Business in Europe

AE-E0025

Publication: 04/2013

Natura and the development of a sustainable

supply chain in the Amazon region

Dirk Michael Boehe1

Leandro Simões Pongeluppe

Sérgio Giovanetti Lazzarini

It was Tuesday, December 13, 2011, when Mauro Costa, eco-relations manager at Natura,

and Raoni da Silva, eco-relations coordinator at the same company, were heading to the rural

producers’ association in Moju, a quilombo community in Brazil’s northern state of Pará

located around 90 kilometers from the Natura Benevides Industrial Unit (UIB). The purpose

of their visit was to conduct the annual negotiations for the supply of inputs from the

region’s biodiversity. Traveling in a cabocla, a boat common to the Amazon Region, the two

chatted about the “sustainability” of Natura’s business model as a way to continue

developing the communities where the company has operations, but while also enabling the

company to gain advantages over its competitors.

1 Case study developed by Professor Dirk Michael Boehe, Professor Leandro Simões Pongeluppe and Professor

Sérgio Giovanetti Lazzarini. This case study is solely for the purpose of classroom discussion and does not

propose to render an opinion on managerial effectiveness or ineffectiveness or to serve as a primary source of

data.

Copyright © 2013 Insper Institute of Education and Research

No part of this case study may be reproduced or transmitted by any electronic or mechanical means, including

photocopying, recording or any storage system, without the express written consent of Insper Institute of

Education and Research. Violators will be subject to the penalties set forth in articles 102, 104, 106, 107 of Federal

Law 9610 of 02/19/1998.

AE-E0025

2

The UIB had been installed in the Amazon Region in 2006. However, the growing

importance that inputs from Amazonia’s biodiversity played in Natura products was

becoming a cause of concern for Mauro. According to the unit’s practices in its relationships

with supplier communities, producers were guaranteed that a portion of their annual

production would be purchased for at least three years. But there was no exact estimate of

the potential acceptance of the final products (shampoos, soaps, creams and others) by

Natura consumers.

Moreover, the Benevides team maintained a practice of investing not only in training and

education, but also in transferring know-how and financial investments, which strengthened

the communities’ ability to develop competencies in the communities. However, since the

communities were not obliged to supply inputs exclusively to Natura, this could attract

potential competitors. In fact, these communities had already been approached by other

companies.

As they were pondering these facts, Mauro and Raoni debated whether Natura could

indeed reconcile competitive advantages with the effort to develop communities even

without exclusivity agreements for the supply of inputs.

The cabocla continued on its way up the large Amazonian river and doubts about the

viability of Natura UIB’s business model continued to weigh on Mauro and Raoni. Soon they

would go ashore at the Moju community for a meeting with producers and submit their

supply and price proposals.

Natura

Natura was founded in 1969 by Antônio Luiz da Cunha Seabra with the aim of combining

cosmetics and relationships2. Years later – in 1979 and 1983, respectively – Seabra was joined

by two entrepreneurs, Guilherme Peirão Leal and Pedro Luiz Barreiros Passos. The three laid

the foundation for what would become Natura Cosméticos in terms of both the company's

structure and its beliefs and vision of the world.

Natura’s mission (“reason for being”) is based on pursuing products that promote well-

being; the harmonious and pleasant relationship of a person with one’s body; “being well”;

the empathetic, successful and gratifying relationship of a person with others, with nature,

which they are a part. The company believes that “Life is a chain of relationships.”3

In 2004, the company held its IPO on the Novo Mercado, the listing segment of the São

Paulo Stock Exchange (Bovespa)4 with the highest corporate governance standards, and in

that year posted sales revenue of R$2,472 million and net income of R$300.3 million. From

2 Natura Annual Report, 2011, page 9. 3 Natura Annual Report 2011, page 3. 4 Natura Website: http://scf.natura.net/SobreANatura/

AE-E0025

3

2004 to 2011, the company registered growth in sales revenue of 279% and in net income of

277%, which reached R$6,887 million and R$830.9 million, respectively, in 20115.

Furthermore, from 2006 to 2011, it registered net margin expansion of 4% and ended the

period with good levels of ROA (23.99%) and ROE (60.75%) (Exhibit 1). The company was

elected one of the 21 most sustainable companies by Exame magazine in 2010 and 20116. It

was also a component of various stock indexes for companies committed to social and

environmental responsibility, such as the Corporate Sustainability Index (ISE), the Special

Corporate Governance Stock Index (IGC) and the Carbon Efficient Index (ICO2) of the

BM&FBOVESPA.

Brazil’s cosmetics market

Over the years, beauty and personal care products in Brazil had become an attractive

market for companies, with intense competition for market share gains among Brazilian and

foreign companies (Exhibit 2).

