AFRICA – Swiss food giant has deliberately decided to increase sourcing of local raw materials like starch and turmeric in the continent, a move that may help it reduce foreign exchange exposure that has been a headache for the sector.
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 company said.
There has been a growing debt burden in many African nations, which has put pressure on foreign reserves and created currency volatility, making 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.
Last month, British CPG giant Unilever told Reuters that managing foreign exchange costs is largely what is driving its shift to African suppliers from Asia, even though sourcing from the continent can cost more than buying from parts of Asia.
In the wake of the COVID-19 pandemic and supply chain disruptions, many consumer goods companies across the world started to step up efforts to bring production and raw material sourcing closer to their consumer markets.
Nestle is not an exemption. The company has said it has been 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,” Nestle said.
“We are now taking this next step to introduce these farmers to regenerative agriculture as part of our sustainability journey and commitment.”
Regenerative agriculture involves protecting and restoring soil health, which 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.
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.