Olufemi Adeyemi
- Nestle is moving its raw material sourcing closer to production facilities in response to growing pressure on foreign exchange reserves in African countries.
- The company is replacing imported corn starch with cassava and helping local suppliers to increase capacity and improve quality.
- The debt burden on many African countries is putting huge pressure on their foreign exchange reserve.
In a move that may help reduce foreign exchange exposure that has been a headache for the sector, world's largest food & beverage company, Nestle in Nigeria and other African countries are ramping up sourcing of local raw materials like starch and turmeric.
In the wake of the COVID-19 pandemic and the supply chain
problems it wrought across the world, consumer goods companies have stepped up
efforts to bring production and raw material sourcing closer to their consumer
markets.
Growing debt in many African nations has put pressure on
foreign reserves and created currency volatility that makes it harder and more
expensive to import inputs. Last week, for instance, Nigeria's central bank
allowed the naira currency to drop as much as 36% on the official market.
Nestle, which is replacing imported corn starch in Nigeria
with cassava starch, told Reuters it has helped seven local suppliers to boost
capacity to meet the company's supply needs.
"(The) next step is to expand the localization journey
across the region: Cote d’Ivoire, Cameroon and Senegal," the world's
biggest packaged food maker said in an emailed statement in response to
questions.
The Swiss company, which makes Kit Kat candy bars and
Nescafe coffee, has more than 2,000 brands including Maggi stock cubes and
Nesquik milkshakes.
Nestle said it was working to develop local suppliers of
vegetables and spices used in Maggi products, for instance onion powder in
Nigeria and Senegal, and turmeric powder in Nigeria.
"In the area of grains, we have successfully developed
local farmers and processors ... this has been achieved through (a lot of)
training in good agricultural practices, harvesting, warehousing and cleaning
practices.
"We are now taking this next step to introduce these
farmers to regenerative agriculture as part of our sustainability journey and
commitment."
Regenerative agriculture generally involves protecting and
restoring soil health, which in turn helps capture more carbon from the
atmosphere to reduce greenhouse gas emissions.
Nestle said it has in some cases given suppliers letters of
intent, provided technical know-how, engaged with local authorities to set
standards, and provided financial support through advance payments to resolve
working capital challenges.
Last month, Nestle rival Unilever (ULVR.L) told Reuters that
managing foreign exchange costs is largely what is driving its own shift to
African suppliers from Asia, even though sourcing from the continent can cost
more than buying from parts of Asia.
Nestle did not comment on whether its position in Nigeria
would help insulate it from foreign exchange volatility, neither did it give an
indication of the economic impact of the local sourcing.
Nestle's sales from the Middle East and Africa grew about 6%
to 5.25 billion Swiss francs ($5.9 billion) last year, accounting for about 6%
of group annual sales of 94.4 billion francs.
Nestlé Nigeria employs around 3,300 people and counts 2 factories. The company sells products such as Maggi, Nestlé Milo, Nestlé Nido, Nestlé Golden Morn, Nestlé Pure Life, Nescafé and Nestlé Cerelac, among others.
The firm manufactures breakfast cereal, baby food products, food seasoning and hydrolyzed plant protein mix, was listed as one of the largest 100 companies in Africa by Africa Business magazine.