3 Kraft's undertakings in respect
of Cadbury
21. In our oral evidence session on 16 March, the
Kraft management team set out its plans for the future of Cadbury.
In this section we set out the undertakings given by that team.
Most of those undertakings we can only note at this stage, Kraft's
commitment to them will only be judged over time. However, Kraft's
handling of its intentions in respect of Somerdale prohibit us
from taking these undertakings at face value which is why we believe
that Kraft's undertakings should be monitored by the Department
for Business, Innovation and Skills.
Brand Management
22. Trevor Bond, a long-standing Cadbury employee
and soon to be given responsibility in Kraft for leading all European
markets, confirmed that Cadbury products would continue to be
managed from the UK.[25]
He also confirmed that Cadbury's brand names would not change
under Kraft:
We have no plans to rename Cadbury Creme Eggs
or Cadbury Dairy Milk into anything else; those are great brands
that our consumers love, that our factories in the UK produce
to a really high standard, and we intend to keep on providing
consumers and customers with the products and the brands that
they love.[26]
This message was reaffirmed by Marc Firestone:
It is absolutely our plan to preserve the identity
of the brands themselves as well as the identity of the company
itself. We have heard questions about Bournville and the flags
and the signs and so on. It is absolutely our intention that Cadbury
will remain the name on the building; that Cadbury will remain
the name on the flag. [27]
23. Trevor Bond also confirmed that Dairy Milk would
continue to be produced in the UK and that there were no plans
to transfer abroad production of other products currently made
in the UK.[28]
24. We note Kraft's undertakings to continue to
manage Cadbury from within the UK and that Dairy Milk and Cadbury's
other products currently produced in the UK will continue to be
produced here.
Undertakings for jobs
SOMERDALE WORKFORCE
25. After announcing that it would not be keeping
the Somerdale factory open, Kraft stated that it would honour
Cadbury's previous undertakings including terms and conditions
given to Somerdale workers affected by the closure. [29]
Unite told us that Cadbury's senior management had informed the
Union that Kraft would uphold those pledges made to the workforce
by Cadbury.[30] Richard
Doyle, HR Director, Cadbury, Britain & Ireland of Kraft, noted
that as well as the severance packages available to employees,
there was a Jobcentre facility on the site available to them and
Cadbury had also undertaken a significant amount of on-site retraining
for the employees.[31]
26. We note the fact that Kraft will honour Cadbury's
undertakings given to the Somerdale workforce.
CADBURY WORKFORCE
27. In November 2009 Irene Rosenfeld stated that
Kraft's "current plans contemplate that the UK would be a
net beneficiary in terms of jobs".[32]
However, at the time, neither Unite nor the Government were able
to extract any specific assurances or details from Kraft. In our
first oral evidence session on 12 January, Jennie Formby, Unite's
National Officer for Food and Drink told us:
We have asked for very specific guarantees. We
have said that whatever we may think about Kraft taking over Cadbury
and the way Cadbury operates at the moment clearly the people
we represent are the workers, so if Kraft says that strategically
it is very important and it will grow and develop the business,
expand the markets and so on, fine; get on with it, but if that
is the case it should have the confidence to give our members
guarantees that it will not be making compulsory redundancies,
that sites will not be shut, that the pension scheme will be saved,
that terms and conditions will be safe and so on. Kraft has said
that it cannot give us any such guarantee.[33]
She also told us that both Cadbury and Kraft argued
that the Takeover Code prevented them from discussing anything
that would be deemed price sensitive, which included details of
future plans for the workforce.[34]
However, Jack Dromey, Unite's Deputy Secretary General, provided
us with examples of where companies engaged in takeovers had sought
early positive engagement with the Union:
We can give you two examples: one was Jaguar
Land Rover where the prospective buyers—and there were a
number—the union was able to meet with each one of them
and talk to each one of them about their intentions for the future
and guarantees for the future. Another example is TNT Logistics,
when that was disposed of. It is not true that the takeover code
stops you from having constructive discussions; it is just that
Kraft sought to hide behind the takeover code.[35]
28. Unite also asserted that even after the conclusion
of the takeover, there had been little contact between senior
management from Kraft and workers:
Mr Firestone has very recently, but only very
recently, visited the Somerdale plant to talk to the shop stewards,
but several weeks too late as far as we are concerned and certainly
as far as our members are concerned there. Other than that, Kraft
executives have been seen walking around the Bournville site.[36]
29. Marc Firestone wished to provide clarity on the
future of the Cadbury workforce and confirmed that there would
be no compulsory redundancies amongst manufacturing employees
for the next two years. He also added there would be no further
plant closures in the UK:
First, I will say that we can commit that for
a period of at least two years there will be no further closures
of manufacturing facilities in the United Kingdom. I can also
commit that, beyond any programmes which I have mentioned which
have already been negotiated and announced for at least two years,
there will be no further compulsory redundancies of manufacturing
employees in the United Kingdom.[37]
30. This commitment only extends to Kraft's employees
within manufacturing. Redundancies in Cadbury's finance, legal
and communications departments have already been announced,[38]
and Marc Firestone was unable to give any further assurances about
Kraft's headquarters in Cheltenham. He explained that Kraft would
not need multiple facilities for administration and was currently
in consultation about its administrative footprint.[39]
31. We are disappointed that while there has been
frequent contact between Unite the Union and Kraft's UK human
resource team, Kraft's American senior management have yet to
engage in any meaningful dialogue with the Union. We believe that
it is vital that Kraft's senior management from the US meet representatives
from Unite the Union and the workforce as a matter of urgency
in order to start to restore trust.
