Modern Dairy Supplier Code of Conduct
As a leading dairy cattle farming operator and raw milk producer, Modern Dairy is committed to providing high-quality fresh milk and dairy products, while establishing long-term, mutually beneficial, and sustainable partnerships with our suppliers. We recognize the important role that suppliers play in our business success, and therefore we have formulated the “Modern Dairy Supplier Code of Conduct” (hereinafter referred to as “this Code”), and expect suppliers to comply with the ethical, social and environmental standards stipulated in this Code.
1. Requirements for Suppliers
To achieve our cooperation goals, we require suppliers to:
1.1 Labor Standards
1.1.1 Forced Labor
We require suppliers to strive to avoid any form of forced or compulsory labor, such as all work shall be done voluntarily, and all workers shall be allowed to freely terminate their employment relationship with reasonable notice. We require suppliers not to use any form of threats, violence, restrictions, detention, or other means to force workers to continue working or deprive them of their freedom. Suppliers shall not restrict workers’ movement or communication in any way, engage in slave labor resulting from human trafficking, or illegally confiscate workers’ identity documents, passports or other important documents.
1.1.2 Child Labor and Minor Workers
Suppliers shall comply with all applicable laws and regulations regarding the minimum working age and ensure that their business activities do not use any form of child labor. Suppliers shall verify the age of their employees when hiring them and shall not arrange for minors under the age of 18 to engage in any work that may harm their health or safety. Suppliers shall ensure that the working hours and rest time of minor workers comply with local laws and the International Labor Organization (ILO) regulations, and do not affect their opportunities to participate in education and training.
1.1.3 Working Hours
We require suppliers to comply with all applicable laws and regulations related to working hours, rest, wages, and benefits, and ensure that no employee exceeds the maximum working hours stipulated by law or contract, whichever is lower, and respect the right of employees to enjoy paid annual leave and public holidays. Suppliers shall arrange overtime work reasonably according to the actual situation and the wishes of the employees and ensure that overtime does not exceed the scope permitted by local laws or industry norms.
1.1.4 Wages and Benefits
We require suppliers to comply with applicable laws and regulations related to overtime payment and minimum wage and ensure that all employees receive fair and timely remuneration. Suppliers shall strictly implement the labor quota standards and shall not force or coerce workers to work overtime. Employers who arrange overtime work shall pay remuneration to workers in accordance with relevant national regulations. Suppliers shall pay employees reasonable and sufficient wages on time, which can at least meet their basic living needs and some disposable income. Suppliers shall clearly explain to employees their wage structure and calculation method and provide relevant records and evidence. Suppliers shall not deduct or delay the payment of employees’ wages for any reason. Suppliers shall also provide relevant benefits and insurance for employees according to local laws and industry norms.
1.1.5 Humane Treatment
We require suppliers to provide a safe, healthy, and non-violent working environment, and not tolerate any form of harassment, abuse, or punishment, including but not limited to physical, sexual, verbal, or psychological aspects. We require suppliers not to conduct any form of illegal or cross-gender searches, nor threaten to do so. Suppliers shall establish effective complaint and appeal mechanisms, and ensure that employees can freely, safely, and confidentially reflect their problems and opinions, and receive timely and fair treatment.
1.1.6 Anti-Discrimination
We require suppliers to adhere to the principles of equality and non-discrimination in their business activities, and not to discriminate based on race, color, religion, gender, age, disability, nationality, sexual orientation, political views, or any other legally protected characteristics in any business activity. Suppliers shall ensure that all employees have equal opportunities and treatment in recruitment, training, promotion, remuneration, benefits, and other aspects, and are evaluated and rewarded according to their abilities and performance. Suppliers shall respect the diversity and inclusiveness of employees and provide them with a non-discriminatory and unbiased working environment.
1.1.7 Freedom of Association
We require suppliers to respect the legal rights of employees to freely associate, join unions, seek representation and collective bargaining. Do not interfere with or retaliate against employees who exercise their rights to freedom of association and collective bargaining. Suppliers shall establish good communication and cooperation with unions or other organizations that represent the interests of employees and respect their legitimate rights and interests in labor relations.
