Olam International, a global grower, trader and processor of agricultural commodities with strong roots in Africa, began its Côte d’Ivoire operations in 1994 – exporting raw cashew nuts to India. Today its portfolio has grown to include cocoa, coffee, cotton and rubber, and it processes cocoa and cashew locally.
How we made it in Africa chats to Partheeban Theodore, Olam’s senior vice president and head of operations in Côte d’Ivoire, to find out more about the country’s manufacturing potential and how the company ensures a steady supply of commodities.
You provide your farmers with access to finance. Is this a strategy to keep them from selling their produce to other companies?
Access to finance is a means to enable farmers to finance both their seasonal and non-seasonal requirements, ranging from costs relating to harvesting their crop to managing household expenses. This has been one of the differentiators Olam brought into the trade in a domain long perceived as ‘high risk’ even by local banks. Providing crop finance and trade finance remains an essential part of our sourcing strategy while working close to the farm gate.
So how do you ensure the farmers you invest in only supply Olam?
We are in a fiercely competitive environment with more new entrants trying to jostle for space. The quest to remain competitive and attractive to the farmers and suppliers is therefore an on-going challenge. It requires us to pioneer new ways of doing things, including the use of technology. Having GPS mapped thousands of hectares of smallholder farms, we can now generate tailored farm-management plans.
This is just one of the ways Olam works with smallholder farmers to enable them to continue improving their livelihoods. We mainly focus on improved farming techniques for better yields, better quality farm inputs, means to bring larger areas under cultivation, and in some cases even diversifying their crops and hence the crop risk. We also go a step beyond in trying to help them build their capacity. Olam’s flagship programme that we call the Olam Livelihood Charter (OLC), provides a framework for how we engage with small growers.
Through the eight OLC principles, we aim to unlock mutual value for Olam by bringing prosperity to our farming communities and build long-term relationships based on fairness and trust, transferring skills and knowledge through partnerships. For Olam, this helps us to secure and increase volumes of quality product for our customers. The eight principles of the OLC are: access to finance, improved yields, labour practices, market access, quality, traceability, social investment, and environmental impact.
In Côte d’Ivoire, we support 100,000 farm families from 1,350 farmer associations through the OLC principles, improving their livelihoods and community well-being and safeguarding natural resources. In 2015, these partner farmers produced 178,520 tonnes of cocoa, cotton, cashew, and coffee combined.
Activities to improve farm productivity and foster economic inclusion in Côte d’Ivoire in 2015 include training on good agricultural practices, farm management, gender, and child labour, financing US$17m in agri-inputs for cash crop production, investing in farmers’ post-harvest infrastructure, including seven warehouses, and five drying floors and 10 coffee hulling machines (for a total of 100 coffee hulling machines since 2012), improved market access through truck financing, cooperative weighing scales, supply of crop collection bags, and grading rural roads and improving access through education, including construction of five primary schools for 800 students and literacy programmes for 65 cashew factory workers and 300 cotton farmers.
As part of our Olam Healthy Living programme, we provide health education and screening for thousands of people at our worksites and in remote villages. We improve water and health infrastructure, including the four clinics constructed last year. In 2015 we trained nearly 16,000 farmers (25% women) on nutrition and food crop production, as well as farm management and financial literacy skills. Olam advanced farmers $2m in agri-inputs specifically for their food crop production. These inputs included fertilisers and high-yielding maize varieties. Around 1,500 female farmers received improved cassava varieties.
Today the OLC is a source of competitive advantage.
Chocolate prices have been rising. What has this meant for business?
Côte d’Ivoire, as the world’s largest producer of cocoa, is also its biggest beneficiary. The prices to farmers have consistently gone up over the past three years and are providing a continued impetus to the farming community to grow more. The cocoa sector is regulated in Côte d’Ivoire and the government has a clearly stated ambition to see the crop grow in volume and quality.
Olam is an integrated player in the supply chain of agricultural commodities and food ingredients. As one of the leaders in the bean trade and in local processing, a crop that is witnessing sustainable growth is encouraging news for us. It offers the scope to continue investing in the business. A growing industry also means growing competition and it underlines the need for Olam to continue to differentiate at every level. One of our key differentiators is our strength in the supply of certified, sustainable and traceable cocoa which is growing in importance to our customers.
Olam processes cocoa beans into cocoa liquor, cake and butter. We are an ingredient supplier to most of the major chocolate brands.
Which are your biggest markets for exporting these products to?
Cocoa ingredients and processed cashew kernels are exported to processing centres and consuming markets across the globe. The European Union and US remain large markets for both and we can also see rising demand for cocoa in Asia.
How competitive are your operations in Côte d’Ivoire?
Olam runs highly-efficient operations in Côte d’Ivoire. Some of our facilities can compare with the best in the world. However, the Ivorian industry still has a long way to go when it comes to cost competitiveness. The competition today comes from countries with lower cost structures and more attractive government policies to favour processing investments.
Can you provide an example?
Cashew processing, an activity in which Olam is a leader in Côte d’Ivoire, competes with the world’s leading cashew processing countries – India and Vietnam. The cost of setting up a processing facility is significantly lower in these countries. This means lower interest costs and lower depreciation costs. Both these countries have a readily available pool of trained labour that is not just more productive but is also lower cost. Vietnam and India also have locally manufactured equipment, spares and factory consumables that are relatively cheaper than in Côte d’Ivoire, where such parts need to be imparted.
How does Côte d’Ivoire’s processing industry compare to other markets?
Côte d’Ivoire has some key natural advantages that make it an attractive destination for investments into processing. It has an agricultural sector that continues to grow thanks to favourable government policy intervention. Most of the key sectors like cocoa, cashew, cotton, palm and rubber continue to see year-on-year growth in volumes. This provides a scalable platform for companies like Olam to look at long-term investments. The government is continuing to work on improving the quality of the farm output and sustaining the growth. Côte d’Ivoire also has some very good technical schools and a growing middle class. Political stability and an active public-private dialogue further enhance the attractiveness of Côte d’Ivoire.
To transform these advantages to credible opportunity for investors there is a need for greater government policy support. We are happy to see the government engage with industry associations and potential investors to address some of the remaining issues of industry competitiveness. Even as we speak, there are discussions that are ongoing in both the cocoa and cashew sectors. We would like to see this approach move from mere industry competitiveness to industry attractiveness to elicit more affirmative investor response.
Olam has great confidence in the future of Côte d’Ivoire and its industry. We continue to develop our activities and engage more closely with the industry. The country has outlined a bold ambition for local value addition and I am confident that Olam will continue to play a significant role in supporting the government in this ambition.