exploring the links between international business and poverty reduction: the coca-cola/sabmiller...

7/29/2019 Exploring the Links Between International Business and Poverty Reduction: The Coca-Cola/SABMiller value chain i

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Exploring the links between internationalbusiness and poverty reductionThe Coca-Cola/SABMiller value chain impacts in Zambia and El Salvador

By Oxam America, The Coca-Cola Company, and SABMiller


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2 Exploring the Links Between International Business and Poverty Reduction


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Exploring the Links Between International Business and Poverty Reduction 3

Contents1 About the organizations 4

2 Letters rom our leadership 8

3 Executive summary 12

4 Introduction 20

5 Setting the scene 26

6 The Coca-Cola/SABMiller value chain 30

7 Value chain: Macroeconomic impacts 368 Value chain: Livelihoods 44

9 Value chain: Empowerment 54

10 Value chain: Security and stability 58

11 Value chain: Diversity and womens participation 60

12 Local environmental impacts: Focus on water and recycling 64

13 Products and marketing 70

14 Enabling policies and institutions 74

15 Conclusion 78

Methodology 80

16 Acknowledgments 82

Endnotes 84


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1 About the organizations

Three years ago, The Coca-Cola Company launched LivePositively/Live For A Dierence, a systemwide sustainabilityramework that is embedded in every aspect o theCoca-Cola business. Through Live Positively the Company

strives to create a positive dierence in the world. LivePositively ocuses on seven core areas key to businesssustainability, with the ollowing measurable goals and metricsor the Company and the Coca-Cola system:

Beverage Benets: Strive to oer beverages or everyliestyle and occasion while providing quality that consumerstrust.

Active Healthy Living: Support active healthy lives throughproduct variety, nutrition education, and physical activityprograms.

Community: Foster sustainable communities througheconomic development, philanthropy, and the creation oeconomic and social opportunities.

Energy Eciency and Climate Protection: Aim to be thebeverage industry leader in energy eciency and climateprotection.

Sustainable Packaging: Aspire to make our packaging avaluable resource or uture use.

Water Stewardship: Work to saely return to nature andcommunities an amount o water equivalent to what we usein our beverages and their production.

Workplace: Create diverse, healthy, and sae workenvironments aligned with internationally respected humanrights principles.

Progress on these commitments can be ound in the Companysannual Sustainability Review.

The Coca-Cola Company sustainability platorm

The Coca-Cola Company is the worlds largest nonalcoholic ready-to-drink beverage company, with the worldsmost recognized brand. Its products are available in more than 200 countries, and nearly 1.7 billion servingso its products are consumed each day.

The Coca-Cola system is dened as the Company and its more than 300 bottling partners worldwide.


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SABMiIIeris an international brewer and one o theworlds largest bottlers o Coca-Cola products. Forthe purposes o this study, the Coca-Cola/SABMillervalue chain reers to The Coca-Cola Company andSABMillers bottling operations in Zambia and ElSalvador. This report covers SABMillers businesswith The Coca-Cola Company only.

The Coca-Cola Company and SABMiller recognizethat responsible behavior has a positive impact onprotability and economic growth. Bothcompanies aim to secure economic benetsor the local communities where they operate,and also or their respective shareholders, whobenet rom a sustainable business and a returnon their investment.

The Coca-Cola Company collaborates with its bottlingpartners and local communities in support o its mission tooster sustainable communities.

According to its 2009/10 Sustainability Review,The Coca-Cola Company sets global goals andrequirements in a number o areas, including waterstewardship, sustainable packaging, marketing to children,and workplace rights, and it works with bottlers to implementthese standards.

This includes assurance processes in place to ensurethat the required standards are being upheld in bottlingplants and the bottlers suppliers acilities. Many o TheCoca-Cola Companys bottling partners also have theirown sustainability goals and requirements, which areimplemented at the bottling plant level.

The Coca-Cola Company sustainability commitments

SABMiller believes that a robust approach to sustainable development underpins both its ability to grow and its license to operate.To achieve competitive advantageand ultimately better protabi litysustainable development needs to be part o what a companydoes every day. It needs to be integrated into decision-making and the way the business is run. SABMiller guides the managemento its business in line with our strategic priorities. One o these is to constantly raise the protability o local businesses, sustainably.

This strategic ocus is underpinned by 10 Sustainable Development Priorities, which dene the material issues or the business andhave been developed through extensive consultation internally and also with external stakeholders:

Discouraging irresponsible drinking

Making more beer but using less water

Reducing our energy and carbon ootprint

Packaging, reuse, and recycling

Working toward zero-waste operations

Encouraging enterprise development in our value chains

Beneting communities

Contributing to the reduction o HIV/AIDS

Respecting human rights

Transparency and ethics in reporting our progress

Each SABMiller operating business, including the operations in Zambia and El Salvador, reports their progress against these 10priorities transparently online through the Sustainability Assessment Matrix (SAM). To see the current scores or each o thesebusinesses, including the challenges they ace and their case studies o success, please visit www.sabmiller.com/sam.

SABMiller sustainability commitments


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Oxam America is an international relie anddevelopment organization that creates lastingsolutions to poverty, hunger, and injustice. Togetherwith individuals and local groups in more than 90countries, Oxam saves lives, helps people overcomepoverty, and ghts or social justice. Oxam Americais one o the 14 aliates in the internationalconederation, Oxam International.

Oxam America is keenly aware that the privatesectors real power lies not in its philanthropy, but inits core business practices, which may have positiveor negative consequences or communities. OxamAmerica engages with companies seeking to leveragetheir resources, creativity, and infuence to pro-poorends. Oxam America also aims to raise awarenessaround corporate impacts, empower communitiesto engage companies eectively, and strengthengovernment oversight.

Take responsibility or their economic, political, andsocial impacts on poverty across their value chains andspheres o infuence.

Avoid negative impacts, including the inringement ohuman rights, with a particular ocus on women andvulnerable communities.

Assess and report on their impacts in a transparentand participatory manner.

Build participatory and accountable processes withstakeholders throughout their operations and value chains.

Where appropriate, and transparently, use their ull range

o infuence to promote best practices and pro-poor policieswith government and industry.

Seek opportunities to bring local suppliers into theirvalue chains, empower women, and innovate newproducts, services and ways o doing business to addressdevelopment challenges.

Oxam believes that companies should:

As part o an international conederation, Oxam worksin more than 90 countries including Mali, shown here.


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This report contains certain orward-looking statements in respect o poverty reduction and sustainability. Such statements involve a number o uncertainties because they

relate to events and depend on circumstances that will, or may, occur in the uture. As a result, actual results may dier rom those anticipated in this report, depending on anumber o actors, including, or example, consumer demand, local taxation policies, worldwide as well as local economic conditions, changes in laws and regulations, and

the introduction o new technology.

The inormation contained in this report is proprietary and may not be reproduced or commercialized without consent rom The Coca-Cola Company, SABMiller, and OxamInternational. Oxam America is keenly aware that the private sectors real power lies not in its philanthropy, but in its core business practices, which may have positive or

negative consequences or communities. Oxam America engages with companies seeking to leverage their resources, creativity, and infuence to pro-poor ends. Oxam

America also aims to raise awareness around corporate impacts, empower communities to engage companies eectively, and strengthen government oversight.


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2Letters rom

our leadership


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More than ever it is clear that the worlds mostpressing social problemsrom poverty to health toeducationcannot be solved by government alone.Government, civil society, and business must standtogether and build innovative partnerships to create

lasting solutions to these dicult challenges. TheCoca-Cola Company is proud to be at the oreronto these kinds o partnerships, building models opublic-private collaboration that push the boundarieso development thinking.

As stewards o the worlds most recognized andvaluable brand, we recognize that the success andsustainability o our business is inextricably linked tothe success and sustainability o the communitiesin which we operate. The strength o our brandsis directly related to our social license to operate,which we must earn daily by keeping our promises

to our customers, consumers, associates, investors,communities, and partners.

To this end, we have created a number o ground-breaking partnerships around issues o watershedmanagement, access to clean water, recycling, smallbusiness development, and disaster relie. Thesepartnerships are developed through our systemwideinitiatives to create positive change in the world inour key areas: Water; Packaging and Recycling;Climate; and Community.

