Nestlé and New Zealand-based dairy producer Fonterra Co-operative Group Ltd. are reviewing strategic options for the future ownership of their Dairy Partners Americas (DPA) Brasil joint venture, including a potential sale of their respective stakes.

Nestlé holds a 49 percent stake, while Fonterra owns 51 percent. In 2018, DPA reported sales of estimated at BRL 1 billion (US$247.5 million). It operates two plants and employs 1,400 people. Nestlé, Chamyto, Ninho, Chandelle, Chambinho, Neston and Molico are among the well-known dairy brands marketed by DPA in Brazil.

DPA was created by Nestlé and Fonterra in 2003 as a 50/50 joint venture, manufacturing milk powder and manufacturing and commercializing chilled and liquid dairy products throughout Latin America. In 2014, the joint venture refocused its activities on Brazil and the commercialization of chilled dairy.

Last year, it was revealed that DPA Brazil, alongside Danone, was under investigation by local government authorities for allegations of slave labor, and in danger of being added to Brazil’s “Lista Suja” (“dirty list”) of implicated companies. Organizations that appear on the list are effectively barred from accessing credit from state banks or other public financial systems. 

In an investigative report issued last February by Reuters, it was uncovered that Danone and DPA were accused of “being complicit” with a local businessman alleged to have been keeping 28 individuals in debt bondage. The companies’ affiliated distributors were found to have sold him products in bulk, without monitoring working conditions at his operation.

Those kept in debt bondage were trafficked from poor regions of the state of Ceará, and made to sell soon-to-be-expired yogurt at a discounted price, as door-to-door salesmen in Salto city, São Paulo, according to the report. Investigators found that about 70 percent of the products being sold were from Nestlé and Danone brands, while the other 30 percent were sourced from smaller companies.

Since findings from investigation were publicized, both Nestlé and Danone have denied allegations. In the same month, Nestlé ramped up its efforts to accelerate “industry-wide” transparency by disclosing a list of its suppliers alongside a variety of data on its 15 priority commodities. Nestlé has since terminated involvement with the accused distributor.

With the ongoing review of DPA Brasil, Fonterra and Nestlé assert “the long-term growth and success of the business.” The review is expected to be completed by the end of 2019.