However, 2011 was not as good as other recent years had been. In 2011, the sector grew by

just 8.61%, much slower than the 13.68% in 2010 and 15.72% in 2009. Consumer demand

waned due to past debts, while, on the supply side, problems in the direct sales channel and

in implementing new information systems played critical roles in the lackluster

performances of companies in the sector like Natura and Avon.

As a result of these problems, Natura’s consumer loyalty declined from 53% to 52%, while

its overall brand assessment decreased from 81% to 73%7. Meanwhile, Avon, one of its main

competitors that also opted for a direct sales model, saw its sales growth slow from 20% in

2010 to 8% in 20118, also due to problems in its information systems. The company even

became a takeover target by French company Coty, which offered US$10.7 billion9.

This scenario favored companies that had opted for franchise models, such as Boticário,

which registered double-digit growth during the period. It also encouraged the entry of new

players, such as the meatpacking group JBS, which acquired the brands Albany, Francis,

Francis Hydrata, Neutrox and Ox. The JBS group planned to become the "Brazilian Unilever"

over the upcoming years10. Apart from JBS, Bombril, the renowned steel wool and household

cleaning products brand, also entered the industry by acquiring the brand Ecologie, seeking

to capture the synergies that existed between the beauty and home care markets.

5 Natura Annual Reports. 6 Exame magazine, available at: <http://exame.abril.com.br/meio-ambiente-e-energia/noticias/21-empresas-

modelo-em-sustentabilidade-em-2011>. Visited on Sep 09th, 2012. 7 Natura Annual Report, 2011, page 53. 8 Avon Annual Report, 2011, page 32. 9 Euromonitor International "Beauty and Personal Care in Brazil 2012," page 2. 10 Idem, page 4.

AE-E0025

4

The difficulties faced by Natura and Avon in coordinating their sales information systems

also favored other competitors with retail distribution networks, such as Unilever, Procter &

Gamble (P&G) and L’Oréal. The latter had developed a line of products based on cacao.

Despite the relatively slower growth in 2011, Brazil’s cosmetics and personal care industry

remained buoyant. In 2011, Brazil registered the highest growth in certain market segments,

such as products for hair removal (21.12%), babies and children (15.62%), hair care (7.15%)

and bath (5.56%), etc.

According to analysts11, until 2016, Brazil was expected to maintain its leadership in

industry sales among BRIC countries12 to account for 46% of total sales, ahead of China

(32%), Russia (12%) and India (10%). One crucial factor for the country’s continued

leadership was the expansion of the consumer market driven by the growing middle class

(the so-called “C” income group)13, especially in its North and Northeast regions. The

forecasts for the industry’s sales are shown in Exhibit 3.

Moreover, consumers in Brazil and worldwide were showing a growing propensity for

the consumption of premium cosmetic products. Between 2011 and 2016, the deodorants

market was expected to grow by 117.9% while the bath products market was expected to

grow by 74.8%14. Furthermore, products related to biodiversity appeared to enjoy relatively

good acceptance by consumers (see Exhibit 9): Natura’s Ekos brand had the sixth largest

market share in the sector in Brazil, with a consistent share of at least 1.5% over the previous

four years (2008-2011).

The Ekos line

The Natura Ekos line was launched in 2000. The main idea of the line was to develop an

innovative model in the cosmetics industry, exploring the idea that human beings and nature

are one and that this connection should be strengthened while caring for beauty. As such,

personal care is much more connected to the relationship of human beings with the

environment than technological research, which is the path adopted by other cosmetics

companies. According to Marcelo Cardoso, Organizational Development and Sustainability

Vice-President at Natura:

“So just how are we going to compete with L’Oreal, Unilever and Avon, who invest

millions of dollars in research and development in molecular research? [...] It was at that

moment [1998] that Natura decided to bet on Brazil’s biodiversity as the centerpiece of its

investments.”

11 Euromonitor International "Beauty and Personal Care in Brazil 2012", page 2. 12 The acronym “BRIC” means: “Brazil, Russia, India and China”. 13 According to ABEP (Brazilian Association of Research Companies) criteria, “C” Class (assuming C1 and C2) has

an average income of U$693,00 (R $ 1,416.00). Source: http://www.abep.org/novo/Content.aspx?ContentID=835 14 Euromonitor International "Beauty and Personal Care in Brazil 2012," page 18.

AE-E0025

5

By revitalizing, revaluing, transmitting and preserving Brazil’s biodiversity, the Ekos line

aimed to connect the brand to a unique vision by highlighting that human interactions give

meaning to nature through local traditions and cultures and gain meaning by coming into

contact with natural products. By underscoring this interaction, Natura sought to reconnect

consumers to their relationship with nature and involve them with the communities that

supply the biodiversity inputs (Exhibit 4).