32. We note Kraft's assurances that there will
be no further compulsory redundancies amongst manufacturing employees
and no additional plant closures in the UK for the next two years.
However, a guarantee for a longer period would have been welcome.
We strongly believe that it would be in both Kraft's commercial
interests as well as the UK's national interest for Kraft to regard
the existing manufacturing plants in the UK as long-term investments
which require sustained investment to remain competitive and at
the leading edge of technology. Theoretically the undertakings
given in respect of Dairy Milk guarantee the future not only of
Bournville but also of Chirk, near Wrexham and of Marlbrook in
Herefordshire, which supply the ingredients. However, we note
the lack of a specific guarantee about the future of these two
plants and we ask the Government to invite Kraft to provide further
clarification of their intentions and to put the reply in the
public domain.
Pensions
33. There have been a number of press reports voicing
concern about the future of Cadbury's pensions under Kraft. Before
the takeover, Cadbury was undertaking a consultation on pensions.[40]
Following the takeover, the Daily Telegraph reported on
5 March 2010 that:
Kraft Foods is preparing to close the British
confectioner's final salary pension scheme to new members, increase
contributions from staff and cut up to 150 jobs. Kraft is due
to unveil the findings of a long-running consultation into the
future of Cadbury's pension scheme later this month. A spokesman
for the US company admitted yesterday that the final salary scheme
was "more than likely to be closed to new members" as
he warned that pension schemes "have to be sustainable".
Reports in the local media near Cadbury's Bournville
base suggested pension contributions could almost double but the
spokesman said any potential increases would be gradual: "They
will be phased in over time," he said. "They're not
going to double overnight." Cadbury is known to have been
considering the future of its pension scheme and while a formal
consultation was opened in January, talks began some months before.
The outcome of the consultation has yet to be formally decided
and talks are "ongoing", the spokesman said. [41]
34. In an open letter to members of the Pension Fund,
Kraft Foods and the Trustees of the Cadbury Pension Fund stated
that:
Kraft Foods would like to take this opportunity to
reassure you that the decision by the shareholders to accept Kraft
Foods' offer has not undermined the security of your pension and
that the Trustees and Kraft Foods are focused on protecting the
pensions of all members.[42]
35. Richard Doyle, a long-standing Cadbury employee
and now Human Resources Director of Cadbury UK & Ireland within
Kraft, is also a trustee of the Pension Fund. He told us that
senior management in Kraft had given the Trustees a commitment
to supporting pension arrangements, though there may well be ongoing
changes to the pension scheme in order to make it affordable:
Kraft have been very clear that the way in which
[the pension fund] will be dealt with and managed will be exactly
the same as how Cadbury would have interacted on that, with a
very clear commitment to supporting pension arrangements going
forward. On the subject of the benefits themselves, we had engaged
like the vast majority of UK businesses in looking hard at how
we ensure the […] pension arrangements […] are sustainable
and affordable in the long term. That does mean that we, Cadbury,
have announced some changes and are in the process of consultation
[...] Kraft have been very clear in committing to maintaining
accrued benefits to date and to supporting the changes which Cadbury
had already started to communicate both with the trustees and
employees.[43]
36. We both note and welcome Kraft's acceptance
of its obligation to support Cadbury's existing pension arrangements.