This report represents a new kind o partnership;one built on intellectual cooperation. By opening

our doors to Oxam America, one o the worldsmost respected nongovernmental organizations(NGOs), The Coca-Cola Company and SABMiIIerhave raised the bar or corporate transparencyand contributed to building trust between civilsociety and the private sector.

While this partnership may not have beneciaries inthe traditional sense, the insights gained rom thisreport may ultimately benet many people in oursupply chain around the world. Through this work,

Oxams development experts have helped identiyareas where our business could bring more benetto more people. We take the content o this reportseriously, and we will consider its recommendationswith our bottling partner, SABMiller, and ourstakeholders, as we strive to create sustainablebusinesses in El Salvador and Zambia.

For the reader, this report is a unique opportunityto see the inside o our business through the eyeso development practitioners. We hope you nd itinteresting and thought-provoking.

Muhtar Kent

Muhtar KentChairman and Chie Executive OcerThe Coca-Cola Company


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Raymond C. OenheiserPresidentOxam America

Oxam America has long served as an unwaveringadvocate or the worlds poor. As such, we haveoten viewed and exposed multinational companiesas a threat to poor communities and, historically,

our relationships with the private sector haveocused more on campaigning than collaboration.Accordingly, we recognize that this par tnership withThe Coca-Cola Company and SABMiller may raisethe eyebrows o loyal supporters. However, we areconvinced that todays extraordinary social andenvironmental challenges will not be solved by civilsociety and government alone. While companiesmust be held to account or their negative impacts,we recognize they can also drive innovation, jobcreation and economic growth in the developingworld. Market-based approaches alone can scarcelyeradicate poverty, but under the right conditions,

they can help achieve the type o lasting and people-centered change that is needed.

Companies are beginning to recognize that theirlong-term prospects are intrinsically linked to theprosperity and well-being o the poor countries inwhich they operate. However, exactly how largecompanies infuence development is surprisinglymysterious to companies and stakeholders alike.Whereas private sector environmental impacts havebeen well documented, private sector social impactshave not. Instead, narrow metrics, such as the numbero jobs generated or philanthropic dollars contributed,have become incomplete measures o the potentialbenets and opportunities companies bring to thetable. Similarly, only some o the negative eects ocorporate operations are visible in the absence origorous analysis. Oxam is developing the PovertyFootprint Methodology as a means to understand theull range o impacts multinational corporations haveon poor communities and to provide a platorm orengagement around those impacts.

The Coca-Cola Company and SABMiller haveeach made ar-reaching public commitments tosustainability. Oxams collaboration with these twocompanies presented an opportunity to explore

these commitments and ask vital questions: How dobillion-dollar corporate value chains aect individualsliving on less than $2 per day? What impact do thedecisions made in corporate headquarters have upon

on the health, security, and livelihoods o workersin the eld and in the actory? How can traditionalmarkets evolve to reduce poverty better? Wewanted to rame the report as broadly as possible tocontemplate signicant poverty impactslabor, water,nutrition, livelihoods, gender. That breadth comes atthe cost o depth. Where the report only manages toscratch the surace around some essential issues, wetrust that it will spur urther inquiry and discussion.

We do not aspire to provide denitive answersbut view this collaboration as one step in a longerprocess o change. We developed this report to

raise awareness and provide inormation to a broadrange o stakeholders about corporate practices andencourage them to use this inormation to engagearound new markets, supply chain and workorcepractices, responsible use o resources, and economicdevelopment in communities that desperately need it.Oxam believes that transparency and engagementby civil society, governments, and the private sectorrepresents the greatest long-term hope orsustainable solutions to poverty. While the reportis a useul milestone, we will ultimately measurethe success o this eort by the extent to which itcontributes to new collaborations and progressivereorms along the companies value chains and inrelevant markets.

This eort combined the resources, intellect, anddetermination o three unique organizations anda wide range o stakeholders and supporters. Wethank and recognize all who were involved or theirhard work in the preparation o this document andthe development o this process to increase businesscontributions to poverty alleviation.

Raymond C. Oenheiser


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Graham MackayChie ExecutiveSABMiller

We believe that the most eective way or SABMiIIerto meet its sustainable development objectives is bymaximizing the success o the business. We are clearthat our business is not something separate rom

society. It is, at one and the same time, an employer,a customer, a supplier, and a taxpayer. The interestso SABMiIIer and the wider community are thereoreinextricably linked. A well managed and growingbusiness is good or wider economic development,leading to greater employment, more taxes paid, andgreater investment in local economies and communities.

Our activities provide high-quality products thatsociety wants and enjoys. As long as markets areree and competitive, our business will succeed iwe manage our relationships well, use resourceseciently, and meet the needs o our consumers and

the communities in which we operate.We recognize that by building strong and equitablepartnerships we can create more value or ourbusiness and make a greater dierence in our

markets than i we worked in isolation. We encourageour businesses to work directly with NGOs,governments, and communities to develop specicpartnership projects that will protect or enhance their

ability to operate or create new value or societyand or their business. Working with these groupsoten provides us with additional insight and localknowledge that enable us to be more eective.

This is why I welcome the opportunity to work withboth The Coca-Cola Company and Oxam Americaon this partnership ocused on our sot drinks valuechains in Zambia and El Salvador. The very dierentpoverty lens that Oxam has brought to our valuechains has provided some constructive insightsinto what we are getting right, and some goodrecommendations or how we can work together

in the uture.Graham Mackay


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3Executive summary

The World Bank estimates that about 1.4 billionpeople live below the international poverty line of$1.25 a day, which is roughly equivalent to a quarterof the developing worlds population.1

It is estimated that the recent global fnancial crisis

has left 64 million2 more people than anticipatedin extreme poverty this year, underscoring theimportance of private sector activity and investmentat a time when governments ability to provide aid andfoster development has come under pressure.

A recent UN conerence reocused the worldsattention on the need to scale up eorts to meetthe Millennium Development Goals (MDGs) 2015deadline. The recent nancial, uel, and ood criseshave slowed the progress made by many developingcountries toward the MDGs. Although aid fowsreached record highs in 2009, there remains aunding shortall o approximately $20 billion relativeto the aid targets agreed upon by the Group o Eight(G8) ve years ago.3 While public investment is onlyone part o a much more systemic problem, theimpact o this unding gap is particularly concerningor the worlds least developed countries.

Over the past 30 years, the private sector hasbeen a primary driver o economic growth andhas contributed signicantly to poverty reduction.Businesses provide vital jobs and services and paytaxes, which help und public services. The positiveand negative impacts o business in developingcountries continue to be debated, but increasinglythe development community has recognized thesignicant contribution the private sector canmake when business and social benets alignand when leading global businesses promote

high social and environmental standardsthroughout their value chains.

At the same time, as companies gain a deeperunderstanding o their impact on poverty reduction,they recognize that their own success is otendirectly linked to the success o the communitiesin which they operate. This recognition has drivensome companies to take a more strategic approachto development. Many are investigating how totranser knowledge and skills to low-income peoplealong their value chains in a more inclusive manner.Small enterprises and large multinationals alike are

creating innovative new products and services thatsimultaneously satisy the needs o people at the


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base o the pyramid, achieve a development impact,4and create new consumer markets.

Furthermore, businesses are increasingly workingin partnership with governments and civil societyorganizations to nd multi-stakeholder solutions tocommon challenges. Economic growth requires anenabling environment, including good governance,robust regulation and enorcement practices, and

clear accountability mechanisms. Together theseelements provide a ramework or governmentsto lead on poverty reduction in partnership withbusiness and civil society. This study aims to bolsterthat sort o collective problem solving.

This report is one such instance. This study is theoutput o a multiyear collaboration among TheCoca-Cola Company (all reerences to The Coca-Cola Company reer also to any direct or indirectsubsidiaries that are relevant or purposes o thisreport), Oxam America, and SABMiIIer to applyOxams Poverty Footprint Methodology to the

Coca-Cola/SABMiIIer value chain in Zambia andEl Salvador. This methodology, which was originallydeveloped and applied to Unilevers operations inIndonesia, is designed to help companies understandand improve their poverty impacts and provides aplatorm or dialogue, innovation, and accountability.

Zambia and El Salvador were chosen or this studybecause o their sociopolitical diversity and theirsignicant sugar industries, which allowed visibilityinto the entire Coca-Cola/SABMiller value chain, romagricultural producers to bottlers to local consumers.Industrias La Constancia (ILC) in El Salvador and

Zambian Breweries in Zambia are the names o thelocal SABMiller operations in each country.

