1

Shreya Kumar
The Politics of International Economic Relations X12.9251
Final Paper
April 14, 2011

Nestl Jamaica & The Impact of Agricultural Trade Liberalization on Jamaicas Dairy Industry: A
Case Study of an MNCs Response to Local Crises

Introduction
Multinational Corporations (MNCs) are very often the subject of the same, long-running, and
polarized debate. The proponents claim that MNCs are the agents of globalization that have brought
greater wealth, power, and opportunity to the developing world. On the other hand, the critics blame
MNCs for being too motivated by profits and hold them responsible for problems that range from
environmental degradation to the creation of a global race to the bottom. However, regardless of
ones personal opinion, it is undeniable that MNCs are a source of the foreign direct investment that
every developing country desires, as it has the potential to increase investment and economic growth
which has been stunted due to the scarcity of capital.

Over the past few years, MNCs have incorporated corporate social responsibility (CSR) into their
business models to prove their commitment towards ethics and community involvement. However,
this commitment is questionable to say the least. While MNCs have been known to associate with
multiple charitable causes, how much does an MNC do when it is directly involved in the unfolding
of a crisis? This paper aims to investigate the credibility of an MNCs claim to act in the interest of
local communities by comparing it to its real life actions. Whereas there are countless cases, this
paper will study the activities of Nestl- JMP, the Jamaican subsidiary of one of the worlds largest
food and nutrition companies: Nestl S.A., and ascertain to what extent this MNC acts with regard to
the well-being of the residents in its host country.

Jamaicas Dairy Sector: The Story of The Lost Jamaica Hope
Milk has always been part of the Jamaican staple diet, however, dairy production was difficult in the
countrys tropical climate; therefore, most of the islands milk was imported. That is until Jamaican
Scientist, Thomas Lecky, developed the Jamaica Hope, a breed of tropical dairy cattle that is a
combination of the British Jersey cow which are small and require light feeding, the Holstein cow
which are heavy milk producers and the Indian Sahiwal breed which are disease resistant and
2

adapted to the tropics.
1
According to Dr. Byron Lawrence, Head of Jamaica Hope Breeding
Programme, the Jamaica Hope not only survives under the hot, humid tropical environment that
exists in Jamaica but also produces good quantity of milk.
2
Studies have shown that it produces an
average 12 litres of milk a day, 3 times that produced by other cattle on the island.
3
Bred more than
half a century ago, the Jamaica Hope was a major step toward sustainable rural development in the
country.

The Jamaica Hope had all of the potential to help turn Jamaicas dairy production. In fact, in the
1980s the outlook for Jamaicas dairy farmers had been good. Dairy Production more than doubled
from 17 and a half million litres in 1981 to 38 million litres by 1992.
4
Jamaica's local milk production
was on a strong upward climb. In the five year period of 1987-1992, the industry produced over 25%
of the nations consumption, a number which was predicted to increase.
5
With such rapid progress, it
was hard to believe that this would change entirely in as little as one year.

The Common Agricultural Policy: Competing with EU Subsidies
Things took a turn in 1992, when the Jamaican Government signed a series of new loan agreements
with the World Bank and IMF. The implementation of the IMF/World Bank structural adjustment
programs (SAPs) in the 1990s required Jamaica to adopt a liberal trade regime, among other things,
with the idea of restoring macroeconomic stability and reducing imbalances and deficits. The
conditions attached to this structural adjustment loan required the country to agree to open up its
markets to other countries produce. Due to this, the prevailing duties on imported milk products
were drastically reduced to just 5 percent.
6
Consequently, this led to an increase in dairy imports,
particularly of powdered milk from the European Union. The EU is the major source of imports of
milk powder to Jamaica. The reason why European exports are able to flood the Jamaican market can
be explained by the Common Agricultural Policy (CAP), which was a system of subsidies introduced
in Europe during the 1960s to encourage farmers to boost productivity to feed Europes rapid post

1
De Haas, Joost, dir. When the Cows Come Home. Prod. Luke Gawin. Documentary. Television Trust for
the Environment (TVE), 2004. Web. 3 May 2010.
2
Ibid.
3
Neufville, Zadie. "Dairy Farmers Pit 'Jamaica Hope' Against Subsidies." Inter Press Service, 17 Mar.
2004. Web. 03 May 2010.
4
Jamaica Dairy Development Board. "Dairy Facts and Figures." Agricultural Data - MOA. Ministry of Agriculture
& Fisheries. Web. 03 May 2010.
5
"Chapter 7: Jamaica.". FAO, 2000
6
Knips, Vivien. Developing Countries and the Global Dairy Sector Part II: Country Case Studies. Working paper
no. 31. FAO Pro-Poor Livestock Policy Initiative, 13 Nov. 2006. Web. 3 May 2010.
3

war population growth.
7
EU subsidies helped develop European agriculture, and allowed Europes
dairy farmers to invest in new machinery and technology. However, this resulted in a huge increase
in milk production which began to exceed domestic demand. The resulting surplus was then
dumped in the world market to countries like Jamaica.

