FROM NIGERIA TO WORLD LEADING FOOD & AGRO GIANT IN 30 YEARS
OLAM INTERNATIONAL CEO SUNNY VERGHESE IS PROUD OF THE GREAT PROGRESS THAT HIS COMPANY HAS MADE SINCE IT STARTED OUT IN NIGERIA IN 1989. WITH OPERATIONS ACROSS THE FIVE CONTINENTS ACROSS THE FOOD & AGRO INDUSTRY, HE HAS ALSO TAKEN THE ROLE OF CHAMPIONING FOR SUSTAINABLE BUSINESS PRACTICES ACROSS THE WORLD.
The first time I got to meet Sunny Verghese, the Co-Founder and Group CEO Olam International, I was surprised by his huge grasp of figures, and the ease with which he has a strong awareness of his company, despite its vastness and scale. His grasp of the Sustainable Development Goals figures and targets is hard to match – be it on poverty, agriculture, climate change or urbanisation. A staunch supporter and advocate for sustainable business practices, he says that he got his ‘road-to-Damascus’ moment when he was 45 years old, when his children asked him about what his company was doing to bequeath them a better future. He has since become the Chair of the World Business Council for Sustainable Development, which brings together almost 200 of the world’s forward-thinking companies that work together to accelerate the transition to a sustainable world. It is a global, CEO-led organization whose mission is to accelerate the transition to a sustainable world by making more sustainable business more successful, hence building a world where 9 billion people are living well and within the boundaries of the planet, by 2050.
With an annual revenue of more than US$30,749 million in 2018, Olam International began its operations in Nigeria as a commodity trader, with a focus on the cashew nut, and has grown its footprint to be one of the leading agribusiness players with operations across the 6 continents. It is one example of the few businesses that started out in Africa and which have become international conglomerates and is still rooted in the Continent.
Olam has a goal of re-imagining global agriculture and food systems to provide food, feed and fibre that’s better for the 4.8 million farmers in its extended supply chain, their communities and the planet. Olam International works with cotton, cocoa, coffee and grain farmers in Africa, almonds growers in Australia, plus over 200 processing plants across the World.
With operations in 17 African countries, from Ethiopia to South Africa, Ghana to Tanzania and Uganda to Nigeria, Olam remains anchored in Africa, with agriculture, and increasingly, production facilities dotting the Continent and across the world, turning such commodities such as cocoa, tomato, spices, nuts, milk, coffee and fruits and vegetables to high value commodities. The company is currently in the midst of acquiring Dangote Flour Mills in Nigeria for US$331 million, adding to its already strong market leadership in the milling industry in Ghana, Nigeria, Senegal and Cameroon. From Africa, the company operates the largest dairy farm in Russia, the largest almond farms in California, USA.
Olam celebrates 30 years of operations at the end of 2019, while Sunny will be turning 60 years. For a company that started off in Africa, Olam International is a true inspiration to young businesses across Africa.
How was the start and how important was it to start in Africa and particularly in Nigeria?
In the mid-80s and late 1980s many of the African countries had the commodity trade controlled by government monopolies, the various commodity boards. Overtime, these boards had become very large and very bureaucratic with a lot of corruption and leakages and progressively the farmer was getting less and less fraction of the value. When these countries had economic difficulties in the mid to late 80s, that was occasioned by the oil prices collapse, they went to the IMF and World Bank for support. The IMF and World Bank put these countries in a structural adjustment program and the center piece of that was that they would deregulate and liberalize their commodity boards. When this happened, there was a big vacuum created by the exit of these commodity boards. When the boards were there, only government monopolies could go out there and procure these materials at the farm gate, so they had a license for a buying agent who they appointed. We saw an opportunity to fill the gap created by the exit of the boards by setting up a reliable supply chain procurement and origination infrastructure. We started with cashew nut because I was from India and a lot of the world’s cashew nuts were processed in India at that time; 30 years ago, it was the biggest processing center. I thought there was no sense in transporting these nuts all the way to India from Nigeria to process because the kernel was 25% the weight of the nut and 75% the shell. We were transporting all these and processing it in India while consumption was happening in Europe and all these other developed markets. So, at this point there was every justification to process it in Nigeria. Unfortunately, being a greenhorn then, I discovered that the value generated in Nigeria was relatively lower than what was generated in India; I had relied on a faulty analysis of my own. From my own enthusiasm I had taken the Nigeria facility on rent for two years. I realized I had made a huge mistake and after 1 year, I shut down the facility and went to New York to sell off what we had produced. A product produced in Africa, Nigeria to be sold into USA stood no chance, it dawned on me! The American buyers had been buying from India which had been the major exporter for ages; because they had verified the facilities there in terms of hygiene, processing capability, etc – but from Nigeria, they wouldn’t buy from us! I couldn’t sell anything that we had processed and so for 2-3 years I gave it away as free gifts during festivals. After the missteps and getting over them, backed by the gap we had filled that had been left by the boards, we started exporting to India. We discovered that 20 countries around the world produced cashew nuts but only three countries accounted for 90% of the processing – India, Vietnam and Brazil. We consequently went to India, Vietnam and Brazil and set up processing facilities there but continued to source and originate in Africa then ship to these three places where there was high efficiency in processing.
