national foods limited case study

NATIONAL FOODS LIMITED

Creating Shared Value-A Step By National Foods Ltd.

GROUP MEMBERS

BS VII

Afshan Shah B08107002

Anum Khan B08107005

Ayesha Iqbal B08107010

Rahila Altaf B08107039

Owais Naseem B08107041

Sabra Shaikh B08107042

SUBMITTED TO

DR. ASIM

KARACHI UNIVERSITY BUSINESS SCHOOL



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.




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


http://en.wikipedia.org/wiki/Pakistan

http://en.wikipedia.org/wiki/Stock_exchange

http://en.wikipedia.org/wiki/McCormick_%26_Company



“ 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.”

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. NFL’s 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 Pakistan’s 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.

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 2003-

2004) 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 country’s 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.




27%

16%

11%

9%

EXPORT MARKET SHARE

China India

Spain Peru

PIE CHART 1: Export market share of largest producers and exporters of chilies

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

USA 20 PPBCanada 15 PPB

EU 05 PPBBrazil 30 PPB

Australia 15 PPBJapan 10 PPBChina 10 PPBIndia 30 PPBIran 10 PPB

Malaysia 35 PPBTABLE 1: Aflatoxin maximum allowable limit

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 Pakistan’s

chili less competitive in the European market. The country’s 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 world’s 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 company’s 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 geo-

textiles, proved to be a success.

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.

Lab Scale Kunri Field

1ppb

32ppb

2.62ppb

10.73ppb

Muddy Floor Geo Textile2

AFLATOXIN COMPARISON

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.




Lab Scale Kunri Field

38000SHU

34000SHU

34000SHU 30000SHU

Geo textile Muddy Floor

PUNGENCY COM-PARISON

GRAPH 2: Pungency Comparison

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.

Lab Scale

Kunri Field

3854

3849

Muddy Floor Geo Textile2


COLOR COMPARISON



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.

Financial Performance Analysis

2011 2010 2009 2008 2007Sales 5,520,780 4,489,946 3,758,706 3,061,746 2,391,746Gross profit 1,513,981 1,326,747 1,126,451 985,777 818,484Operating Profit 487,447 258,545 307,543 290,185 200,301Profit before taxation

361,751 159,181 220,702 233,947 191,722

Taxation (131,154) (72,622) (81,241) (77,401) (62,430)Profit after taxation 230,597 86,559 139,461 156,546 191,722Earnings per share 5.56 2.09 4.21 4.72

TABLE 2: Five Year Financial Performance Analysis of NFL

SOURCE: Annual Report on National Foods Limited




2007 2008 2009 2010 2011 -

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

SALES

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.

2007 2008 2009 2010 2011 -

50,000

100,000

150,000

200,000

250,000

PROFIT AFTER TAXATION

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.

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.




REFERENCES

TBL Sustainability Advocacy (n.d.) Case Studies: Profit – Supply Chain Sustainability

[online] available from http://www.tbl.com.pk/case-studies-profit-supply-chain-

sustainability/

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/


http://nfoods.com/contents/our-company/awards-and-achievements/certifications/

http://tribune.com.pk/story/302692/the-collaboration-that-opened-up-eu-for-national-foods/

http://www.tbl.com.pk/case-studies-profit-supply-chain-sustainability/





Business News Pakistan (n.d.) National Foods Limited’s financial results for the year

ended 30th June 2011 [online] available from

http://www.businessnewspakistan.com/financial-results/national-foods-limited

%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


http://prr.hec.gov.pk/Chapters/46S-2.pdf

http://nfoods.com/contents/wp-content/uploads/reports/AnnualRep2009.pdf

http://www.businessnewspakistan.com/financial-results/national-foods-limited%E2%80%99s-financial-results-for-the-year-ended-30th-june-2011.html

http://www.businessnewspakistan.com/financial-results/national-foods-limited%E2%80%99s-financial-results-for-the-year-ended-30th-june-2011.html

national foods limited case study

Documents

strategic social investments

corporate social responsibility

pakistani chili powder

chili powder sample

textile pilot project

national foods limited

prevent aflatoxin contamination

geo textile technique