Inclusive Business Insights: CSR Done Right

The Business Innovation Facility has supported inclusive business initiatives that mark a shift away from the traditional approach of Corporate Social Responsibility (CSR) to commercially-driven, socially-integrated approach. In Orissa (India) we have been providing technical input to a milk business, and our recommendation is just the opposite: bring in a CSR initiative that will fill the missing gap in the inclusive model.

The milk business under discussion is a privately run dairy company in India that aims to provide healthy and ethically sourced milk products in Indian cities. The company uses ethical sourcing processes, and innovative processing and packaging technology to develop a premium product. The company sought Facility assistance in dealing with a specific challenge related to scale – ensuring milk producer loyalty to secure volumes and quality in the supply chain.

The company has successfully grown to a daily procurement of 15,000 litres per day of fresh milk supplied mostly by small holder farmers. But the company aims to scale to 200,000 litres per day. This will be difficult to achieve without gaining continued patronage of farmers that are also organized in associations and milk cooperatives, who make their own decisions in an increasingly competitive procurement market. Supply expansion is not secure and the company stands the risk of losing its suppliers to competition over incremental monetary gains.

The Facility team explored various options, such as geographical expansion of coverage area to include more suppliers, or alternative ways to secure patronage such as by forming producer’s organizations like cooperatives. However, each of these came with added logistical challenges and costs that could not be justified by benefits. The solution proposed by the Facility was to create a parallel CSR initiative or non-profit affiliate that works towards improving the livelihoods of the small milk producers in its procurement area. The CSR entity would provide training and capacity building, dairy extension, artificial insemination services, inputs such as veterinary medicines and facilitate credit from banks and MFIs to buy cattle. This will help engage the supplier community as they receive additional services and support provided by the not for profit affiliate of the company. The affiliate may also leverage its mission of improving livelihoods of the poor to access development funds from government and non-government sources to carry out these activities.

The company will not be the first one to adopt this strategic CSR approach. Several large multinationals have taken the similar approach to develop and empower the supplier communities in which they work. PepsiCo has co-developed a technique to implement an eco-friendly rice seeding technique for farmer it procures from. F&B and FMCG conglomerate ITC’s eChoupal portal offers information, products, and services to farmers to help them realize the best prices for their produce thereby avoiding the customary hassles associated with selling at the local mandis. Daawat Foods Private Limited that owns a Basmati rice milling unit near Bhopal provides extension services to farmers in the adjoining districts both to convert soybean farmers to Basmati farmers and to improve the productivity of farmers who have traditionally been doing Basmati cultivation. Both ITC and Daawat Foods Private Limited have successfully accessed government funding under the Agriculture Technology Management Agency (ATMA) programme that is the flag ship agriculture extension programme of the Government of India. Mahindra and Mahindra are implementing watershed development programmes in geographies from which they procure farm produce in Madhya Pradesh. Almost 90% of the resources for implementing the programme are contributed by the National and the State governments.