By Humeyra Pamuk

CAIRO (Reuters) - Egyptian private equity firm Citadel Capital's food unit is in advanced talks to buy an Ethiopian food firm in its bid to boost self-sufficiency in raw materials, the unit's chief executive told Reuters.

Gozour's Mohamed El Rashidi did not name the Ethiopian company, but said talks could be concluded in four months.

"It is a perfect fit for us," he said late on Sunday, referring to the Ethiopan market. "There are 80.7 million people in Ethiopia, with a heavy consuming base and 60 percent of the country's GDP (gross domestic product) is from food."

The move would follow the acquisition in November of a majority stake in a Sudanese biscuit and sweet maker by Gozour, the consumer foods business of Citadel, which manages $8.3 billion in investments.

"This company (in Ethiopia) operates in a market that hosts one of our main raw materials," Rashidi said.

The purchase would mean Gozour could start "contract farming" in Ethiopia, which Rashidi said involved financing farmers and in return reaching agreement to use the produce in factories in Egypt and eventually plants in Ethiopia.

Gozour has three primary lines of business: agri-foods and dairy, fast-moving consumer goods and intermediate industries such as flour milling and production of skimmed milk powder.

INTEGRATION

In addition to Sudan and Ethiopia, Rashidi said the firm's other areas of interest were Uganda and Kenya. "In these countries we take a platform because they're strategic for us in terms of raw materials," he said.

He said the firm would have to continue relying on some imports to supply its Egyptian plants but said it aimed to raise the number of its food lines integrated from farmer to shop shelf to protect it from global commodity price fluctuations.

"We will have a level of 50-60 percent self-sufficiency at the end of 2012 that eliminates a large part of the volatility of raw material prices," he said, adding Gozour now sourced about 28-30 percent of raw materials from its own production.

The global downturn has driven food prices off all-time highs hit in 2008 but they are still close to the peaks.

The Food and Agriculture (FAO) Price Index, which measures monthly price changes for a food basket composed of cereals, oilseeds, dairy, meat and sugar, was at a 15-month high in January and December but 20 percent below the June 2008 peak.

The company wanted to double its sales this year, after 30 percent growth in sales volumes last year, and boost profitability, Rashidi said without giving overall figures.

He said the food industry in Egypt needed better regulation to improve food safety in the most populous Arab country.

"The milkman passes by, brings the milk but you don't know where it's coming from," he said, adding branded players accounted for only 15-35 percent of Egypt's food industry.

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