Subsidized European milk imports have had a detrimental impact on the growth of Jamaicas dairy
industry. In the 1960s, there were 4,000 small dairy farmers. By 1996, following the arrival of cheap
subsidized milk products, this had shrunk to 470 and by 2002 there were just 90 left.
8
An NGO study
estimated that the EU's milk powder export prices are around half the costs of production. The total
market for liquid milk consumption in Jamaica is estimated at 150 million litres and Jamaican milk
producers now account for only approximately 18 million litres which amounts up to approximately
12% of the Jamaican domestic milk market.
9


Nestl-JMP Switches Sides
Subsidies changed the structure of Jamaicas local milk market and dairy industry. Faced with the
availability of cheap milk powder imports, even Jamaican food companies cut back on purchasing
from the smaller farmers based in rural areas. In 1993, just a year after Jamaica opened up its
markets, millions of dollars of unpasteurized local milk had to be discarded and several dairy farmers
closed down operations. At present, the industry has reduced by nearly 60 percent.
10


Prior to trade liberalization, the Jamaican diary industry was based on an infrastructure in which milk
companies, with the support of government, would collect, process and sell milk from the rural
farmers to the urban population.
11
This linked the poor rural producers with urban consumers.
However, the cheap European subsidized milk powder broke down this infrastructure. Nestl
Jamaica, which has been operating in Jamaica since the mid-forties, and used to be a major buyer of
fresh milk from rural local farmers, steadily reduced its purchases.
12
According to Eurostep
(European Solidarity Towards Equal Participation of People) until 2000, Nestl collected 70 percent
of all domestically produced milk and thereby supported the Jamaican government in developing the

7
Griffith, Matthew. Case Study of the Impact of CAP on a Developing Country: Importation of Milk Solids into
Jamaica from the EU. Development Review. Trcaire - Working for a Just World, 2002. Web. 1 May 2010.
8
Knips, Viven. Developing Countries and the Global Dairy Sector Part II
9
Griffith, Matthew. Case Study of the Impact of CAP on a Developing Country.
10
Ibid.
11
Ibid.
12
"Dumping in Jamaica." European Solidarity Towards Equal Participation of People. Eurostep, Nov. 1999. Web.
3 May 2010.
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dairy industry.
13
Ever since then, however, Nestl JMP began to reduce its purchases of fresh milk
from local farmers.

In 2000, Nestl made considerable changes to downscale its manufacturing operations. It even met
with the Jamaican Government to inform them of their decision to cut back on raw milk purchases by
30% because condensed milk sales were down due to competition from the EU milk powder.
14
The
year after, Nestl stopped collection of churned milk and only bought milk from the small farmers
who were prepared to take their milk to four locations across the country.
15
In addition to all of this,
around the same time, Nestl discontinued manufacturing ice cream in Jamaica in favor of importing
it from the Nestl subsidiary in the Dominican Republic, which further reduced their milk purchases
at a time when farmers were already facing difficulty finding buyers for their raw milk.

To make matters worse, by buying subsidized milk powder from the EU, companies including Nestl
began to use the lower prices to drive down the prices it pays local farmers for the milk they produce.
For example, the price offered by Nestl to local farmers fell from 22 Jamaican dollars per litre to
about $18 per litre.
16
However, even with these reduced prices, the amount purchased by Nestle from
the local farmers was not guaranteed and had been decreasing continuously to the extent that it was
commonplace for Jamaican farmers to dump their milk after it had been produced.
17


At Odds with The Government & The Dairy Farmers
Initially, due to the IMF/World Bank Conditionalities, The Jamaican government was reluctant to
impose import tariffs on dairy products to revive the ailing industry. However, it did support the
small and medium sized dairy farmers to establish an organization called the Jamaican Dairy Farmers
Federation (JDFF) whose goal was to improve and restore dairy production in the country. Perhaps,
the most notable achievement they made was convincing the Jamaican government to use fresh milk
instead of milk made from the powder imports in their school-feeding programs.
18
This has not only
created an outlet to increase domestic production but also addressed the problem of nutrition among
Jamaicas Youth as fresh milk is more nutritious than milk made from powder.
19



13
Ibid.
14
Black, Fiona. "Update Dumping in Jamaica: A Report on the Dairy Industry." Rep. 2001. Netherlands
Organization for International Development Co-operation (NOVIB), 10 Sept. 2001. Web. 14 Apr. 2011.
15
Ibid.
16
Knips, Viven. Developing Countries and the Global Dairy Sector Part II
17
"Dumping in Jamaica." Eurostep.
18
"Dumping in Jamaica." Eurostep.
19
Ibid.
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This initiative definitely offered the necessary, alternative market for the milk that Nestl ceased to
buy, however when the schools closed for the summer, Nestl used the situation to further lower the
price of milk.
20
Already reduced from 22 Jamaican dollars to 18 dollars, Nestl only offered $13 per
litre for fresh milk when the schools were closed and the School Feeding Programme could not take
any milk.
21
Needless to say, this sparked off protests by the dairy farmers, who began to give away
thousands of litres of chilled pasteurized milk during an internationally covered cricket match in the
inner city of Kingston.
22
In spite of all this, Nestl refused to change their position and The JDFF
refused to settle at $13 per litre causing litres of milk to be left unsold.