However, investments in research on biodiversity, developing relationships with local

communities and implementing sustainable practices for managing these inputs, as well as

the costs of sourcing these inputs, led Natura’s products to incur substantial costs (Exhibit 5).

For example, the costs of andiroba and murumuru almond were R$2.53/kg and R$5.64/kg,

respectively, while the cost of cupuaçu butter was R$17.95/kg. On the other hand, most

competitors used only palm oil in the formulas of their products, which cost on average

R$1.83kg (Exhibit 6). One important factor was that Natura also used a large amount of palm

oil in the base paste used to make soaps. It was estimated that biodiversity inputs

corresponded to about 2% to 3% of the total inputs in the formula of the Ekos line of soaps,

but the company planned to increase the use of oils derived from the Amazon’s biodiversity

to between 3% and 5%.

Natura also charged a higher price than its competitors for its Ekos product line (Exhibit

7). For practically all product lines (shampoos, moisturizers, conditioners and soaps) the

prices per milliliter of Ekos products were higher than those of competitors. In the case of

shampoo, for example, in 2012 the price per milliliter was 50% higher than that of its

competitors: R$0.140/ml, compared to R$0.055/ml for the nearest player (O Boticário).

Despite its higher costs (Exhibits 5) and prices (Exhibit 7), the historical evolution (Exhibit

8), expansion and acceptance of the Ekos line were high, such that it enjoyed the sixth

highest market share of all body care and beauty product lines (Exhibit 9). However, the

viability of the Ekos line demanded constant interaction with the communities and the

presence of the UIB was fundamental for building these relationships.

Natura’s Benevides Industrial Unit

The UIB was responsible for nearly 50% of the supply of biodiversity oils for Natura

products and for the base paste of Ekos soaps. Natura launched operations at Benevides,

Pará in 2006 and, by 2011, the unit had managed to establish relationships with around 15

supplier communities and approximately 1,551 families (Exhibit 10), representing a 253%

increase over four years. According to its 2011 annual report, Natura overall maintained

relationships with 32 supplier communities and 3,235 families, demonstrating the

importance of the UIB to the viability of the Ekos line.

However, the relationship of Natura’s UIB with these communities did not follow the

traditional model of “buying and selling” in the spot market. The unique characteristics of

AE-E0025

6

the Amazon region and the inexistence of a regular market for products such as murumuru,

andiroba, cupuaçu, cacao and acai, among other biodiversity inputs, made the purchase and

sale of these products difficult. In the words of José Renato Cagnon, manager of the

Benevides Industrial Unit:

"I challenge you to go to the Amazon with five million in your pocket and try to buy

something. You’ll see that you won’t be able to buy anything."

To help in the sourcing of these essential inputs for the Ekos line, the UIB and Natura

developed a methodology of dialogue and relationship with the supplier communities in the

Amazon Region.

Local partnerships

One of the earliest problems faced by the Natura UIB was: how to find potential suppliers

in a region with a lack of logistics, information and communication facilities. And how to

retain the suppliers that it managed to acquire.

To be able to implement this business model, UIB needed the assistance of local partners

that knew the region very well, already had contacts with the associations and, above all,

enjoyed legitimacy in their relationships with these communities. One of these partners was

the Federation of Organizations for Social and Educational Assistance (Fase). Created in

1961, Fase was an NGO based in Rio de Janeiro with a Marxist-leftist ideology. Its mission

was “To contribute to building a democratic society through a sustainable development

alternative.”15 Its policy had always been, according to its leaders, to combat "neoliberal

policies"16. The NGO had a history linked to rural and riverside communities and, since the

1970s, had been involved with the rural worker movements in Brazil’s North. It had a

regional office in Belém (Para) to manage its operations in the Amazon region.

Contact between Natura and Fase started in 2000 but was not fully satisfactory to warrant

a partnership. However, with the passage of time, the dialogue with Natura evolved such

that, in 2007, Fase noticed that both institutions shared the same objectives regarding

development, autonomy and sustainability. According to a director at Fase, the difference of

a partnership with Natura:

"[lies in] the development viewpoint, which means he [the farmer] remains in the

cooperative, remains in the association [...]. Our viewpoint matches that of Natura by

maintaining the viewpoint of collective work, so the cooperatives become stronger, which is

something that sets the relationship apart in the region.”

