Growing at a rapid pace

by Meyer Sosland
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Established in Africa 23 years ago sourcing cashews from Nigeria, Olam International Ltd. has grown from a single-product, single-country company to a leading globally integrated supply chain manager and processor of agricultural products and food ingredients in 65 countries with a market capitalization of $3.84 billion.

Based in Singapore, Olam has a direct sourcing and processing presence in most major producing countries, and its 18,000-plus employees have built a leadership position in many of their businesses — including grains, cocoa, coffee, edible nuts, spices and vegetable ingredients, sesame, rice, cotton and wood products. In fiscal year 2012, the company handled 10.7 million tonnes of products for sales revenue of S$17.1 billion ($13.98 billion). Today, the company supplies 12,300 customers worldwide.

In a recent interview, World Grain recently visited with KC Suresh, president and global head, grains, Olam International, on a wide variety of topics including the company’s growth strategy, emergence in the global grain industry, strategic investing and view of the markets.

He told World Grain that Olam attributes its rapid growth to three key factors:

• extensive experience operating in emerging markets;

• a focused yet diversified product portfolio; and

• a business model built on repeatability and adjacency.

“We focus solely on agri-commodities, but within this we have 44 different products across 16 different platforms, such as grains and edible nuts. Our adjacency is reflected in how we have built the business by expanding from our core supply chain heritage into upstream farming and plantations and downstream into processing and packaged goods. And our repeatability is shown by our using a consistent approach that has enabled us to participate globally across the agricultural value chain and achieve leading positions in many of our businesses.

“Our business model has proven its strength and resilience in recent years where commodity markets have seen volatile swings,” Suresh said. “Today, we remain true to our core and our organizational advantage: people, culture and values.”

Emerging grain entity

Olam’s grain division has followed the company’s geographic origins and adjacency-based growth model.

“Our grains division is well integrated into Olam’s overall growth strategy. It is a critical component of our portfolio and therefore of our future success,” Suresh said.

The division started as a grains originator, marketer and processor in 2008.

“Today, we focus mainly on wheat but are slowly building up our involvement with other grain products such as maize, barley and soybean meal.”

With a presence in production, origination, processing, logistics, marketing and distribution, the Olam strategy is to create end-to-end supply chains, maximizing efficiency and ensuring expansion takes sustainability into account. The company’s origination footprint includes Australia, the Black Sea, South Africa and Canada. Olam markets grain in Southeast Asia, the Mediterranean and the Middle East, and trades in southern and eastern African countries.

A relatively late entrant into the grains business, Suresh noted that Olam’s growth strategy has been to develop supply chain competencies in new origins and niche destination markets.

“We are very strategic in our expansion plans, targeting specific areas rather than trying to be in all markets. In the future, we will be expanding our marketing capabilities in Africa and Europe,” he said.

“First, we want to optimize and extract full value from Olam’s heritage — origination. Encouraged by our recent success in Russia, we are extending our origination footprint into the Ukraine. We also continue to be vigilant to strategic investment opportunities in port-based elevation assets, both in Australia and the Black Sea region.

“Second, our grains division follows Olam’s repeatable and scalable adjacency-based business model very closely. This means we take the learning, skills, distribution channels and customers from one geographic location and transfer them to another as we continue to expand.”

Suresh said it is also worth highlighting that within Olam, the grains team is very culturally diverse. “We consist of 15 nationalities, and that gives us a particular strength for customer relationships, as well as local knowledge for on-the-ground operations.”

Olam originated in Sub-Saharan Africa, and this region remains a key part of the company’s strategic plan. “Midstream, wheat milling in Sub-Saharan Africa is the centerpiece of our grains strategy. We are currently assembling a configuration of port-based milling assets in Sub-Saharan Africa.” See companion feature on page 40.

Olam has two flour mills in Nigeria and one in Ghana. “We are working on a few other mill projects in sub-Saharan Africa (Senegal and Cameroon),” Suresh said.

Olam’s strategic expansion strategy is active. “Most recently, we have embarked on expanding the capacity of our Nigerian mills by 750 tonnes per day. They will be commissioned between April and June 2013 and will represent a step toward our target of increasing our share of the Nigerian flour market.”

Olam is strategically building mills in other nations to expand its presence in the region. “Additionally, we are building two greenfield mills in Senegal and Cameroon, each with a capacity of 500 tonnes per day, which will be commissioned by June 2014,” Suresh said.

Across all sites, Olam’s wheat processing capacity will soon reach 4,000 tonnes per day. The company’s utilization rate is 70%.

“This expansion will mark another milestone in our goal to become a major wheat miller in Sub-Saharan Africa and indeed we are further evaluating other options in the region either through greenfield expansion or acquisition.”

Suresh emphasized that Olam is dedicated to executing its strategy.

“The future depends on how we execute this strategy — making the development work for us but avoiding expanding too quickly,” he said.

“We are optimistic about our wheat milling business in Sub-Saharan Africa, one key reason being that we have common customers, sales and distribution between this and other products such as rice, sugar and various packaged food products. On top of this there are synergies across management and business as well as stakeholder relationship strengths and common management costs in these African countries.”

He noted that Olam’s unique experience in Africa and consistent track record of profitable growth throughout its 23-year history gives the company confidence and reason to become a significant player in the wheat market in the future.

Challenges & opportunities

Olam closely tracks a number of global concerns, markets and challenges to stay abreast of issues impacting the world’s grain industry and its own businesses.

The company closely follows the weather as changing patterns can have a major impact on supply. “Changing weather is one of the global issues that we are tracking at the moment,” Suresh said. “We are trying to understand how changing weather patterns can have a significant impact on the supply side of grains as well as looking for appropriate solutions.”

Suresh sees a number of challenges for the global wheat milling industry. “On the global wheat market the price has increased by 20% to 30%, and so our input costs have risen sharply. But the market offers strong resistance to any corresponding price increase.”

He noted that while demand for wheat continues to grow, supply is restricted. “In particular, government intervention in producing countries is increasing, which hinders supplier response,” he said.

“Competition for land from other crops, such as corn and soy, which are not just used for food but also biofuel, is also another challenge.”

On the other hand, Suresh noted Olam sees a growing demand for grains globally.

“This is a good opportunity for us, and we believe we can help meet that demand. In particular, Asia and Africa are presenting solid opportunities for growth and expansion because of their emerging economies. Incomes are growing rapidly and there is also increasing demand for convenience food.”

Market view

Besides Australia, the Black Sea, Canada, South Africa and India, Olam also sources grain from the U.S., South America and Europe. Suresh and Olam see the world’s grain supplying nations into two camps: Old World and New World.

“You can divide these country sources into two distinct groups: the ‘Old World’ (which often refers to U.S., Canada, Australia and Europe) and the ‘New World’ (Black Sea and South America),” he said. “It’s worth highlighting that for Russia and Ukraine, we are not just a leader in origination but are also developing farming.”

Suresh noted that the Old World suppliers are known for being well-developed and having good quality control, “while in the New World, the markets are usually less mature, and we cannot be totally sure about the quality.”

The New World’s trading systems and markets are also not as well established. “This requires increased investment in our supply chains,” Suresh said. “However, our experience in emerging markets and the benefits of having diversified sources outweigh these detractions with the result of mitigating our overall risk.

“Our strength therefore, is in having experts on the ground in all the regions where we operate. Physical presence is crucial as it increases our ability to react more quickly to market/local changes and foresee any potential challenges.”