By David South, Development Challenges, South-South Solutions
SOUTH-SOUTH CASE STUDY
Most people haven’t heard of Olam International, but they know the brands they work for and they more than likely eat their produce. The story of Olam (http://www.olamonline.com) – a global food supply company in ‘agri-products’ that got its start in Nigeria – shows how a Southern brand can grow and go global, and overcome the difficulties of cross-border trade.
Olam supplies well-known global food brands including Cadbury (chocolate), Nestle, Lavazza (coffee), Mars (chocolate), Tchibo and Planters (peanuts).
Olam not only survived its startup in Nigeria, it has thrived, trading around Africa and across the globe, becoming a major supplier to the world’s top food brands.
The quantity of agri-products harvested in the world is 5.2 billion metric tonnes. In that market, Olam is a significant producer of cashews, peanuts, spices, beans, coffee, cocoa, sheanuts, packaged foods, rice, wheat, barley, sugar, cotton, wood, and rubber. It is already the world’s largest supplier of cashew nuts and sesame nuts and in the top three for peanuts. Olam’s cashew business in Africa provides work for 17,000 people, 95 percent of whom are women.
Olam also uses its success to play a critical role in securing the world’s food supply and has specialized in meeting the food needs of the world’s rapidly growing population, especially in China and India. Between 2001 and 2007, annual increases in the global consumption of agricultural commodities were larger than during the 1980s and 1990s. Higher incomes are leading to higher consumption of proteins like meat. And as meat demand rises, so does the demand for grain and protein feeds to produce the meat. It takes two kilograms of grain to produce one kilogram of chicken, four kilograms of produce for one kilogram of pork, and eight kilograms of produce for one kilogram of beef.
Chris Brett, Olam’s senior vice president and head of corporate social responsibility and sustainability, said the company tries to blend business success with wider social goals.
“We are one of the few businesses investing in rural environments and am tackling the problem of urbanization,” said Brett in Olam’s London office – the company’s global headquarters is in Singapore.
In 2008, it won the World Business Development Award for its contribution to achieving the Millennium Development Goals (MDGs) (http://www.un.org/millenniumgoals/).
Olam also has been recognized for its contribution to global food security. By providing farmers with credit to help build their communities, it has also been able to revive declining rural economies and help stem the outflow of farmers to the big cities and urban slums.
“Many countries are afraid to lend to farmers,” Brett said. “We gather the farmers together in groups of 500 and Olam manages the loan while a local bank receives the money. Defaults have been low and farmers are building up a credit rating. In this way, farming becomes a business not just a subsistence existence.”
The dramatic changes taking place in African countries – especially rapid urbanization that has made the continent home to 25 of the world’s fastest growing cities (International Institute for Environment and Development) – means there is an urgent need to increase food production and stabilize rural economies to support farming.
Olam International, started in 1989 in Nigeria by its India-born CEO Sonny George Verghese has many lessons for any Southern entrepreneurs who have their sights set high.
After developing its skills in exporting cashew nuts from Nigeria, Olam moved into cotton, cocoa and sheanuts. From 1993 to 1995, the company explored ways of taking their skills into other countries and different products. It was a period of rapid expansion into other African countries including Benin, Togo, Ghana, Cote d’Ivoire, Burkina Faso and Senegal.
Olam now operates in 26 African countries.
There has been a renaissance in South-South trade in recent years before the current economic crisis, growing by an average of 13 percent per year between 1995 and 2007. By 2007, South-South trade made up 20 percent of world trade.
Olam started with one product, got its supply right, and then started looking around and seeing what other products and services it could offer, applying already-tested expertise and supply skills – what the company calls the ‘Olam DNA’.
Olam claims its success has come from building strong relationships with farmers to guarantee high standards for the food products. The company does this by tightly tracking its stock and its quality. Olam then uses the information to analyze risks to the supply network. The company also keeps both warehouses and field managers close to the farmers. Olam estimates 65 percent of its profit comes from managing the journey from farmer’s field to factory gate.
Its selling point to customers is the ability to guarantee the entire journey from farmer’s field to factory gate, taking on all the risk and stress for ensuring the product is of the right standard and delivered on time.
Its niche is to provide the food products required by some of the world’s top food brands. The company has grown from just one product in Nigeria and two employees in 1989, to directly employing over 10,000 people worldwide and supplying 20 products in 60 countries, according to Brett. He says the company, which had a total 2008 turnover of US $5.75 billion, was “born out of Africa.”
Brett says the company is now “investing heavily in Africa in processing and distribution centres” – proof that a success story feeds back into more success and investment. It has been able to use its profits to go back and buy up failing businesses and former state-run enterprises, and modernize them. Olam now grows the food, processes it, and transports it to market.
Olam actively works with international donors, global NGOs like Technoserve (farmer business development), WWF (environmental impact of supply chain), and the Bill and Melinda Gates Foundation (cocoa and cashew farmers).
Olam, however, has received criticisms for its past practices. The global environmental group Greenpeace attacked its logging in the Democratic Republic of Congo (DRC) (http://www.greenpeace.org.uk/tags/olam), and the International Finance Corporation (IFC) divested its holdings from Olam for it trading illegally cut timber.
Olam and the Gates Foundation project are working with 200,000 cocoa farmers in West Africa to double their incomes. In Ghana, cocoa farming has become synonymous with poverty and perceived as an occupation of last resort. The work force is rapidly aging and the industry will die out if it doesn’t become more profitable and attractive to young people.
“We want the farmers to be profitable, the transporters to be profitable,” Brett said. “We believe a supply chain does not work if one player takes too much.”
And what advice does Olam have for budding food producers and growers? “Catchy, simple brands work. Our Mama Mia pasta caught the wave of the Abba revival.”
“Our Tasty Tom brand became very popular in Africa so we extended the brand into other products than just tomato paste. You reduce the cost of advertising by extending the brand name.”
“We feel SMEs (small, medium enterprises) growth is critical because it would give us more support. If more people invested in SMEs, we would have more people to do business with. We want to be able to make deals: they could be entrepreneurs.
“If you can add extra value it costs nothing but time.”
Brett advises budding SMEs: “It’s all about quality: trust and shared business ethics like formal contracts. When you have those, the bigger brands will give you support.”
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3) Growing Inclusive Markets, a new web portal from UNDP packed with case studies, heat maps and strategies on how to use markets to help the poor. Website: www.growinginclusivemarkets.org
4) Starting a SME (small, medium enterprise): This website is packed with advice and tips for starting a small business and how to grow it with limited resources. Website: http://www.smallbusiness.co.uk/
5) World Business Fair: The World Business Fair is an international trade platform for global entrepreneurs and professionals. Website: http://www.worldbusinessfair.com/
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