Responsible Sourcing Program In 2011

Responsible Sourcing Program In 2010 We undertake a process
of engagement with
our suppliers, our
procurement colleagues
and the industry at large.

Working with suppliers

AIM-Progress

AIM is the European Brands Association and Bacardi Limited is a member of its AIM-PROGRESS Taskforce , an initiative that brings together consumer goods companies to work on responsible supply chain issues. In fiscal 2011, we took part in AIM-PROGRESS supplier forums in China and Brazil.

At the Chinese event, a range of global consumer brands, including Kraft®, Diageo® and Nestlé®, introduced their approach to Responsible Sourcing. A representative from Sedex also introduced the Sedex system for sharing supplier audit information. More than 350 suppliers attended, including direct suppliers to Bacardi Limited.

Feedback shows that suppliers clearly recognized that Responsible Sourcing is a growing trend and an important factor for consumer brands. They also recognized the combined commitment to improve standards at the same time as reducing the burden on them through duplicate supply chain audits.

Sedex

Sedex is an online database in which member companies share their ethical performance data. During fiscal 2011, we continued to encourage our key suppliers to join Sedex. With 244 suppliers registered, we fell just short of our target to have 250 registered with Sedex and linked to Bacardi Limited by the end of fiscal 2011. This is a 39% increase on the 175 suppliers linked to Bacardi in fiscal 2010.

Agave

Blue agave is the key ingredient in our CAZADORES tequila. In fiscal 2011, we started to review our blue agave supply chain in Mexico. We started by visiting three of our main blue agave suppliers to introduce our Responsible Sourcing program and to encourage them to join Sedex. The visits included agave plantations to see the harvesting in operation.

In a similar way to sugarcane production, agave production is characterized by significant manual labor and our visits intended to provide more insight into workplace standards Agave harvesters, known as “jimadors” are skilled workers who are well respected within agave communities.

Following our visit, two of the three suppliers have joined Sedex and we will continue to work to establish our Responsible Sourcing program in our agave supply chain in fiscal 2012 and beyond.

Point-of-Sale suppliers

Point-of-Sale (POS) advertising is crucial to Bacardi Limited because it supports our brands in on-trade and off-trade retailing. POS items include branded goods, such as ice buckets and cocktail shakers, glassware, branded signs, and gift and other promotional items. Our POS supply chain is large and complex. Globally, we source more than 3,200 different items from around 700 suppliers. With this level of complexity, applying our Responsible Sourcing standards and researching the source of each item is time consuming.

In fiscal 2011, we focused on the top five suppliers in each of our ten largest markets in the Europe, Middle East and Africa (EMEA) region. Our POS Category Managers contacted the suppliers to explain our Responsible Sourcing program and invited them to join Sedex. Our Sedex Project Manager supported the joining process to make it as straightforward as possible. At the end of fiscal 2011, 61 POS suppliers’ sites were registered and linked to Bacardi Limited. This represents 25% of our Sedex supply base.

Responding to challenges

In the POS supply chain, many transactions are one-off deals and relationships with suppliers can be short-lived. The challenge we face is that many suppliers will not join Sedex on the strength of a one-off contract with us. When suppliers are not part of Sedex we rely on our Vendor Qualification Process (VQP), which applies to all new suppliers and includes checks for quality and Responsible Sourcing standards.

Another challenge is that many purchases are made through intermediaries and agents, rather than directly with manufacturers. To address this, our VQP includes a factory assessment document that aims to ensure that the information we request comes from the site of manufacture, rather than the point of purchase.

To address the challenge of gaining good quality information and a suitable level of transparency on supplier standards, we have worked with a logistics service provider to establish a sourcing office in Hong Kong. Known as the Bacardi Asia Sourcing Hub (BASH), it will help to verify supplier factories and ensure compliance with our Suppliers’ Code of Practice. We will provide a progress report on this project in the 2012 Corporate Responsibility Report.

The Better Sugarcane Initiative to Bonsucro – a year in review

It has been a landmark year for Bonsucro, the non-profit, multi-stakeholder organization focused on improving standards in the global sugarcane industry. Since its establishment in 2007, the last year has seen more activity than any other. Bacardi Limited is one of the founding member companies of Bonsucro. In fiscal 2011, we continued our support by hosting the Bonsucro Annual General Meeting (AGM) and by leading the re-branding from the Better Sugarcane Initiative to Bonsucro through our role as chair of the Marketing sub-committee. At the Bonsucro AGM, Bacardi Limited was also elected to the newly formed Board of Directors for Bonsucro.

