SINGAPORE — In the past year, Olam International Limited has formed a joint venture with the Mitsubishi Corporation and has begun the process of expanding it into new markets.
|Sunny Verghese, co-founder and group chief executive officer at Olam.|
During an Aug. 12 conference call with analysts to discuss second-quarter results, Sunny Verghese, co-founder and group chief executive officer at Olam, further explained the company’s goal of its joint venture with the Mitsubishi Corporation. In April, Olam announced the formation of a joint venture, Mitsubishi Agri Alliance Ltd (MCAA), in Japan. Mitsubishi will hold 70% of the joint venture and Olam 30%.
The joint venture will draw on the combined strengths of both companies: Olam, for its global supply chain networks (agricultural production, origination, processing and trading) for sustainable agricultural products and food ingredients, and Mitsubishi, for its extensive distribution and sales network in Japan.
“The focus of the JV is to increase our penetration into the Japanese markets for the various agricultural raw materials and ingredients that we supply,” Verghese said.
Olam’s first goal is to try and increase its market share in the Japanese market and the second goal is to participate in making food products that are sustainable, traceable, differentiated and value-added in the Japanese market.
Consumers around the world are increasingly placing a premium on sustainable food products, particularly confectioneries and beverages. The establishment of MCAA enables Mitsubishi and Olam to expand their network for responsibly sourced raw materials and improves their system of distributing agricultural and food products in Japan and around the world. Through Olam’s sustainable global supply chains, MCAA can offer a range of innovative and high quality food products that will appeal to today’s Japanese consumers, Olam said.
The formation of the joint venture has presented opportunities for Olam and Mitsubishi to expand beyond the original goals. Olam recently announced an expansion into Nigeria to build two feed mills. This expansion may allow Mitsubishi to increase its exposure and investments in Africa.
“Mitsubishi for example, owns 100% of Princes Foods, which is a large, package-branded food manufacturer,” Verghese said. “We have packaged food business in Africa. We would like to explore whether we can increase and supply some of the branded foods that Princes makes in Africa through our structure.”
Mitsubishi is also one Japan’s largest feed manufacturers. Olam intends to use its joint venture with Mitsubishi to improve and expand its feed business in Nigeria.
“We have committed $150 million investment in getting an animal feeds business in Nigeria, to start with, where we’re going to be making both poultry feed and fish feed for both the poultry and fish industry,” Verghese said. “One of the largest feed manufacturers in Japan is Mitsubishi. So therefore we’ve visited their facilities and we’re taking help from them as we expand into animal feed manufacturing in Africa.”
Mitsubishi and Olam’s partnership committee is looking into the possibilities of these opportunities and areas of collaboration and cooperation. Opportunities are being prioritized to see what may be jointly invested in developing.
“We don’t expect much contribution from a bottom line for this year,” Verghese said. “And more than the bottom line contribution next year, what we expect is to increase our market share in Japan, from Olam’s point of view. Once our full, detailed strategic plan for the JV is crystallized and approved by the JV’s board, we will have a much better sense of what investments that JV will make, to tap into the growing consumer demand for high-quality, differentiated, clean food products.”
Olam on Aug. 12 said that profit after tax and minority interests (PATMI) for the second quarter ended June 30 was S$114.9 million ($85.51 million), up from S$95.8 million in the same period a year ago. For the first half of the year, PATMI increased 73% to S$228.6 million ($169.8 million), up from S$132.1 million in the same period of last year.