15 Fase website, available at:<http://www.fase.org.br/v2/> Visited on: Sep 09th, 2012 16 Idem.

AE-E0025

7

This partnership with Fase gave the Natura UIB an opening for initiating dialogue with

Amazonian communities. The joint development of relationships and the transfer of

information among these communities, Fase and Natura brought benefits for all three

parties. The communities were strengthened with the income generated from the sale of

biodiversity inputs. The work of Fase was strengthened with the offering of courses and

leadership training in the communities. And the company could source inputs from the

Amazon’s biodiversity for use in its products. Natura also hired former Fase employees to

work on its team.

Partnerships like the one between Natura and Fase enabled the company to penetrate a

region where, at times, even the government did not have access. However, the viability of

the business depended not just on the company’s initial penetration, but also on maintaining

its relations with partners and supplier communities.

Non-exclusivity and purchase guarantees

Fase was highly concerned with the emancipation, autonomy and development of the

communities in accordance with democratic and sustainability principles. According to the

NGO’s directors, this emancipation occurred via a unique source of income and by avoiding

individualized relationships between farmers and large producer companies, as is the case in

the production of palm oil (dendê), which is a commodity with a more developed market.

Fase also believed that pursuing diversification in production and consequently in income

sources was fundamental to the independence of the members of the community. According

to a Fase director at the Belém office:

"Diversifying production gives you various prospects, rather than just a single prospect,

like in the case of palm oil."

Aligned with these precepts, one of the key measures taken by Natura was to ensure the

security of the communities in the purchase of biodiversity inputs while at the same time

avoiding their dependence on a single producer or company. In this regard, in accordance

with Fase’s orientation, Natura sought to sign contracts with “purchase guarantees” that

estimated at least three years of supply and guaranteed the prepayment of receivables to the

communities. However, to preserve the independence of producers, these contracts did not

require suppliers to work exclusively with Natura.

The lack of barriers on sales to other agents was a potentially attractive factor for Natura’s

competitors wishing to develop new products using biodiversity inputs. Consequently, this

could generate a potential risk for the company, whose investment could be taken advantage

of by its competitors. For example, according to reports from Fase management:

AE-E0025

8

"We just now received a contract from the people of Cametá [a city in the state of Pará]

with an Italian company for the purchase of inajá [a native palm tree in the region of Pará] [...],

but the contract was completely irregular."

A similar view voiced by the Natura UIB team:

“There are companies such as Beraca [a Brazilian company with seven units in Brazil and

one in France] that sold to L’Oréal, L’Occitane and other large cosmetics manufacturers

around the world. But it’s known that these companies do not go directly to the Amazon to

buy inputs, but rather prefer to deal with local intermediaries for supplies.”

But, according to Mauro Costa:

"Trust in relationships is based on maintaining close relationships with the communities,

monitoring supply together with them and checking for any potential barriers that could

emerge during supply.”

This policy of maintaining open relationships with suppliers was usually accompanied by

constant interaction between the company and these communities. The Natura UIB managed

to maintain a strong presence within supplier groups, while helping the people and

developing agro-extractive associations. This model, which the Natura team referred to as

“engagement”, consisted of the company’s constant presence in the communities, whether in

the form of technical training on the extraction and handling of inputs or raising people’s

environmental and social awareness regarding the importance of forest preservation and

community development. This constant interaction with the community was referred to by

the Natura UIB team as the human “leg” of the relationship (Exhibit 11). This “human”

aspect was perceived by the managers at Natura in the following manner:

"There is no way how we can obtain [exclusivity]. The only way would be to work with

exclusivity contracts or tell them ‘if you sell to competitors, we won’t buy any more from you’

or something like that. But I don’t believe that meshes with the issue of sustainability… So we

have to create an environment in which this loyalty arises naturally. And that’s where this

engagement process comes in, with a very strong human relationship with a high level of

presence (…). When you go out into the field you end up going to these regions where there

are no hotels, no electricity, no toilets and you get involved with the community. It’s an

environment that promotes loyalty building.”

And, according to Mr. Candinho, the leader of the Farmers’ Association of Moju, Pará:

AE-E0025

9

"Our relationship with Natura is one of friendship. They come here, talk to us, help us

and sleep here. We’re like a family."

Apart from the human, social and environmental pillars, another factor that was essential

to the feasibility of the Natura UIB’s dealings with the supplier communities was related to

the financial aspect: the pricing of biodiversity inputs.

Joint price setting

Most of the biodiversity inputs sold by Natura were not traded in organized markets.

Therefore, many of them did not have a quoted price or an estimated value for acquiring

them. To ensure the supply of these inputs, Natura developed a mechanism for pricing raw

materials. This pricing mechanism took into consideration the commercial feasibility of

products in the Ekos line so that they remained competitive in the final consumer market for

beauty and personal care products, while also adequately remunerating suppliers.

