- 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.
Amid mounting pressure on foreign exchange reserves in numerous African nations, Nestle, the consumer food giant, is swiftly relocating its raw material sourcing to mitigate production costs.
This strategic shift has been underway since the onset of the Covid-19 pandemic, which disrupted global supply chains and prompted consumer goods companies to localize their raw material supplies closer to production facilities and consumer markets.
Nestle informed Reuters that it is currently substituting imported corn starch with cassava and actively assisting local suppliers in enhancing their capacity and quality standards.
- The global food giant has stated, “The next step is to expand the localization journey across the region, including Cote d’Ivoire, Cameroon, and Senegal.”
- In addition to replacing corn starch with cassava starch, Nestle is also striving to develop local suppliers for spices, which it traditionally imports from Asia.
- These spices, used in its Maggi products, include onion powder for Senegal and Nigeria, and turmeric for Nigeria.
- Nestle further stated, “In the area of grains, we have successfully developed local farmers and processors through training in good agricultural practices, harvesting, warehousing, and cleaning practices.”
We are now taking the next step to introduce these farmers to regenerative agriculture as part of our sustainability journey and commitment.”
What Nestle is doing
To facilitate these transitions, Nestle has taken various measures, including issuing letters of intent to suppliers, providing technical expertise, engaging with local authorities to establish quality standards, and offering financial assistance through advance payments.
Furthermore, Nestle’s raw material and consumable costs have more than doubled from N163.7 billion to N223.6 billion, reflecting the challenges faced by the company due to the high import costs and currency fluctuations.
Nestle’s industry peer, Unilever, recently revealed to Reuters that managing foreign exchange challenges is the primary motivation behind its shift towards African suppliers, despite the higher costs associated with local sourcing compared to imports.
Optics
The growing debt in many African countries has placed significant pressure on foreign exchange and resulted in volatility in the forex market.
- Consequently, importers and businesses are actively seeking local sources for raw materials to alleviate the forex burden.
- In June, the Central Bank of Nigeria (CBN) announced the unification of multiple forex markets in Nigeria, which caused the naira to plummet by nearly 40% in value, further intensifying the challenges faced by businesses operating in the country.
SOURCE: NAIRAMATRICS