Research and development
37. Cadbury funds significant scientific research
expertise which is based at the University of Reading. The Reading
Science Centre comprises Reading Scientific Services Limited (RSSL)
and R&D team working for solely Cadbury. When RSSL was established
in the late 1980s, its function was to provide technical out-sourced
solutions for Cadbury and some other companies. However RSSL now
conducts analysis, consultancy, product development and training
work more generally for the food and drink, pharmaceutical, healthcare
and consumer goods industries. It has also built a strong reputation
for its work on allergen management and testing, investigating
food contamination and training. RSSL still remains a wholly owned
subsidiary of Cadbury.[44]
Cadbury also has a chocolate innovation team based in Bournville
which focuses on the production of chocolate.
38. Marc Firestone praised Cadbury's R&D capabilities:
Cadbury has excellent research and development
capabilities in the UK and other countries, including at Reading,
and we are committed to maintaining Reading. Much of what Reading
does is actually for third parties, and it is a fascinating business
model where they do work for pharmaceutical companies and non-competing
food companies, and I am hopeful that business model remains because
it is an excellent way for our own people to gain insights from
other industries.[45]
He also expressed his commitment to ensuring that
RSSL remain in the UK:
We are committed to it—I want to be careful
because I do not think anybody could ever say "in perpetuity",
but from what we have seen so far we certainly intend to maintain
that operation, subject to the third party contracts. But, yes,
Reading is something we see fitting very well. They do terrific
research there, they have a very energetic, enthusiastic group
of people, doing all sorts of great work on chocolate and other
products which services the worldwide chocolate business for both
companies.[46]
39. We note Kraft's commitment to maintain Cadbury's
R&D facilities in the UK. We also note Mr Firestone's careful
use of words and that there is no specific commitment to the current
level of employment and world class skills in R&D at the centres
of excellence at both Reading and Bournville. We invite Kraft
to reflect on the reputational consequences for their company
in the UK of not honouring the spirit of Mr Firestone's assurances
and warm words. We ask the Government to invite Kraft to clarify
its intentions and to put its response in the public domain.
Cadbury's philanthropy and corporate
social responsibility
40. Cadbury's support for the community, its patronage
of the Cadbury Foundation and commitment to Fairtrade[47]
means that it enjoys an excellent reputation for pursuing goals
of corporate social responsibility alongside corporate success.
During our evidence session with Kraft we tested Kraft's commitment
to those goals.
FAIRTRADE
41. One of Cadbury's most notable achievements in
the area of corporate social responsibility in recent years has
been to make Dairy Milk a Fairtrade product.
In March 2009, Cadbury announced that Dairy Milk was to be certified
as Fairtrade in the UK and Northern Ireland. [48]
In August 2009 it announced that Dairy Milk would also be Fairtrade
in Australia, New Zealand and Canada.[49]
42. Cadbury sourced its cocoa from Fairtrade farmers
in Ghana.[50] On its
website, Cadbury set out its relationship with the Cadbury Cocoa
Partnership:
In January 2008, the Cadbury Cocoa Partnership
was established in partnership with the United Nations Development
Programme, local governments, farmers and communities. This ground-breaking
partnership aims to secure the economic, social and environmental
sustainability of around a million cocoa farmers and their communities
in Ghana, India, Indonesia and the Caribbean. Over ten years £45
million will be invested through the partnership to improve farmer
incomes, develop communities and build partnerships. In January
2009 Cadbury announced that the Cadbury Cocoa Partnership was
now active across 100 Ghanaian communities, marking the 100th
anniversary of cocoa trading with Ghana.[51]
43. Kraft confirmed that it would uphold Cadbury's
commitments to Fairtrade which were that:
- Dairy Milk will continue to be Fairtrade in the
UK and Northern Ireland and in three more markets, Canada, Australia
and New Zealand by early 2010;
- Green & Black's (which is owned by Cadbury)
will move its entire range to Fairtrade by the end of 2011.[52]
In addition, Marc Firestone emphasised Kraft's ongoing
commitment to the Cocoa Partnership. He told us that Kraft would
"absolutely stand behind" the Cocoa Partnership as well
as "all the other existing agreements".[53]
He explained that Kraft also had existing commitments with the
Rainforest Alliance, a similar body to Fairtrade:
We have existing commitments and arrangements
with Rainforest Alliance and what we have to do is find a time
when those could be synchronised. There are long-term supply agreements
with both companies, so it is not a matter of switching one to
the other, or vice-versa; it is a matter of making sure they are
both equally responsive to concerns about the environment, about
the workers in the field and about social development.[54]
44. However, Professor Bones told us in January that
Cadbury's commitment to Fairtrade went further in terms of social
responsibility than Kraft's commitment to the Rainforest Alliance:
The difference between the two models that strikes
me is that Cadbury has a social perspective so its adoption of
Fairtrade for Dairy Milk has increased those product sales as
a whole by 25% in this country. It has taken Fairtrade from being
relatively on the margin to right at the centre; it has added
a huge amount of Fairtrade turnover in any category. Fairtrade
guarantees a minimum price; the Rainforest Alliance does not but
tries to encourage sustainable markets. That is the difference.