Both countries have very high levels o poverty.Despite recent economic growth, Zambia is one othe poorest countries in the world, characterizedby low lie expectancy, high HIV/AIDS inectionrates, and a poorly diversied economy. Among thepoorest countries in Latin America, El Salvador is stillrecovering rom a decade-long civil war and extremeexposure to natural disasters.5

Recommendations are made at the end o each

section o this report or The Coca-Cola Companyand SABMillers consideration going orward. Theserecommendations should be seen as guidingprinciples and suggestions or action and not asormal commitments made by either The Coca-Cola Company or SABMiller. Both organizations arecommitted to engaging with key stakeholders in eachcountry to begin to address these important issues.

Key ndings

Macroeconomic impacts

An examination o the Coca-Cola/SABMiller valuechains macroeconomic impacts reveals that its grossvalue added (GVA) in 2008 was approximately $21million in Zambia and $83 million in El Salvador.In addition, the Coca-Cola/SABMiller value chainsupported an estimate o at least 3,741 ormal

and inormal jobs in Zambia and 4,244 ormal jobsin El Salvador.

In both countries, the ormal jobs linked to the Coca-Cola/SABMiller value chain are in nonarm supplies,bottling, distribution, and sales. However, as in manydeveloping countries, the majority o jobs in thevalue chain are in the inormal sector, either insugar harvesting or in retailing Coca-Cola products.The system supports a sizable small-scale retailsector in both countries, with approximately 64,000outlets in El Salvador and approximately 25,000in Zambia.

Owing to the relatively small size o the economiesand weak supply bases, in some circumstances,supply purchases in both countries are made eitherregionally or internationally.

Convene community stakeholders

and business partners in ocused

discussions on the barriers to local

sourcing and options to address

these barriers.

Create a process to capture and share

best practices among small and medium

enterprises (SMEs) in the Coca-Cola

system to more broadly oster continual

improvement among local businesses

and contribute to the development o

local industry.

Engage with NGOs and nancial groups

to discuss providing microcredit to SMEs

in the Coca-Cola system, perhaps with aparticular ocus on women.

Engage with Zambia Sugar, El Angel

and Central Izalco to explore providing

technical assistance, training and

nancing to sugar growers.

Recommendations or ollow-up action


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Livelihoods

The Coca-Cola/SABMiller value chain supportsthousands o jobs in both countries, but the quality othese jobs varies signicantly. Formal-sector jobs inthe value chain, particularly at the SABMiller bottlingplants, are comparatively good in terms o stability,pay, and benets.

Jobs in the inormal sector within the value chain are

unregulated and oten characterized by seasonalavailability, low wages, and no benets. However,these provide vital livelihood opportunities becauseormal employment opportunities are scarce.

The Coca-Cola Company hires independent third-party audit rms and NGOs to assess whether itssupplier and bottling partner workplaces upholdrecognized and legally applicable workplace andenvironmental standards, as outlined in its SupplierGuiding Principles. In 2008, The Coca-Cola Companyaudited 1,818 o 4,224 total suppliers. Sugararms are not audited as a part o The Coca-Cola

Companys ormal audit program.

Sugarcane harvesters and their helpers are amongthe most vulnerable workers in the Coca-Cola/SABMiller value chain in both countries. Workersin some smallholder sugar cane arms oten lackormal contractual arrangements, and employment isseasonal. These workers urgently need the incomethey receive, but the lack o public oversight meansthat, in some cases, they ail to earn even theminimum wage. Many also lack access to medicalacilities or the treatment o injuries they may sustainwhen not using protective clothing.

The distribution and retail o Coca-Cola productssupports vital sel-employment and employmentopportunities in both countries. Retail providesopportunities to groups who are traditionally excludedrom employment, such as women and the elderly.However, employees in some distribution channelsand small-scale retailers are inormal, and theirincomes are oten close to the local minimumwage or less.

The Coca-Cola Company and SABMiIIer seek tobuild capacity at certain points in the value chain

through the provision o technical assistance andcredit programs. For example, Zambian Brewerieshas launched a program to boost entrepreneurialskills at retail outlets, in which sales representativesmentor retailers to improve business skills. Similarly,in El Salvador employees at the sugar mills and theILC bottling plant receive technical training, whileretailers receive training to run their businesses.


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Empowerment

Empowerment is a dicult concept to measure butan important dimension o development. Empoweredpeople participate in the processes that aect theirlives by voicing their views and infuencing decisionmaking. Empowering people living in poverty is anessential way to ensure that people benet rombusiness-led economic growth.

Individuals working in the inormal sector rarely havean opportunity to organize themselves in order toadvocate or their interests. Sugarcane workers andindependent distributors and retailers in the Coca-Cola/SABMiller value chain are no exception.

Unions in general have been weakening or a numbero years in both countries, and the researchers or

this study ound mixed views among employees atSABMillers bottling plants on how necessary it isto have a union. Where unionization exists in theCoca-Cola/SABMiller value chain in these countries,employees reported improved working conditions.In some cases, where employees are not unionized,or example, at the Central Izalco sugar mill in ElSalvador, workers still reported satisaction with theirworkplace conditions.

Oxam believes that the lack o ormal industrialrelations between workers and management atvarious points in the value chain may result in limitedscope or dialogue or collective action to alter policiesand practices to ensure that labor standards areproperly enorced.

Security and stability

Security is essential to ensure the well-being opeople living in poverty.

Physical security is oten a risk or sugarcaneharvesters, whose work requires the use o machetesto cut large stalks o cane. Many sugarcane workersinterviewed in El Salvador reported that they acedpotential saety hazards, including burns andinjuries, on a regular basis. One worker cited a riskthat workers could be poisoned by exposure to theagricultural chemicals used.

Endemic crime in El Salvador aects peoplethroughout the value chain. Extortion is common,

and organized gangs routinely intimidate people.In Zambia, road accidents are a common cause odeath, largely due to poor road quality.6 Independenttruck drivers ace potential risks o death or injury due toworking extended hours on hazardous roads. The studyhas not attempted to connect how crime and accidentsrepresent specic risks to the Coca-Cola/SABMillervalue chain or system employees in particular but hastaken a broader, contextual approach.

Ensure the rights o reedom o

association and collective bargaining.

Take a deeper look into any cases o ailed

actory grievance and dispute resolution

systems and, i appropriate, address

breakdowns with the relevant union o

employee representatives.

Work collaboratively with local

communities and workers to identiy

living wage benchmarks and consider

making living wages a component o

supplier audits.

Find opportunities to improve productivity

that increase wage levels without

extending the workweek.

Consider whether commercial actors

(such as price negotiations) undermine the

ability o business partners to pay a living

wage, and work toward integrating living

wage principles into buying practices,

including rewarding suppliers that pay a

living wage.

Encourage rigorous and regular

monitoring to ensure existing laborstandards are met.

Employ a wage ladder to benchmark

progress in wage improvements over time.

Investigate the constraints acing small-

scale retailer and distributor partners

in the Coca-Cola system to identiy

opportunities to address economic and

other barriers to successul growth.

Engage with stakeholders to advocate or

improved legal protections, health care,

and capacity building and training orthose in the inormal sectors o the value

chain, and opportunities to move inormal

workers to ormal employment.




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Diversity and womens participation

Women represent a large proportion o the worldspoor and ace unique barriers when seekingeducation, employment, and health care. Womenare more likely than men to be denied basic rights;they oten have a limited role in decision making andare more vulnerable to violence. Investing in gender

equality can help drive economic growth. Studieshave shown that when womens incomes increase,amily health, education, and well-being improve.7

Women involved in sugar growing and harvestingace traditional gender biases, hindering their abilityto earn an income, own land, access credit, and buildskills. Women are oten dependent on men and havelimited economic opportunities in both countries,although in El Salvador the circumstances areslightly more positive.

Despite ormal antidiscrimination policies at the

SABMiller bottling plants in both countries, womenremain underrepresented, a challenge consistent withmanuacturing employment statistics the world over.

Formal jobs in the value chain are dominated by men,and there is gender segmentation by occupation,type o activity, and level o seniority. Several actorshave led to this imbalance, including the perceptionthat jobs in the beverage industry are more suitedto men due to the requirement o physical strengthand the lack o security or workers who travel longdistances to work.

