convergence initiative for rural development, including government agencies, different departments and the military. These initiatives would address the identification of suitable land distribution and training for farmers. To complement these initiatives, the government has allocated around P74bn ($1.78bn) for agriculture-related infrastructure, connecting farms to market roads and improving irrigation.

How can expanded research and development operations unlock latent potential?

MILLER: This is where the private sector comes into the equation. For instance, we have a research centre in Tours, France where we have developed the ideal coffee bean to grow in the Philippines. Through natural processes, we can accelerate the evolution of this crop and achieve a certain yield domestically. Once we develop the seedlings, they are sold at a cost of P12 ($0.29) to farmers and the government, which then supplies them to farming communities. The objective is not to profit, but to get more and more people growing coffee and to ensure a stable supply from them.

Considering how dispersed farmers are throughout the country, it is also crucial to facilitate transport. To this end, Nestlé has set up buying stations in main coffee-growing areas so farmers do not have travel far to market their crops. Given that 40% of our purchases come from small farmers, it is also important to enable access to financing, guaranteeing they get paid upon delivery so they are able to reinvest in their operations. The goal is to create a virtuous cycle whereby better crop and high yields, combined with easy access to the market and guaranteed world market prices, act as an incentive for local suppliers to develop their interest in coffee farming. Another aspect is technology transfer, ensuring coffee farmers are adhering to the highest global standards and that they are rewarded accordingly if they reach a certain level.

To what extent can coffee bean production influence Mindanao’s socio-economic transformation?

MILLER: Challenges in Mindanao are multifaceted. From an economic angle, creating employment and ensuring that small farmers get a fair return for their sweat equity is vital. Coffee farming is only one element of that solution but hopefully will make a key contribution. At the other end of the supply chain, we also ensure demand generation by continuing to grow our business, creating assurance for the farmer that there will be a market for their crop. This model of creating shared value results in a win-win equation. Coffee is ideal for the Philippines as it complements other crops that are developed on a short-term, contractual basis. As the coffee cycle takes around 18 months from plantlet stage to get to the first harvest, it can be intercropped.