With the dairy industries continued decline, however, the government introduced a cess on dairy
products imported into Jamaica. After being criticized by milk companies included Nestl, the tax
was approved by the Cabinet in May 2010. These charges are expected to raise an estimated J$64
million in the first year and is to be used by the Jamaica Dairy Development Board (JDDB) on
schemes to develop the sector.
23


Nestls Conflicting Commitment to CSR
If one is to go entirely by the company website, Nestls initiatives in community giving appear to be
global and holistic. It demonstrates an interest in rural development, health & nutrition, the
Millennium Development Goals and even the Arts. Specifically speaking of Jamaica, it boasts of
improving nutrition by working with the Ministry of Education to promote the importance of milk in
childrens diet each year on World School Milk Day by educating students on the benefits of milk via
interactive contests and games.
24
Yet, at the same time, it has contributed tremendously to the use of
milk powder over fresh milk outside of school. Nestl has already been severely criticized for the
unethical marketing of its breast milk substitute formula in developing countries and this even led to
a boycott against its products dating back to 1977!
25
Sure, Nestl demonstrates philanthropy in its
attempt to educate the youth in Jamaica regarding the benefits of drinking milk, however, in an
unusual twist, it also plays a hand in decreasing the very nutrition is advocates by continuously
driving down the market for fresh milk in favor of milk made from imported powder.


20
"Memorandum Submitted by the Jamaica Dairy Farmers Federation Limited." United Kingdom Parliament Home
Page. Web. 14 Apr. 2011.
21
Ibid.
22
Ibid.
23
"Government to Introduce Cess on Imported Dairy - News - Go-Jamaica." Go - Jamaica - Jamaica's Portal to the
World - Gleaner News. Web. 16 Apr. 2011.
24
World School Milk Day. Nutrition in Jamaica. Nestle Community Giving Website. 14 April 2011.
25
"Info Centre - Nestle Boycott - NCT." Home - NCT. Web. 14 Apr. 2011.
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In addition to this, cutting back on raw milk purchases from dairy farmers resulted in the loss of
livelihoods for plenty of rural farmers. In all fairness, it could be argued that perhaps Nestl alone is
not to blame for the condition of the dairy industry in Jamaica. It is true that prior to trade
liberalization, Nestle JMP worked with the government and rural dairy farmers to foster growth in
the industry. As mentioned before, Nestle was the major buyer of milk from dairy farmers; it would
collect the milk and consequently process and sell it to the urban consumers. The problem, however,
lies in the fact that once it discovered that the profits lay with the powdered milk imports, it
unethically tried time and time again to drive down the price of fresh milk, which clearly establishes
Nestls contribution in the decline of Jamaicas once promising dairy sector.

Conclusion
MNCs are constantly insisting that they are committed to conducting business ethically, and with
respect to local communities. Indeed, MNCs and their appeared interest in practice of corporate
social responsibility and philanthropy is admirable, but how much of it is credible and related to the
very problem they sometimes create or worsen? This paper set out to answer this question by
researching the actions of Nestl in Jamaica during the near collapse of the countrys dairy sector.
What came out of this case study definitely illustrated that MNCs may be dedicated to community
development, but not above their prime desire to make profits. Though Nestl did show an interest in
improving nutrition of children in the country by encouraging the consumption of milk, it also
contributed to decline of very industry that once was able to produce a quarter of the nations
consumption. Nestl Jamaica definitely had a negative impact on a country that was already
struggling with debt and a host of other problems that resulted from the IMF/World Bank Structural
Adjustment Program.

In the wake of recent initiative by the Jamaican Government to finally uplift the industry via import
taxes on dairy products after years of neglect, it is important to remember that this issue is most
probably not a unique case. It should be remembered that in spite of seemingly elaborate community
involvement initiatives, at the end of the day, MNCs are for-profit ventures and they will try their
best to bring in money whenever possible. At least in the case of Jamaica, the MNC exacerbated the
problem it was directly involved in. In cases such as these, engaging in CSR/philanthropic initiatives
seem more like Public Relations/ Marketing attempts to create the image of an ethical and
community-friendly organization rather than proactively being one.