Olam International: Putting agribusiness theory into very profitable practice

While there is a lot of talk about Nigeria’s huge agribusiness potential to reduce its heavy importation of food, one company has been vigorously putting theory into very profitable practice. African Business Editor Anver Versi is in conversation with Venkatramani Srivathsan, Managing Director, Africa & Middle East, Olam International Ltd. 

Can you outline Olam’s contribution to Nigerian agriculture?
Olam’s roots are in Nigeria. The company first sourced cashews at the farm gate in 1989. This was the beginning of a long-term commitment to Nigerian agriculture, with the result that today Olam is one of the most diversified agri-commodity supply chain players and the largest non-oil export revenue generator for Nigeria.

Olam’s key contributions to Nigerian agriculture include: building thriving communities through improving livelihoods; and helping smallholder farmers improve their yields. Therefore their income is integral to our business model as demand from customers grows.

We therefore provide training in good agricultural practices and in business skills and literacy to farmers. To enable farmers to invest in their farms we provide pre-finance at 0% and supply inputs such as fertilisers and seedlings.

Although we have many such initiatives, our flagship is the Olam Livelihood Charter, which focuses on creating not just economic prosperity, but on improving social welfare and safeguarding the environment. In 2013, three programmes in Nigeria – spanning cocoa, cashew and sesame supply chains – achieved flagship OLC status.

Significant results from the three programmes in Nigeria include the Rainforest Alliance Cocoa Certification Programme; improving community earnings through direct sourcing and toll processing in Kwara and Oyo states; and the Olam Sustainable Villages Project (OLC).

The number of farmers involved in OLC has increased dramatically from 567 in 2012 to 19,258 in 2013; 15% of OLC farmers are now women; 8911 farms are GPS mapped; 16,690 famers are trained in good agricultural practices, including 3,306 women and 4,355 farmers work on Rainforest Alliance-certified cocoa farms.

Continuing investment:
Olam is committed to long-term development in the country. This is demonstrated by the recent five-year, $120m loan agreement between IFC and Olam to finance three food-processing facilities in Nigeria. This includes the expansion of processing units such as Crown Flour Mill in Lagos and a new sesame hulling facility in Lagos. The investment underlines Olam’s continued focus on enabling economic prosperity and social and environmental sustainability.

Atul Mehta, the IFC Director for Global Manufacturing, Agribusiness and Services, says that Olam is a critical link between small farmers, businesses and global markets. “It is a supply chain manager and partner for leading multinational corporations and recognised brands – all of whom are looking to improve traceability of their sourcing and address sustainability issues in their supply chains.”

A deep local knowledge and our global reach make Olam a strategic partner for the Nigerian market, unlocking mutual value and developing supply networks throughout the region.

Nigeria is one of the biggest importers of food in Africa. How can Olam help reduce this dependency?
At a time when demand for rice is rising and Nigeria is looking to diversify its economy, Olam Nigeria is pioneering an innovative nucleus rice farm with an outgrower programme to help guarantee high productivity and good-quality crops for Olam to purchase and sell into the domestic market. This simultaneously provides a ready market for local farming communities. The 6,000ha farm is supported by a central mill, which will be fully operational by mid-2014. It will be supplemented initially by approximately 3,000 local outgrowers and gradually scaled up to include 16,000 farmers.

Many of these outgrowers will be working on the farm (or have family members working on the Olam farm) and are trained by Olam in good agricultural practices, which they can then take back to their own fields. Eventually, the out-growers will provide 30-40% of the operation’s rice. We are confident that this model can be replicated by other organisations to support domestic drives for greater self-sufficiency and goes to show that large-scale commercial farming can work hand in hand with smallholders.

The potential benefits of Olam’s two-phased rice nucleus initiative were featured in the Rockefeller Foundation’s centennial series entitled ‘Realising the Potential of African Agriculture: Catalytic Innovations for Growth’.

How important is agro-processing for Olam and Nigeria?
Agro-processing is a vital growth driver for Olam and Nigeria. We have already made significant investments in units for cashew, rice, cocoa, and sesame among others.

Processing crops in-country has a number of advantages – not only does it reduce transport costs and emissions but it gives farmers confidence that there is a ready buyer for their harvest. A smallholder knows that Olam is going to buy his crop because we need to maximise our processing unit. And they know we will commit to a fair price, plus they see the unit providing employment in the community.

Olam also has processing units for imports such as wheat, which again brings mutual value. If you take Crown Flour Mills in Lagos, we are able to produce different types of flour for low cost staple, such as noodles, enjoyed by Nigerian consumers. For Nigeria, it means investment in the country and employment as well as increased volumes of quality wheat flour for the country’s bakers.

What are the major constraints to the growth of the agriculture sector in Nigeria?
In terms of challenges on the ground, poor infrastructure is the most significant issue as it creates bottlenecks and inefficiencies. This issue is common to many of the emerging markets where Olam operates, and the company is well practised in meeting this challenge through the development of roads, warehouses and alternative transport networks. For example, in the area surrounding our rice nucleus in Nasarawa state, we have constructed over 40km of roads to facilitate access and egress at the farm. Lack of skilled workforce is the second big challenge, creating higher costs of managing the business and retaining expats.

To combat this, Olam is building competitive advantage by developing local talent and building capacity throughout operations. Initiatives such as the West Africa Trainee programme help to bridge the skills gap in management, while our outgrower models for crops, such as sesame and rice improve agricultural capacity and basic business skills among producers.

A significant factor in the development of the Nigerian agricultural sector has been the development of consistent agri policies. This is often the first indicator that investors seek when assessing sustained investment and growth opportunities.

One clear path to achieving food security for Nigeria is through the support and development of SMEs and smallholders. However, access to finance is lacking for these small players and more needs to be done for small agricultural and food industry enterprises to get off the ground through access to credit.

In addition, we can look at models that bring together the financial clout of large-scale commercial enterprises with smallholder farmers supporting with training, pre-finance and agricultural inputs. The nucleus/out-grower model of our rice farm exemplifies this.

Which agric sectors have the most promise for growth and investment in Nigeria?
Nigeria has so much potential across all sectors – the key, of course, is being able to scale up the many initiatives taking place and that takes drive, not just from the government, but from the private sector, both local and international, and of course banks and other funders.

It also means investing in other areas, such as technical expertise. AGRA, for example, has highlighted that in Asia and Latin America. They ensured they had the in-country knowledge to buffer themselves against agri challenges.

Africa has just 70 agricultural researchers for every million people while Latin America has 550 and North America has 2,640. If Nigeria can address its agri challenges holistically then it will attract the continued investment required to reduce its dependency on fossil fuel exports and mass volume imports.