The Natura UIB sought to hold annual meetings with the community to set the price to be

paid for the extraction and sale of biodiversity inputs. At these meetings, the managers from

the unit presented in a transparent way the costs they would incur in transporting, storing

and processing the inputs and also heard from the community the difficulties and time

needed to gather the inputs. The entire negotiation process was conducted with everyone in

the community or association, with Fase also participating. Even for the three-year contracts,

prices were renegotiated every year to ensure satisfactory compensation for the

communities. The Fase director said:

"It’s a dialogue [...]. You go there to talk and discuss the prices instead of arriving with a

set predefined price."

The price formation model was built in the following way: each year, the Natura UIB

team met with the communities to negotiate the supply of biodiversity inputs and the prices

for the following year. The Natura team first presented the technical coefficients and then,

together with the suppliers, the prices began to be formed. Once the prices were discussed

and set, the Natura UIB team returned to the company to pass on these prices to the

procurement area. According to Mauro Costa:

"Once this price is discussed with them [community], it’s ‘closed’ at the meeting. We

return to the company and convince the procurement and internal adjustment areas. This

team here ends up becoming an advocate for the biodiversity suppliers.”

AE-E0025

10

Regulatory aspects

Apart from the high input costs, Natura also bore an extra cost arising from

environmental legislation, in particular Executive Order (MP) 2186-16 of August 23, 2001,

which governed access to genetic heritage and traditional knowledge, its protection and the

sharing of benefits. According to Sérgio Talocchi, community relations manager at Natura:

"The law on sharing of internal rights is highly complex and nebulous [...]. I don’t think

anybody else follows it, only Natura."

Much of this complexity arose from that fact that the MP, in Article 24, states:

"Art. 24. The benefits arising from the economic exploration of products or processes

developed from the sample of a component of genetic heritage and the associated traditional

knowledge obtained by a Brazilian institution or an institution headquartered abroad will be

distributed in a fair and equitable manner among the contracting parties, in accordance with

governing law or regulations."17

However, there were doubts as to what exactly was “fair and equitable” distribution. This

hindered the use of biodiversity inputs by Natura and by other companies and research

entities. Nonetheless, the company paid this benefit sharing to the communities, which

totaled more than R$1.5 million in 201118 alone. This procedure further increased the final

cost of products due to not just the payment of this benefit, but also the legal costs associated

with obtaining the authorizations to use the inputs. According to Mauro Costa, manager of

eco-relations at the Natura UIB, this ended up becoming another competitive advantage for

Natura, despite the costs:

"Today Natura has a legal area that takes care of this. Within the legal area there’s a

biodiversity department. There’s an area called GT-GTBio at Natura that centralizes

everything for these regulatory procedures. [...] There’s an innovation funnel that considers: Is

the access already available? Does a protocol exist? [...] So all this results in costs and

investments for the company."

The Genetic Heritage Management Council (CGEN), an agency of the Ministry of the

Environment (MMA), lists the authorizations granted each year to companies, universities

and research entities. To give you an idea, ten authorizations were granted in 2009, of which

five were for Natura (Exhibit 12).

17 BRASIL, MP No. 2186-16 of August 23, 2001. 18 Natura Annual Report 2011, page 58.

AE-E0025

11

Back in the Amazon

It was close to noon and the cabocla continued on its way to Moju. Mauro and Raoni were

getting closer to the community for the annual supply negotiations meeting and began

discussing various critical issues. Would this business model be able to generate competitive

advantages for Natura while also ensuring the sustainable development of Amazonian

communities? If the company wanted to expand its supplier base, would this model be

“scalable”? Given the sales potential of biodiversity products, would they be able to supply

these inputs in a stable and competitive manner? Would it be possible to replicate this model

if they wanted to find suppliers in other regions of the country or Latin America? The cabocla

finally reached the banks of the river where the Moju community lives. The meeting would

be long, but Mauro and Raoni knew they would have to maintain a balance between the

"four legs” of the Natura UIB business model: financial, environmental, social and human.

AE-E0025

12

Exhibits

Exhibit 1 - Financial Indicators for Avon and Natura (2006-2011)

Avon (Latin America) Natura

Year Revenue

(million

USD)

Profit

Margin

ROA ROE Revenue

(million

USD)

Profit

Margin

ROA ROE

2006 2743.4 15.46% 30.36% 53.64% 3298.9 8.75% 46.23% 59.72%

2007 3298.9 14.64% 29.92% 64.43% 2957.3 8.65% 29.08% 54.21%

2008 3884.1 17.77% 41.65% 96.91% 2978.7 9.44% 25.80% 62.77%

2009 4103.2 15.79% 26.83% 49.36% 3316.5 9.78% 23.66% 47.28%

2010 4589.5 13.18% 21.93% 36.15% 3788.1 10.39% 25.12% 54.96%

2011 5116 12.32% 22.97% 39.77% 3203.9 12.74% 23.99% 60.75%

Average 3955.9 14.86% 28.94% 59.71% 3257.2 9.96% 28.98% 56.61%

Source: Exame magazine “Maiores e Melhores” guide and companies’ annual reports. Data calculated.