Ten years ago, we went back to Africa to process because we had learnt how processing happened in the other places. Today we have the single largest cashew nut processing facility in the world in Côte d’Ivoire at Buake and two other places. We also have cashew nuts processing presence in Nigeria and Mozambique.
How did you move into the other African countries?
Within the first 3 years in Nigeria, we had developed about 50% market share in sourcing Nigerian cashew nuts, but if we described ourselves as a Nigerian cashew company there was little headroom to grow. Relying on the capacities we had developed in sourcing and exporting Nigerian cashews, we started looking at the other neighboring countries. We first went into Benin then Côte d’Ivoire, Ghana and Tanzania. We looked at all cashew nut producing countries. We had the customer base and had developed the capacity and now we understood processing, we put all those pieces together and grew. Today we are the only cashew nut company in the world that is present in the 20 producing countries and in all key processing centers; we are now a very significant player in that business and we have a substantive market compared to our next competitor; 3 to 3.5 times bigger than the immediate competitor.
What other commodities did you get into?
After cashew we were looking at which other commodity the governments were going to deregulate; it was cocoa. It was done in Nigeria followed by Côte d’Ivoire, which produces 41% of the worlds cocoa and then Ghana was next – where it is not fully deregulated, though they allow Local Buying Companies (LBCs), although the exports are still with the government. So, we are a buyer from the government, but we can originate the beans by engaging our LBCs. We set up processing facilities in Côte d’Ivoire and Nigeria where we could source, originate and process in the countries themselves the cocoa into liquor, butter, cake and powder for sale.
Next on the line for deregulation was coffee and the same process ensued. We are not yet in Kenya because even today all commodities are controlled by boards e.g. sugar, tea, coffee etc. If it is regulated then the way of doing business is very different; in a regulated market, it is not about your business model or strategy but it is about the relationships with the government. We are in Uganda because coffee is fully liberalized there. In Tanzania the government is deregulating the coffee board and other boards, so we want to participate. We are now in 24 countries in Africa, mostly in sub-Saharan Africa, with a few countries in North Africa – Egypt and Algeria.
Beyond the commodities, Olam is also in food processing and grain milling.
Yes. We first started with commodities in origination and trading then we integrated the value chain. In making our decisions, we usually look at the distribution of the profit in the different streams, e.g. in the cashew nut business, we looked at how much profit pool was upstream from the grower and the planter; how much was in the supply chain and how much was in the processing and manufacturing and in the downstream side in distribution. Because cashew nut is grown by many small holder farmers in their backyards in the 20 countries, it is not really commercial. The farmer has very little negotiating power, there is little profit pool upstream for the grower. While for something like almonds, which can only be grown in 3-4 countries in the world, 80% of it is grown in California and is very capital intensive with a long gestation period of 6-7 years, nearly 70% of the profit is with the grower. Today we are the largest almonds orchards owners in California and Australia, we have very large almonds orchards. So, we looked at the profit pool distribution and we are heavy upstream in terms of plantations in almonds. We are in almonds, cashew, walnut, coffee, cocoa, rubber, palm, black pepper plantations; all these are perennial tree crops. We are also in raw crop farming with rice in Nigeria, peanuts in Argentina, corn, soybeans, beet, flax seed and many other crops in Russia like tomatoes, onions, garlic. We have a big upstream piece including dairy farming. We also have a manufacturing bit with 206 units and facilities around the world doing wheat milling, pasta manufacturing, sugar milling, sugar refining, cocoa processing, coffee processing, peanut paste manufacturing, dehydration of onions and garlic etc. – a sort of integration in the value chain.
