Global Grains platform, human capital: our competitive advantages in wheat milling
By K C Suresh, Managing Director & CEO, Olam Grains
Although Olam is a relatively new entrant to the grains space, we have chosen to participate in niche segments rather than in mainstream trade flows where the global majors are well entrenched. This niche yet scalable growth strategy is working well for us.
Today, we are the second largest exporter of wheat out of Russia. We are well-positioned there as an integrated elevation, origination and trading play with an extensive procurement footprint, port and other logistics assets in the Black Sea region, including Ukraine.
Sub-Saharan Africa is the largest consumer of wheat after North Africa and the Middle East, and is a perfect location for us to base our wheat milling operations, as Olam has been operating in the region for over 26 years.
Since we first entered this business in 2010, we have achieved a top two position in wheat milling in Nigeria and Ghana and are looking to achieve the same in Senegal soon. Early last year we commissioned our milling plant in Cameroon and are in the process of establishing ourselves in that market.
Our ability to establish a market leadership position is about more than just our long term presence in these markets. It is also about Olam’s ability to overcome significant barriers to entry in the milling sector in this region where many others have failed.
Milling in importing countries (or ‘imported milling’ as we call it) is typically oligopolistic by nature and few millers are able to establish a minimum efficient scale. Access to efficient ocean transportation is central to such scale because the cost of inbound freight reduces with larger vessel size. Access to port land to build mills and storage is another factor that is critical to establishing a strong market position locally.
Minimum efficient scale also requires significant fixed capital for building a world-class mill and further working capital to establish and manage the long supply chain lead time for sourcing and importing the wheat and then selling flour. The working capital can in practice exceed the amount of fixed capital required for the mill.
Our global Grains franchise, which has been built from scratch since 2008, has addressed and overcome these barriers to entry. Our wheat milling strategy is differentiated by the fact that we source and export wheat from major producing regions such as North and South America, Europe and Australia into importing countries in Africa and the Middle East, as well as managing all the risks across the entire supply chain. Through our global network we source wheat from different origins and generate efficient blends for producing flour.
Within that supply chain, we have also optimised our cost of carry by developing new capabilities in chartering bulk vessels. Our ability to manage larger vessels supports our growing volumes and helps reduce our overall cost of freight.
On the operational level, our strong execution on the ground has been crucial to our success. Running and building better, more efficient plants has been Olam’s key differentiator. Our mills, including our oldest mill which is 30 years’ old, are world-class and produce quality products at a lower cost compared to the rest of the industry.
When we first entered the market in 2010 with our acquisition of Nigeria’s Crown Flour Mill, we had to significantly overhaul processes and systems to improve downtime, capacity and quality of output. Subsequently, our strong milling and engineering team has transplanted processes while improving on capital costs, running costs and yield at every single mill we have added to our portfolio. Our human capital within our engineering team has been another key differentiator for us.
From both a strategic, competitive and operational standpoint, Olam is in a great place today and is well-positioned for the future to benefit from the attractive wheat milling industry in Africa as we continue to execute this niche but scalable growth strategy.