A bird’s eye view of the land in our supply chains
Land under our direct control
Today 2.6 million hectares of land is under Olam management (greater than the size of Wales). All of this land area is subject to relevant international best practice standards (RSPO, FSC®, IFC etc.) and to the Olam Plantations, Concessions and Farms Code.
Of this, however, the majority of the land under our direct management is under leasing contracts. This is because we have received concessions from the national government (e.g. Republic of Congo) or because we have engaged in an innovative strategy of sale-and-leaseback.
A sale-and-leaseback is when we sell the land, or the leasehold rights to the land, to an investor and lease it back on the remaining useful life of the crop. This brings a number of advantages to Olam – for example, we regain the use of the capital (release cash) while continuing to use the land. You can read more in our FY15 Annual Report.
In December 2015, Olam Palm Gabon (OPG), the 60/40 joint venture company between Olam and the Republic of Gabon, entered into a sale of long-term lease rights of land and a sale-and-leaseback of its palm plantation and milling assets for a cash consideration of US$130.0 million. The total land area is 20,030 hectares in Awala, Gabon, including 6,502 hectares of planted area. OPG retains the right to operate the sustainable palm plantation and mill in Awala and will therefore continue to participate in the production economics of the palm plantation without the asset intensity.
At the time of the announcement there was some misunderstanding in the local Gabon press that Olam had sold land. However, as OPG does not own the land, it could only sell the lease rights. It should also be highlighted that as part of the Joint Venture, the Republic of Gabon also benefited from the sale of lease rights. This example serves to remind us that clear communication on land investment is essential.
It is also worth highlighting here that investors assessing a sale-and-leaseback opportunity have to be confident that all environmental and social due diligence is undertaken on an ongoing basis so their investment remains sound for the long-term. All of the ongoing sustainability efforts made by the palm team therefore helped to achieve this agreement.
Land not under our direct control
We estimate that about 75% of the land producing crops for our supply chains is under third-party control i.e. the 20,000 large-scale farmers and the 4 million smallholders. It is simply not possible to have physical access to all of these farmers to monitor their land processes so we prioritise high risk products and use the Olam Livelihood Charter and Olam Supplier Code to extend our reach of influence. The diagram on the right explains this further.
As of the end of 2015, approximately 30% of our total tonnage was covered by the Olam Supplier Code. As per our 2015 Goals we had envisaged covering 50% of tonnage. We are therefore behind track. This is due to the complexity of ensuring that smallholder communities understand the implications of the Code. You can read more in the ‘How We Do It’ section of this Report.
Under the Environment section of the Olam Supplier Code, all suppliers must:
Respect the natural environment by:
(1) Complying with all applicable, national, and local laws and regulations relating to the protection of the environment.
(2) Conducting any harvesting and collection of (wild) plant and tree resources at a scale and rate in a manner that does not damage existing populations and species renewal potential over the long-term
(3) Avoiding contamination or pollution of water sources on and around its facilities and conserving water.
(4) Professionally managing agro-chemicals application and forbidding the usage of agro-chemicals that are not legally registered in the country for commercial use, or excluded as per Olam’s specification.
(5) Minimising waste, recovering or reusing waste where practicable and disposing of waste in line with local regulations.
(6) Using fossil fuels and non-renewable resources efficiently and investigating alternatives where practicable.
(7) Upholding all applicable laws and relevant industry guidelines for the protection and humane treatment of animals.
Image: Rubber plantation, Bitam, Gabon.
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