Let’s talk about milling in West Africa. You went in and bought an existing plant and have really grown in the region. Recently you indicated your interest in buying Dangote Flour Mills.
Yes, we are a large wheat originator and wheat supply chain managers across the World – we originate wheat in Brazil, Argentina and other parts of the world like America, in the Black Sea parts in Russia, Ukraine, etc. One piece of our strategy is origination and trading; the other is milling and processing. Wheat milling in Africa is a growth opportunity and we decided to go into it first in Nigeria. It was new to us; we chose to get into it through an acquisition. We acquired Crown Flour Mills (CFM) and we developed a very strong set of millers and technical engineering team. Before buying the miller, they had a capacity utilization of 30-38%. The average utilization for all wheat millers is about 38%. By having a very good milling and technical engineering talent, we have been able to increase the utilization rates to about 87-88%. Then, the extraction efficiencies in the incumbent mills was also very poor with 75% as the average; we went up to 79.5% extraction efficiency. As a result of building this advantage, we leveraged that on top of our sourcing and logistics advantage. Everyone in Nigeria was using durum hard American wheat because the Nigerian consumer, though relatively poor, wanted high quality wheat flour. Because we had sourcing and origination operations in Russia, we were able to source the right quality of wheat in Russia as we controlled our origination operations. The wheat had similar properties to the USA durum wheat but was not that expensive, giving us a cost advantage. Wheat prices are very volatile, and you need very good risk management on how to hedge your exposures and very good currency management, because in Nigeria we are importing all the wheat and the currency is volatile. Because we have a large export operation, we have created a synthetic hedge between our export and import arms of the operations. With all these advantages and developing good distribution – we distribute a lot of other staples – we had a total cost advantage. We also moved our product range from B2B to B2C. We milled wheat into flours – noodle flour, biscuit flour, bread flour, a lot of pasta flour – then we got into pasta and biscuit manufacturing. Therefore, we moved most of the business from B2B to B2C business, which is a better margin business and that’s how we grew. Then we decided to go into Ghana, where it was very difficult to acquire; we usually prefer to acquire an existing business because that preserves industry profitability to the market. If you add capacity it destroys industry profitability to the market before growth catches up with the new capacity. There was no target available for us to acquire in the country and so we decided to put up a greenfield facility in Ghana, Senegal and Cameroon. We are now in these four markets and we continue to look to expand this footprint. These plants are doing both wheat milling and pasta production and in some cases noodles.
After CFM we acquired BUA Group’s milling business. After the CFM acquisition and having changed utilization efficiencies and other costs, we trebled the capacity in the greenfield plants. We decided to acquire BUA and consolidate and integrate it into CFM and now we are in the process of acquiring Dangote Flour Mills.
What is the big plus for you with these new acquisitions?
As I said, our technical, milling and logistics advantage, including risk management advantage and all these competencies put us in a position to acquire Dangote Flour Mills that is operating at 40% capacity. In 2-3 years, we will take it to 70-80% capacity. Its extraction efficiency is lower than us and we look to improve that as well. We will be able to get operating leverage. By the Dangote acquisition we shall double our capacity in Nigeria.
How do you rate yourself with the rest of the industry in terms of milling capacity per day in West Africa?
I think after the Dangote acquisition and integration, we should be amongst the top and probably the largest miller across Africa.
Beyond West Africa, have you ever thought of venturing into milling in other parts of Africa?
Overtime, we will progressively find other growth opportunities because it is a successful business for us, and we have a template and model that seems to be working well. We will continue to invest in the existing countries and expand capacities and look at opportunities elsewhere.
Olam is re-imagining agriculture and food systems. How are you going about it?
We have an important role and responsibility as a company to try and catalyze the food and agricultural systems growth to become more sustainable. The current global state of food and agricultural production leaves a lot to be desired in terms of sustainability. So, we are asking how as a company we can help to produce food, feed and fiber to the world populations with far much less resources and less greenhouse gas emissions, and reduced water use intensity. We have now mapped what our carbon, water and energy intensity. We have given 5, 10, 15-year targets on how we will improve for every tonne of product supplied. We measure and monitor every year then report against these targets and see whether we are doing better or worse than planned. By having concrete programs and public targets backed by measurements and reporting, alongside third-party verification, keeps us honest and allows us to try and change. We are in control of our direct operations, but we also have to take responsibility for our supply chains because we deal with 4.8 million farmers across the globe. We want to make sure that what happens in their farms is also going to become sustainable. What we control directly is called scope 1, scope 2 are our supplier and scope 3 are third parties like power suppliers and transport providers.
