NATIONAL FOODS LIMITED

CREATING SHARED VALUE-A STEP BY NATIONAL FOODS LTD.

CASE STUDY

NATIONAL FOODS LIMITED Creating Shared Value-A Step By National Foods Ltd.

GROUP MEMBERS BS VII

Afshan Shah Anum Khan Ayesha Iqbal Rahila Altaf Owais Naseem Sabra Shaikh B08107002 B08107005 B08107010 B08107039 B08107041 B08107042

SUBMITTED TO DR. ASIM

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NATIONAL FOODS LIMITED Creating Shared Value-A Step By National Foods Ltd.

ABSTRACT
The purpose of this research is to offer a preliminary case study exploration of the corporate social responsibility (CSR) and development of sustainability .This case begins with a short discussion that Red chilies are widely used by south Asian people since many years but unfortunately in Pakistan red chilies production was suffering from a fungal toxin contamination. At that time national foods limited observed these complex challenges with regard to sustainability social, environment and economic. In order to prevent aflatoxin contamination of red chilies, NFL developed a Value Chain Empowerment business model for Red Chilies detoxification and modified drying. Although NFL concerned through chili grow, research specialists and NGOs. Finally with a lot of efforts they used geo textile technique which was proved to be success. Through this new opportunity (Geo textile technique) NFL basically work for the improvement and better quality of chilies and expansion of aflatoxin free in the country, so that they can bring sustainable economic benefits to wider communities. The increasing significance of such issues has become a key factor in business growth and strategy. Significant amounts of research have been produced on sustainable development or sustainability and CSR. Geo textile project is an initiative by NFL; they focus on integrating CSR into sustainability and understanding CSR.

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NATIONAL FOODS LIMITED Creating Shared Value-A Step By National Foods Ltd.

INTRODUCTION
National Foods began its journey in 1970 as a branded spice company, with a revolutionary product that popularized the concept of having clean, healthy food. National Foods marked its beginning in a rented warehouse in Dinar Chambers with initial sales amounting to Rs 16, 487 in its first fiscal year. Later, the company established a spice mill and a packaging plant that eventually evolved into a large factory complex where most of its manufacturing facilities still reside. Today, National Foods provides a complete food experience to its customers in 33 countries around the world. National Foods produces over 300 SKU's in 12 major product categories including meal solutions, pickles, sauces, ketchup's, jams and desserts. In 1988, National Foods became the certified vendor of McCormick, USA. In the same year, National Foods, then a Private Limited company was converted into a Public Limited, listed in all the three stock exchanges of Pakistan. Up till 30th April 2012, market capitalization of National Foods Limited was Rs.5, 831,086,380 with a paid up capital of Rs.414, 434,000. Currently, National Foods is at second position out of a total 3500 brands marketed and sold in Pakistan. National foods won brand elections 2010 and ranked second. National Foods Limited is ISO 9001:2008 certified for Quality Management system, ISO 22000:2005 certified for Food Safety Management system and ISO 17025:2005 certified for Laboratory Accreditation. The company has also got certification for Halal Foods and PSQCA product certifications for all mandatory food products which includes Jams & Jellies, Marmalades, Vinegar, Iodized Salt, Pickles, Red Chili, Turmeric and Curry Masala. The vision and mission statement of national foods limited is To be a Rs.50 billion food company by the year 2020 in the convenience food segment by launching products and services in the domestic and international markets that enhance lifestyle and create value for our customers through management excellence at all levels.
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NATIONAL FOODS LIMITED Creating Shared Value-A Step By National Foods Ltd.

