The two have been in a joint venture since 1990 to sell Nestle-brand cereals such as Cheerios in more than 140 countries outside the United States and Canada, markets which account for about half total global cereal sales of some $25 billion.
They say they will reformulate 20 cereal brands popular with children and teenagers by 2015, boosting wholegrains and calcium and aiming for average reductions of 24 percent in sugar and 12 percent in sodium.
The reformulation will affect about 5.3 billion portions of cereals sold each year.
The 50/50 joint venture called Cereal Partners Worldwide (CPW) is the second-biggest breakfast cereal producer after Kellogg Co but is Europe's leading manufacturer of children's cereal. It had sales of 1.9 billion Swiss francs ($2 billion) in 2011.
CPW Chief Executive Jeffrey Harmening said the plan builds on efforts started in 2003 to improve the nutritional profile of cereals. The group has cut almost 900 metric tons of salt and more than 9,000 metric tons of sugar from its recipes since then.
"A certain number of moms don't want their kids to have as much sugar as they do right now, so that is a barrier for some to purchasing breakfast cereal," Harmening told Reuters at CPW's new global innovation centre in the Swiss town of Orbe.
The move comes as food and beverage companies seek to preempt tougher regulation due to the global obesity epidemic by offering healthier products or smaller portions.
The World Health Organisation estimated there were over 42 million overweight children under the age of five in 2010. It says obesity in Europe is already responsible for up to 8 percent of health costs and up to 13 percent of deaths.
HIGH IN SUGAR
A study this year by British consumer magazine Which? found that 32 of the 50 top-selling cereals were high in sugar, with almost all those aimed at children - including Cheerios - recording levels of sugar similar to chocolate biscuits.
However it did say that most cereals had significantly lower levels of salt than a few years ago and judged Nestle's Shredded Wheat the healthiest, with low levels of sugar, fat and salt.
Malcolm Clark, coordinator of the Children's Food Campaign of Britain's Sustain charity, which seeks to protect children from junk food marketing, was skeptical about the Nestle move.
"Reformulating is great, but the question is how they then talk about their products. They can't talk about them being healthy. They will be mildly less unhealthy than they were before," he said.
Harmening defended breakfast cereals as a low-calorie, high-nutrition option and said children who eat them tend to have a lower body mass index than those who do not.
Kellogg - which makes some of the sweetest cereals according to several surveys - has also reformulated some brands in recent years to cut sugar, as has General Mills for the cereals it produces for the North American market.
McDonald's Corp is including apples and cutting calories in its Happy Meals for kids, while Kraft Foods Group Inc has stopped advertising Kool-Aid and Oreos to children. It has also cut sugar and salt in some products.
In a report earlier this year, Yale University's Rudd Center for Food Policy & Obesity said U.S. cereal producers are offsetting the benefits of cutting sugar and adding wholegrains by targeting kids with more ads for their unhealthiest products.
"There is a fundamental difference between what the food industry thinks is improvement and what the public health community thinks is improvement," said Dr Jennifer Harris, director of marketing initiatives at the Rudd Center.
"The food industry is really focusing on reformulating products that they've always marketed to children, which are some of their highest-sugar products, whereas what we want to see is less marketing overall for unhealthy products."
Harmening said CPW's move was driven by consumers rather than a threat of tougher regulation, which he said could backfire as people might switch to less healthy alternatives.
"If we're not delivering what they want, somebody else will deliver what they are looking for. The consumers are the judge."
He said the biggest challenge was to improve the nutritional profile of cereals without compromising on taste.
At CPW's research centre in Orbe, food scientists are already testing recipes that comply with the new targets, experimenting with cooking and drying techniques to maintain flavor even with less sugar and salt and more wholegrain.
Trained teams of sensory experts sample the new products in laboratories where different colored lights force them to focus on taste rather than appearance of the cereals.
"We spend an enormous amount of time and money so that consumers don't perceive the changes," said Harmening. "That is a competitive advantage for us because - to the extent we can crack that - we will receive a benefit from consumers.