Both are very creditable approaches. If you look at Cadbury you
see it going one step further in terms of its belief about responsibility
but some would argue that it is not necessarily a huge step further.[55]
45. We note the commitment by Kraft to continue
Cadbury's support for the Cocoa Partnership and uphold Cadbury's
undertaking to extend its use of Fairtrade. Any dilution of Cadbury's
commitment would reflect very seriously on Kraft's reputation
and integrity.
THE CADBURY FOUNDATION AND COMMUNITY
INVESTMENT
46. A significant part of Cadbury's philanthropic
legacy is its support for the Cadbury Foundation which gives grants
to projects and partner organisations, mainly in the fields of
education and employment.
47. Cadbury provided the following list of objectives
regarding community investment:
- Contribute 1% pre-tax profit for Community Investment
year-on-year;
- Encourage at least 25% of our employees to volunteer
in the community;
- Encourage the inclusion of community objectives
in the development of people, brands and reputation; and
- Build on partnerships to help address social,
economic and environmental concerns.[56]
In 2008, Cadbury in the UK contributed £1,225,409
in community investment and achieved an overall goal of contributing
1% pre-tax profit. This contribution included employee time, cash
donations, gifts-in-kind and a small amount of management costs.[57]
48. Kraft confirmed that it would uphold Cadbury's
existing agreement to support the Cadbury Foundation. Marc Firestone
told us that:
On Friday I confirmed personally to the Foundation
that we are confirming their funding. They fund in three-year
cycles and they had a pre-existing funding proposal for 2010,
2011, 2012. I personally informed them that we would continue
that.[58]
In that vein he told us that Kraft was committed
to Cadbury's programme of community involvement:
What I can definitively commit to is that Cadbury's
charitable activities, its community involvement and other things
it has been doing for over a hundred years, will absolutely continue
and I hope grow.[59]
He went on to highlight the fact that volunteerism
was also part of Kraft's ethos, and gave the example of Kraft's
week of "volunteerism" last October in which over 10,000
employees took part.[60]
49. We welcome the announcement that Kraft has
confirmed the funding arrangements for the Cadbury Foundation
for the next three years. We also note Kraft's undertaking to
adhere to Cadbury's commitments for community investment. We look
forward to seeing how Kraft will maintain and build upon Cadbury's
heritage of philanthropy both during the initial three-year period
and beyond.
THE FRY CLUB
50. The Fry Club started off as a sports and social
club for its Somerdale employees and now has over 15 sports and
entertainment sections ranging from skittles to football and netball
to drama.[61] Its website
now reports that "with a period of transition due with the
closure of the nearby Cadbury chocolate factory the Fry Club is
getting ready to move into a brand new state-of-the-art facility
within the next few years". Marc Firestone confirmed that
Kraft was fully committed to the Fry Club and that it was working
with the community and the council to find the best possible use
for the Somerdale site.[62]
In addition, Kraft is committed to rebuilding the Fry Club on
the Somerdale site.[63]
51. We welcome the commitment given by Kraft to
rebuild and maintain the Fry Club at Somerfield.