CSR AT NATIONAL FOODS LIMITED PAKISTAN

National food limited has its origin in various philanthropic activities that that the company initiated ever since its inception, based on a set of moral values that demanded of us to give back to the society which supported the business of NFL business, in whatever it could. NFL believes that corporate social responsibility should start off with providing highest quality products and services at the least cost and least environmental impact. NFLs business is driven by this underlying philosophy, inline with Vision 2020. From this foundation, CSR edifice is to growing to incorporate processes and activities that aim to strengthen society in a highly sustainable manner. NFL realized that its CSR commitment must reflect all sides of corporate personality- NFL as a manufacturer, as an employer as a consumer itself of farm produce and other items and as an industry leader, pioneering new processes and systems. NFL engages especially in areas related to governance and strategic social investments, and strategic social investments, working to empower and uplift communities. NFL is Pakistans largest single purchaser of raw red chilies, an essential and prime ingredient for many of its product. In Pakistan, red chilies production suffers from Aflatoxin (a fungal toxin) contamination. NFL has pioneered post-harvest techniques to reduce Aflatoxin levels in red chilies. Red chilies are widely used in South-Asian cuisine since last many decades. Unfortunately red chillies in Pakistan undergo Aflatoxin contamination, which can occur in the fields during the process of harvesting, post-harvesting, drying and storage. Pakistani chili powder is failing international tests due to high levels of Aflatoxin, resulting in loss in export potential. This study addresses the Aflatoxin issue pertaining to red chilies in Pakistan, highlights the effort of National Foods Limited to address this problem, the importance of Chilies as a commercial product and results of research work done in Kunri field. It is expected that this study will help in alleviating this problem and give readers a clear idea of feasible solutions.

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NATIONAL FOODS LIMITED Creating Shared Value-A Step By National Foods Ltd.

India is the largest producer of chilies in the world contributing 25 percent of the total world production, of which only 4 percent is exported because of high domestic consumption. Besides India, other major producers and exporters are China, Pakistan, Morocco, Mexico and Turkey. Major importers of chilies from Pakistan are Gulf States, the US, Canada, Sri Lanka, the UK, Singapore and Germany. It is exported in different forms that are: fresh chilies, stalk less chilies, chili powder and oleoresin, as another form. Export of red dried chilies from Pakistan has declined from Rs1.127 billion (during 20032004) to Rs846 million after European Union food authorities have detected the presence of aflatoxin (Pakistan Horticulture Development and Export Board (PHDEB). Its production fulfils 88 percent of the countrys requirement. Chili not only meets domestic consumption but also helps in earning foreign exchange. The potential for increasing exports of whole, powder and crushed chilies in consumer packs is very high, provided we meet the stringent quality requirements of importing countries by preventing contamination from external sources during harvesting, post-harvest handling, processing and storage. China, India, Spain and Peru are the largest producers and exporters of chilies with the export market share of 27%, 16%, 11% and 9% respectively in the world. The value of total import for this product in the world is estimated to be US$ 602,343,000.

EXPORT MARKET SHARE

9% 11% 27% China India Spain Peru 16%

PIE CHART 1: Export market share of largest producers and exporters of chilies
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BASIC ISSUE
Food security and safety is basic human need and it considered as hot issue for national and international organizations in the recent past. Aflatoxin is produced by fungi growing on the chili plant and fruit, and is carcinogenic. At least 13 different types of Aflatoxins exist where Aflatoxin B1 is considered the most toxic. Aflatoxin belongs to a group of fungal toxins known as myco-toxins. The incidence of human liver cancer increased when they ingest fungal contaminated food and fodder from animal milk, meat etc. As aflatoxin is epidemiologically implicated as carcinogen in humans and an environmental contaminant which is widespread in nature, its possible chronic toxicity is of greater concern than acute toxicity. Spices are exposed to a wide range of microbial contamination due to poor collection conditions, unpretentious production process and extended drying times. The presence of aflatoxin is major hot issue for chilli exporters from Pakistan. Contamination of the spices could have taken place in the field, during processing, transportation and bad storage conditions. Once spices and food are contaminated by aflatoxins, it is almost impossible to detoxify them by normal cooking methods. Cooking food by either conventional gas or microwave oven does not reduce the level of aflatoxins contamination. Aflatoxin maximum allowable limit (in Parts per Billions PPB) in regulation of various countries is given below: COUNTRIES ACCEPTABLE LIMIT

20 PPB USA 15 PPB Canada 05 PPB EU 30 PPB Brazil 15 PPB Australia 10 PPB Japan 10 PPB China 30 PPB India 10 PPB Iran 35 PPB Malaysia TABLE 1: Aflatoxin maximum allowable limit

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NATIONAL FOODS LIMITED Creating Shared Value-A Step By National Foods Ltd.

