One year on: transforming a global cocoa business
By Gerard A. Manley, Managing Director & CEO, Olam Cocoa
Just over a year ago we announced the formation of a new, expanded and transformed Olam Cocoa. Having worked in cocoa for more than 32 years, I was very proud to finally see two world-class cocoa operations unite as a single business.
The strategic rationale for putting these two businesses together was that it allowed our Cocoa platform – which is one of the prioritised businesses for the Olam Group – to become a focused and fully integrated global market leader for the supply of cocoa beans and cocoa products.
Significantly, the expanded business leverages the complementary components of each of the previously separate companies. Olam was already the world’s largest originator and trader of cocoa beans and maintained the most extensive footprint in terms of farm gate origination presence across all of the key cocoa producing countries. In addition, we also had a well-established proprietary and fundamental research resource framework in place that provided us with exceptional cocoa market insights. Alongside our world-class strategic trading and risk management skills, through the acquisition we secured extensive manufacturing capabilities for the processing of cocoa into cocoa products – cocoa powder, cocoa liquor and cocoa butter – as well as expert cocoa product development and innovation infrastructure.
The cocoa processing asset portfolio we acquired allows for roughly 600,000 metric tonnes (MT) of processing capability in eight factories across North America, South America, Europe, Africa and Asia, and it added 10 warehouses, two usines, four innovation centres and 16 sales offices to our operations. Combined with our existing processing facilities, our total capacity increased to 700,000 MT. Now, as a combined entity, Olam Cocoa procures 950,000 MT of cocoa beans or just over 20% of the total global production, with the vast majority from our own origination business. We source cocoa beans to supply our own factories and to support new and existing customers, including the world’s leading international chocolate brands. Current and projected global demand will need to be met by increased supply, which creates a situation where we believe we will be able to keep growing our origination volume and value.
Alongside our global, premium brand deZaan, with its heritage of more than 100 years, our cocoa product brand family now includes Pan-African origin brand Unicao, 70-year-old Brazilian brand Joanes, well-established cocoa powder brand Macao, and specialty fats brand Britannia. In 2017 we will also be launching a new cocoa powder brand, Huysman, in North America and APAC to support growing demand in those regions.
|In October 2016, Olam Cocoa launched the new brand identities for its global cocoa family. Each marque represents the heritage and values of the individual brands.|
Integration and market challenges
A year ago the challenges and opportunities in front of us were clear. Almost overnight we needed to integrate more than 1,500 people, many different assets and systems and dozens of facilities into a functioning, global operation, and ensure a successful, thriving and empowered organisation. While there is still plenty of ground to cover, and further investments and changes to be made, we are well on our way! Compared to a year ago, our business is in a stronger, healthier and more profitable state.
Our combined resolve and ability to overcome difficult market conditions and emerge stronger was tested through 2016. While processing margins did improve during Q3 2016, the period was one of the worst deficit environments for cocoa that we have ever encountered. Since the acquisition, low cocoa bean supply, high differentials and an inverted market structure with volatile currency and trading conditions have all posed as challenges for our business, as for all other industry participants.
Improved customer relationships
A year ago some customers were unclear about how Olam Cocoa would manage the many changes we were pursuing. With developments in our sales teams across the world, improved sales management and consistent customer interaction we have re-established these customer relationships and increased our business coverage. We have also substantially increased our forward sales capabilities in cocoa powder, cocoa liquor and cocoa butter.
Our customer relationships with major multi-nationals are constantly developing. Recently we received a personal note from the CEO of Global Procurement at one of the largest chocolate manufacturers in the world, expressing appreciation for our support in keeping their manufacturing operations supplied during the recent market turbulence and for our excellent after-contract service.
In every part of the world Olam Cocoa’s presence is growing – we have added over 50 new customers this year in Europe, Middle East and North Africa and 33 new customers in Asia. This has been a direct result of improvements in our customer support and sales teams and of our enhanced cocoa product development and innovation capabilities.
Our strong customer base extends to more than 2,200 customers across the globe, with many being blue chip multi-nationals. However, and perhaps most importantly, our customer support capabilities are increasingly focused on the supply of sustainable cocoa. It is therefore with great pride that I am able to say that Olam Cocoa remains a leader in providing sustainable cocoa. In today’s world this capability is taking on greater importance. Not only are sustainable supply chains the socially responsible way to operate, they are also now one of the key success determinants with our customers. Being able to supply sustainable cocoa at scale is a factor that we firmly believe will continue to carry greater weight in the customer decision making process going forward.
We have continued to Grow Responsibly, further strengthening our worldwide sustainability initiatives and, vitally, have launched large new programmes with customers on traceable cocoa butter and sustainable cocoa powder. Our support for CocoaAction also remains strong as the industry continues to face livelihood challenges and long term cocoa production issues with widespread economic and social consequences. Last year we sourced over 200,000 MT of sustainable cocoa through our programmes and we believe this will increase by over 20% in 2017. The mainstay of our sustainability programmes continues to be in West Africa, but we are strong in Indonesia and Ecuador, and in Q4 2016 we launched a new programme in Brazil.
A recent independent audit of our programme in Ecuador concluded that “Olam’s Farming Programme stands as a model for other companies and producers throughout the tropics”. We now need to further capitalise on our position to become not only the largest supplier of certified cocoa beans worldwide, but also become the largest supplier of certified cocoa products. We still have work to do on fully integrating our supply chain and achieving our goal of 100% sustainably sourced cocoa by 2020.
‘Future proofing’ Olam Cocoa
We continue to look for opportunities and investments that will ‘future proof’ our business, including our intense focus on upgrading assets such as our state-of-the-art cocoa product development and innovation centres, customer training facilities and manufacturing plants.
While we have come a long way in the last year, our work is only just beginning. We are working on the cost synergies that we expect to realise as One Olam Cocoa in the areas of procurement, usinage utilisation, logistics management, warehousing and working capital optimisation. Even as we streamline, we continue to improve our revenue streams from improved trading and risk management, leveraging the deZaan brand equity, additional procurement, supply chain efficiencies, sustainability initiatives and expanding origination.
As the old adage notes, we are certainly living in interesting times so continue to watch this sector, please enjoy more cocoa, and eat more chocolate!