Positioning For Future Growth Through Integrated Supply Chains
By Greg Estep, Managing Director & CEO, Olam Spices
Olam’s Spices business has grown from a whole spices supplier to a global, vertically integrated producer of spices. We supply the world’s leading food companies in more than 70 countries, with manufacturing taking place across six countries and sourcing from 12 countries.
Our leading market position, anchored by a sizable presence in California, is the result of a highly targeted growth strategy. In 2009, we undertook transformational acquisitions to expand and deepen our reach from both a value chain and geographical perspective. In the space of four years, we acquired and integrated Key Foods Ingredients in China, tomato processing, onion and garlic dehydrates businesses from Gilroy Foods & Flavors in the USA, spices processing operations in India and Vietnam, and Dehydro Foods in Egypt.
Since then, we have integrated, scaled up, realised synergies across products, capabilities and geographies and invested heavily in dedicated R&D. Today, Olam Spices is the world’s largest dehydrated onion and garlic manufacturer, a leader in value-added grinding of black pepper from Vietnam, is among the top five largest producers of processed tomatoes and is the largest organic tomato processor.
Organics, natural and clean products here to stay
Consumption patterns of food products and food ingredients as well as Olam’s own market research with customers point to a trend of consumers being increasingly discerning in selecting what they eat. Healthy eating, food safety and social responsibility are key factors in consumer choice in developed markets in the USA and Europe, and in emerging markets such as India and China where there have been major food quality and safety scares in the past.
Global food companies are working to differentiate themselves through responsible sourcing, “clean” labelling, taste profiles, flavours and colours and actions to stimulate consumption. Natural products will increasingly replace artificial flavours and colours, and critically will lead to a reduction of salt as a seasoning in products, for example. With this as a backdrop, demand for organics, naturals, sustainable and clean-labelled products over the last decade will continue to rise.
Innovating and focusing on responsible sourcing and origin manufacturing is therefore important and relevant. To be the foremost ingredients supplier in this space, Olam’s strategy is to integrate our supply chain in selected spices and dehydrated vegetables by investing selectively in upstream plantations, specialised processing at origin and expanding our product range to include other seed spices, herbs, vegetables and blends. By integrating our value chain, we can ensure the quality and integrity of our products, from farms to our customers’ factories.
Tailored integration across key origins
As we integrate our supply chains, we cross-deploy the know-how, expertise, and leadership attributes we have established in the USA to our key origins in Vietnam, India, China, Egypt and Brazil. We approach each origin differently based on the unique opportunities and competitive advantages in each country.
For instance, in India, which produces up to half of the spices in a global market of US$12 billion, our focus is on the premium segment – originating and developing sustainable spices that meet demand in the USA and Europe for “clean” and sustainable products. There is also opportunity in the domestic India market, where changing consumer behaviours means increased demand for safe products. Our focus in India is therefore on building robust Sustainable Spices Programmes that source and market spices that are traceable and farmed in a sustainable manner with comprehensive integrated pest management and proper post harvesting practices.
In Vietnam, which is the largest pepper grower in the world, we are one of the largest grinders and exporters of pepper and other tropical spices. Our scale allows us to source the best raw pepper from all over the country, and from other origins in our network. This provides us with a distinct competitive advantage over other processors as we have broad-based and cost-effective procurement leverage, ensuring our factories run at full capacity.
We believe Vietnam will continue to be the most cost-competitive producer of pepper in the long term so our growth approach is focused on moving upstream. In 2016 we commenced development of a 325-hectare pepper plantation in Vietnam. To complement this and to mitigate our upstream risks, we are also developing a 400-hectare pepper plantation in Brazil. In combination, by 2022, we will have crops available from these origins for processing and sale to our customers all year round.
In Egypt, apart from accessing the growth in exports into Europe, Africa, Americas and Japan, we are leveraging our proprietary onion seed developed in the USA to partner with farmers and reproduce fully traceable white onions using half the amount of water and energy used in traditional farming. This reduces our carbon footprint and delivers a significant competitive edge.
In China, we are the largest dehydrated garlic player with a growing market share in a competitive space where there are more than 300 industry participants. We stand out in many respects – in particular, we have achieved the highest level of productivity, two times the industry average, both from the deployment of automation as well as human capital productivity. Our focus on food safety, traceability, allergen control and customised specifications has earned us a reputation for producing high quality output. Our differentiated market positioning puts us in good stead in the current context where quality issues around allergens are leading buyers to want to work with operators like us.
Olam Spices prospects for the future are very attractive. With our leadership positions globally and within each major origin, as well as our differentiated approach to farming, origination and processing, we have the right ingredients to capitalise on the current market opportunity. We are confident that our investments in Asia, Middle East and South America will turn out to be growth catalysts for Olam Spices.
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