Western countries vital for Zimbabwe’s recovery from an economic crisis demand political reforms, including an end to land seizures, before aid flows.
In a statement on its website, Nestle said: "In light of the recent controversy surrounding our relationship with the Gushungo Dairy Estate, we believe that this announcement reflects our long-term commitment to Zimbabwe while acknowledging the specific circumstances around these events."
Nestle’s decision to pull out of the deal came after international media coverage of the milk purchases put the company under the spotlight.
Nestle said its Zimbabwe unit had started buying the milk on a temporary basis in February 2009 because a local privatised marketing firm which dominates the milk industry was unable to make purchases during an economic crisis.
"This helped prevent a further deterioration in food supplies in Zimbabwe at that time," said the company of its decision to purchase milk from eight farms, including one owned by Mugabe’s wife.
Mugabe’s seizure of white commercial farms for blacks have drawn heavy criticism from Western countries, who say their aid won’t flow to help Zimbabwe’s economic recovery until the land grabs stop and political and economic reforms are implemented.
Mugabe, who has formed a power-sharing government with rival Morgan Tsvangirai, has accused his Western foes of sabotaging Zimbabwe’s economy through sanctions in retaliation for his land reforms, which critics say ruined agriculture sector.
Mugabe says the policy was meant to address historical land ownership imbalances.
In a September 28 statement, Nestle said its business with Gushungo accounted for between 10 and 15 percent of the company’s local milk supply.
"Nestle has been in Zimbabwe for 50 years, working with the population of Zimbabwe and striving to maintain a long-term viable operation in often challenging conditions," the company said.
"We operate in Zimbabwe, as we do in every country, through good times and bad. We work for the long term, in a way which has positive impact on our consumers, employees and suppliers."
Underscoring sensitivities about land reforms, Zimbabwe’s state-run Herald newspaper carried a story accusing the Western media of pressuring Nestle to pull out of what was once one of Africa’s most promising countries.