Vietnam: Leading The Pack Through Value Chain Integration
By Nitin Bansal, Vice President, Olam Spices Vietnam
We started our pepper operations in Vietnam in 2001 as a one-step adjacency to our coffee operations as pepper and coffee are grown in similar areas. Initially, Olam was primarily an aggregator of raw pepper from Vietnam exporting to processors and grinders overseas, who would clean, sterilise and grind it. Fifteen years on, Olam has successfully migrated from a raw material aggregator to an integrated processor supplying sterilised ground pepper and tropical spices to buyers globally who use our ingredients directly in their food recipes, seasonings mixes or spice packs. Today we are a leading processor and exporter of pepper and tropical spices out of Vietnam.
Traditionally pepper grinding has been dominated in destination markets by buyers either having captive in-house grinding for pepper or sourcing from grinders closer to home who provide consistent quality and product integrity. This model had been a characteristic of the pepper supply chain for centuries.
However, we have witnessed a huge growth in pepper grind exports from origins over the past several years. Many buyers have become less sensitive to supplier proximity and are increasingly seeking spices that are ground in the origins. They see a greater economic advantage in setting up their ground pepper supply chain directly from origins.
Origin grinding has a significant intrinsic advantage over destination grinding due to market structure and cost. While the USA and EU are the largest pepper export markets, these markets have different preferences on particle size – the USA market prefers the coarser grain whereas the EU prefers finer particles. Both are willing to pay the best price for the grade.
As the grinding process generates both coarser and finer particles, an origin grinder is able to secure premiums by placing both course and fine grades at best prices in both markets, achieving higher realisation compared to a destination grinder who has to sell co-products at a hefty discount due to the lack of liquidity in the local market for those grades. In addition, lower costs of processing and access to multiple sources of raw materials enable origin grinders to tap lower production costs.
With this trend, the share of grinds in export volumes from origins has been increasing faster than that of wholes and is projected to more than double from 43,000 MT in 2015 to 90,000 MT in 2022.
From upstream pepper farming to midstream processing, Olam Spices is participating in Vietnam's comparative advantage in pepper production and the...