AMDP Investment Memo

TO: Clark Hanson, CEO

FROM: Arthur Hanlon, R&D Department

DATE: 10/20/2019

SUBJECT: Alqueria

As you know, an important part of my job is to find companies suitable for investment that follow the standards of AMDP. After careful consideration, I would recommend that we invest in Alqueria. This large Colombian dairy company produces milk, cream, and yogurt of all kinds, makes an effort to be environmentally sustainable, and has an ambitious socially conscious goal built into their corporate philosophy. But before I review Alqueria in detail, it’s important to note AMDP’s investment expectations.

AMDP Investment Standards

Triple Bottom Line

The triple bottom line is a multi-pronged approach to evaluating companies from a socially responsible perspective, and gauges them on their performance in the three “P’s”:

• People: A company’s effort to be helpful and generous towards those they employ, as well as towards local and regional communities impacted by their business.
• Planet: A company’s practices to minimize its ecological footprint and emission of waste.
• Profit: A company’s ability to maintain a financially successful business. (Kenton)

Corporate Social Responsibility

Corporate social responsibility consists of a company’s efforts to make sure that their practices have a positive impact on the local population and surrounding community. This can relate to both their methods of operation, such as inclusive hiring processes, as well as outside efforts, from community service projects to charitable outreach (Chen).

Social Enterprise

A social enterprise is one that seeks to maintain profitability, but is primarily focused on completing goals that benefit society as a whole. Oftentimes, the profits from these companies are simply reinvested back into their social projects (Barone). 

Carbon Footprint

A carbon footprint is the total amount of carbon dioxide and other greenhouse gasses emitted either directly or indirectly by a person or company. Typically measured in tons of CO2, it is intended to help gauge how much someone’s activities are contributing to global warming. This can range from the straight consumption of fossil fuels to produce goods, to the use of electricity needed in order to do business that ultimately produces further emissions. It is vital for each individual and corporate entity to reduce their carbon footprint as much as possible, given that these emissions trap heat within our atmosphere and further exacerbate problems associated with global warming. If everyone made an effort to reduce this output, we would stand a far better chance at combating the climate change problems that continue to get worse (Selin). 

Alqueria

Background and Overview

Alqueria was founded in 1959 by Jorge Cavelier Jimenez, a native of Bogota who already had a lengthy resume by the time he started the company: he began as a renowned urologist, eventually helping establish various hospitals and schools around Colombia before becoming the Minister of Public Health. But after this prolific career, he decided to refocus his passion towards the active improvement of the nation’s nutrition. Jorge started Alqueria along with his son Enrique with the overall philosophy that “a bottle of milk is a bottle of health” (Alqueria1). They grew the company together, and kept it in the family when Enrique’s son Carlos subsequently took over. Alqueria has since exploded in size, expanding their variety in milk offerings and partnering with giants like Danone to increase their scope and scale. 

Alqueria enjoyed periods of growth until a brief economic downturn in the turn of the century,  after which they managed to rebound and vastly expand Alqueria’s output and reach (Dinero). Besides the addition of several dairy plants and distribution centers around the country, Alqueria boasted over $900 million in revenue and a 22% market share in 2018, up from just a 13% share in 2011 (LAVCA 2019, IFC 2013). Just this year, Latin American private equity powerhouse Mesoamerica announced its acquisition of a 35% stake in the dairy company, leaving Alqueria well-suited to explore new technologies and expanded production (LAVCA 2019).

Promoting Peace Through Milk

One of Alqueria’s persistent concerns is how to find new milk suppliers in a such a small country with limited space. But their solution to this problem also happens to be one of their biggest corporate social responsibility (CSR) efforts, and it focuses on the consequences of Colombia’s tragic history. In 1948, the assassination of a populist political leader triggered a ten-year civil war, which sparked the rise of left-wing guerrilla groups and right-wing paramilitary groups that remained locked in conflict for decades. In addition, drug cartels essentially doused the fire with kerosene by providing new access to a massive source of income and further normalizing the brutal violence. And as these various groups fought both each other and the government, Colombia’s countryside and rural villages became home to some of the most dangerous outfits and ruthless acts of terror. Sixty years of this ongoing conflict has left much of the country ravaged and disconnected from the modern economy. That’s where Alqueria steps in. They focus on countryside regions that saw the worst fighting, and aim to partner with local dairy farmers to bring their milk out of the war zone and sell it to the public. Despite threats from the guerrillas for operating in their territory, Alqueria stood strong and has led the Milk for Peace program to tremendous success (Biggar). They now source nearly 1 million liters of milk from over 7,000 farmers every day, driving the company’s financial success while making an enormous difference in Colombia’s rural economy (Barrera). By giving the local population a chance at a working business, they ultimately reduce the power that guerrilla groups hold in the region. 

Environmental Sustainability

Alqueria is firmly committed to combating climate change, and has made impressive strides towards a green Earth through their Long Life Planet program. This is a four-pillared, holistic approach that carefully looks at each potentially damaging component of the company’s operation. First is their sustainable livestock model, which promotes strong animal welfare as well as the proper management of soil resources in order to minimize deforestation. The second pillar aims to conserve Colombia’s ecosystem by promising a zero carbon footprint from Alqueria by 2030. Third, their advanced new packaging design reduces plastic use by 15%, which translates to 490 fewer tons of carbon dioxide waste per year. And finally, Alqueria’s efficient water use and standardized treatment plants have helped save over 2.7 million liters of water in just a decade (Alqueria2). All of these efforts combined aim to make Alqueria as beneficial to our planet’s health as it can possibly be. 