1.2 Health and Safety
1.2.1 Workplace Environment
We require suppliers to provide a safe, healthy, and non-violent working environment, comply with all applicable health and safety laws and regulations, and prevent accidents and injuries. Suppliers shall ensure that their workplaces comply with safety standards in fire, electrical, construction and other aspects, and are equipped with sufficient safety facilities and equipment, such as fire extinguishers, first aid kits, safety exits, etc. Suppliers shall regularly conduct safety inspections and risk assessments of their workplaces, and timely eliminate any factors that may cause danger or harm. Suppliers shall also ensure that their workplaces have good hygiene and ventilation conditions, and provide appropriate facilities such as drinking water, toilets, etc.
1.2.2 Product Quality and Safety
We require suppliers to strictly comply with all laws and regulations related to product safety and quality, as well as meet our quality requirements. Suppliers shall establish and maintain effective quality management systems to ensure the quality and safety of products and services. Suppliers shall also timely deal with any problems or complaints related to product or service quality or safety and take appropriate corrective and preventive measures to avoid recurrence.
1.3 Environmental Protection and Social Responsibility
1.3.1 Environmental Protection
We require our suppliers to take measures to minimize their environmental impact, comply with all applicable environmental laws and regulations, and ensure that their production qualifications and environmental protection practices meet relevant regulatory standards. Suppliers shall improve resource utilization efficiency, reduce waste emissions, and decrease greenhouse gas (GHG) emissions, actively promoting green production models. They shall obtain necessary environmental permits, such as discharge permits and environmental impact assessment acceptance reports and ensure product quality is not negatively affected by environmental factors. Furthermore, suppliers shall establish and maintain a robust environmental management system, strengthen pollution prevention and control, enhance ecological protection, and promote sustainable development throughout the supply chain.
1.3.2 Sustainable Water Resource Management
We require suppliers to use water resources sustainably. This includes implementing water recycling systems, promoting advanced technologies such as water-saving irrigation, adopting water-efficient equipment and processes, and implementing measures like rainwater collection and greywater reuse. Suppliers shall also establish comprehensive water management systems and actively seek opportunities to reduce water consumption. Furthermore, suppliers are expected to continuously monitor their water usage and are encouraged to publicly disclose relevant reports to enhance transparency and accountability.
1.3.3 Building a “Zero Forest Destruction” Supply Chain
We require raw material suppliers to conduct special management of the procurement behavior of feed raw and auxiliary materials such as dairy cattle and other breeding animals and soybean meal that have forest destruction risks and strive to build a “zero forest destruction” supply chain. The raw material production areas of suppliers shall not cause forest cutting and other harms due to the expansion of agricultural land or planting land. Suppliers shall comply with the applicable forest protection laws and regulations of the countries and regions where they operate and shall prohibit the purchase of products produced from the destruction of High Carbon Stock Forests, High Conservation Value Forests, and peatlands, wetlands and tropical rainforests and other ecosystems.
1.3.4 Protecting Biodiversity
We require suppliers to respect and protect the biodiversity and natural landscape of our region and avoid any adverse impact on protected or endangered species and habitats. When conducting our business activities, we shall minimize the consumption and pollution of natural resources such as land, water resources, air quality, etc., and adopt environmentally friendly technologies and methods.
1.3.5 Community Relations
We require suppliers to respect and protect the legitimate rights and interests of local communities. Suppliers shall maintain open communication with communities and mitigate any negative impacts from their operations. They are expected to utilize local resources responsibly, adhering to the principles of sustainable development, and actively participate in and support community development initiatives.
1.4 Business Ethics and Information Protection
1.4.1 Integrity and Honesty
We require suppliers to comply with all applicable national and local laws and regulations in their operating locations and respect the rights and interests of local communities and stakeholders. Suppliers shall establish and implement anti-corruption and anti-bribery policies and procedures, conducting business activities with honesty, fairness, and transparency. They shall establish reporting mechanisms to provide channels for identifying and reporting potential misconduct. Furthermore, suppliers shall develop policies and procedures to manage conflicts of interest and refrain from any form of bribery, corruption, fraud, or unfair competition. Suppliers shall not offer or accept any gifts or entertainment that could improperly influence business decisions or damage our reputation.
1.4.2 Information Protection
We require suppliers to protect personal information and privacy and comply with all applicable data protection laws and regulations. Protect the confidential assets and information of customers, and do not disclose, misuse, or abuse these assets and information.
2. Supplier Admission
The company implements admission management for suppliers, considering their environmental and social performance as crucial criteria. Before being stock-in, suppliers are required to sign a commitment letter to this Code, known as the “Commitment Letter for Sustainable Procurement Management Guidelines”, with a mandatory 100% signing rate among admitted suppliers.
