Nestle, the world’s largest packaged food maker, is boosting its sourcing of local raw materials in Nigeria and other African countries in an effort to reduce foreign exchange exposure amid currency volatility. The company aims to bring production and raw material sourcing closer to consumer markets, a strategy that has gained traction among consumer goods companies in the wake of the COVID-19 pandemic and its supply chain disruptions.

African nations have been grappling with growing debt, putting pressure on foreign reserves and leading to currency volatility that makes importing inputs more challenging and costly. Nigeria’s central bank, for instance, recently allowed the naira currency to drop as much as 36% on the official market. To mitigate these risks, Nestle is increasingly turning to local suppliers for raw materials like cassava starch, which it is using to replace imported corn starch in Nigeria. The company has been working with seven local suppliers to boost their capacity and meet its supply needs.

Nestle plans to expand this localization strategy to other African countries, including Cote d’Ivoire, Cameroon, and Senegal. The company is also focusing on developing local suppliers for vegetables and spices used in its products, such as onion powder in Nigeria and Senegal, and turmeric powder in Nigeria. Through extensive training in agricultural practices, harvesting, warehousing, and cleaning, Nestle has successfully developed local farmers and processors in the grain sector. As part of its sustainability journey, the company is now introducing these farmers to regenerative agriculture, which aims to protect and restore soil health to reduce greenhouse gas emissions.

To support local suppliers, Nestle has provided letters of intent, technical know-how, engaged with local authorities to set standards, and offered financial support through advance payments to address working capital challenges. While Nestle’s shift to African suppliers may involve higher costs compared to sourcing from parts of Asia, managing foreign exchange costs is a significant driver for the company, as highlighted by its competitor Unilever. However, Nestle did not comment on whether this strategy would insulate it from foreign exchange volatility or provide an estimate of the economic impact of local sourcing.

Sales from the Middle East and Africa region accounted for about 6% of Nestle’s annual sales of 94.4 billion Swiss francs last year, with the company’s businesses in the region experiencing a 6% growth to 5.25 billion Swiss francs. Nestle’s commitment to sourcing local raw materials in Africa reflects its efforts to strengthen supply chains, reduce exposure to foreign exchange risks, and contribute to sustainable practices in the agricultural sector.