Nestle claims £3.7m from famine-hit Ethiopia

Charlotte Denny
Thursday December 19, 2002
The Guardian

The multinational coffee corporation, Nestle, is demanding a $6m (£3.7m) payment from the government of the world's poorest state, Ethiopia, as the country struggles to combat its worst famine for nearly 20 years. The money is compensation for an Ethiopian business which the previous military government nationalised in 1975. It could feed 1 million people for a month, according to Oxfam.

The cash-strapped Ethiopian government has offered to pay $1.5m to settle the claim, but yesterday Nestle, which bought the firm's German parent company in 1986, was standing by its demand, insisting it was a "matter of principle".

"In the interest of continued flows of foreign direct investment which is critical for developing countries, it is highly desirable that conflicts are resolved according to international law and in a spirit of fairness," a spokesman for the company said.

Nestle's chief executive, Peter Brabeck-Letmathe, acknowledged three years ago that the company had responsibilities beyond its bottom line. "We are going to be asked: what have you done to fight hunger in developing countries?" he said.

Last month Ethiopia's prime minister Meles Zenawi said that 6 million people in his country needed emergency food aid and that the number could rise to
15 million within months.

The famine, brought on by the failure of rains for the third year in a row has been intensified by a collapse in the price of coffee which supports a quarter of the country's population. Nestle, the world's largest coffee
processor made $5.5bn in profits last year.

Aid agencies have reacted furiously to the company's demand.

"At the very least Nestle ought to be accepting the settlement offered by the Ethiopian government," said Sophia Tickell, a policy analyst at Oxfam. "But frankly they should be thinking about how the money could be spent on famine relief and drop the claim altogether."

Ethiopia has the lowest income per head in the world, with the average person surviving on $100 a year. More than a tenth of its children die before their first birthday.

Aid agencies are worried that the crisis could be even worse than the 1984 disaster in which a million people died.

"Drought is threatening many farmers with the prospect of famine," Ms Tickell said. "Nestle, by contrast continues to thrive. The company does not need $6m. It is a highly profitable company which could easily live up to its commitment to 'help fight hunger in developing countries' by writing off this claim."

The World Bank has stepped in to negotiate, but there were few signs yesterday that the company was preparing to back down. "This is a question of principle. The negotiations are ongoing and it would be rash to predict an outcome at the moment," Francois Perroud of Nestle said.

In 1986 Nestle bought a German company, Schweisfurth Group which had a majority share in the Ethiopian Livestock Development Company (Elidco) seized by the Ethiopian government more than 25 years ago. The government sold Elidco to a local firm for $8.7m four years ago.

Although the exact size of Schweisfurth's share in Elidco is uncertain, the Ethiopian government is willing to pay$1.5m - just over half the value of the company at the time of nationalisation including interest. But Nestle is insisting it convert the payment at 1975 exchange rates, adding a further $4.5m to the bill.

"It is perfectly appropriate to try and find a solution to a conflict which has existed since 1975," Mr Perroud said. "We are the owners of a claim against the Ethiopian government."

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The Independent, London, Sunday December 22 2002
The amazing £3.7million chocolate bar
Joan Smith

Unless you happen to live in Ethiopia, there is a delicious irony in the spectacle of the world's largest food company demanding millions of pounds in compensation from a country threatened by famine. Nestlé's mission statement proudly declares that the company is "dedicated to providing the best foods to people, throughout their day, throughout their lives, throughout the world" - a statement that is not easy to square with its pursuit of £3.7m from the poverty-stricken Ethiopian government.

Last month the Red Cross launched an appeal for almost double that amount, warning that up to 14 million Ethiopians may need international food aid next year. "Even if we had the food available in the domestic market, the government doesn't have the money to buy this surplus food for redistribution," Ethiopia's prime minister, Meles Zenawi, confirmed last month. According to Christian Aid, a staggering 10 per cent of the government's revenues already go on repaying international debts.

Like most famines, this one is at least partly the result of human folly, not least Ethiopia's hugely damaging war with neighbouring Eritrea. But the decision of a company based in affluent Switzerland to pursue such a small amount of money, in terms of its own annual profits - $5.5bn last year - might have been designed expressly to breathe new life into the anti-globalisation movement. Nestlé must by now be ruing the day it posted a series of grand sentiments on its website, claiming that the company "contributes to your well-being and enhances your quality of life".

Not if you are a hungry Ethiopian it doesn't. Nestlé is best known in Britain for a series of famous brands with cheerful names - KitKat, Quality Street, the Friskies pet-food range - but the story behind its financial pursuit of a developing country involves an altogether more prosaic set of players. It goes back to 1975, when Ethiopia's then government nationalised
foreign companies, including the Ethiopian Livestock Development Company (Elidco). This was not even owned by Nestlé then, but by the German Schweisfurth Group, which began negotiations with the Ethiopian Compensation Commission three years later.

Nestlé acquired Schweisfurth in 1986, presumably at a price that took into account the loss it had made on Elidco. Twelve years later the Ethiopian government sold Elidco to a local firm for $8.73m, and in 2001 the World Bank became involved in the negotiations. They have dragged on ever since, coinciding with the country's slide towards famine.

Nestlé reacted angrily to the row last week, complaining about "ill-informed comment by the media". Yet it is not as if Nestlé is new to hostile publicity, having made itself a target of boycotts with its controversial policy of flogging breast-milk substitutes in developing countries. As recently as October this year it was singled out by the International Baby Food Action Group for its "long-standing record of poor compliance" with the 1981 code drawn up to regulate the marketing of baby milk. On Friday, Nestlé protested that the amount it is prepared to accept from the Ethiopian government is negotiable. Mind you, it has already rejected the government's offer of $1.5m - half the value of Elidco at the time it was nationalised,
including interest. More than a tenth of Ethiopian children die before their first birthday and it is not difficult to predict what will happen next; any activist worth his or her salt is quite capable of mocking up logos of Nestlé products alongside pictures of African children with distended bellies. Those of you who feel inclined to boycott Nestlé over Christmas could start with the following brands: Nescafé, Perrier, Vittel, San
Pellegrino, Shreddies, Maggi, Buitoni, Crosse and Blackwell, Libby's, Smarties, After Eight and L'Oréal cosmetics, in which Nestlé has what it calls an "important interest".

Boycotts divide protesters, and some people will ask whether it is right to threaten the jobs of the 230,000 people who work for Nestlé in 468 factories around the world - 22 of them in Britain. Yet Nestlé's behaviour is so gross, and the power of multinational companies so great, that it is hard to devise other ways of hitting them where it hurts. Meanwhile, I look forward to discovering what exactly Nestlé means by a vague promise that it will "respond to requests for help to alleviate the suffering of the population that is presently threatened by the food shortage" in Ethiopia. Bombarding them with the new chunky KitKat perhaps?

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