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Interview

Cotton and rubber demand recovery more than 2 years off: Olam CEO

Singapore trader says supply chain and logistics disruptions have bottomed out

An Olam pepper plantation in Vietnam. The Singaporean trading house handles cocoa, coffee, spices, edible oils and cotton along supply chains that span more than 60 countries.

SINGAPORE -- The cotton and rubber industries cannot expect a full recovery from the coronavirus mayhem -- slack global demand, supplier stoppages, logistics bottlenecks -- until the end of 2022, according to the chief executive of commodity trader Olam International.

Singapore-listed Olam mainly handles agricultural products such as cocoa, coffee, spices and edible oils, as well as manufacturing materials like cotton and rubber. Its supply chains span more than 60 countries, from Asia to Europe to Africa.

In an interview with the Nikkei Asian Review, Sunny Verghese, Olam's co-founder and group CEO, said the pandemic is "the most significant crisis that we have faced" due to the thoroughness with which it has attacked demand, suppliers and logistics networks.

He noted that there is still a lot of "radical uncertainty" regarding another wave of the crisis and how big and when it might be. Verghese also said that a global economic recovery will not be V-shaped.

"I think the recovery is going to be patchy, uncertain, uneven and more prolonged," he said. "So my view is that it will take at least to the end of 2022, beginning of 2023 to go back to the same GDP [growth] levels as we were in 2019."

Verghese forecast that industrial product demand will recover by the end of 2022, saying "(the demand) will pick up slowly until the economy fully heals and comes back to normal activity."

Meanwhile Verghese said demand for food products such as cocoa began to pick up in June and July, and it is "coming back to [pre-pandemic levels]."

Sunny Verghese, Group CEO of Olam International speaks during an interview in Singapore. (Photo by Kentaro Iwamoto)

Lockdowns and other restrictions used to halt or slow the spread of the virus have disrupted global supply chains, but Verghese stressed that the worst period has apparently passed. As countries now start to lift their restrictions, "the worst of the supply chain disruptions are potentially behind us," he said.

While the company still sees challenges in several countries, especially hard-hit India and Brazil, in "the rest of the 60-odd countries we are present in," he said, "things are beginning to heal and improve."

As supply chains recover, one concern for global companies is the escalating tensions between the U.S. and China. The world's top two economies are already fighting a trade war, with Chinese tech companies increasingly becoming targets of U.S. sanctions. China has been retaliating.

Verghese stressed that his company will maintain neutral toward the big powers. "We cannot pick sides," he said. "We will definitely remain neutral."

In the long term, Verghese said, the U.S. cannot do without China and vise versa. "Right now, it is a real crisis," he said, "and I think it will be a prolonged struggle, but I think they will find a new equilibrium and a new balance because nobody is going to win in this."

Olam is 54% owned by Singaporean state investment fund Temasek Holdings and 17% by Japanese trading house Mitsubishi Corp. Its current market capitalization stands at 4.4 billion Singapore dollars ($3.2 billion). Olam's profit for the first half of 2020 rose 44% from a year ago to SG$332 million on the back of profits gained through divestments. Operating profit dropped 19%.

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