Nestle, a major food company, is increasing its sourcing of local raw materials such as starch and turmeric in Nigeria and other African countries. This strategic move aims to reduce foreign exchange exposure, which has been a challenge for the sector. The COVID-19 pandemic disrupted global supply chains, prompting consumer goods companies to bring production and raw material sourcing closer to their consumer markets.
The growing debt in many African nations has led to pressure on foreign reserves and currency volatility, making it more difficult and costly to import materials. Nigeria’s central bank recently allowed the naira currency to devalue by up to 36% on the official market. In response to these challenges, Nestle is replacing imported corn starch with cassava starch in Nigeria and supporting local suppliers to increase their capacity to meet the company’s supply needs.
The company aims to develop local suppliers of vegetables and spices used in their products, such as onion powder in Nigeria and Senegal, and turmeric powder in Nigeria.
Additionally, Nestle is taking steps towards regenerative agriculture as part of its sustainability journey. This approach focuses on protecting and restoring soil health, which helps capture more carbon from the atmosphere, thus reducing greenhouse gas emissions.
Nestle’s competitor, Unilever, also highlighted managing foreign exchange costs as a driving factor for its shift to African suppliers from Asia. Despite the potential higher costs associated with sourcing from Africa, Nestle’s sales in the Middle East and Africa increased by about 6% to 5.25 billion Swiss francs ($5.9 billion) last year, representing approximately 6% of the company’s total annual sales.
Overall, Nestle’s focus on local sourcing in Africa is a strategic move to mitigate foreign exchange risks and strengthen supply chains. By supporting local suppliers and promoting regenerative agriculture, the company is not only reducing costs and exposure to currency fluctuations but also contributing to sustainability and economic development in the region.