Local versus offshore production of ready-to-use therapeutic foods and small quantity lipid-based nutrient supplements

Abstract

Manufacturers on four continents currently produce ready-to-use therapeutic foods (RUTF). Some produce locally, near their intended users, while others produce offshore and ship their product long distances. Small quantity lipid-based nutrient supplements (SQ-LNS) such as Nutriset's Enov'Nutributter are not yet in widespread production. There has been speculation whether RUTF and SQ-LNS should be produced primarily offshore, locally, or both. We analyzed The United Nations Children's Fund (UNICEF) Supply Division data, reviewed published literature, and interviewed local manufacturers to identify key benefits and challenges to local versus offshore manufacture of RUTF. Both prices and estimated costs for locally produced product have consistently been higher than offshore prices. Local manufacture faces challenges in taxation on imported ingredients, low factory utilization, high interest rates, long cash conversion cycle, and less convenient access to quality testing labs. Benefits to local economies are not likely to be significant. Although offshore manufacturers offer RUTF at lower cost, local production is getting closer to cost parity for RUTF. UNICEF, which buys the majority of RUTF globally, continues to support local production, and efforts are underway to narrow the cost gap further. Expansion of RUTF producers into the production of other ready-to-use foods, including SQ-LNS in order to reach a larger market and achieve a more sustainable scale, may further close the cost and price gap. Local production of both RUTF and SQ-LNS could be encouraged by a favorable tax environment, assistance in lending, consistent forecasts from buyers, investment in reliable input supply chains, and local laboratory testing.

Keywords: lipid-based nutrient supplement (LNS); local production; manufacturing; offshore production; ready-to-use therapeutic foods (RUTF).

Figure 1

The United Nations Children's Fund pricing for ready‐to‐use therapeutic foods (RUTF), July 2015

Figure 2

The United Nations Children's Fund local and export pricing for ready‐to‐use therapeutic foods (RUTF), 2003–2015

Figure 3

Offshore versus local production in a tax free environment of Ethiopia

Figure 4

Estimated tax burden for 2012 in selected countries. VAT, value added tax

Figure 5

2014 RUTF sales to UNICEF as a percentage of stated capacity

Figure 6

Cash conversion cycles in offshore versus local contexts

Figure 7

Local and offshore ready‐to‐use therapeutic food procurement from The United Nations Children's Fund

Figure 8

Estimate of economic value of local ready‐to‐use therapeutic foods (RUTF) and lipid‐based nutrient supplements production. WHO, World Health Organization; SQ‐LNS, small quantity lipid‐based nutrient supplements.