In search of strong returns in Sub-Saharan Africa
By Saurabh Mehra, Senior Vice President & Global Head, Milling, Olam Grains
Sub-Saharan Africa is one of the fastest growing wheat flour markets in the world. The African continent imports 33 million metric tonnes (MT) of wheat, or 60% of its consumption, and Sub-Saharan Africa imports 15 million MT, accounting for roughly 10-12% of global trade. The tropical climate in Sub-Saharan Africa is not conducive for wheat production and hence the region is likely to remain a net wheat importer in the foreseeable future, which is expected to grow at a pace of 4-5% per annum.
As a rule, destination milling is commercially more viable than origin milling as logistics for importing bulk wheat is more favourable than importing bagged flour, which significantly reduces product shelf life. Some markets also ban the import of flour.
With more than 40 countries in Sub-Saharan Africa to choose from, we prioritised locations for wheat milling based on a wide range of market factors. These include market structure and size of the market, population, demographics, level of urbanisation, government policies, and the level of development of the food sector, including downstream business.
|Rate of urbanisation||52%||53%||43%||61%|
|Expected GDP CAGR
|Wheat imports (’000 MT)||4,200||520||540||500|
|Flour consumption per capita (Sub-Saharan Africa of 17 kg)||16.9||11.4||19.2||18.6|
|Projected flour consumption CAGR (2013-2018)||3.9%||5.5%||5.8%||5.4%|
Source: USDA, Euromonitor, company filings and research reports.
Nigeria, as the most populous country in Africa and the largest wheat importer in Sub-Saharan Africa, was a natural place to begin our milling journey. Over the past six years we have built the business to become the second largest miller in Nigeria. We have achieved this by building significant operating leverage which allows us to pass on the cost-savings to our customers.
Starting with the acquisition of Crown Flour Mill (CFM) in Nigeria in January 2010, we have now built a suite of well-located wheat milling assets in Nigeria, Ghana, Senegal and Cameroon. With our latest acquisition of Amber Foods in Nigeria, Olam now has a total wheat milling capability of over 2 million MT per annum and we are now in the process of doubling our milling capacity in Ghana also.
|Year||Country||Milling Capacity p.a. (MT)|
|2013||Nigeria (expansion), Ghana||870,000|
|2014||Nigeria, Ghana, Senegal||1,020,000|
|2015||Nigeria, Ghana, Senegal, Cameroon||1,170,000|
|2016||Nigeria (post acquisition), Ghana, Senegal, Cameroon||2,150,000|
|2017||Nigeria, Ghana (expansion), Senegal, Cameroon||2,300,000|
Above: Olam’s milling history since 2010 and target capacity.
The mills in Ghana, Senegal and Cameroon were green field operations built between 2012 and 2015. Each of these mills has an annual capacity of 150,000 MT. These three countries have similar market characteristics – 500,000 MT of wheat imports, oligopolistic structure and surrounded by countries that do not have a robust milling industry. We view each of these operations as a regional milling hub, focused not only on supplying the in-country consumers, but also the neighbouring countries like Benin and Togo (from Ghana), Chad and Central African Republic (from Cameroon) and Mali and Guinea Conakry (from Senegal). Such a market cluster approach allows us to play with significantly better economies of scale and achieve full utilisation at a faster pace.
Our focus in all of our operations is on attaining market leadership position by developing deep insights into consumer behaviour, fostering long term and lasting relationships with customers, building operating leverage, optimising cost and business processes and creating one of the most efficient wheat milling businesses in Africa.
By standardising business processes and hardcoding them through SAP across the milling platform, we have been able to replicate and scale up rapidly. This allows for best practices to be shared across units seamlessly and is invaluable in speeding up the integration process of an acquisition. Timely and accurate data enables deep analysis of various metrics in real time and faster corrective and value-enhancing actions.
Our continued success in the milling business is predicated on our ability to bring to bear our organisational capabilities in risk management, bulk freight logistics, sourcing and trading. Leveraging our Black Sea sourcing capabilities and in-country customer and channel sharing gives us a significant competitive advantage.
At the core of our success are our people. Our ability to attract and retain top global talent in our milling business allows us to consolidate our position and lay the foundation for future growth.
Our technical team follows a competitive bidding system for all our capital projects and analyses bids on their relative merits, while challenging the project partners to rethink prevailing ideas and work out the most optimum technical and capital efficient solution.
Our millers and engineers have set up and operate some of the most efficient milling plants in Africa. They have turned around our acquisitions – CFM and Amber Foods – well ahead of expected timelines.
Our salesforce has developed deep domain knowledge of the flour industry and works with the technical team to efficiently segment the markets and tailor-make products to address all consumer segments. A good example has been our recent entry into the pasta market in Nigeria where our sales team identified an unmet market need while the technical team debottlenecked the pasta plant in a few months and improved efficiencies. This has allowed us to take the acquired asset to full capacity utilisation within six months.
Today, we have built a strong and stable foundation for our milling business and are well positioned to be a leading wheat milling and pasta manufacturing company across Sub-Saharan Africa.