Food and beverage processing

Large access to seafood

The food and beverage processing sector refers to the manufacturing, processing and preservation of meat, fish, fruit, vegetables, oils and fats; manufacture of dairy products; manufacture of grain mill products, starches and starch products and prepared animals feeds; manufacture of other food products (e.g. bread, sugar, chocolate, pasta, coffee, nuts and spices); and the manufacture of bottled and canned soft drinks, fruit juices, beer, wines, etc.

Global market growth for processed food and beverages has been strong in recent years, with sales totaling an estimated USD 3.2 trillion, or about three-fourths of total world food sales. Africa is no exception. Agro-processing is one of the most significant manufacturing activities in Africa. In fact, agribusiness activity, of which food processing represents a large share, accounts for approximately one-fifth (or USD 70 billion) of the region’s GDP and just under half of the region’s value-added in manufacturing and services.

Despite strong production and sales growth of processed foods and beverage in recent years, growth in trade has been slow, at about 6 percent of sales. The presence of tariff escalation and growing use of trade remedy measures (such as antidumping and countervailing duties and safeguard measures) are partly to blame. Such mechanisms favor trade in raw commodities at the expense of processed products, reflecting countries’ efforts to encourage domestic processing. As a result, firms looking for access to foreign markets often opt to make foreign direct investment. Market saturation at home and the search for higher profit margins in new underserved markets is pushing food manufacturers to seek overseas markets. These companies are looking to capitalize on increased local demand for higher value foods, a trend driven by rising incomes and increased urbanization. At the same time, consumer-driven changes are increasingly pushing food suppliers to meet consumer demand and preferences at a local level. This requires food suppliers to be capable of tailoring their products to the unique characteristics of consumer demands in each market that they serve, for which FDI offers a better tool than exports.

The largest food companies such as Nestlé, Kraft, Unilever, Coca-Cola and Pepsi already have a strong presence across the developing world. In Africa alone, the Coca-Cola Co. has more than 100 bottling and canning plants; Nestlé has 27 factories supplying African consumers with a wide range of products including powdered milk, soluble coffees, bottled water, breakfast cereals, chilled dairy and ice cream and infant nutrition. Unilever is currently operating in 13 countries with more than USD 2 billion sales annually. In recent years, South African firms in particular have expanded into the region with new retail food formats, fast food outlets, and pan-African processed food brands. Given the importance of the size of the local or regional market, formulating regional trade blocs is one way to enhance attractiveness to investors. According to the UN’s Food and Agriculture Organization (FAO), the East African milk market alone is due to double by 2030 to 475 million metric tons. Fisheries is a constantly expanding sub-sector, especially in East Africa, as the region is endowed with some of the largest freshwater lakes and abundant fishery resources, including the Nile perch, the most widely processed fish for export in the region. From 1995-2001, exports of fish and fish products from the EAC nearly tripled in value. In West Africa, Ghana successfully tapped into the endowment of fish supply and attracted FDI: Starkist’s investment in canned tuna manufacturing tripled Ghana’s export capacity of processed tuna.

Food and Beverage Processing Sector Survey Profile

Companies interviewed: 52 *

*13 firms also produced horticulture

Food and Beverage Processing Brief

• Malagasy food and beverage processing companies own their own supply chains and farms. They provide farmers with seeds and fertilizer and perform quality control on crops.
• Food inputs are generally sourced locally, while previously processed additives like edible oils and sugars are imported.
• Free zones create benefits for investors, and account for four fifths of all FDI in the country, with France and Mauritius being the main sources of capital.
• Within Madagascar, most food and beverage companies chose sites in proximity to basic infrastructure, particularly roads, and markets in Antananarivo, rather than locations in supply areas such as Fianarantsoa province.
• The average food processing plant operating in Madagascar employs a permanent workforce of 125 employees. It is typical to also employ about 150 seasonal workers when demand warrants a larger workforce.
• As the fourth largest island in the world, Madagascar possesses abundant access to available seafood. Investment opportunities exist in Madagascar’s high quality and globally renowned shrimp and seaweed industry.
• Incentives under the free zones create a number of benefits for investors and a number of investors have already shifted production from Asian locations.

Comparative SWOT Analysis for Food and Beverage Processing Madagascar vs. Snapshot Africa

Breakdown of cost motivations reported by food and beverage processing firms

Breakdown of quality motivations reported by food and beverage processing firms

Total annual cost to employer per function in USD (millions)

* Among Snapshot Africa countries

Annual lease price in USD (millions) of an industrial site of 34,000 square meters*

* Includes occupancy charges