MBA Challenge 2015 – IE Internal Challenge

Group A

AGENDA

- Coffee, Value and Current Situation.

- Triple A Meaning.

- Market Players & Non Market Players.

- AAA-Celerate Program.

- Our Proposal & Examples.

- CO2 Reduction Benefits.

COFFEE, VALUE AND CURRENT SITUATION

Currently coffee that meets Nespresso’s standards represents only 1% to 2% of

the total production.

Which is challenging for the company in terms of the long term sales increasing

and the raw material securing.

With the tight production of AAA coffee, which increases the market competition,

Nespresso needs to secure the future purchase of the crops, the quality, the

quantity and the sustainability.

Nespresso is one of the leading brands to become the first corporation that obtains an almost 100% of supplies through its

sustainability program, creating enormous value for Nespresso and their high loyalty

clients segment.

The overall value chain of the AAA program is dedicated to provide

Nespresso with a MARKET ADVANTAGE comparing to their competitors, where increasing the reach of the program to more acres worldwide is a key for the

development of the program and Nespresso.

AAA Nespresso

Farm

CO2 Reduction

Water Usage Reduction

AAA Processing

Facility Water Reduction

Drying Process

Energy Efficiency

Diminish Nitrogen Volatilization

Transportation from farms

to processing facilities

Decrease in CO2

emmissions

Agricultural

Supplies

Transport

to Lousane

Decrease in

CO2

emmissions

TRIPLE A MEANING

A

• Quality: Farms that produce coffee meets Nespresso’s requirement can be part of the AAA – it helps farmers to continuously improve their quality through a better farming practices.

A

• Sustainability: The partnership with NGO’s and Rainforest through the AAA program sets rigorous environmental and social standers. This sustainability includes several criteria's such as the soil erosion, water management, biodiversity conservation, safety and working conditions.

A

• Productivity: it is a key for improving farmer’s net income. AAA tools, technical support and specific project financing contribute to addressing the yield improvement challenge together with a range of partners.

MARKET PLAYERS

• Interested in securing supply from top producers

• Build up brand image

• Return in kind from initial upfront investment

COFFEE CORPORATIONS

COFFEE TRADERS & WHOLESALERS

FARMERS

• Primary dealers and market makers

• Different integration along the supply chain

• Suffer price fluctuations and volatility

• Interested in increasing quality and yield of crop

• Lack liquidity for investments

• Tend to integrate phases in supply chain

NON MARKET PLAYERS

COFFEEASSOCIATIONS

1

GOVERNMENT2

NGOs3

CLIMATE

MITIGATION

AGREEMENTS

4

• Acquire production from farmers “garancia de compra”

• Implement logistics services and scale economies on behalf of

associates

• Promote social programs and well being of associates

• Issues market and environmental regulation

• Activates market protection measures: tax barriers, excise duties

• Assess the environmental impact of supply chain on local basis

• Promote social branding and responsibility for involved stakeholder

(e.g. “Fairtrade” label)

• Supervises implementation of Clean Development Mechanism in non-

Annex countries, according to Kyoto Protocol commitment periods

• Coordinate actions and tools to fight climate change and CO2

emissions

STAKEHOLDERS

Federations

Farmers

Producers

Governments

Nestle

NGO

Rainforest Alliance

SAN

Consumers

Suppliers

Employees

Sustainable Agriculture Network

Buyers

Traders

AAA-CELERATE PROGRAM

- Year Zero the farm will receive an initial investment.

- Since the crop of Year One and Year Two doesn't’t fulfill AAA grade for Nespresso, Farmers Could sell to Nestlé at a discounted price or the farm can sell it in the market.

- Year Three crop will be sold to Nespresso at Premiumprice.

- Farmers will increase land productivity in 10-15% approximately.

- Every new farm will be accounted for a direct decrease in the CO2 footprint and water consumption.