Exhibit 2 - Market Share of Companies in the Beauty and Personal Care Products Industry

by NBO (2008-2011). Figures in percentages.

Company 2008 2009 2010 2011

Natura Cosméticos SA 13.5 14.3 14.8 14.5

Unilever Brasil Ltda 10.2 10.1 10 10.2

Avon Cosméticos Ltda 9.4 9.7 9.5 8.8

Procter & Gamble do Brasil SA 6.9 6.8 7.6 8.4

Botica Comercial Farmacêutica Ltda 6.5 6.7 7.1 8.2

Colgate-Palmolive Indústria e Comércio Ltda 6.4 6.6 6 6.1

Belocap Produtos Capilares 5.3 5.4 5.6 5.7

Johnson & Johnson Industrial 3.7 3.6 3.7 3.8

Hypermarcas SA 0.6 2.7 3.2 3.2

BDF Nivea Ltda 2.1 2.1 2.2 2.4

Niely do Brasil Ltda 0 0 1.5 1.6

Phitoteraphia 1.2 1.2 1.3 1.4

Bertin Ltda 1.1 1.1 1 0.9

Jequiti Cosméticos 0.2 0.5 0.7 0.8

Other 32.9 29.2 25.8 24.0

TOTAL 100.0 100.0 100.0 100.0

Source: Euromonitor International, 2012. Passport "Beauty and Personal Care in Brazil, page 10.

AE-E0025

13

Exhibit 3 - Estimated Sales of Premium Cosmetics by Category (2011-2016). Figures in R$

million.

Premium Category Products 2011 2012 2013 2014 2015 2016

Premium Products for Infants and

Children 3.8 4.1 4.1 4.4 4.4 4.8

Premium Bath Products 50.5 56.6 63.9 71.7 80 88.3

Premium Dyes and Cosmetics 131.6 147.3 162.5 177.4 192.8 208.2

Premium Deodorants 10.1 12.5 14.5 16.7 19.2 22

Premium Fragrances 809.6 851.3 906.2 971.1 1029.8 1097

Premium Hair Care 104 114.3 122.8 133.6 144 156.1

Premium Skin Care 692.2 731.2 776.8 820 863.4 908.7

Premium Sun Protection 349.8 378.4 411.9 446.4 477.8 506.2

Premium Kits 15.3 16.7 18.4 20.3 22.3 24.6

Premium Cosmetics 2166.9 2312.4 2481.2 2661.7 2833.6 3015.8

TOTAL 4333.8 4624.8 4962.3 5323.3 5667.3 6031.7

Source: Euromonitor International, 2012. Passport "Beauty and Personal Care in Brazil, page 17.

AE-E0025

14

Exhibit 4 - Advertisement for Natura Ekos "The Tradition of Brazil-Nut Milk"

Source: Natura website. Available at: http://www.naturaekos.com.br/rede-ekos/a-tradicao-do-leite-de-

castanha/.Visited on: Sep 01st, 2012.

AE-E0025

15

Exhibit 5 - Cost of Selected Biodiversity Inputs from Suppliers at UIB (R$/Kg)

ITEMS CUPUAÇU

BUTTER

ANDIROBA

ALMOND

MURUMURU

ALMOND

Raw material cost 9.78 1.41 3.42

Production cost 1.4 - -

Raw material margin 1.677 0.21 0.51

UIB Freight 0.15 0.21 0.15

INSS contribution 0.22 0.03 0.07

PIS and Cofins taxes 1.66 0.23 0.52

ICMS tax 3.05 0.42 0.95

Raw Material Cost/kg (CIF UIB) 17.95 2.52 5.64

Source: Natura UIB, data provided by authors.

Exhibit 6 – Palm Oil Price, R$/kg (2007-2012)

Source: World Bank, Palm Oil, Malaysia Future Prices (first contract forward) 4-5 percent FFA. Data

calculated.

AE-E0025

16

Exhibit 7 – Price Comparisons of Brands and Products (2012)

Source: Data compiled by the authors and research assistants, from companies catalog sales.

