UNILEVER CHANGES COURSE TOWARD AFRICAN SUPPLIERS AS CURRENCY STRAIN GROWS

· Costs rise due to a pandemic, the war in Ukraine, and currency risk

· Unilever substituting ingredients from Africa for some imported inputs

· Opportunities for African farmers and suppliers are created by the shift

Nigeria's Alayide, May 31 (Reuters) - In his home Nigeria, cassava is a staple crop, and Busari Kasali used to worry that it might deteriorate before it reached the market. The 76-year-old said today that keeping up with Unilever, a major consumer products company, is his top priority.

“Things have changed,” Kasali declared as his employees loaded trucks with a bountiful crop of the starchy roots that will be used to make toothpaste. He claimed that in the previous two years, his income had almost tripled.

Now, we can plant as much as we choose. We are aware of a retailer.

Unilever (ULVR.L) is aiming to make its African operations more self-reliant, increasing up local sourcing in order to decrease its foreign exchange exposure, amid pandemic-provoked supply chain disruptions, skyrocketing prices, and growing currency volatility.

According to experts, this might be good news for farmers and processors across much of Africa.

Unilever has struggled with rising energy and raw material costs for the previous two years, much like many other multinational corporations. Manufacturing problems and supply chain bottlenecks that started with the COVID-19 epidemic were made worse by the conflict in Ukraine.

Net material inflation cost Unilever, which owns brands like Knorr, Hellmann's, and Ben & Jerry's, more than 4 billion euros ($4.40 billion) last year. Additionally, it anticipates further price increases for some goods throughout the first half of this year.

Even while sourcing from the continent can be more expensive than purchasing from some regions of Asia, Unilever claimed that managing foreign exchange expenses is primarily what is causing a tilt to African suppliers.

Increased currency volatility and reliance on foreign reserves brought on by the mounting debt problems in many African countries have made importing inputs more difficult and expensive.

Reginaldo Ecclissato, chief business operations and supply chain officer at Unilever, told Reuters that facilities in Africa produce more than 95% of the brands that the company sells to its (African) consumers.

But up until recently, we were only able to obtain about a third of the inputs we required from within Africa.

The size of Unilever's move in Africa and the overall economic impact were not quantified by the company.

According to the corporation, more than two thirds of the ingredients used in Unilever goods marketed in African countries are now sourced from the continent.

In particular, it is increasing the amount of sorbitol and spices that are purchased local vendors in nations like South Africa and Nigeria rather of being imported from countries like India and China.

Unilever is not by itself. According to Tedd George, a supply chain expert with a focus on Africa, major businesses like Nestle (NESN.S) and Danone (DANO.PA) are also expanding their operations across the continent, attracted in part by its quickly expanding consumer market.

In order to prevent a future recurrence of the paralysis brought on by Beijing's strict pandemic lockdowns, they are also attempting to lessen their reliance on that country, he added.

Danone declined to comment, while Nestle did not respond to a request for comment on this article.

“What is happening in China is pushing people to find alternatives,” said Pierre-André Térisse, a former Danone executive who oversaw the company's African operations from 2015 to 2018.

“That presents a chance for Africa.”

POTENTIAL FOR A “GARGANTUAN”

Unilever started its initiative to increase sourcing from Africa four years ago, but Ecclissato said the pandemic caused the strategy to pick up speed.

For its regional Roberstons spices brands, Rajah curry mixes, and Knorrox bouillon cubes, for instance, it has established a smallholder farmer network in South Africa to grow coriander and chilies in place of spices formerly obtained from India.

Unilever is increasing local sorbitol sourcing in Nigeria, where its Lagos factory manufactures 10,000 to 14,000 tonnes of CloseUp and Pepsodent toothpaste yearly. Sorbitol was previously imported from China and can be derived from cassava.

Cashing in on the move is Yemisi Iranloye, whose company Psaltry International in Oyo State processes cassava from over 10,000 farmers, including Busari Kasali.

Unilever only recently began supplying it with sorbitol; today, the multinational company purchases about 70% of Iranloye's sorbitol output, or about 40% of Psaltry's overall revenue.

Local purchasing, according to Ecclissato of Unilever, enables more intimate relationships with suppliers, lower shipping costs, and a smaller carbon imprint. It also significantly lowers the amount of foreign currency needed to pay for imports.

The expense of sourcing those dollars may pile up quickly for a corporation like Unilever, whose Nigerian division alone reported turnover of 70.5 billion Nigerian naira ($153 million) in 2021.

Iranloye, who also provides Nestle and Danone, believes that the demand from all of her clients is being driven by a need to protect against dollar shortages and local currency changes. This year, she anticipates Psaltry's revenue to more than treble.

She added, “It also means better livelihood for the populace on the continent, especially the farmers,” as machinery washed a freshly delivered load of cassava close by.

Even still, other people, like Tedd George, contend that it's not yet obvious whether Unilever is making the most of its full power, despite the fact that its scale and reach could make it a revolutionary force in Africa.

Where does it fall on the African trade scale？ Where is it in the supply chain of Unilever, he asked. The reason is that Unilever is a truly enormous company.

Africa's own ability to produce raw materials, especially agricultural products, may also be a constraining factor for the time being.