SINGAPORE -- Singapore-based commodity trader Olam International announced plans to sell off its rubber, sugar, wood products and fertilizer businesses as part of its 2019 to 2024 business plan meant to streamline its portfolio.
The divestments, which will take place over the next six years, are expected to free up around $1.6 billion in cash for new investments. As part of the six year plan, the commodity trader said it will pump in $3.5 billion into 12 business segments, including edible oil, cocoa and spices.
Sunny Verghese, Olam's co-founder and CEO, said the company decided to pull out of the four businesses mainly because they do not offer long-term structural sustainability. Verghese said that to expand the rubber business, for example, Olam would have to buy more land. "In terms of regions and places where rubber can be grown, it might involve planting rubber in deforested land," he added.
Olam decided to exit the sugar business because it believes consumption will decline over the long term as more governments introduce sugar taxes. Such levies are already in place in number of countries, including India, Thailand, Britain and the Philippines. Malaysia, where it is estimated that more than half the population is obese, will impose a sugar tax starting in April.
Olam's growth strategy reflects shifting consumer preferences, Verghese said. People place greater emphasis on health and nutrition, and are concerned about issues such as supply chain traceability and sustainability. "This is driving a trend towards consumers opting to consume products that they think are right or good for them, for the planet, for producers," he said.
The trader is also looking to generate additional revenue from existing and new channels to strengthen its position in the commodities market. These include co-manufacturing, the food service sector and e-commerce aimed at small and medium-size customers. Olam's Farmer Information System, for example, collects and analyses smallholder farm data, helping farmers increase their yields and improve the quality of their crops. The system has more than 160,000 registered farmers in over 20 countries. The company aims to reach 500,000 farmers by 2020.
Olam is majority-owned by Temasek Holdings, Singapore's state-backed investment company. Japanese trading house Mitsubishi Corp. is its second-largest shareholder.