Women do play a signicant role in the Coca-Cola/SABMiller value chain at the retail level. O theapproximately 64,000 retail outlets in El Salvador,an estimated 76 percent8 are owned by women. InZambia, an estimated one third o the approximately25,000 retail outlets are owned by women. Bothbottling plants oer training workshops or smallretailers; however, limited access to credit otenlimits business expansion.

Local environmental impacts:Water and recycling

Climate change threatens water access in manycountries, and it is vital that water is responsibly andstrategically managed. The greatest use o waterin the Coca-Cola/SABMiller value chain occurs insugar production. This is consistent with the act thatagriculture in general uses approximately 70 percento reshwater globally, compared with the 20 percent*used by industry. Sugar elds are oten irrigated viafood irrigation, and sugarcane processing requireswater or cleaning.

In both Zambia and El Salvador, signicant parts othe value chain are located near water sources thatserve multiple purposesdomestic, agricultural,and industrial. The main issues characterizing thewater debate are access in Zambia and scarcity inEl Salvador. In Zambia, water usage associated withincreasing sugarcane production is leading to confict.In both countries, this study revealed the paramountimportance o open and transparent dialogue withcommunities about water. Both ILC and ZambianBreweries engage in regular dialogue on thistopic with communities surrounding SABMillersbottling plants.

Eorts are under way through The Coca-Cola

Companys participation in Bonsucro, ormerlycalled the Better Sugarcane Initiative, to develop aproduction standard and certication scheme orsustainable sugar and ethanol rom sugarcane.In addition, The Coca-Cola Company has teamedup with sugarcane producers to launch pilot projectsaimed at benetting both the producer and theenvironment, including in El Salvador.

SABMillers bottling plants in both countries areengaged with communities on water issues. Theull treatment o wastewater by both bottling plantshas been well received by their communities,

particularly in El Salvador, where municipal watertreatment plants are lacking. The discussion on

Engage sugar armers and producers to

improve saety and health o sugarcane

harvesters.

Investigate why independent truck drivers

in Zambia work more than eight hoursper day and discuss with drivers potential

mechanisms to ensure sae driving.

Establish ocused business training and

support or women in the Coca-Cola/

SABMiller value chain to work toward more

equal employment opportunities.

Make urther eorts to recruit womenor nontraditional and senior

management jobs.

Consider ways to increase women

business partners access to credit, taking

into account the unique circumstances

women ace when running businesses

in these communities.

Research how operations and practices

in the value chain empower or undermine

small women armers.



*http://www.unesco.org/water/iyw2/water_use.shtml


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wastewater treatment with the community includesnot only water but also other local issues, such asreorestation, community unding needs, and localhiring at the bottling plant. In Zambia, the bottlingplant has provided standpipes with ree clean waterto community members.

While the bottling plants and many suppliers in the valuechain have recycling programs in place, their reach

is limited. SABMillers bottling plants are proactivelyseeking to spur local recycling industries; or example,Zambian Breweries has proposed to the EnvironmentalCouncil o Zambia that it establish an organization tobegin recycling on a more systematic basis.

Products and marketing

The Coca-Cola Company has over 500 beveragebrands and more than 3,300 products globally, butits product portolio in Zambia and El Salvador islimited. The Coca-Cola Companys data show thatthe vast majority o consumers in both countries

purchase sparkling beverages rather than alternativesoered, but consumers in El Salvador have a growingpreerence or juices.

In general, consumers in both countries tend toassociate the brand with a successul liestyle.Retailers interviewed in Zambia pointed out thatFanta is popular with children. The Coca-ColaCompany has a Global Responsible Marketing

policy in place to ensure the product is marketedresponsibly and not to children under the age o 12.

Plans are in place to include all nutritional inormationon the majority o Coca-Cola product packagesworldwide by 2011, but products sold in returnableglass bottles (70 percent o hectoliters sold inZambia and 35 percent in El Salvador) do notcurrently eature this inormation. Interviews withconsumers in both markets indicated that many donot understand the caloric or nutritional content oCoca-Cola beverages.*Publish independent analyses indicating

the saety o water discharged rom the

bottling plants on a regular basis.

Encourage water-intensive suppliers to

implement best practice policies and

practices on water through its sustainable

agriculture program.

Carry out a comprehensive analysis o

water impacts along the value chain in

both countries along the lines o water

ootprint work that has been carried out in

other parts o the world.

Conduct analysis to ensure that water

use does not negatively impact localwater availability, and evaluate whether

improved pricing or water may address

demand issues.

Advise other companies, the government

and the local community to collectively

tackle water pollution by reducing

dumping and improving cleanup o the

San Antonio River in Nejapa.

Use marketing to promote increased

consumer recycling, and work with

suppliers and retailers to encouragebetter recycling in the marketplace and

implement global sustainable packaging

best practices.

Explore the easibility o introducing

micronutrient supplementation

programs in these markets, working with

government, health, and civil society

experts. Consider how a micronutrient-

enhanced products promotion, pricing,

distribution, and service practices

could increase community purchasingand health.

Ensure that The Coca-Cola Companys

global Advertising and Marketing to

Children Policies are being eectively

and consistently implemented at a

regional level.

Leverage marketing messages to educate

consumers on the value o proper

nutrition, a balanced diet, and regular

physical activity.

Investigate how to provide nutritionalinormation to consumers at point o sale

and through other methods, given the wide

use o glass bottles without labels and low

levels o literacy in some areas.

Collaborate with independent health

experts, civil society, and governments to

explore whether additional guidance or

action is needed to educate consumers on

nutrition and health.



*The content o the interviews did not make clear whetherthis was a result o consumers inability to understandthe nutritional inormation or inability to locate it.


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Enabling policies and institutions

The Coca-Cola Company engages with governmentsaround the world on a broad range o issues.Alongside environmental and health-relatedinitiatives, excise taxes and sugar taris are twokey areas o policy engagement in Zambia andEl Salvador. SABMillers bottling subsidiaries in bothcountries (ILC in El Salvador and Zambian Breweries

in Zambia) take the lead on engaging in public policydialogue with governments. Both The Coca-ColaCompanys and SABMillers bottlers also makeregular social investments in both countries.

Conclusion

Recommendations have been made above andat the end o each section o this report orThe Coca-Cola Companys and SABMillersconsideration going orward. The report refects thethree organizations ambitious attempt to provideinsights into the impacts o the Coca-Cola/SABMillervalue chain on local communities. It was driven bya determination to collaborate more strategicallyand create greater transparency around businessimpacts on poverty. The project aimed to shine a

light on issues that both business and developmentaudiences want to understand better and, by doingso, to inspire both local action and other companiesto embark on a similar journey. The initiative soughtto put people at the center o this process and orgea new partnership between the private sector andcivil society to share expertise and build a commonagenda on these issues.

Ensure that public policy engagement is in

alignment with sustainability objectives.

Engage with local stakeholders to ensure

transparent communication o policyinitiatives.

Collaborate with civil society and

government on public policies that align

with sustainability goals and local priorities.

Engage with trade bodies, partners

and government agencies around

relevant issues, including regulatory and

enorcement gaps around water and labor.



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4Introduction

The development challenge: Focus on theMillennium Development Goals

With only our years let until the 2015 deadline toachieve the Millennium Development Goals (MDGs),it is critical to renew eorts to address the needs o theworlds poorest people. The MDGs are broad in scopeand range rom halving extreme poverty to halting thespread o HIV/AIDS to providing universal primaryeducation. The MDGs deserve serious and unwaveringattention rom all development stakeholders, includinggovernment, business, and civil society, as part o an

ongoing commitment to rid the world o poverty.

Although many countries have made progress againstthe MDGs in the last 10 years, the developmentchallenge continues to loom large, not least due to thesetbacks suered as a result o the nancial crisisa downturn o such proportions that it is estimated tohave let 64 million more people in poverty in 2010 thanpreviously anticipated.9 At a United Nations summitheld in September 2010, the attention o world leaderswas once again ocused on the MDGs and, particularly,the need to accelerate progress in the least developedcountries, where more than 400 million people live

below the poverty line.

Government leadership will be crucial. But more than ever beore, we depend on theresources and capacities o the private sector to make things happen. Business is aprimary driver o innovation, investment and job creation. There is no longer any doubtthat business plays an integral role in delivering economic and social progress.

