Unilever enters maize milling in revenue diversification strategy

 

British multinational fast-moving consumer goods company, Unilever PLC is set to diversify its Kenyan operations into the maize refining business to shore up margins that are under pressure on the slowing detergents business in the East and West African region.

Ben Lang’at, the company’s executive vice-president in charge of the East and West African region said the plan to diversify into corn starch production is at an advanced stage and discussions are ongoing to run the new business line through a joint venture with an undisclosed company.

Corn starch, an extract from maize grains, is a common food ingredient, often used to thicken sauces or soups and to make corn syrup and other sugars. It is also a component of many cosmetics and oral pharmaceutical products. It has been used as a lubricant in surgical gloves.

“Kenya produces a lot of maize, these (corn starch) are not the type of things that we should be importing, so we need to work on this and also focus on localising our raw materials in all aspects,” Mr Lang’at said in an interview.

“We need to make sure that this kind of raw materials (corn starch) that are common to our base products like Royco are available locally. So we are working with different partnerships to ensure that that happens. It (joint venture deal) is quite in an advanced stage,” he said in an interview.

Unilever currently offers a wide range of products in various categories, including beauty and wellness, personal care, home care, nutrition, and ice cream products.

However, the market for home care products— including laundry and washing detergents—in the East and West African region is facing headwinds as a result of the proliferation of cheap imports, forex shortage, and civil conflicts in some economies.

Unilever Kenya is looking at the new line of business as a fresh stream of revenues as well as an opportunity to create an alternative market for maize grain for Kenyan farmers.

The proposed wet milling operations will produce sweeteners, corn starch, and corn syrups.“You know Kenya used to have a company that was producing corn starch, those kind of things are the things we need to really work to make sure that they are there. It (corn refining company) was there and it went out, I don’t know what happened,” Lang’at said.

“We will continue focusing on local sourcing to ensure that we have a sustainable business. Localisation is very big for us,” he added.

Corn Products Kenya Limited (CPC), a local subsidiary of an American grocery products company CPC International Inc. shut down its Eldoret-based plant in July 2012, after close to four decades of operation, citing rising operational costs, competitive environment, and the influx of cheap imports.

More than 500 workers who depended on the company directly and indirectly were rendered redundant.

Before its closure, CPC was buying over 15,000 bags of maize from farmers every month.

The National Cereals and Produce Board has been facing challenges of inadequate budgetary allocation to purchase maize from farmers, most of whom have opted to sell the grains to private millers and traders who offer better prices and prompt payment.

Kenya’s annual maize requirement is estimated at 52 million bags to cater for human consumption, the manufacture of livestock feeds, seed multiplication, and the manufacture of other products.

Unilever is keen to grow and expand its Kenyan market with hopes of transforming the country into a sourcing hub of its other regional markets in East and West Africa.

“Kenya is one of our best markets where we still have a full range of offerings that have had strong performance in the last few years,” Lang’at said. “The plans that we have for Kenya, first, is to grow the business significantly. There is room for expansion. There is room for us to execute even more strongly than we are doing right now; that is to expand our route to market and ensure that we have innovations that are relevant.

By JAMES ANYANZWA