How economic reality pushes manufacturers into aggressive local sourcing

It was a sunny Saturday at Akamkpa town in Cross River State. Being a weekend, majority of people were preparing for wedding, burial and other forms of ceremony.

While the villagers were going about their businesses without hitches, a manufacturer— Global Foods Technology Company— was also doing its business without encumbrances.

Global Foods produces confectionery, including flour, bread and other processed food products. It has been in existence for seven years. The company was a well-known importer of wheat before 2015 crude oil crisis. But here was Global Foods loading cassava and maize into trucks for onward movement to its factory in Calabar.

The company now considers cassava as a substitute for wheat.

“Instead of scrambling for dollars at over N400 to import wheat to get our flour, we now use local cassava flour and  even yam flour in some cases,” a staff member of Global Foods told BusinessDay in early 2017 when one dollar exchanged for N420 in the parallel foreign exchange market.

Like Global Foods, a number of local manufacturers are aggressively reducing their importation of inputs owing to high cost of doing so. Currently, dollar exchanges for N305 to N315 at the official market and above N360 in the parallel market.

Back in 2014, one dollar was N199, meaning that dollar-naira exchange rate has almost doubled in four years, necessitated by low dollar inflows resulting from drop in crude oil price.

Nigerian manufacturers themselves are constant visitors to the foreign exchange market. They require the greenback to import raw materials, machinery, spare parts and packaging materials.

But Nigeria’s economic situation is beginning to tell them that importation is not only out of sync with reality but also not helping their margins.

As more than 54 of them shut down between May 2015 and August 2016 owing to foreign exchange crisis in the economy, none wants to become a victim again.

Nigerian Breweries (NB), the country’s biggest brewer with up to 60 percent market share, was a well-known importer of barley, an essential raw material for making beer.

However, the company is changing that story today, having found a local substitute called sorghum. Currently, NB sources locally from an agriculture-based firm called Psaltery Nigeria Limited.

There are over 250,000 farmers spread across several agronomic zones in the North that are directly or indirectly involved planting sorghum for the country’s biggest brewer, BusinessDay understands.

Jordi Borrut Bel, managing director of NB, said at the pre-AGM meeting held recently in Lagos that the brewer would raise its local sourcing from 50 to 60 percent.

The woman who is in charge of Psaltery   Oluyemisi Iranloye said at a recent visit that the firm had  created a supply chain involving up to 5,000 farm families, which included more than 2,000 registered and unregistered out grower farm families, marketers,  transporters and retail input suppliers.

NB is not the only one in this. Nestlé Nigeria is sourcing 80 percent of its maize, sorghum, millet, soya, cassava starch, cocoa powder, palm olein from more than 41, 600 local farmers and processors scattered across the country.

Nestlé Cereals Plan project has over 30,000 farmers who supply 100 percent of the grain requirement for Golden Morn Maize. Through its Sorghum and Millet in the Sahel (SMS) project, now called Nestlé Nigeria & IFDC / 2Scale Project Sorghum & Millet, the food and beverage giant has engaged up to 10,671 farmers.

“The Industry has huge needs and we must help farmers improve their yields to meet them. To achieve real success with connecting farmers to industry, a 360 degree approach which will include the aggregators, processors, and logistics suppliers must be considered within this value chain,” said Mauricio Alarcon, CEO of Nestlé Nigeria Plc.

More so, a dairy maker FrieslandCampina WAMCO is sourcing some of its raw milk from farmers in communities in Oyo State. FrieslandCampina used to import 100 percent of its raw milk from the Netherlands and anywhere else, but it is now getting 10 percent of raw milk from local Fulani farmers.

As of 2017, over 70 farming communities, including 962 women, supply raw milk to FrieslandCampina WAMCO on a daily basis, BusinessDay found.

Similarly, Flour Mills of Nigeria is also sourcing inputs for local farmers. In fact, checks show that the conglomerate sources palm oil from its own Agri Palm Limited located at Ugbogui and Iguiye near Benin City in Edo State.

Some manufacturers are also sourcing machines from local institutions such as the Federal Institute of Industrial Research Oshodi (FIIRO), as earlier confirmed by Frank Udemba Jacobs, president of the Manufacturers Association of Nigeria (MAN).

Local input sourcing has risen significantly to 60.72 percent in the first half of 2017, from 46.3 percent recorded in the corresponding half of 2016, data from MAN show. The raw materials inventory of the Purchasing Managers Index (PMI) was at 59.5 points, as the index grew at a faster rate.

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