United Nations Secretary-General Ban Ki-Moon, Private Sector Forum on

the Millennium Development Goals, New York, September 2010


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The role o business in development

The private sector has been a primary driver oeconomic growth and contributed signicantly to povertyreduction.10 Private enterprises provide 90 percent ojobs, goods, and services and are the main source othe tax revenues which und vital public services,such as health and education. In the 1990s, economicgrowth rates in the developing world outpaced those

in the developed world or the rst time.11

However, while overall poverty rates in many developingcountries have decreased. Inequality or certain groups,such as women, has increased. Even in economicallydynamic countries where great strides have beenmade, many people continue to live in poverty.

For overall growth to contribute toward povertyalleviation, it must be converted into income or thepoor, where individuals have access to good jobswith acceptable rates o pay.12 This underscores theimportance o driving inclusive economic growthto ensure that its benets reach all social groups,particularly the poorest members o society. Growthmust be underpinned by improvements in educationand health, gender equality, and environmentalprotection in order or it to really make a dierence inthe lives o the poor.13

While the private sector makes a vital contributionto poverty reduction, it must do so in cooperationwith other stakeholders. Economic growth requiresan enabling environment, in part created by goodgovernance, robust regulation and enorcementpractices, and clear accountability mechanisms.Together these elements provide a ramework orgovernments to lead on poverty reduction in partnershipwith business and civil society. However, the rameworkor consistent, stable growth is not robust in manydeveloping countries, and poverty is oten widespread.

The World Bank estimates that about 1.4 billion peoplelive below the international poverty line o $1.25 aday. This gure represents roughly a quarter o thedeveloping worlds population. With increased pressureplaced on international aid budgets during the economicdecline, private sector investment and activity in thedeveloping world has become even more important.The scale o the development challenge requires allactors, including business, to collaborate

on an unprecendented scale.

The reputation o The Coca-Cola Company is built on trust and respect. Our employees and those who do business with us aroundthe world know we are committed to earning their trust with a set o values that represent the highest standards o quality, integrity,excellence, compliance with the law and respect or the unique customs and cultures in communities where we operate.

Our Company has always endeavored to conduct business responsibly and ethically. We respect international human rightsprinciples aimed at promoting and protecting human rights, including the United Nations Declaration o Human Rights and theInternational Labor Organizations Declaration on Fundamental Principles and Rights at Work, and we actively participate in theUnited Nations Global Compact.

Our acknowledgment o these international principles is consistent with our dedication to enriching the workplace, preservingthe environment, strengthening the communities where we operate and engaging with stakeholders to pursue progresstoward these goals.

In our workplaces and the communities in which we operate, we believe that a serious commitment to human rights is undamental tothe way we conduct our business. We treat our employees with dignity, airness and respect, and we are guided by our shared valueso integrity, collaboration and accountability.

Our commitment is ormalized and maniested through various policies including ourWorkplace Rights Policy, ourCode o BusinessConductand our environmental governance and management systems. While these policies apply to The Coca-Cola Company and

all o the entities that it owns or in which it holds a majority interest, the Company is committed to working with and encouraging ourindependent bottling partners to uphold the values and practices that these policies drive.

The Coca-Cola Company and its bottling partners jointly understand that the true measure o a well-managed business isnot just whether it is nancially successul, but how it achieves that success. As our system does business around the world touchingso many dierent and distinct local cultures, we know that its not enough to be protable, we must also be responsible. Thisis best achieved in The Coca-Cola Companys unique business system when the Company and bottlers work together towardour shared goals.

We have expressed these shared goals in a global ramework or good corporate citizenship and local accountability calledCitizenship @ Coca-Cola. The ramework consists o a commitment to embrace a shared set o principles across our global systemand is designed to measure and drive improvement in our areas o operation: workplace, marketplace, community and environment.We expect the individual companies that belong to our system to accept the accountability to live up to this commitment and applythese principles to every acet o their local operations.

Through our Supplier Guiding Principles Program (see page 45), we work with our direct suppliers to ensure that they uphold laws

and regulations in the workplace and conduct their business ethically and responsibly.

The Coca-Cola Companys Human Rights Policy


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The global population is predicted to reach 9 billionby 2050,14 with the vast majority o population growthoccurring in the developing world. This will cause amuch greater concentration o people living in cities inthe worlds poorest countries, increased immigration,and a widening gap in incomes. The developmentchallenge is set to reach new heights at a time whenthe old models o economic development are no longersustainable.15 The worlds natural resources are beingdepleted, vital ecosystems have been disrupted, and

climate change threatens to reduce agricultural yields inmany Arican countries over the next decade.16

By simultaneously delivering economic, social, andenvironmental benetsthe so-called triple bottomlinebusinesses make an important sustainablecontribution to development. Companies that take amore strategic approach to providing sustainablevalue,17 both in terms o shareholder returns and a

broader societal and environmental legacy, are orginga new path or the private sector. This refects a trend

With operations in over 60 countries in ve continents, SABMiller is aware o the many diverse national cultures and dierences inlaws, norms and traditions which must be acknowledged and respected in the course o conducting business. As a multinationalcompany, we have a duty to respect and promote the values o the international community, notably the United Nations UniversalDeclaration o Human Rights (UDHR) and other internationally recognized human rights instruments. SABMillers human rightsprinciples apply to all employees, contractors and temporary workers at our operations and cover:

Freedom o Association and Recognition o the Right o Collective Bargaining

Prohibition o Forced and Compulsory Labor

Abolition o Child Labor

Intolerance o Discrimination

Establishing Fair and Competitive Wages and Benets

Providing Sae and Healthy Work Environments

Employee Security

Community Commitment

Supplier Guiding Principles

Further detail on each o these principles and case studies o our programs around the world can be ound at

www.sabmiller.com/humanrights.

SABMillers commitments to respect human rights


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in which a growing number o companies recognizethat they are an integral part o the communities inwhich they operate and that their long-term businesssuccess is directly connected to the success o thecountry as a whole.18

Many companies are now closely monitoring theirvalue chains to ensure responsible practices andto transer knowledge and skills in a more inclusiveapproach to their overall business. Through

micronance opportunities and training, or example,local entrepreneurs are given a greater opportunityto develop successul businesses that can boosttheir household income. This is particularly relevantor women, who in many developing countries ormthe majority o small-scale entrepreneurs in ruralareas19 and set up their own enterprises as theonly means by which they can make a living.

There is also an appetite among many companiesto create innovative business models, products,and services that recognize the needs o those

at the base o the pyramid and that have ameasurable development impact.20 Providingdiverse products and services at aordable pricescan both unlock new consumer markets or theprivate sector and empower poor people.21

Increasingly, companies set high standards oncorporate sustainability and transparency, partly inresponse to calls rom civil society organizations tocommunicate their practices clearly and with greaterregularity. Furthermore, there is a growing commitmentto partnerships, which has led the private sector to workdirectly with civil society and governments to tackle

communities most pressing challenges. Companiesthat have an improved understanding o their impactson communities are better positioned to support theirlicense to operate and to accelerate both economicgrowth and poverty alleviation where it is most needed.

The Oxam America, The Coca-Cola Company,and SABMiller partnership

As businesses gain a deeper insight into the impact o

their operations on poverty and local communities, theyare increasingly collaborating with governments and civilsociety to nd multistakeholder solutions to commonchallenges. All stakeholders are aected by issues suchas nutrition, education, lack o regulation, and taxationand must thereore act together to address them.

In 2008, The Coca-Cola Company, Oxam America,and SABMiIIerone o The Coca-Cola Companysmajor bottling partners and an integral part o thevalue chainagreed to study The Coca-Cola/SABMiller value chain impacts on communities in twodeveloping country markets: Zambia and El Salvador.The partnership was aimed at understanding howcommunities are impacted by the Coca-Cola/SABMillervalue chain and to identiy the opportunitiesor enhancing positive impacts and mitigatingnegative impacts.

Oxam developed the Poverty Footprint Methodologyto help companies understand their impacts, makegreater contributions to poverty reduction, and providea platorm or dialogue, innovation, and accountability.Because Coca-Cola is the worlds most valuable

It is projects such as this that could lead to a paradigm shit in theway businesses and NGOs work together. Huge gains can be made[or development] by these parties working together.