Societal Outreach

The dairy company’s final endeavor in CSR is a societal outreach program with three strategies. They first work with food banks all around Colombia, providing both milk as well as food procured from their connections in the industry. Donations over the past fifteen years have exceeded 20,000 tons. But, recognizing that significant change stems from proper education, Alqueria’s second approach is to sponsor the college careers of low-income children in the areas where they operate. They work closely with these students to ensure that they have the proper help and resources, and have sent 230 students to top universities over the past six years. Then, as if all this weren’t enough, Alqueria also works with a growing network of over 10,000 farmers to get them the logistic, financial, and educational support they need to successfully operate their business (INTA 2017). With all of these efforts combined, Alqueria guarantees that society can reap the benefits of their success just as much as they do. 

Appraisals

Their CSR efforts have not gone unnoticed. In 2018, Alqueria was included on the Empresas INspiradores list, made by consulting company FSG and the Colombian National Industry Association, which acknowledges companies in Colombia that add significant social value. Alqueria’s CEO was subsequently recognized in the Congreso Empresarial Colombiano 2018, the country’s most important private sector event (Amaya and Smith 2018). Furthermore, a case study conducted by infoDev and the World Bank Group regarding Alqueria’s impact in conflict regions concluded that the company provides a unique and tremendous benefit to small farmers, helping them modernize and move past the influence of the rampant guerrilla groups (infoDev). 

Conclusion

The dairy industry is not typically considered a strong source of potential CSR value. However, Alqueria has defied these expectations with a multi-tiered approach that alleviates the damage done by guerrilla combat, promotes environmentally sustainable business practices, and supports local communities in their areas of operation. These more than live up to AMDP’s standards, making Alqueria an ideal company for investment. 

Sources

1. Alqueria1. “Alquería, Más Que Una Empresa De Lácteos: Ingresa Ahora.” Alqueria Corporativo, www.alqueria.com.co/conocenos/compania/quienes-somos/.
2. Alqueria2. “Acciones Ecológicas Por Un Planeta Larga Vida: Alquería.” Alquería Corporativo, www.alqueria.com.co/acciones-con-valor/planeta-larga-vida/.
3. Amaya, Laura, and Dane Smith. “Companies Changing Colombia through Shared Value.” FSG, 10 Oct. 2018, www.fsg.org/blog/companies-changing-colombia-through-shared-value-0.
4. Barone, Adam. “Social Enterprise.” Investopedia, 23 Sept. 2019, www.investopedia.com/terms/s/social-enterprise.asp.
5. Barrera, Juan Felipe Sánchez. “The Corporate Peace Gift: Alternative Views to the CSR Movement within the Colombian Context.” Academia.edu, 2015, www.academia.edu/23635461/THE_CORPORATE_PEACE_GIFT_Alternative_views_to_the_CSR_movement_within_the_Colombian_context.
6. Biggar, Hugh. “Milk for Peace: A Conversation with Alqueria's Jaime Eduardo Gomez Gomez.” Landscape News, 26 May 2018, news.globallandscapesforum.org/27611/milk-for-peace-a-conversation-with-alquerias-jaime-eduardo-gomez-gomez/.
7. “Carlos Enrique Cavelier, El Forjador De Sueños De Alquería.” Semana, 30 Apr. 2017, www.semana.com/100-empresas/articulo/100-empresas-2017-el-forjador-de-suenos-de-alqueria/523437.
8. Chen, James. “Corporate Social Responsibility (CSR).” Investopedia, 12 Mar. 2019, www.investopedia.com/terms/c/corp-social-responsibility.asp.
9. Dinero. “Así Fue La Millonaria Movida De Alquería Que Estrena Socio.” Dinero, Dinero.com, 24 June 2019, www.dinero.com/empresas/articulo/quien-es-el-nuevo-socio-de-alqueria/273175.
10. IFC. “Alqueria S.A.” IFC, World Bank Group, 2013, www.ifc.org/wps/wcm/connect/36802265-cbe5-4edc-8149-c61dab8d8ed3/Alqueria.pdf?MOD=AJPERES&CVID=lv2hdIy.
11. InfoDev. “Case Study: Dairy Sector Supply Chain Development in a Conflict-Affected Region of Colombia.” 2018. Washington, DC: The World Bank Group. License: Creative Commons Attribution CC BY 3.0
12. INTA. “Carlos Enrique Cavelier, Alquería S.A., Colombia: Why the Best CSR Comes from the Heart.” INTA Bulletin, vol. 72, no. 14, 15 Aug. 2017, www.inta.org/INTABulletin/Pages/Alquería_President_Carlos_Enrique_Cavelier_Interview_7214.aspx.
13. Kenton, Will. “Triple Bottom Line (TBL).” Investopedia, 3 May 2019, www.investopedia.com/terms/t/triple-bottom-line.asp.
14. “Mesoamerica Acquires Dairy Manufacturer Farmhouse.” LAVCA, 2019, lavca.org/2019/06/04/mesoamerica-acquires-dairy-manufacturer-alqueria/.
15. Selin, Noelle Eckley. “Carbon Footprint.” Encyclopædia Britannica, Encyclopædia Britannica, Inc., www.britannica.com/science/carbon-footprint.