How is it to lead in the sustainability quest and push for Olam?
We believe that nothing much will be achieved if only one company changes. Even if we don’t have environmental intelligence, everyone can improve on their sensibility intelligence towards the environment by trying to understand how all these things are connected – how the land issues, climate issues impact agriculture. All companies have to change individually and then our sectors have to change by all of us coming together. We are one of the architects of Global Agribusiness Alliance (GAA), which tries to bring all the agribusiness sector players together. We need to collaborate with NGOs, civil societies, governments and other stakeholders; meaning that if you have to change the world, you have to change it at those 5-6 levels. Changing at only one level will not help us transition the world to a more sustainable future.
With your global presence, what has been some of the experiences as you expanded across the World?
The rule of our portfolio selection is that we make sure that we are in as many producing countries for the commodities we trade in. So, if cashew is in 20 countries we want to be in as many of those countries as possible and that is how we’ve built our geographical footprint. Because we also do farm gate sourcing, we need to have a presence at the points of origin. But for all these, you need a business model that is backed by a global talent pool; we have something called the Global Signing Talent Group. This is a cadre of 150 managers in several countries worldwide that we select and hire on a centralized basis, develop their career paths and deploy them on a decentralized basis. These people understand our culture, our business model and systems. So, when we want to start an operation in a new country, a critical mass of these guys who carry our DNA will be deployed. They will go there and globalize the operation into our values, culture and systems.
How could we get smaller businesses in Africa to adopt sustainable practices?
We have to start by drawing a link between sustainability and doing well. If companies fee l that sustainability is a cost, then they are not going to be encouraged to go down that journey. If they believe that sustainability is the right thing to do and that by being sustainable, they can make money and do better, they will take their time to adopt sustainable practices. If you just push it as just the right thing to do; most people won’t accept it, because they are in business to make money. So, we have to show the relationship between the right thing and the good thing with making money alongside these initiatives. We should draw clear direct links between long term sustainable value creation and doing right and doing good.
You brought in Temasek and later Mitsubishi Corporation as shareholders in Olam a few years back. How important is it for small businesses to bring in new investors?
It depends on what your ambition is; if you want to grow into a global business, into a large company, do you want to take advantage of the opportunities available? Then you have to bring in outside capital. If you want to keep it small as a family business and you’re satisfied, there is no need for outside capital. On Olam’s case, we believe there are many opportunities for us to upscale and grow our business and we need additional capital to do that. Therefore, we brought these other entities into the fold. But as for the founders and shareholders, I am the only shareholder in the 30 years that has not sold a single share from inception – as they say, ‘I eat my cooking’. All my net worth is in this business; I have not diversified. However, I have been diluted by these capital inflows.
You are a firm believer in sustainable business and your grasp of SDGs and other figures is very deep. Why?
If you phrase the sustainability debate as an ideology or religion, then you will not get people to become sustainable. My strategy is always to frame this on findings-based evidence and substantiating them by data, to convince people that this is real and that they need to do something about it. Many people see the many elements of sustainability as very different focus areas and look at them on a side role basis. So, some people and experts will look at water as an issue, others at energy as an issue and others at food and agriculture as an issue. But for me, energy security, water security, food security, sustainable growth and inclusive growth are all interconnected with interlocked causes. In my experience I found very few people bringing it all together and tracing how these are linked with interrelated causes. Data, evidence and signs bring in that integrated picture and then building a thread around it. That’s why I don’t use PowerPoint, I don’t use slides because the moment you start using them, you hide behind those bullet points. When you hide behind those bullet points, you don’t come across as being authentic and dramatically you reduce your ability to move people through your words and ideas. My burden is how do I move people into action and in order to move them through my words and ideas, I need to make sure that there is passion in the emotion but with hard evidence. With a compelling story and narrative I have more of a chance of inspiring them or moving them to action.
You’re the chair of the World Business Council for Sustainable Development. Is there more interest from companies to join?
We see more companies wanting to join, though most members are large companies. We would like more middle-sized, medium-sized and small companies to join us and I think over time that will happen. The heart and soul of WBCSD originated in Europe and Europe has a more developed sensibility on sustainability, but we want much of the rest of the world also to catch up. We’re focusing on more people from Asia to become members. Sustainability has been a very Western idea, so we want more of the developing world and other continents to become members. I am trying to see that we get a more broad-based representation of companies, industries, economies and countries