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Growing A Southern Brand To Global Success: The Olam Story

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.”

By David South, Development Challenges, South-South Solutions

Published: October 2009

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP’s South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South’s innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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African Farming Wisdom Now Scientifically Proven

By David South, Development Challenges, South-South Solutions

SOUTH-SOUTH CASE STUDY

Increasing the agricultural productivity of Africa is critical for the continent’s future development, and the world’s. Two-thirds of Africans derive their main income from agriculture, but the continent has the largest quantity of unproductive – or unused – potential agricultural land in the world.

This means the continent has the potential to become the world’s new breadbasket – but there is a problem. A report by the International Centre for Soil Fertility and Agriculture (IFDC) found the continent had a “soil health crisis” and that three-quarters of its farmlands were severely degraded (New Scientist). The causes of this crisis include overuse of the same plot of land due to population growth, which prevents farmers moving around, and high fertilizer costs, leading to African farmers using just 10 per cent of the world average on their farms.

But a new study shows that an existing practice by some African farmers could help solve this dilemma if it was adopted by the majority.

At the University of Sydney in Australia, a study has confirmed the effectiveness of ants and termites as a tool to increase farm yields in dry areas. It found ants and termites in drier climates of the global South improved soil conditions just as earthworms do in northern, wetter and colder climates. Both termites and ants, by burrowing their way through the soil, carve out tunnels that make it easier for plants to shoot their roots outwards in search of water.

In field experiments, ants and termites helped raise wheat yields by 36 per cent by increasing water and nitrogen absorption. This is critical for agriculture in arid climates.

While termites wreak havoc on crops such as maize (corn) and sugarcane, they are very useful for other African crops.

The Australian research found termites infuse nitrogen into the soil. Nitrogen is usually dumped on fields with expensive fertilizers that are subject to market fluctuations. The termites have nitrogen-heavy bacteria in their stomachs, which they excrete into the soil through their faeces or saliva.

The research also found termites helped with reducing water wastage.

This research reinforces what has long been known to some African farmers. Long-held farmer tradition in parts of West Africa uses termites to enhance soil by placing wood on the earth to attract them. By burying manure in holes near newly planted grains, farmers in Burkina Faso attract termites to the soil.

In Malawi, bananas are planted near termite mounds to encourage the creatures. In southern Zambia, soil from termite nests is harvested and used as top soil on agricultural land.

If more farmers adopted this practice, Africa could simultaneously address its chronic malnutrition and hunger problem and contribute to the world’s food needs. As the McKinsey Global Institute (MGI) found, “With 60 percent of the world’s uncultivated arable land and low crop yields, Africa is ripe for a ‘green revolution’ like those that transformed agriculture in Asia and Brazil.”

McKinsey estimated that Africa’s agricultural output could increase from US $280 billion a year now to US $500 billion by 2020 and as much as US $880 billion by 2030.

The UN recently declared that the world’s population has reached 7 billion. That is many mouths to feed and presents Africa with a dilemma and an opportunity.

And as urban growth accelerates across the global South – the world is now a majority urban place – there is a huge profit to be made from providing food to growing urban populations.

The time to act is now, as there have been reports from African farmers that they are seeing harvests declining by 15 to 25 per cent. And the picture gets gloomier: many farmers think their harvests will drop by half over the next five years.

Given that there are 2,600 different species of termites now recognised in the world (UNEP) and with over 660 species, found in Africa, it is by far the richest continent in termite diversity (Eggleton 2000) and they are proof that an affordable solution is close at hand to the current crisis.

Resources

1) World Vegetable Center: The World Vegetable Center is the world’s leading international non-profit research and development institute committed to alleviating poverty and malnutrition in developing countries through vegetable research and development. Website:http://www.avrdc.org

2) Songhai Centre: a Benin-based NGO that is a training, production, research, and development centre in sustainable agriculture. Website:http://www.songhai.org/english

3) Marketing African Leafy Vegetables: Challenges and Opportunities in the Kenyan Context by Kennedy M. Shiundu and Ruth. K. Oniang. Website:http://www.ajfand.net/Issue15/PDFs/8%20Shiundu-IPGR2_8.pdf

4) 2050: Africa’s Food Challenge: Prospects good, resources abundant, policy must improve: A discussion paper from the Food and Agricultural Organization (FAO). Website:http://www.fao.org/wsfs/forum2050/wsfs-background-documents/issues-briefs/en

5) African Alliance for Capital Expansion: A management consultancy focused on private sector development and agribusiness in West Africa. Website:http://www.africanace.com/v3

6) Ants and termites increase crop yield in a dry climate by Theodore A. Evans, Tracy Z. Dawes, Philip R. Ward and Nathan Lo, Nature Communications 2, Article number: 262

7) Integrating Ethno-Ecological and Scientific Knowledge of Termites for Sustainable Termite Management and Human Welfare in Africa by Gudeta W. Sileshi et al, Ecology and Society, Volume 14, Number 1. Website:http://www.ecologyandsociety.org/vol14/iss1/art48

8) State of the World 2011: Innovations that Nourish the Planet. Website: http://www.worldwatch.org/sow11

9) Soil health crisis threatens Africa’s food supply. Website:http://www.newscientist.com/article/dn8929-soilhealth-crisis-threatens-africas-food-supply.html

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