3. Supplier Cooperation
In our company we collaborate with suitable suppliers who have undergone the stock-in process. Our quality inspection department and the purchasing demand unit jointly form an audit team. This team incorporates environmental and social indicators such as environmental management, labor management, health and safety, social responsibility, and business ethics into the scoring criteria of the “Supplier Comprehensive Evaluation Form”. In the “Supplier Comprehensive Evaluation Form”, the scoring weight of labor management indicator is 15%, and the scoring weight of quality and price indicators are 15% and 15%, respectively. The audit team fills out the “Supplier Comprehensive Evaluation Form” based on the supplier’s overall performance during on-site auditing, document auditing, and sample inspections. We prioritize selecting suppliers who demonstrate superior environmental and labor management performance and have higher comprehensive scores. Excellent labor management performance means that suppliers ensure that their employees enjoy reasonable rights and benefits, such as fair and reasonable remuneration, safe and equal working environment, appropriate rest time, etc., and no suppliers are found to use child labor or forced labor, and ensure that their employees have relevant professional qualifications, such as driver’s license for transportation contractors, etc., to avoid the occurrence of supplier employee labor problems.
Suppliers entering into cooperation with the company need to sign the “Sunshine Agreement” and the “Sustainable Procurement Management Agreement”. The “Sunshine Agreement” aims to create a legal, honest, and transparent cooperation atmosphere. The terms of the “Sustainable Procurement Management Agreement” cover the specific requirements of this Code.
4. Supplier Tier Management
By tracing our upstream supply chain, we have identified Tier 1, Tier 2, and Tier 3 suppliers. We conducted ESG audits on all 461 of our Tier 1 suppliers (covering all categories, including equipment, raw materials, auxiliary materials, and services), achieving 100% coverage. In addition, we conducted ESG audits on 98 key Tier 3 raw material (feed and forage) suppliers.
COFCO International, our Tier 2 supplier, has made significant efforts to ensure the sustainable supply of soybeans. In May 2024, COFCO Group delivered 50,000 tons of “zero deforestation, zero vegetation conversion” Brazilian soybeans to Modern Dairy. In 2023, COFCO International has achieved full traceability to farm for directly sourced soybean in Brazil. COFCO strengthened its efforts to achieve deforestation-free soy supply chains by 2025 and conversion-free soy supply chains in sensitive regions of South America by 2030.
5. Supplier Audit, Rewards and Rectification
We conduct monthly audits of all suppliers based on the “Supplier Audit Form,” which includes multi-dimensional assessment standards such as quality and safety management, product packaging, timeliness of delivery, medication management, feed management, cleaning management, and self-inspection management. We also audit suppliers’ environmental and social risks, including whether suppliers discharge waste gas and wastewater according to regulations, whether their employees work in safe conditions and whether there are any instances of forced labor in their workplaces. In the “Supplier Audit Form”, the scoring weight of labor management indicator is 20%, and the scoring weight of quality and price indicators are 20% and 20%, respectively.
Based on the evaluation of the audit panel, we have classified suppliers into four categories: Excellent (Long-term Cooperation), Good (Continuous Cooperation), Qualified (Cooperation Alert), and Unqualified (Ordered to Rectify within a Deadline). In accordance with the management requirements of these categories, we will determine further audit requirements and modes of cooperation for suppliers.
Suppliers deemed unqualified are required to carry out rectification within a limited time according to the “Supplier Rectification Issue Letter.” This letter provides a framework for addressing environmental and social issues. Drawing from the assessment findings, we propose specific rectification requirements, which are formulated according to the environmental and social standards in the “Sustainable Procurement Management Agreement”. For issues that need rectification or correction, we take the following actions, including but not limited to:
- Requesting suppliers with potential high ESG risks to submit an improvement action plan, complete the improvement measures within the deadline to mitigate and eliminate their ESG risks, and regularly report their implementation status and progress to us. We will verify the implementation status based on the improvement action plan.
- Terminating the contract and ceasing business relations.
- Reporting non-compliant behavior to relevant departments and stakeholders.
For excellent suppliers, the incentives provided include but are not limited to:
- Give priority to choosing them as our preferred partners.
- Award them certificates or badges of honor.
- Provide them with more opportunities for cooperation.
- Provide them with more favorable payment terms and conditions.
We believe that by complying with this Code, we will jointly enhance our reputation, competitiveness, and social responsibility in the dairy industry, and create value for both parties.