In Pakistan, the Aflatoxin level in chili crop varies from 02 PPB to 100 PPB. With this level of Aflatoxin; we cannot compete in the international market. High levels of aflatoxin left Pakistans chili less competitive in the European market. The countrys export of red dried chili decreased 33% to Rs846 million by the end of 2006 against Rs1.13 billion in 2003-04. A lot of work is required to improve the quality of chili crop

IMPACT ON ECONOMY
Besides causing health problems to humans, aflatoxins also cause adverse economic effect in which it lowers the yield of food production and fiber crops as well as becoming a major constraint of profitability for food crop producing countries .The frequent incidence of these toxins in agricultural products have bad impact on the economy of affected regions, especially in developing countries where proper postharvest techniques are not sufficient to prevent mold growth. High levels of Aflatoxin, resulting in loss in export potential and lowers profitability for agricultural countries. It has been reported that 25% of the worlds food crops are contaminated by mycotoxins every year resulting in significant economic loss for these Livestock as well as poultry producers are the most victim persons due to aflatoxin contaminated feeds which ultimately cause significant economic loss by death of farm animals, destruction of their immune system and reduction in body weight after intake of contaminated feed.

MEASURES UNDERTAKEN BY NATIONAL FOODS LIMITED

In order to prevent aflatoxin contamination of red chilies, NFL developed a Value Chain Empowerment business model for Red Chilies detoxification and modified drying. As part of its sustain-ability strategy, linkages were identified and developed, between the companys growth and stakeholder engagement, with the objective of bringing sustainable economic benefits to the wider community. National Foods played host to a large group of chili stakeholders in Sept 2008 including chili growers, research specialists and concerned NGOs. NFL has gone through a lot of effort to understand and solve the Aflatoxin problem. One of the techniques, using geotextiles, proved to be a success.

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Geo-Textile Pilot Project The objective of this business model is the improvement in the quality of red chili and in production and expansion of Aflatoxin free chili in the country, while bringing sustainable economic benefits to the wider community and to eliminate or reduce Aflatoxin to minimum levels without compromising other quality parameters like color and pungency. The project was run on Lab scale for a three months period and validated in field (with collaboration from a large Kunri farmer) during the two month harvesting period. Fresh chili was spread on geo-textile on muddy floor while parallel fresh chili was spread on muddy floor as conventional practice is conducted in Kunri fields. Validation part was conducted over a 150 square yard area. Commercial Scale Then the geo-textile experiment was run on commercial scale for approximate 80 MT, shipment was sent to England in January 2010. Results Internal Test Report of National Foods Lab showed the chili powder sample to be within EU limits for Aflatoxin & microbial contamination. Report from PCSIR (Government accredited Lab) showed the chili powder sample to be within EU limits for Aflatoxin and Pesticide Residue. Report from CAMPDEN BRI EU lab Research showed the chili powder sample to be within EU limits for Aflatoxin.

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NATIONAL FOODS LIMITED Creating Shared Value-A Step By National Foods Ltd.

32ppb

AFLATOXIN COMPARISON
10.73ppb

1ppb

2.62ppb

Lab Scale Kunri Field Muddy Floor Geo Textile2

GRAPH 1: Aflatoxin comparison Graph 1 shows that when the project was tested on lab scale, the Aflatoxin level declines from 32ppb to 1ppb which is within the acceptable limit. The same test was conducted on larger scale at Kunri Field which also proves to be successful as the Aflatoxin level reduced from 10.73ppb to 2.62ppb that is up to standard.
38000SHU 34000SHU

PUNGENCY COMPARISON
34000SHU 30000SHU

Lab Scale Kunri Field Geo textile Muddy Floor

GRAPH 2: Pungency Comparison

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NATIONAL FOODS LIMITED Creating Shared Value-A Step By National Foods Ltd.

Graph 2 shows the pungency comparison of two experiments. Lab scale test shows that the level of pungency increases from 34000SHU to 38000SHU and an experiment in Kunri field also illustrate an increasing level of pungency. Both the results were good enough as the purpose of an experiment was to reduce Aflatoxin level without compromising the pungency of red chilies.

COLOR COMPARISON
54 38 38 49

Lab Scale Kunri Field Muddy Floor Geo Textile2

GRAPH 3: Color Comparison Graph 3 depicts the color comparison between the chilies that were spread at muddy floor and the one spread on geo-textile. The lab scale test shows the same color level in both the chilies while in Kunri field experiment demonstrate the rise in color level from 49 to 54 in geo-textile chilies, which was acceptable as the company was willing to maintain quality parameters. First export of test product A chilli powder shipment of 20 tons was sent to England in January 2010. Test results from receiving port came at the end of February 2010. The shipment passed the required Aflatoxin levels! To conclude, the techniques successfully pioneered by NFL need to be reapplied on a wide scale with the help of the local farming community. Additionally, Pakistani Food Laws should bring the allowed Aflatoxin levels at par with inter-national standards, including India and the EU.