AE-E0025

17

Exhibit 8 - History of the Natura Ekos Line

2000 - NATURA EKOS LINE IS BORN - Creation of a model that is aware that nature

is the inspiration for relationships. Appreciation of the natural, cultural and social

heritage of Brazil. Awareness that human beings and nature are one. Creation of a

product line with 12 assets: andiroba, Brazil nut, passion fruit, buriti, cupuaçu, pitanga,

guarana, lima-da-terra, macela-do-campo, madeira em flor, folha fresca and flor d’água.

2001 - GROWTH OF LINE AND INNOVATIONS - Soaps made of mate verde and

assets from the Atlantic Forest

2002 - INNOVATION: NEW AREAS TO BE EXPLORED - Brazilian essential oils

scented with copaíba and cumaru. And transition to the slogan "Well being well".

2003 - SHIFT TO PLANT-BASED SOAP LINE - Expansion of soaps made with

murumuru, andiroba and passion fruit and the herbal bath lines

2004 - THE TRUE ESSENCE OF OUR NATION - New products and expansion of

products made from priprioca, Brazil nut, buriti, among others under the "Tempos" line

2005 - BRAND CONSOLIDATION - Inauguration of store in France. Consolidation of

Ekos concepts and exclusive use of vegetable oils.

2006 - NATURA EKOS IN EXPANSION - International expansion of the brand and

new facial care products.

2007 - SOAP WORKS IN THE SPOTLIGHT - Soap base produced at the new UIB unit

2008 - YEAR OF MAJOR INNOVATIONS - Use of cacao and strengthening of the

differentials of the sustainable chain

2009 - TRADITIONAL FESTIVALS IN THE SPOTLIGHT - Products inspired by

Brazilian folk festivals and strengthening of existing products

2010 - SPECIAL SOAPS - 10th anniversary of the Ekos line with new soaps made from

murumuru, cupuaçu, passion fruit and cacao. Growing partnership with the

communities

2011 - BRAND RE-LAUNCH - "Science proving the traditions of assets from Brazil’s

biodiversity"

Source: Natura website. Available at http://www.naturaekos.com.br/valores-da-marca/linha-do-

tempo/. Visited on: Sep 01st, 2012.

AE-E0025

18

Exhibit 9 - Market Share of Brands in the Beauty and Personal Care Products industry by

GBN (2008-2011). Figures in percentages.

Brand Company 2008 2009 2010 2011

Avon Avon Cosméticos Ltda 3.5 3.7 3.6 3.4

Gillette Prestobarba Procter & Gamble do Brasil SA 2.1 2.1 2.5 2.8

Seda Unilever Brasil Ltda 2.9 2.8 2.6 2.5

Dove Unilever Brasil Ltda 1.9 1.9 1.9 1.9

Lux Unilever Brasil Ltda 1.5 1.6 1.6 1.5

Ekos Natura Cosméticos SA 1.5 1.5 1.6 1.5

O Boticário Botica Comercial Farmacêutica Ltda 1.2 1.2 1.2 1.4

Natura Natura Cosméticos SA 1.4 1.4 1.4 1.3

Rexona Unilever Brasil Ltda - 1 1.2 1.3

Braun Oral-B Procter & Gamble do Brasil SA 1 1.1 1.1 1.3

Sundown Johnson & Johnson Industrial Ltda 1 1 1.1 1.3

Colgate Total Colgate-Palmolive Indústria e

Comércio Ltda 1.1 1.4 1.2 1.3

Natura Tododia Natura Cosméticos SA 1 1.1 1.2 1.3

Sorriso Colgate-Palmolive Indústria e

Comércio Ltda 1.8 1.5 1.1 1.1

Sève Natura Cosméticos SA 0.9 0.9 1 1.1

Johnson's Baby Johnson & Johnson Industrial Ltda 1 0.9 1 1

Colgate Colgate-Palmolive Indústria e

Comércio Ltda 0.8 0.9 0.9 1

Pantene Procter & Gamble do Brasil SA 0.6 0.6 0.7 0.9

Axe Unilever Brasil Ltda 0.9 0.8 0.8 0.9

Elsève Belocap Produtos Capilares Ltda 0.7 0.7 0.8 0.9

Palmolive Naturals Colgate-Palmolive Indústria e

Comércio Ltda 0.9 0.8 0.9 0.8

Boticário Botica Comercial Farmacêutica Ltda 1 1 0.9 0.8

Rexona Men Unilever Brasil Ltda - 0.6 0.7 0.8

Risqué Hypermarcas SA - 0.6 0.8 0.8

L'Oréal Imédia

Excellence Belocap Produtos Capilares Ltda 0.8 0.8 0.8 0.8

Other Private Brands 9.7 8.9 9.3 10.3

Other 60.8 59.2 58.1 56

TOTAL 100.0 100.0 100.0 100.0

Source: Euromonitor International, 2012. Passport "Beauty and Personal Care in Brazil, page 13.

