The value drivers behind bean origination
By Manoj Vashista, Global Head of Beans, Olam Cocoa
As Olam’s role shifts from being a cocoa beans trading house to an integrated cocoa products supplier, we now fully leverage our procurement networks, maximise our cocoa bean buying potential and capitalise on the large economies of scale in origination to generate larger cocoa bean volumes – thanks to the added liquidity created by our own processing factories.
This deepens our distinct competitive advantage as a supply chain manager. Our origination remains peerless. If anything, we have only strengthened – we are currently the only company that is directly present in 11 origins and working with an origination capacity of 950,000 MT. We now handle more than 20% of global production.
Our focus on sustainability programmes, engagement initiatives and farmer participation place us in an even more advantageous position. That focus brings us closer to the cocoa communities from which we source and foster long term partnerships. It also provides opportunities for long term supply agreements with customers. We are now scaling our sustainable cocoa beans sourcing across all of our geographies, straight through to our own manufacturing of sustainable cocoa products to present a complete, sustainable supply chain solution.
Today, we enjoy improved economies of scale with our increased origination volumes and logistic and warehousing costs; we have greatly enhanced our bean liquidity, further increasing our competitive positioning.
Now that we are managing an integrated cocoa supply chain from beans to products, our cocoa bean trading capabilities have vastly improved. We are able to predict supply and demand conditions better as we analyse emerging trends from all angles, across origins and markets, from bean sourcing, trading to products sales, supported by our risk management strategies. This allows us to make more informed decisions on trading activities – which is particularly important in times of market volatility and illiquidity, where our experience in these situations over the last 22 years is now enhanced through greater market participation.
For example, in certain origins where we are required to buy beans a year forward from national governing bodies, we only enter into contracts if they are supported by a firm and well-informed view on supply and demand. By applying this strategic trading methodology we secure liquidity and margins in what may otherwise turn out to be illiquid situations.
However, our ability to sustain our competitive advantage depends on the execution abilities of our team. The challenge is to be able to attract and retain the best talent to operate in the upcountry locations at the origins, which happen to be some of the world’s most difficult operating environments. The growth potential offered by the larger Olam Cocoa business has become the motivation behind our team to excel and take part in creating most differentiated and valuable cocoa business in the world.
Going forward, we are focused on increasing volumes while optimising our global footprint. Designated and expanded teams working on streamlining supply chain processes, including sourcing activities, are now in place in all regions and we have a global working group to share successes and communicate future opportunities.