Director General o the Citizen Economic Empowerment Commission, Zambia

In 2008, the United Nations Human Rights Councilunanimously adopted a ramework or business andhuman rights that recognizes that all corporations have theresponsibility to respect human rights. This responsibilityrequires that companies do not inringe upon human rightsthrough either their activities or relationships with otheractors (business partners, suppliers, government bodies).To meet that obligation, companies must adopt human rights

policies, undertake regular evaluations o human rightsconcerns in their operations and along their value chain,engage with relevant stakeholders, and put in place systemsto avoid negative human rights impacts and to addressgrievances rom victims. The UN Framework serves asan umbrella or a range o other normative standards andvoluntary commitments made by companies covering issueslike labor, livelihoods, water, health, and sustainability.

UN Framework on Business andHuman Rights


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* Poverty Footprints look comprehensively across a companys valuechain at all signicant poverty impacts. However, given resourceand other constraints, not all issues will be covered in depth.

brand and The Coca-Cola Company is a businesspartner o millions o small distributors andretailers, a collaboration with the Company andSABMiller promised great potential insights aroundopportunities and challenges in poverty reduction.

The Coca-Cola Company is a ranchise leader, andits system represents a signicant global supplychain with, or example, purchases o aluminum,

polyethylene terephthalate (PET), crates, sugar, andbottles. SABMiller is an independently owned andmanaged company responsible or the procuremento sugar and all in-country manuacturing anddistribution activities. As such, SABMiller sharesThe Coca-Cola Companys strong interest in betterunderstanding its community impacts along the valuechain. The Coca-Cola Company and SABMiller areparticularly interested in exploring how businessescan make decisions dierently in order to increasetheir development impact.

In preparation or the Poverty Footprint research,

Oxam America, The Coca-Cola Company, andSABMiller agreed on our objectives to guide theirjoint work:

To build transparency around and publicawareness o the Coca-Cola/SABMillervalue chain community-level eects.

To provide a platorm or engaging business, civilsociety and government in dialogue about the roleo the system in ostering sustainable communities.

To recommend oppor tunities or enhancingpositive eects and mitigating negative impacts

o the Coca-Cola/SABMiller system in thetwo ocus countries.

To develop joint organizational learning throughthe collaboration.

This study builds on extensive work alreadyundertaken by The Coca-Cola Company andSABMiller to integrate sustainable developmentobjectives into their core business strategies andday-to-day activities by identiying urther steps thatmight be taken in local operations.

What is a Poverty Footprint analysis?

Since the publication o its Poverty Footprint reportwith Unilever, Oxam has been rening and testingits methodology or these types o studies. TodaysOxam Poverty Footprint Methodology (OPFM) is atool that Oxam uses with companies to assess andunderstand their relationships within society and theimpact that company policies and practices have onthe lives o people living in poverty.

The ramework analyzes poverty in vecompany impact areas:Macroeconomy: How a companys economic contributions,including distribution o prots, shareholder dividends,investments, taxes, and employment, support the countrieswhere they operate.

Value chains: How a companys procurement, manuacturing,and distribution practices infuence how easily poor peoplecan nd good-quality employment, earn a living wage,sustain a business, or participate in the market.

Local environmental practices: How a companysenvironmental practices aect the livelihoods and healtho poor people in communities where they operate. Thisincludes the communities own access to natural resourcesand the risks they ace rom natural disasters.

Product development and marketing: How a companysproducts and services aect the health and well-being oconsumers and communities and their overall ability toovercome poverty.

Policies and institutions: How a companys lobbyingand relationships with other institutions (such as tradeassociations) aects government policies and oversightrelevant to poverty issuestrade, nance, labor, essentialservices, etc.

Through ve dimensions o poverty:Livelihoods: Good-quality jobs, training, research anddevelopment, access to credit, markets that supportadequate livelihoods, and a predictable and stable income.

Health and well-being: Health care, education, and socialservices are essential to general well-being.

Diversity and gender equality: Equal access to jobs,training, advancement, benets, and other rights orwomen and minorities, as well as opportunities to maintaincultural identity.

Empowerment: Having a voice in decisions, policies, andpractices a ecting poverty.

Security and stability: Access to resources that helppeople endure shocks to their livelihoods, personal disasters(such as job loss or illness), weather-related disasters, warcrimes, and violence.

The Poverty Footprint Methodology*


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Our approach

Oxam, The Coca-Cola Company, and SABMiIIeragreed to apply Oxams Poverty FootprintMethodology in Zambia and El Salvador. Thesecountries were selected because they are socially,geographically, and demographically diverse, andbecause the Coca-Cola/SABMiller value chainpurchases o sugar in these countries presented the

opportunity or studying the value chain rom sugarproduction to the consumption o Coca-Cola products.A multidisciplinary team drawn rom each organizationworked closely together to apply the OPFM. The teamconducted three months o eld research in eachcountry to derive a picture o the systems impactsduring a dened period o time.

Throughout the research, the team took a numbero measures to maintain stakeholder involvementby sharing project goals, research ndings, and theoutline o the report; undertaking regular eedbackrom a network o expert advisers rom various

sectors and regions; carrying out scoping exercisesat a community level in both countries; and gainingeedback rom a range o nonbusiness stakeholdersthrough ocus group sessions, surveys andindividual interviews.

Oxam managed the research teams in El Salvadorand Zambia, in close collaboration with The Coca-Cola Company and SABMiIIer. They included Oxamsta and contractors as well as members o thePricewaterhouseCoopers Sustainability and ClimateChange team seconded to Oxam or the duration othe three-month eld work period. Inormation was

obtained through document review, data requests,one-on-one or group interviews, written surveys, andsite visits.

The Coca-Cola Company and SABMiller made eortsto open doors to Oxam researchers throughout thevalue chain in both countries, particularly throughthe help o local and regional Coca-Cola oces andSABMiller operations in each country, IndustriasLa Constacia in El Salvador, and Zambian Breweriesin Zambia. It was not possible to obtain data at everypoint in the chain. In some cases, relevant inormationwas either unavailable or, particularly at the tail endso the value chain, not provided by independentbusinesses.22 Local suppliers were assessed ona basic level in terms o their role in the Coca-Cola/SABMiller value chain overall economic ootprint, butworkplace and environmental data were not gatheredrom these actors.

The researchers carried out more than 40 interviewsin each country, with all relevant managers inThe Coca-Cola Company, SABMiller bottlingplants, sugar mills, and large local suppliers to theextent possible.

The ollowing gure summarizes the additional primaryresearch that took place with community actors acrossthe value chain. In addition, more-detailed primaryresearch took place in Nejapa in El Salvador, wherethe main bottling plant or most Coca-Cola products isbased and where the production o sugar associatedto El Angel Sugar Mill takes place. Ten communityleaders, 141 households rom seven representativecommunities, ve municipal authorities, and ourNGOs were interviewed or surveyed. Two municipalauthorities in Izalco, where the other relevant sugarmill is based, were also interviewed. In Zambia, 46 key

additional interviews were also conducted.

Figure 1: Primary research with community actors at each step o the value chain

Interviews with27 owners /workers osmallholderschemes

N/A N/A Four ocus groupdiscussionsconducted inLusaka andNdola with34 ZambianBreweriesworkers

N/A Interviews with6 truck drivers

Interviews with64 retailersand 27 streetvendors/traders

34 communitymembers tookpart in 7ocus groupsconducted inMazabuka,Ndola, andMongu

Sugar workers Sugar mills Other

suppliers

SABMiller

bottlers

The Coca-Cola

Company

Distributors Truck Drivers Retailers Consumers

Interviews with20 workers,5 cooperativeleaders, and 4private growers

Focusgroups with 13workers romEl Angel Milland 12 romCentral Izalco

N/A Focus groupwith 12administrative,sales, andline workers

Interviews with5 owners ormanagers and3 employees

Interviewswith 8 drivers

Survey o 96tiendas: 36 inNejapa and 60in San Salvador

36 communitymemberstook part in 1ocus group inNejapa and 2 inSan Salvador

Zambia

ElSalvador


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5Setting the scene

Overview

Zambia

Zambia is one o the poorest countries in the world,ranked 164 out o 182 countries on the UnitedNations (UN) 2009 Human Development Index.23When Zambia became independent in 1964, it was amiddle-income country poised to become prosperous.This prosperity was short-lived, however, with thecountry enduring an economic decline that persisteduntil the 1990s. Economic growth in the 1990s was

the lowest in southern Arica,24

and unemploymentand infation soared, resulting in per capita incomesthat were 50 percent less in 1999 than they had been25 years earlier.

