Firmenich: Sustainable Vanilla Sourcing

Case Overview

Firmenich sought FSG’s support to conduct a strategic review of a sustainable vanilla purchasing program in Uganda. The review was designed to establish whether the program was effective in assuring the long-term viability and reliability of Firmenich’s vanilla supply chain, and identify areas for improvement. FSG conducted a full diagnosis of the supply chain, from farmer to retailer, including in-depth field research in Uganda.

While most of the world’s vanilla is sourced from Madagascar, Ugandan vanilla forms a key part of Firmenich’s diversified sourcing strategy. The company is a major purchaser of vanilla exports from the small African country.

Firmenich had inherited a sustainable vanilla program in Uganda through an acquisition. The program’s aim was to secure long-term sustainable vanilla production in Uganda and reliable quality and quantity of beans through a focus on supply chain economics and concurrent investments in socioeconomic and environmental improvements.

However, an initial review suggested that the program was disjointed and ineffective. Firmenich hired FSG to conduct a full strategic review to identify specific opportunities for improvement to further develop sustainable vanilla production and supply for the company in the future.

In order to establish the effectiveness and relative value of the inherited program, FSG conducted a number of detailed analyses. These included:

• Understanding the economics of the vanilla supply chain, and how they affect and are affected by socioeconomic and environmental conditions;
• Reviewing the value distribution among all participants of the supply chain to assess the need and opportunity for reallocating part of the value;
• Interviewing key stakeholders along the supply chain including customers, donors, NGOs, government institutions, exporters, trade associations, local project partners, agricultural extension workers, Ugandan vanilla farmers, and village savings group.

The analysis led to a number of specific recommendations to strengthen the supply chain and implement a relevant and effective social program. A price envelope was identified that could both provide a viable income to smallholder farmers (ensuring ongoing high-quality supply) and avoid the kind of rapid price escalation that had led to social unrest a few years earlier. Measures to improve traceability, and monitor farming practices were recommended, in order to enable Firmenich to pay a quality premium.

Firmenich was also advised to invest in pre-financing and professional extensions services, in order to improve quality and reliability. For the social program, specific high-impact investment opportunities were identified that could reinforce the value created through the supply chain. These included village savings groups, income diversification schemes, women’s empowerment efforts, and health provision.

About Firmenich

Firmenich is the largest privately-owned company in the perfume and flavor business, and is a major supplier to multinational consumer goods companies, including the food & beverage and cosmetics industries among many others. The company, which is still 100% family-owned, was founded in Geneva, Switzerland in 1895. Today it employs more than 6,000 people, and turned over nearly US$3bn in the year ending June 2011. In addition to vanilla, the company is investing in sustainable sourcing initiatives for a number of other key high-value ingredients in its supply chain.