Olam will refocus portfolio to follow shifts in consumer preferences
- Olam International, a global food and agribusiness company, announced a six-year strategic plan to divest $1.6 billion from sugar, rubber, wood products and fertilizer and invest $3.5 billion in business areas with "high growth potential," including nuts, grains, animal feed, cocoa and coffee.
- The company said this shift will capitalize on consumer demand and technological advancements toward healthier foods, sustainable sourcing, e-commerce and the rise of "purpose" brands. Key business areas for investment were identified as edible nuts, grains and animal feed, cocoa, coffee, cotton, spices, edible oils, dairy, rice and packaged foods.
- "Crucially, our strategy will allow us to play a leading role in re-imagining global food and agri-supply chains for the better — sourcing raw materials within the earth’s capacity to regenerate and transforming those materials to deliver food, feed and fiber for a growing population," Sunny Verghese, co-founder and group CEO, said in a release.
This is an ambitious scenario, even for a huge global agribusiness such as Olam. Given Olam's size and global reach — the company has nearly 70,000 employees in 70 countries and almost 23,000 customers worldwide. It could accomplish these changes, but this is a big task that will take time.
Previous strategy reports have set out expansive goals to respond to shifting financial and social conditions, but none have included as many specific prospective changes as this six-year plan. Olam's six-year timeframe may provide sufficient room to accommodate divestment and reinvestment, particularly if sufficient pre-planning has been done.
According to this new strategic plan, Olam wants to be the most differentiated and valuable global food and agribusiness by 2040. After what it called "a detailed review of our business," the company decided to streamline its portfolio by divesting businesses not aligned to its new strategic priorities.
The divestment process may have already begun. This past week, the Straits Times reported that the company sold its 50% stake in Indonesian sugar-refining subsidiary Dharmapala Usaha Sukses to Mitr Phol Sugar Corp. of Thailand for $100 million in in December 2017. The Singapore newspaper also noted that sugar prices for the nine months ending Sept. 30 resulted in lower contributions from Olam's sugar business.
In announcing its strategic plan, Olam didn't identify potential buyers for its remaining sugar business or other assets targeted for divestment, but it noted financial advisors were being engaged to explore options. This exercise was expected to begin in mid-March and be completed by the fourth quarter of this year, the company said.
Olam's strategy for investment was more specific, with general goals provided for each sector. Under the edible nuts category, Olam said it plans to expand its upstream almond and pistachio ingredients and co-manufacturing business. For cocoa, the goal is to grow its integrated ingredient business worldwide. As for coffee, Olam said it will maintain leadership in its green coffee business and expand the soluble one. These moves all follow popular trends in the industry for more sustainable ingredients.
Olam will also emphasize adjacencies when it comes to grain, rice and edible oils. It will increase destination processing with flour milling investments in West Africa. Also, the company wants to expand Asian sourcing and African distribution of branded packaged rice. The company said it will increase yield and cost efficiency in its upstream palm oil business, and also invest in midstream refining.
If the company is able to free up $1.6 billion from selling off its interests in sugar, rubber, wood products and fertilizer and reinvest $3.5 billion in proven business areas, it may be able to accomplish its 2040 goal, which could better prepare it for the future. Olam brings already diverse global enterprises to the table when it comes to refocusing — and it has a network of 4.7 million farmers, plus some farms of its own, to help scale up investment in new areas along existing supply chains.