From 2003 to 2008, the economy grew at anaverage o 5 percent annually, stimulated bypolicies conducive to oreign investment, strongmacroeconomic management, lower infation, politicalstability and a copper-mining boom.25 The majority oZambias oreign debt was cleared in 2005 when thecountry received a debt-relie package o$4 billion. The economy suered a setback in 2008with a crash in copper prices 26 due to the globalnancial crisis, but recovery since has been strong,with a 6.3 percent growth rate recorded in 2009.

The total percentage o people living in povertydropped rom a high o 74 percent in 1993 to 64percent in 2006.27


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Despite the act that the macroeconomic outlook is

currently moving in the right direction, barriers todevelopment remain. Zambias population struggleswith low lie expectancy at birth (47.5 years28), highmaternal29 and child mortality30 rates, and high rateso chronic malnutrition and stunted growth in children.HIV/AIDS is prevalent, with nearly 15 percent31 othe population between the ages o 15 to 49 yearsliving with the virus. Eighty-ve percent o the workingpopulation is engaged in agriculture, and Zambiasrapidly growing population may hinder per capitaincome growth.

El Salvador

El Salvador is among the 10 poorest countries inLatin America and is ranked 106 out o 182 countriesin the 2009 UN Human Development Index. Thecountry is still recovering rom a decade-long civil war,a crash in coee prices that devastated the economy,and a series o natural disasters that occurredbetween 1998 and 2009. El Salvador isnow rated the country most vulnerable tohumanitarian disasters on the planet. The countryexperienced steady economic growth between1996 and 2006, driven in part by a decision todollarize the economy in 2001.


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Six percent o the population lives on less than $1.25a day,32 and more than 25 percent reportedly eltthey must emigrate in search o work.33 According tothe UN Development Program, only 19.9 percent oeconomically active workers in El Salvador meet thedecent employment threshold, which is dened asan income that is equal to or greater than the cost obasic ood and services, along with some allowanceor social protection.

Dollarization has raised the cost o living, providedeasier access to capital markets, and lowered interestrates, but it has not contributed to an overall declinein poverty levels. Emigration has led to a boostin household incomes among those who receiveremittances rom amily members who have let to liveand work abroad.

El Salvador has one o the highest rates o migrationto the United States rom Central America, whichhas contributed to a signicant labor shortage inthe country.34 The incidence o poverty amongwomen and arm workers is disproportionately highcompared to the overall populationthese groupscomprise one third o all poor and one hal o theextreme poor.35 Problems o crime and violence havealso plagued El Salvador since the end o its civilwar. Pervasive poverty and inequality, unemploymentand underemployment, corruption and illicit rearmshave all contributed to the current situation, seriouslyhindering development eorts.

Table 2: Key economic indicators or Zambia and El Salvador or 2009 IX, 38

Economic Indicator Zambia El Salvador

GDP per capita ($) 1,400 7,100

Annual GDP growth rate (%) 6.3 -3.5

GDP ($ billion) 12.8 21.1

Annual infation rate (%) 13.4 0.6

GDP = gross domestic product

I World Bank, World Development Indicators, http://data.worldbank.org/data-catalog/world-development-indicators?cid=GPD_WDI

II UNDP Human Development Report (2010)

III UNDP Human Development Report (2010)

IV UNDP Human Development Report (2009)

V UNDP Human Development Report (2010)

VI UNDP Human Development Report (2009).

VII UNDP Human Development Report (2010).

VIII UNDP Human Development Report (2010).

IX Statistics rom CIA World Factbook.

Table 1: Key poverty indicators or Zambia and El Salvador

Poverty Indicator Year Zambia El Salvador

Population I (million)36 2009 12.9 6.2

Lie expectancy at birth (years)II 2010 47.3 72

Adult literacy rate (%)III 2008 71 84

Probability o not surviving

to age 40 (%)IV2010 43 11

People not using an improvedwater source (%)V

2008 40 13

Children underweight or age(under 5 years)37(%)VI

2006 10 10

Population below income poverty

line (PPP $1.25)VII (%)2000-2008 64.3 6.4

Population below income povertyline (national poverty line)VIII (%)

2000-2008 68.0 30.7

PPP = purchasing power parity


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The Coca-Cola/

SABMiller Value Chain

6

Introducing the Coca-Cola/SABMillervalue chain

The Coca-Cola Company is a global company thatoperates locally in every community where it doesbusiness. Coca-Cola is bottled by local companies,usually owned and managed by local people.Established in 1892, The Coca-Cola Companyis the worlds largest beverage company, servingconsumers with more than 500 sparkling andstill brands. Led by Coca-Cola, the worlds mostvaluable brand, the Companys portolio eatures 14

billion-dollar brands including Diet Coke, Fanta,Sprite, Coca-Cola Zero, vitaminwater, Powerade,Minute Maid, Simply, and Georgia. Globally, theCoca-Cola system is the number one provider osparkling beverages, juices and juice drinks, andready-to-drink teas and coees. Through the worldslargest beverage distribution system, consumers inmore than 200 countries consume the Companysbeverages at a rate o 1.7 billion servings a day.

The Coca-Cola system comprises the Company andmore than 300 bottling partners worldwide. TheCoca-Cola Company manuactures and sellsconcentrates, beverage bases, and syrups to itsbottling partners. It also owns the brands and marketsthese brands in its capacity as trademark owner.The Coca-Cola Companys bottling partnersmanuacture, package, merchandise, and distributethe nished branded beverages to customers, whothen sell the products to consumers.

The bottlers engage with their own local businesspartners to procure ingredients, such as sugar, andsupplies, such as glass bottles.

For the purposes o this study, the Coca-Cola/SABMillervalue chain reers to The Coca-Cola Company and itsrelevant subsidiaries, as well as SABMillers bottlingplants and its suppliers, distributors, and retailers inZambia and El Salvador. SABMillers local operationsare ILC in El Salvador and Zambian Breweriesin Zambia.


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SABMillers role as bottler

In Zambia and El Salvador, SABMiller owns andoperates the bottling operations. As such, SABMillerslocal bottlers are responsible or purchasing theinputs into the production process, including sugar,and executing the sourcing, manuacturing, anddistribution strategy in these countries. TheCoca-Cola Company has a limited number o

employees in both countries and primarily providesmarketing and technical services through its sta,based in local and regional oces.

ILC is the major bottling plant in El Salvador, ormedout o the merger o La Constancia, Embosalva, andIndustrias Cristal in 2003. Since 2005, it has beenwholly owned by SABMiller. It has a contract withThe Coca-Cola Company to be the sole bottler oCoca-Cola products in El Salvador, and it held 51percent o the sparkling category in 2009, withrevenues o $108.4 million. Zambian Breweries, themain bottler or The Coca-Cola Company in Zambia,

is owned by SABMiller. In 2009 it held 64 percento the sparkling beverages category in Zambia andgenerated revenues o $39.9 million.

The Coca-Cola/SABMiller value chain inthese geographic markets

El Salvador is a relatively small but importantgeographic market or The Coca-Cola Company inLatin America, ranking 13 among Latin Americancountries by volume sales. Zambia is one o TheCoca-Cola Companys midsize geographic markets inArica, ranking 19 out o 56 countries by volume salesin 2009. In spite o increasing competition in bothmarkets, the Company has developed action plansto accelerate growth in both countries over thenext ew years.

In both El Salvador and Zambia, sparkling beveragesare the nonalcoholic beverage o choice. Coca-Colaproducts lead in market share in this category inboth markets, with Coca-Cola products comprising73 percent o the total sparkling beverage categoryin Zambia and 51 percent in El Salvador. In Zambia,Coca-Cola products have the largest share othe sparkling beverage category. Other sparkling-beverage-ocused companies, such as Apple Max(manuactured by Caliornia Beverages) and Tangydrink, are the main in-country competitors.

Prots were reduced in the Coca-Cola productscategory in 2009 in Zambia as a result o a signicantinvestment in glass bottles at relatively high cost dueto tight supply conditions. In El Salvador, revenueshave been increasing consistently over the past ouryears, as higher volumes have more than osetthe eect on revenue o reduced prices in a verycompetitive marketplace.

According to The Coca-Cola Company, isotonics

and favored water are seen as a growth opportunityas a replacement or juices in the El Salvadorgeographic market.