A long-term commitment

Historically, the sugarcane industry has been characterized by poor labor standards and weak environmental protection. These are issues that Bacardi Limited finds unacceptable. Bonsucro works to eradicate poor standards from the industry and, as a founding member, we have been involved with Bonsucro since its inception.

With the launch of the Bonsucro Production Standard in November 2010, and with the first Bonsucro certified sugarcane expected in mid-2011, the natural next step was to establish a long-term commitment to using Bonsucro certified sugarcane products. We have set a target to source all of our molasses and cane-based alcohol from Bonsucro certified sources within ten years.

This is the first commitment of this type by Bacardi Limited and we aim to lead the way in transforming standards in the sugarcane industry by creating demand for Bonsucro certified sugarcane and sugarcane products.

Hosting the 2010 Annual General Meeting

In November 2010, Bacardi Limited was proud to host the Bonsucro AGM at the Bacardi distillery at Cataño in Puerto Rico, the world’s largest premium rum distillery. The distillery is a large user of molasses, a derivative of sugarcane, which is a key ingredient in our rums.

The Bonsucro AGM was the most successful yet and launched version three of the Production Standard as well as the Bonsucro certification system and chain of custody standard. These items will be key to Bonsucro becoming the global standard for sustainable sugarcane products.

Another important landmark was establishing a new governance structure for Bonsucro with a single, elected Board of Directors. The AGM included the first Board elections and Bacardi was elected onto the new Bonsucro Board of Directors. We look forward to continuing to develop Bonsucro in order to achieve its vision to transform the sugarcane industry.

Re-branding – Better Sugarcane Initiative to Bonsucro

In 2009, it became clear that the Better Sugarcane Initiative name and its more widely known acronym, BSI, needed to be changed.

To deliver the re-branding process, a Marketing sub-committee was created in early 2010. Bacardi Limited was asked to chair the committee and led the re-branding process, making the most of our strong marketing heritage and in-house skills. We also secured pro bono support from marketing and PR agencies to assist with the process.

Purpose, Vision and Mission

The first step of the re-branding was a workshop held at Bacardi Global Brands in London that developed a new purpose, vision and mission for the Better Sugarcane Initiative:

Purpose: To transform the sugarcane industry.

Vision: To be a leader in driving market demand for certified sugarcane produced against sustainable standards.

Mission: To complete the quantitative, performance-based metric standard, to reach out to increase membership and to establish a global certification platform.

A global name

A new name was needed that would resonate with a varied global audience and the diverse range of members within the initiative. A clear winner emerged from this discussion in the workshop: Bonsucro.

Challenges

As with any voluntary, multi-stakeholder process, challenges exist for Bonsucro. Increasing and maintaining membership is crucial to the Bonsucro standard taking hold within the sugarcane industry and delivering real sustainability benefits on a large scale.

With nine of a total of 22 sugar mills and 16 of a total of 86 leading food and beverage companies as members, there is a long way to go before Bonsucro can claim a position as the key growing and production standard within the sugarcane industry.

Challenges for Bacardi

During fiscal 2011, we missed our target to have 75% of our molasses and light cane distillate suppliers signed up to Bonsucro (only 15% are currently signed up).

With our new target to source all of our sugarcane-derived ingredients from Bonsucro certified sources within ten years, it will become essential for our suppliers to become certified.

Working with sourcing communities

Our Responsible Sourcing program commits us to work with the communities from which we source raw materials.

As part of this, Bacardi Limited has entered into a three-year program with WWF that will focus on communities in Fiji, a key supplier country for molasses.

The sugarcane industry in Fiji is state-run and is a leading source of employment and GDP creation. The industry, however, is relatively inefficient compared with other national sugarcane industries and poor soil management alone is estimated to cost the industry as much as US$8.5 million per year.

The aim of the program is to reduce the impact on the environment of sugarcane production and processing and to work with sugarcane farmers to achieve Bonsucro certification. The program aims to improve resource use efficiency of smallholder farmers and improve fresh water quality, which will assist the conservation of the Great Sea Reef off the coast of Fiji, the third longest continuous barrier reef system in the world.

This is a great opportunity for Bacardi Limited to work with a leading conservation organization to bring a range of benefits to the sugarcane industry in Fiji, while protecting the country’s natural resources, conserving biodiversity and unique coral reefs, and enhancing local livelihoods.

We anticipate that this program will be the forerunner to other similar programs in sugarcane growing communities that supply our distilleries in Mexico and Puerto Rico. We will provide a progress report on this program in our 2012 Corporate Responsibility Report.