AE-E0025

19

Exhibit 10 – Supplier communities in Pará (UIB)

Source: Natura UIB, data provided.

Note: Circle with red border – UIB headquarters at Benevides; circle with green border – supplier

community interviewed for this case study; circles with yellow borders – all other supplier

communities managed by UIB.

AE-E0025

20

Exhibit 11 - Natura UIB Engagement Model

Source: Natura UIB, document provided by authors.

AE-E0025

21

Exhibit 12 – Total Authorizations for Access to Associated Traditional Knowledge for

Scientific Research granted in 2009 by CGEN – Natura Authorizations Highlighted

Authorization for access to associated traditional knowledge for scientific research – CGEN

Authorization 045/2009

Date: 30/07/2009

Institution: Federal University of Mato Grosso (UFMT).

Legal Instrument: Resolution 247

Authorization 045/2009

Publication in Federal Register: 23/10/2009 – Section 1 – Page 92

Authorization for access to associated traditional knowledge for scientific research – CGEN

Authorization 043/2009

Date: 30/07/2009

Institution: Natura Inovação e Tecnologia de Produtos Ltda.

Legal Instrument: Resolution 245

Authorization 043/2009

Publication in Federal Register: 27/08/2009 – Section 1 – Page 60

Authorization for access to associated traditional knowledge for scientific research – CGEN

Authorization 042/2009

01/06/2009

Institution: Universidade Estadual Paulista Júlio de Mesquita Filho (UNESP).

Legal Instrument: Resolution 242

Authorization 042/2009

Publication in Federal Register: 29/05/2009 – Section 1 – Page 118

Authorization for access to associated traditional knowledge for scientific research – CGEN

Authorization 047/2009

Date: 27/04/2009

Institution: Federal University of São Paulo (Unifesp).

Legal Instrument: Resolution 240

Authorization 047/2009

Publication in Federal Register: 20/04/2009 – Section 1 – Page 94

Authorization for access to genetic heritage component for bioprospecting and technological

development (Renewal) - CGEN Authorization 014-A/2009

Date: 27/04/2009

Institution: Natura Inovação e Tecnologia de Produtos Ltda.

Legal Instrument: Resolution 239

Authorization 014-A/2009

Publication in Federal Register: 24/03/2009 – Section 1 – Page 72

Authorization for access to genetic heritage component for bioprospecting and technological

development (Renewal) - CGEN Authorization 013-A/2009

Date: 27/04/2009

Institution: Natura Inovação e Tecnologia de Produtos Ltda.

Legal Instrument: Resolution 239

AE-E0025

22

Authorization 013-A/2009

Publication in Federal Register: 24/03/2009 – Section 1 – Page 72

Authorization for access to genetic heritage component for bioprospecting and technological

development (Renewal) - CGEN Authorization 011-A/2009

Date: 27/04/2009

Institution: Natura Inovação e Tecnologia de Produtos Ltda.

Legal Instrument: Resolution 239

Authorization 011-A/2009

Publication in Federal Register: 24/03/2009 – Section 1 – Page 72

Authorization for access to genetic heritage component for bioprospecting and technological

development (Renewal) - CGEN Authorization 04-A/2009

Date: 27/04/2009

Institution: Natura Inovação e Tecnologia de Produtos Ltda.

Legal Instrument: Resolution 239

Authorization 04-A/2009

Publication in Federal Register: 24/03/2009 – Section 1 – Page 72

Special authorization for access to genetic heritage component for building and integrating

off-site collection with the potential for economic use, such as bioprospecting or

technological development - CGEN Authorization 02/2009

Date: 25/03/2009

Institution: Extracta Moléculas Naturais S.A.

Legal Instrument: Resolution 238

Authorization 02/2009

Publication in Federal Register: 22/01/2009 – Section 1 – Page 55

Special authorization for access to and shipping of samples of genetic heritage component

for bioprospecting – CGEN Authorization 01/2009

Date: 20/03/2009

Institution: Empresa Brasileira de Pesquisa Agropecuária - Embrapa

Legal Instrument: Deliberation Resolution 237

Authorization 01/2009

Publication in Federal Register: 22/01/2009 – Section 1 – Page 55

Source: Genetic Heritage Management Council (CGEN) – Ministry of the Environment (MMA).

Available at: <http://www.mma.gov.br/patrimonio-genetico/conselho-de-gestao-do-patrimonio-

genetico/processos/item/7695>. Visited on Feb 19th, 2013.