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Table 3: The Coca-Cola Company product portolio in Zambia and El Salvador39

Category Zambia El Salvador

Sparkling beveragesCoca-Cola, Coca-Cola light, Fanta,Sprite, Schweppes, Sparletta,

Limca, Citra, Mazoe, Jolly Juice

Coca-Cola, Coca-Cola light,Coca-Cola Zero, Fanta, Sprite,

Sprite Zero, Fresca, Tropical

Juice drinks - Hi-C

Energy drinks Burn -

Sports drinks - Powerade, Powerade Option

Water Kinley Kinley, Dasani

Tea/coee - Hi-C Tea

Other non Coca-Cola

Sparkling beverages 7%

Coca-Cola 42%

Coca-Cola light 2%

Fanta 32%

Sprite 23%Kinley 1%

Cola-Cola Other non Coca-Cola

Tangy Apple Max Swift drinksCola-Cola Fanta Sprite

Kinley Coca-Cola Light

Company shares of sparkling beverage sales

Coca-Cola brand portfolio

Coca-Cola 73%Apple Max 6%

Tangy drinks 13%

Swift drinks 1%

Cola 4%

Coca-Cola 51%

Coca-Cola 70%Powerade 2%

Kinley 1%

Coca-Cola Zero 2%

Tropical, Fanta,

Sprite, Fresca

25%

PepsiCo 24%

Cascada 21%

Cola-Cola PepsiCo Cascada ColaCoca-cola Tropical, Fanta, Sprite, Fresca

Coca-Cola Zero Powerade Kinley

Company shares of sparkling beverage sales

Coca-Cola brand portfolio

Figure 3: The Coca-Cola Company share o the sparkling beverage market in El Salvador37 *

Figure 2: The Coca-Cola Company share o the sparkling beverage market in Zambia*

* Numbers rounded, hence small discrepency


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Key terms in sugarcane production

Sugar harvester Laborer paid to harvest the crop

Sugar worker Laborer in sugar arms, includes harvesters and other types o workers

Sugar armer Mainly used or smallholders who may also work their own land

Sugarcane grower or producer Term used or all types o sugar arm/estate owners

Figure 4: The Coca-Cola/SABMiller bottlers value chain and its key players in these markets

Zambia Sugar-owned estates,independentlyowned largeand mediumestates, andsmallholderprograms.

ZambiaSugar is thesole suppliero sugar toZambianBreweriesor sparklingbeverages.

NampakZambia is thesole suppliero high-densitypolyethylenecrates andcrowns usedwith returnableglass bottles.Arox Zambiais the supplier

o carbondioxide used inbottling. Othersupplies areimported.

ZambianBreweries(ZB), o whichSABMiller hasan 85 percentownershipstake, is thelargest bottlero Coca-Colaproducts inZambia and

operatestwo acilities:ZambiaBottlers inLusaka andCopperbeltBottlers inNdola.

The Coca-ColaCompanymanuacturesthe concentratethat goes intoall its products.

ZambianBreweriesruns its owndistributioncenters.Sparklingbeverages arealso distributedthrough avariety oindependent

channels:distributors(agents),wholesalers(strategicsales depots),and microdistributioncenters.

Bothindependantand ZB truckdrivers areinvolved indistributingbeverages.

Coca-Colaproducts aresold through25,000 retailoutlets,includinginormaloutlets,supermarkets,hotel bars,restaurants,

ast oodrestaurants,kiosks(ntembas),markets, andpetroleumstations.

Sugar workers Sugar mills Other

suppliers

SABMiller

bottlers

The

Coca-Cola

Company

Distributors Truck Drivers Retailers

Sugar isprocured bysugar millsrom threesources:ormal publiccorporations,cooperatives,andindependentsmallholders.Producers hire

arm workersindependently,mostly on aninormal basis.

El Angel andCentral Izalcoare the solesuppliers osugar to ILCor sparklingbeverages.

Cajas y Bolsasis the soleprovider ocardboardpackagingmaterials.LABELS is thesole providero beverageproduct labels.Other suppliesare imported.

Industrias LaConstancia(ILC) is thesole bottlero Coca-Colaproducts in ElSalvador andoperates twoacilities: theILC sparklingbeveragebottling plant

in Nejapa (amunicipality oSan Salvador)and the ILCwater and

juice plant inSan Salvador.The latter isoutside thescope o thisstudy becauseits productiono Coca-Colais minimal.

The Coca-ColaCompanymanuacturesthe concentratethat goes intoall its products.

ILC operates itsown distributioncenters andcross-docks.Independentdistributors usethree routesto market:wholesalers,smallerdistributors,and small

warehouses.

ILC employsdrivers andindependentowner-drivers.

Coca-Colaproducts aresold through64,000 retailoutlets. Thevast majorityo retail outletsare smallshops locatedin privateresidences.Other channels

include bars,ood chains,restaurants,servicecenters,supermarkets,and gyms.

Zambia

ElSalvador


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The Coca-Cola/SABMiller valuechain in Zambia

Zambian Breweries procures sugar rom ZambiaSugar, a company based in southern Zambia with thesecond-largest sugar mill in Arica and one o onlytwo mills in Zambia. Zambia Sugar purchases thesugar it mills rom its own arms as well as outgrowerarms. Zambian Breweries purchases approximately

7 percent o Zambia Sugars productionandapproximately 70 percent o this is used in Coca-Cola products. Zambian Breweries also purchasesthe other inputs into the process, such as bottlecaps,

plastic crates, and labels. Coca-Cola products areproduced in two bottling plants, in Lusaka and Ndola,and distributed across the country through a networko independent distributors, depots, truckers, andmicro distribution centers (MDCs). The Coca-Colasystems retail channels are varied and includesupermarkets, hotels, bars, restaurants, petrolstations, small kiosks on street corners (known locallyas ntembas), and markets. In Zambia,Coca-Cola products are sold to consumers rommore than 25,000 outlets.

WITHINZAMBIA

OUTSIDEZAMBI

A

RAW MATERIALS

Zambia

Sugar Own

Estates

Independently

Owned Large

and Medium

Estates

Smallholder

Programs

Resin

Multiple

International

Companies

from

South Africa,

South Korea,

US and India

Carbon

Dioxide

AfroxSouth Africa

Aluminum

Multiple AsianCompanies

RETAILERS

GeneralTrade

Supermarkets

Informal

Trade

(Hawkers)

Petroleum

Service

Station

Small

Residential

and Market

Shops

SABMiller

BOTTLERS

ZambianBottlers(Lusaka)

NorthernBreweries

(Ndola)

ZambianBreweries

(SABMiller)

Sugarcane

SUPPLIERS

Sugar MillZambia

Sugar

WaterUnderground/

Treated

CarbonDioxide

Afrox Zambia

Plastic CratesNampak

VehiclesSouthern

Cross

Motors

CrownsNampak

Cardboard

TraysNampak

DISTRIBUTION

Drivers

(Employees)

Owner-Drivers

MDCs

Distribution

Depots

PET PreformsBoxmore

South Africa

CapsBoxmore

South Africa

LabelsNampak South

Africa

Plastic WrapBoxmore

South Africa

CardboardTrays

Nampak

South Africa

ConcentrateThe

Coca-Cola

Company

Filtration

ChemicalsVarious

Countries

Vehicles

CSM Holdings

South Africa

Glass

BottlesSABEX

United Arab

Emirates

Cans

KgalagadiBotswana

Machinery

Multiple

Companies

South Africa

Returnable Glass Bottles (RGBs)

Figure 5: Map o the Coca-Cola/SABMiller value chain in Zambia


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The Coca-Cola/SABMiller value chainin El Salvador

The value chain in El Salvador ollows a verysimilar structure. Sugar or the production oThe Coca-Cola Company beverages in El Salvadoris purchased by SABMillers bottlers bottling plant,ILC, primarily rom two sugar mills: Central Izalcoand El Angel, while other diverse inputs come rom

other suppliers. ILCs bottling plant in the country is

located just outside San Salvador in Nejapa. Coca-Cola products are then distributed through ILCs owndistribution depots by its own trucks and independentowner- drivers and by third-party distributors to anestimated more than 64,000 customers, includingsmall retail shops and large supermarkets.

Figure 6: Map o the Coca-Cola/SABMiller value chain in El Salvador

PET

Preforms

ALPLA

Honduras

Caps

Envases

exploring the links between international business and poverty reduction: the coca-cola/sabmiller...

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