From Sunny Verghese, Co-Founder and Group CEO
When I look back to our last report, I am reminded by how much we have achieved*, but also how far we must travel to fulfil our vision of managing end-to-end sustainable supply chains – wholly necessary if we are to have a secure supply of quality crops, food ingredients, feed, fibre and bio-fuel raw materials in the decades ahead.
While our operating performance has been strong, the environment has been challenging – the commodity markets remain volatile, currencies are depreciating, the slowdown in China continues to have knock on effects, and climate change induced weather impacts are making life difficult for both Olam and our farmer suppliers.
In the emerging markets, although the Olam Livelihood Charter (OLC) has been significantly improving the yields of almost 344,500 smallholders, millions more continue to face enormous challenges, from lack of power, irrigation, transportation and storage infrastructure to limited education. Given the pull of the cities, making sure that farmers want to keep farming is a challenge we must continue to address. Helping those farmers, as well as the people who work on our plantations, or in our processing facilities, to stay healthy and strong has taken on a new imperative if we are to meet the increasing supply demands of a growing global population.
However, we are fortunate that unlike many other listed companies, our shareholding structure enables us to invest in building sustainable supply chains. In 2015, we welcomed a new major strategic shareholder – Mitsubishi Corporation who took a 20% stake. Both Mitsubishi and our other major investor, Temasek Holdings (51%), recognise that we must invest wisely today to ensure we can meet the needs of our farmer suppliers, customers, shareholders, creditors and other key stakeholders tomorrow.
In terms of our business model, during 2015 we continued to focus on having a differentiated and diversified portfolio within the agri-sector. We improved our global leadership position in key segments, selectively seizing opportunities through targeted acquisitions. The acquisitions of ADM Cocoa and McCleskey Mills (US peanut sheller) meant we welcomed over 1,700 new employees whose experience and skills are bringing a new dynamic to those businesses. We have also had to take some tough decisions. These included the restructuring of our dairy business in Uruguay, which meant reduction of some farms, staff redundancies and some culling of the herd population. Other decisions taken before and during this reporting period have had an impact on the aspiration we had set in 2010 for the number of farmers in the OLC by the end of 2015, this can be seen from our goals.
In March 2015, we regained one of our FSC® certificates** for our Republic of Congo concessions which had been temporarily suspended in October 2014. When I visited our Wood Products team in Pokola at the start of this year, their commitment to not only uphold international standards but to provide for the local communities was a lesson in what can be achieved with regard to sustainability, even in highly remote and inaccessible areas. This was further evidenced when they presented with the Government of the Republic of Congo at the Paris Climate Talks in December on the Emissions Reduction Programme for the country.
Of course, the importance of upholding international standards cannot be underestimated. We recognise that we operate in some ‘high risk’ products – palm, tropical wood and rubber. Adhering to RSPO, FSC® and IFC standards provides a robust framework for Olam and additional reassurance for our
customers and key stakeholders. And where Standards do not exist we seek to drive their creation as with the proposed International Rubber Standard.
Our commitment to third party audits can also be seen through our membership of the Fair Labor Association who are helping to monitor cocoa and hazelnut farmer compliance to our programmes and OLC principles. You may recall in our 2014 Report how we covered the issue of child labour risk as a result of the large migrant workforce in Turkey for our hazelnut supply chains. With the current refugee crisis in Europe, the efforts we had put into educating farmers on fair labour practices over the past few years is now paying dividends given the huge numbers of people moving through the region.
As can be seen, the risks and opportunities in our supply chains can experience some ebb and flow, even bringing new factors for consideration from one year to the next. We have therefore, reviewed our goals and targets, updating them in line with our business objectives. Focused primarily on smallholders and our emerging market workers we have enhanced goals for health and sanitation, climate-smart agriculture, nutrition and gender equality. The targets are ambitious but we are fortunate that our teams are both resourceful and resilient, traits that have been part of Olam’s DNA since we began in 1989. By working on the ground, whether monitoring the almond crop or training smallholders, they see the negative impacts, such as drought, first hand. But these challenges also stimulate innovation and action – inspiring colleagues to come to work each day.
Reading through our goals and the challenges we have faced, plus those yet to overcome, 6 key points come to the fore:
Our sustainability efforts must bring value to Olam
We are not a charity. Every action we take must unlock value for Olam as well as the communities where we operate concurrently. If not, programmes are financially unsustainable. This is why the Olam Livelihood Charter has achieved so much success since its launch 5 years ago. It is inherently designed to secure mutual and shared value as a result of increasing smallholder yields which in turn drives their incomes.
We must continue to invest in research
We must face facts that all of the low hanging fruits on agricultural productivity have been exhausted with productivity rises averaging just 1.3 per cent a year between 2001 and 2010, and 0.4 per cent a year over the past four years. So, if we are to feed more than 9 billion people by 2050 without depleting the world’s natural resources, we must prioritise agricultural research.
We were delighted to see Professor Norman Uphoff and the System of Rice Intensification win our inaugural prize for Innovation in Food Security. Housed at Cornell University, the team had achieved some exceptional results by turning accepted agronomic practices in rice farming on their head. In conjunction with our science partner, Agropolis Fondation, we are looking forward to the 2016 entries.
We must invest in our people pipeline
Businesses are nothing without their people. But agriculture is not considered a glamourous career, so we are increasingly working with universities and colleges to help encourage bright students who are excited by the challenge of producing more food from fewer resources. We have also launched a postgraduate scholarship programme for change catalysts in Africa, with a focus on business management, governance and development economics.
Over the past 12 months, students from Nigeria, Ghana, Côte d’Ivoire and Ethiopia have started courses at Harvard and INSEAD business schools, The London School of Economics and Political Science, and The Lee Kuan Yew School of Public Policy.
We must invest in technology
Data is transforming the way we operate, enabling far greater precision at every level. Agriculture has much to gain if we can adapt the technological advances both for our operations and to demonstrate progress and stewardship to stakeholders.
We must collaborate
Olam would not be where we are today without our partners, from the Development Finance Institutions to the NGOs, our customers and university partners. At a last count, we had over 50 active partnerships, each of us coming with our own capabilities, skills and agenda but yet finding common ground to develop effective solutions for the local community. Certainly while Olam is committed to tackling many of the issues outlined so comprehensively by the UN Sustainable Development Goals (SDGs), deep and positive impact can only be made if we collaborate on resources in manpower, expertise and finance.
And, finally, we must be brave
Brave means accepting we don’t have all the answers, but we’re not afraid to challenge the status quo. It means setting ambitious goals without always knowing how we’re going to achieve them. And admitting when we don’t. It means being prepared to lead on tough issues while always remaining humble. The road is still long, and we can expect some bumps along the way, but I believe that with the support of our partners, we will deliver on our
own goals which in turn will contribute to the delivery of the SDGs and a more inclusive world.
* The fiscal year of the Company was changed from June to December to align with the Group consolidation and reporting requirements
of our majority shareholder, Temasek Holdings. With this change, FY15 covers an 18-month period from July 2014 to December 2015.
** FSC® License numbers: CIB Kabo – FSC-C128941; CIB Pokola – FSC-C014998; CIB Loundoungo – FSC-C104637.
Next section: 2015 Sustainability Highlights