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NATIONAL FOODS LIMITED Creating Shared Value-A Step By National Foods Ltd.

Financial Performance Analysis 2011 5,520,780 1,513,981 487,447 361,751 2010 4,489,946 1,326,747 258,545 159,181 2009 3,758,706 1,126,451 307,543 220,702 2008 3,061,746 985,777 290,185 233,947 2007 2,391,746 818,484 200,301 191,722 (62,430) 191,722

Sales Gross profit Operating Profit Profit before taxation (131,154) (72,622) (81,241) (77,401) Taxation 230,597 86,559 139,461 156,546 Profit after taxation 5.56 2.09 4.21 4.72 Earnings per share TABLE 2: Five Year Financial Performance Analysis of NFL SOURCE: Annual Report on National Foods Limited

SALES
6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 2007 2008 2009 2010 2011 SALES

GRAPH 4: Sales Analysis of Five Years Graph 4 shows that the sales of NFL increase during five years from 2,391,746 to 5,520,780. With the help of Geo Textile Project the company increases its sales during 2010 and 2011 because customers become more satisfied with NFL products.
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NATIONAL FOODS LIMITED Creating Shared Value-A Step By National Foods Ltd.

PROFIT AFTER TAXATION

250,000 200,000 150,000 100,000 50,000 2007 2008 2009 2010 2011 PROFIT AFTER TAXATION

Graph 5: Profit Analysis of Five Years Graph 5 shows that the ups and downs of profit after taxation. NFL faced great loss in 2010 but with the help of detoxification process NFL reduce Aflatoxin to minimum levels without compromising other quality parameters and increases customer satisfaction and loyalty with the company. So due to this the sales and profit increases and the company can have a competitive edge over the competitors. As far as this case is concerned, the basic purpose of National Foods was to provide sustainable economic benefit to a wider community. The step taken by the company proves to be successful, not only for the company itself but also for stakeholders. Customers are highly satisfied as now they are getting red chilies that contain an acceptable Aflatoxin level which is suitable for their lives and are also getting good quality products because the objective of NFL is to reduce Aflatoxin to minimum levels without compromising other quality parameters like color and pungency. The geo-textile pilot project also results in export of red chilies which results in increased revenue for the company and ultimately it will provide higher dividends to its stakeholders. As a result of this experiment, the company can have a competitive edge over the competitors and may result in increase sales revenue of red chilies.
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NATIONAL FOODS LIMITED Creating Shared Value-A Step By National Foods Ltd.

CONCLUSION
After thoroughly going through this case we can say that keeping in mind that chilies cover a big portion of Pakistan food business also the exportable items processed and unprocessed. Pakistani chili powder is failing international tests due to high levels of Aflatoxin, due to this export declines and also losing the international recognition. So a great attention should be given to this issue in order to match the international standards as NFL done. So solving this issue is important for us domestically and internationally as far as health issue is concerned and economically as well that contributes great exports. Companies can also increase their sales and profits by using any useful techniques which is beneficial for customers and for company as well and through this the company and country achieve the competitive edge.

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NATIONAL FOODS LIMITED Creating Shared Value-A Step By National Foods Ltd.

REFERENCES

TBL Sustainability Advocacy (n.d.) Case Studies: Profit Supply Chain Sustainability [online] available from http://www.tbl.com.pk/case-studies-profit-supply-chainsustainability/ 2011. The collaboration that opened up EU for National Foods. The Express Tribune, December 6th. National Foods (n.d.) Certifications [online] available from http://nfoods.com/contents/our-company/awards-and-achievements/certifications/ Business News Pakistan (n.d.) National Foods Limiteds financial results for the year ended 30th June 2011 [online] available from http://www.businessnewspakistan.com/financial-results/national-foodslimited%E2%80%99s-financial-results-for-the-year-ended-30th-june-2011.html National Foods (n.d.) Annual Report 2009 [online] available from http://nfoods.com/contents/wp-content/uploads/reports/AnnualRep2009.pdf Review of Literature [online] available from http://prr.hec.gov.pk/Chapters/46S-2.pdf

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