Pepsi Hits the Farm

Could it be that global philanthropy is poised to become the new vogue? You may have seen this recent article from the New York Times which examines a pioneering venture between PepsiCo and several agricultural cooperatives in the Jalisco Mountains of San Gabriel, Mexico. There Pepsi has sponsored several hundred farmers in growing corn for use in soda production at nearby facilities.

The new partnership cuts out all middlemen, giving the farmers a purchase guarantee, enabling them to raise the size and price of their crop. There's also a multi-pronged structure of social, environmental and business benefits.

Reports Stephanie Strom:

PepsiCo’s work with the corn farmers reflects a relatively new approach by corporations trying to maintain a business edge while helping out small communities and farmers. Begun as a pilot project by the foundation affiliated with the company’s Sabritas snack foods division, it is expanding to about 850 farmers to develop a local source of sunflower oil, which the company needs to improve the nutritional quality of its products.

The corn project saved PepsiCo transportation costs because the farms were close to two of its factories, and the use of local farms assured it access to types of corn best suited to its products and processes. “That gives us great leverage because corn prices don’t fluctuate so much, but transportation costs do,” said Pedro Padierna, president of PepsiCo’s operations in Mexico, Central America and the Caribbean.

The social benefits of the corn program are obvious in higher incomes that have improved nutritional and educational standards among the participating farmers, not to mention its impact on illegal immigration and possibly even the reduction of marijuana production.

For the first time, many of the participating farmers have taken in enough revenue to open bank accounts and pay taxes on their income, elevating the rural community's financial aptitude, as well as stimulating the local economy.

At its core, though, the project is about boosting revenue for Pepsi. In that respect, it's a departure from most corporate philanthropy, in which the parent company heaps a healthy donation on some organization, rakes in the good PR, but then moves on.

“We are seeing an increased focus by companies looking to see how they can use their core capabilities for public good rather than simply writing a big check,” said Gaurav Gupta, regional director for Asia at Dalberg Global Development Advisors, a consulting firm focused on international development. “They’re starting to realize that the marginal cost of doing a little extra good produces such a great impact — and not only in terms of good will, but also because it’s good for business.”

Based on the cost-cutting success of the venture, Pepsi has announced it will widen its margins, investing $52 million over the next seven years to sponsor local production of sunflowers for use in generating sunflower oil to replace palm oil in some of its drinks, a change that will carry nutritional benefits.

The Jalisco partnership illustrates how corporations can tweak practices to boost social benefit, as well as their bottom line. We've seen this before, but not from a giant like Pepsi. If this pilot program and the ones to follow continue to blossom, PepsiCo might soon be ready to add scale and scope to the equation.