Poor water and power supply cripples Nestlé’s production

2014-09-17 17:42

Food and beverage company Nestlé is in serious talks with the government over service delivery issues in some of its main factories, which have experienced erratic water and energy supply.

This is according to Sullivan O’Carroll, the outgoing chairperson and managing director of the Swiss-based multinational company, which is home to brands such as Cremora, Ricoffy, Maggi noodles and infant products.

O’Carroll said the factory in Harrismith in the Free State, which manufactures its infant foods, has been particularly hard hit.

“We have had interaction with Minister of Trade and Industry Rob Davies and the Minister of Cooperative Governance and Traditional Affairs Pravin Gordhan where we have brought up this issue in Harrismith,” said O’Carroll.

“We need an uninterrupted supply of water and energy into the factory because it costs a lot to stop.”

According to Gavin Steiner, the regional technical director of Nestlé, the Harrismith factory has had 40 interruptions to water and electricity since the beginning of the year and this has cost Nestlé about R100 million.

“We have had a subsequent meeting with Davies and his team and they have visited the Babelegi [the factory near Pretoria that produces Cremora] and Harrismith factories, and the issue is bigger than just one player. Harrismith, for example, owes about R220 million to Eskom and Eskom is threatening to cut electricity to the whole municipality but they have been able to move the deadline of the electricity cut,” O’Carroll said.

O’Carroll is stepping down after 41 years at the company, and about four and a half serving as chairperson and managing director.

He will be replaced by Ian Donald, who has also served Nestlé for more than 40 years – the last five as the country manager for its Equatorial [sub-Saharan Africa] region based in Kenya.

Donald said Nestlé plans to invest about R2-billion in sub-Saharan Africa in the next four to five years “and a large part of the investment is to upgrade the capacity in the coffee factory in Estcourt and increase the capacity to export to sub-Saharan Africa,” he said.

The Cremora milk powder product has been especially well-received in the other countries.

“At the moment, we export between 3% and 4% of our products into sub-Saharan Africa, in some of the brands such as Cremora we are exporting about 25% to 26% into the Equatorial region. And we plan to replicate this with Ricoffy, NAN and Lactogen into sub-Saharan Africa Our ambition is up to 10% but we see us growing beyond that,” said O’Carroll.

Donald said this is why water and energy challenges faced by rural factories needed to be dealt with to improve competitiveness, reliance “and pricing needs to meet demand of the sub-Saharan consumers”.

O’Carroll said one of the highlights of his tenure was working with black emerging farmers, particularly in the dairy sector, where 200 million litres of milk is produced only by black emerging farmers.

Donald said Nestlé’s bullish stance on Africa will also help with building farmers across the continent.

“About 9% to 10% of our coffee comes from Ethiopia and goes to Europe and this upgrade to the factory forces us to buy directly from Ethiopia and Kenya. Our Zimbabwean dairy factory is very strong and we have a huge Milo capacity which is short in South Africa,” said Donald.

“Raw milk production in Kenya is more than twice that in South Africa and if we tapped into that market Africa would be able to provide its own milk. Currently most milk powder is from Holland,” Donald added.

With consumers under more financial pressure, O’Carroll said Nestlé had worked hard to keep costs down so as not to lose market share to competitors.

“One of the issues we have faced, especially with our imported components, is the devaluation of the rand that has put a huge strain on costs and we have seen how we can take out costs on the value chain so that we don’t pass them on to our consumers,” said O’Carroll.

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