THE ENVIRONMENT
52. In 2007, Cadbury's total CO2 emissions were around
818,686 tonnes.[64] Cadbury
had committed to achieving an absolute reduction in net carbon
emissions of 50% by 2020. It was also committed to reducing its
packaging and food waste. In the UK and Australia, Cadbury had
been working with government-supported projects such as WRAP (the
Waste and Resources Action Programme) and had signed up to the
Courtauld Commitment in the UK.[65]
Supporters of WRAP are committed to use better design to cut packaging
waste by 2009, make absolute reductions in packaging waste by
2010 and identify ways to tackle food waste.[66]
53. With regard to reducing CO2 emissions, Kraft
stated: "we will maintain the same aggressive intention as
Cadbury's target of [reducing net carbon emissions by] 50% by
2020." Kraft also stated that it would uphold Cadbury's commitments
to reduce packaging and food waste.[67]
54. We note that Kraft intends to uphold Cadbury's
commitments to the environment.
Conclusion
55. The Kraft takeover of Cadbury has been marred
particularly by the controversy over the closure of Somerdale
and has heightened the feelings of mistrust in which Kraft is
held. Kraft now faces a significant challenge to restore its reputation
in the United Kingdom. Our evidence from Kraft did, however, give
some welcome clarity on Kraft's intentions for brand management,
the Cadbury workforce and the many philanthropic activities for
which Cadbury is rightly admired. These commitments—which
have been personally endorsed in writing to us by Irene Rosenfeld—are
now in the public domain, and therefore will be subject to close
scrutiny over the next few years. If Kraft is serious about restoring
its reputation in the United Kingdom, it is vital that it delivers
on all of them. Any back-tracking from these commitments, or any
evidence that support management and other functions, especially
Cadbury's world class Research and Development, are indeed being
transferred to the United States would be a serious breach of
trust. We recommend that the Department for Business, Innovation
and Skills monitors Kraft's compliance to these commitments. If
it is serious about them, Kraft will have nothing to fear from
such scrutiny.
25 Q 175 Back
26
Q 174 Back
27
Q 176 Back
28
Q 177, Q 182 Back
29
BBC News, Cadbury's Bristol plant to close, 9 February
2010 Back
30
Q 131 Back
31
Q 290 Back
32
Kraft's Takeover bid document, 7 September 2009 Back
33
Q 53 Back
34
Q 50 Back
35
Q 136 Back
36
Q 123 Back
37
Q 297 Back
38
The Guardian, Unions square up to Kraft to demand pay rise
for Cadbury workers, 4 March 2010 Back
39
Qq302-303 Back
40
The Daily Telegraph, Triple blow for Cadbury staff from Kraft
deal, 5 March 2010 Back
41
The Daily Telegraph, Triple blow for Cadbury staff from Kraft
deal, 5 March 2010 Back
42
Joint letter to members of the Cadbury Pension Fund from Kraft
Foods and the Trustees of the Cadbury Pension Fund Back
43
Q 322 Back
44
Food Manufacture, Kraft visits Cadbury's research firm,
8 February 2010 Back
45
Q 297 Back
46
Q 298 Back
47
Fairtrade is a charitable organisation which promotes better prices,
decent working conditions, local sustainability, and fair terms
of trade for farmers and workers in the developing world. By requiring
companies to pay sustainable prices (which must never fall lower
than the market price), Fairtrade addresses the injustices of
conventional trade, which traditionally discriminates against
the poorest, weakest producers. It enables them to improve their
position and have more control over their lives. Back
48
The Independent, Cadbury adopts Fairtrade source, 4 March
2009 Back
49
Cadbury's Press Release, Fairtrade Cadbury Dairy Milk goes
global as Canada, Australia and New Zealand take Fairtrade further
into mainstream, 25 August 2009 Back
50
The Independent, Cadbury adopts Fairtrade source, 4 March
2009 Back
51
http://www.cadbury.com/ourresponsibilities/cadburycocoapartnership/pages/cadburycocoapartnership.aspx Back
52
Qq-326-327 Back
53
Q 330 Back
54
Q 331 Back
55
Q 17 Back
56
Cadbury, Community Investment in the UK 2008 Back
57
Cadbury, Community Investment in the UK 2008 Back
58
Q 334 Back
59
Q 338 Back
60
Q 334 Back
61
Fry club website, http://www.fryclubconference.co.uk/ Back
62
Q 288 Back
63
BBC News, Cadbury's Bristol plant to close, 9 February
2010 Back
64
Corporate Social and Responsibility Fact sheet 2007-08-environment
and climate change Back
65
The Courtauld Commitment is a voluntary agreement aimed at improving
resource efficiency and reducing the carbon and wider environmental
impact of the grocery retail sector. Back
66
Corporate Social and Responsibility Fact sheet 2007-08-environment
and climate change Back
67
Ev 56 Back
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