OUR PROPOSAL

Year 1 Year 2 Year 3Year 0

Crop 1 Crop 2

Audit Audit Audit Audit

Crop 1 Crop 2 Crop 1 Crop 2

AAA< AA< AA

Final User

Coffee Quality

Investment

Buyedproduction

Periodical Review

TWO EXAMPLES

• Upfront marketing investment of: USD 10,000

• Coffee wholesale price: USD 165 / 100lb (as of: 27/01/2015)

• Farm size: 30 Mt annual production

50 ha of land (Small Farm)

• Coffee crops being sold from the farmers to Nestlé: 3.5% over 2 years

• Upfront marketing investment of: USD 40,000

• Coffee wholesale price: USD 165 / 100lb (as of: 27/01/2015)

• Farm size: 60 Mt annual production

100 ha of land (Medium Farm)

• Coffee crops being sold from the farmers to Nestlé: 5.0% over 2 years

CO2 REDUCTION BENEFITS

World Coffee Market

2% 5%

1 Kg AAA Coffee = 1.6 kgs / CO2 1 Kg < AAA Coffee = 1.93 kgs / CO2 *

Top

Qua

lity

2% 7%

Top

Qua

lity

2% 10%

Top

Qua

lity

CO2 Reduction = 3.1%$12.8 M Euros

CO2 Reduction = 5.1%$12.6 M Euros

CO2 Reduction = 8.2%$12.2 M Euros

Scenario 1

Scenario 2

Scenario 3

THANK YOU.

TEAM ORGANIZATION

Sammary of Experience

• ExxonMobil, B2B territory manager to

west area.

Education

• Colegio de EstudiosSuperiores de Administración, BA in Business Adminstration.

Noor Al-Abdulrazzaq

Filippo

Del Grosso

Andrei

GaggionCamila Mejia

Summary of Experience

• Commercial Bank of Kuwait, FX Trader

• Gulf Bank of Kuwait, Relationship Manager, Corporate banking.

Education

• College of Basic Education, Fine Arts.

Summary of Experience

• Dell Computers, customer

service analyst. • Sykes enterprise, OMD supervisor.

Education

• Fidélitas University, Industrial Engineer.

Summary of Experience

• Energy professional. • PwC and KPMG,

consultant• Terna, Assistant projectmanager.

Education

• Bocconi University, Economics.

Discounted value of payment in kind in 2 years time

Production (Annual Output) -0.5% -1.0% -1.5% -2.0% -2.5% -3.0% -3.5% -4.0% -4.5% -5.0%

10 $137 $410 $816 $1,349 $2,001 $2,764 $3,628 $4,581 $5,610 $6,702

Average Production 0.6Mt / Ha 15 $206 $616 $1,224 $2,023 $3,002 $4,147 $5,443 $6,872 $8,415 $10,053

Average Farmer 50Ha 20 $274 $821 $1,632 $2,697 $4,002 $5,529 $7,257 $9,162 $11,220 $13,404

Average Output 30Mt 25 $343 $1,026 $2,040 $3,371 $5,003 $6,911 $9,071 $11,453 $14,025 $16,755

30 $412 $1,231 $2,448 $4,046 $6,003 $8,293 $10,885 $13,743 $16,831 $20,106

Wholesale Coffe Price Arabica 1.65

USD Pound 35 $480 $1,436 $2,856 $4,720 $7,004 $9,676 $12,699 $16,034 $19,636 $23,457

Wholesale Coffe Price Arabica 3,630

USD Mt 40 $549 $1,641 $3,264 $5,394 $8,004 $11,058 $14,514 $18,325 $22,441 $26,808

45 $618 $1,847 $3,672 $6,068 $9,005 $12,440 $16,328 $20,615 $25,246 $30,159

Discount Rate 15% 50 $686 $2,052 $4,080 $6,743 $10,005 $13,822 $18,142 $22,906 $28,051 $33,510

55 $755 $2,257 $4,488 $7,417 $11,006 $15,204 $19,956 $25,196 $30,856 $36,861

60 $823 $2,462 $4,895 $8,091 $12,006 $16,587 $21,770 $27,487 $33,661 $40,212

APPENDIX I – SENSITIVITY ON PRICES

APPENDIX II – CO2 TRADING PRICES

APPENDIX III – COFFEE TRADING PRICES