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Investor Relations

Developing and scaling SECO

By Nitin Mittal, Vice President, SECO

When Olam Cotton created SECO through the acquisition of Ouangolo gin in Côte d’Ivoire in 2008, it had an annual ginning capacity of 35,000 MT of seed cotton with direct access to the 5,000 hectares cultivated by 2,500 farmers in that region. Fast-forward to today, SECO is engaging 16,500 farmers to plant 65,000 hectares of cotton. It is also commissioning a new gin in Ferke of 35,000 MT capacity for the 2017/18 crop season, effectively doubling our current capacity.

SECO’s target is to have 100,000 hectares under cotton cultivation by 2020 in the zone that has been assigned exclusively to SECO. This new zoning structure provides a great opportunity for SECO to further engage with farmers and the community at large, scaling current engagement models as it makes long term investments.

Côte d’Ivoire is the third largest cotton exporting country in Africa after Burkina Faso and Mali, exporting 95% of its cotton lint production.

From a low of about 76,000 MT of cotton lint produced in 2010/11, the sector has experienced a revival since the end of the civil wars and produced 140,000 MT in the 2016/17 season.

Olam has participated in trading Ivorian cotton since 1989 by buying from ginners and exporting it to international markets. Through the creation of SECO and implementation of our integrated ginning (IG) model, Olam Cotton is poised to deliver a next phase of growth through direct sourcing from the farm gate, organising the supply chain activities efficiently and accessing the margin available in an integrated cotton supply chain.

SECO is also partnering farmers and is registered under the Better Cotton Initiative (BCI) where end-to-end data systems ensure traceability of cotton back to the village where it was produced. This directly supports our target of delivering more sustainable cotton to the world.

The IG model in detail

In IG, Olam provides agri-inputs and farm equipment on credit to farmers. Basic loan packages comprise fertilisers, herbicides and insecticides, while seeds are provided free. These are then repaid through crop sales post the cotton harvest.

Farmers are trained in good agronomic practices through classroom courses and model farms. Continuous crop monitoring and timely agronomic advice have been very effective in improving yields. Financing is also provided for the purchase of agricultural implements, tractors and cattle.

SECO has facilitated the formation of village-level farmer cooperatives so that they can better manage as a group and can coordinate access to micro-finance and other benefits including training. Through these efforts, 120 cooperatives now have bank accounts, compared with fewer than 10 prior to SECO’s engagement.

Olam also creates pricing certainty as a committed buyer for farmers’ crops, agreeing to a pre-determined price at the beginning of each season. Prices are objectively set by the advisory and regulatory body for the cotton and cashew sector in Côte d’Ivoire (CCA) based on inputs from Interprofessional Cotton Industry Association (known as Intercoton), comprising the cotton company association (APROCOT) and national farmers’ association, and then validated by the government. Together these steps create a fair and transparent process.

Challenges in the IG model

While the IG model is a supply chain operation and much has been achieved, it is path dependent and has a long gestation period. Results come from confidence and capacity building which takes time and requires physical presence in the field. Scaling such a model where we already operate and embedding it in new origins where we intend to grow is a truly long term commitment.

The business can be scaled horizontally by enrolling more farmers while motivating current ones to devote a larger share of their land holding to cotton. Scaling vertically means increasing farm yield with training and good quality agricultural inputs. Both require continuous engagement with small farmers and community development services over extended periods to gain farmer confidence and cement their commitment to cotton.

The IG model is a highly management intensive operation as a large field-staff team is responsible for driving day to day activities. SECO has 127 field extension staff in 1,200 villages across 65,000 square kilometres in north-central Côte d’Ivoire. Each extension worker manages four or five cooperatives on average. SECO’s team also includes a 28-person agricultural research unit comprising agronomists, cattle programme staff and model farm in-charges; a five-person social projects unit; a 12-person logistics team; and 35 people in finance, IT, administration and HR.

The lack of physical and communication infrastructure in rural areas and the dependence on rain increase the execution challenges in this model. SECO has a system in place to accurately estimate expected farmer production which includes 100% mapping of each farm through GPS to ensure accurate hectarage estimation. Within this, 15% of total farms are identified to estimate the yields in each section. Pre-harvest data is collected to estimate farmer output and we track supply against the estimated crop. Our operations and logistics teams then work to ensure timely evacuation of crops to prevent side-selling.  The cooperative structure also helps to ensure that loans are repaid.

SECO has successfully overcome challenges and delivered a replicable and scalable business model which is a source of differentiation for Olam Cotton. Through our initiatives, we have been able to build a symbiotic relationship with farmers and their cooperatives.

The results have been encouraging. Farm yields in lint terms have increased from 250 kg to 450 kg per hectare, about 20% better than the sector average.

Mutual benefit

Importantly, SECO’s growth has gone hand-in-hand with larger benefits for farmers through improved livelihoods as part of the Olam Livelihood Charter. In this sense the “integrated” in IG goes far beyond commercial considerations as it represents a key element of Olam’s commitment to Growing Responsibly.

By combining our production-focused initiatives with wider community engagement and development, all parties in and around the supply chain benefit in a sustained way.