Question

The MBA oath says in part, “My decisions affect the well-being of individuals inside and outside my enterprise, today and tomorrow.” This echoes what John Mackey of Whole Foods has in recent years called conscious capitalism.

One example of a large firm reorienting toward this approach is PepsiCo. In the last few years, PepsiCo has been contracting directly with small farmers in impoverished areas (for example, in Mexico). What started as a pilot project in PepsiCo’s Sabritas snack food division has now spread to over 1,000 farmers providing potatoes, corn, and sunflower oil to the firm. Pepsi provides a price guarantee for farmers’ crops that is higher and much more consistent than the previous system of using intermediaries. The farmers report that since they have a firm market, they are planting more crops. Output is up about 160 percent, and farm incomes have tripled in the last three years. The program has benefits for Pepsi as well. A shift to sunflower oil for its Mexican products will replace the 80,000 tons of palm oil it currently imports to Mexico from Asia and Africa, thus slashing transportation and storage costs.

Questions

1. What are the benefits of this program for PepsiCo? What are its drawbacks?
2. What other societal benefits could such a pro-gram have in Mexico?

Answer 1

Answer 1

There are lot of benefits for Pepsico from this program. It encourages local sourcing. The cost of transportation is low as supplies are sourced from Mexico instead of Africa or Asia. The storage costs are also reduced. Apart from this, it also stabilizes key suppliers and therefore provides consistency in scheduling and processing.

However, one of major drawbacks of this program is movement from palm oil to sunflower oil. Customers are used to products manufactured using palm oil, and if the taste of product suffers due to use of sunflower oil then it could cause an adverse impact on sales.

Answer 2

This program is symbiotic in nature. Based on the philosophy of "do good and get good", it helps in empowering local farmers in Mexico. The societal benefit is that it enabled Pepsico to create a "Win-Win" situation for all the stakeholders involved including the local farmers and the company. It helped improve local economy by removing intermediaries. The income guarantee and reliable demand helped farmers to increase their output and generate more profit. Therefore, This program has been able to benefit both the farmers and the company.