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Cotton (Gossypium Hirsutum) is a natural fiber of great economic importance as a raw material for the textile industry. The word cotton is derived from the Arabic word 'Qutn' which was often used by the Arab traders. Archaeologists have found that in Egypt cotton was used to make textile fabrics at least 7000 years ago. Successful cultivation of cotton requires a long growing season, plenty of water and sunshine, with dry weather for the harvest. In general these conditions are met in warm sub-tropical latitudes in the northern and southern hemisphere.
World Cotton Trade
The world production of cotton is about 25 million tons which is dominated (approx. 78%) by 5 producers USA, China, India, Pakistan and Brazil. World production has been growing steadily at CAGR of 2.5% over the past decade primarily due to improvement in yields. The world consumption is about 26 million tons which is dominated (approx. 70%) by 5 consumers China, India, Pakistan, Turkey and Brazil. World consumption has also been growing at CAGR of 3% over the past decade primarily due to increased consumption in China and India.
.The exportable surplus is about 9 million tons with USA, West Africa, Central Asia and India accounting for about 65% of the world's exports. The major importing markets are China, Turkey, Indonesia, Thailand, and Bangladesh accounting for about 60% of the world imports. World trade has been growing at CAGR of 4% boosted primarily by emergence of China as a consistent net importer.
Olam's Cotton business
Olam's role is to efficiently manage the entire supply chain from the grower to the spinning mill. In the development of the Cotton business, the Kewalram Chanrai Group’s rich heritage and expertise in the areas of farming, ginning and textile and garment manufacture has provided a valuable insight and support.
Olam's initial entry into the cotton business was in West Africa during the early 1990's through active participation in the ECOWAS (Economic Commission of West African States) trade between Benin and Nigeria. From these modest beginnings, Olam's cotton business has grown significantly with the capability to offer a spread of over 30 origins and diverse qualities to meet the majority of the requirements worldwide. Olam’s cotton volumes have grown at CAGR of 40% in past decade making Olam amongst the top 5 international merchants in the cotton industry.
Business Model
Olam's business model is structured around buying raw cotton as close to the cotton farm gate as possible. Olam believes that in order to have effective control on the cotton supply chain, it is imperative to have origin presence, strong quality focus and superior logistics management and contract execution skills. Olam also provides risk management solutions to producers and consumers.
Olam's initial focus for growing its cotton business was in Africa and Asia, which has been the main geographical base for Olam's other businesses. Olam is therefore able to leverage its origin management skills, share logistics and human resources across its entire crop calendar leading to greater cost competitiveness.
A key element of our sourcing strategy is to secure cotton volumes at producer level through agricultural inputs and ginning services. Through this strategy, Olam acts as a one stop supply chain solution to ginners and growers in key exporting countries.
Sourcing
In West African countries Olam has direct sourcing arrangements from the state marketing boards mainly in Burkina Faso, Mali, Togo, Benin, Chad, Cote d'Ivoire and Ghana. Olam is one of the leading cotton exporters from Tanzania, Uganda, Mozambique and Zimbabwe where it has its own / lease ginning arrangements.
In Tanzania, Uganda, Zimbabwe and Ghana Olam has an extensive seed cotton sourcing infrastructure that provides grower solutions viz., distribution of seeds, fertilizers and other inputs. Olam has strong quality management systems from procurement of seed cotton to the final conversion of lint.
Olam's cotton business in U.S.A mainly focuses on sourcing Texas and Memphis Eastern cotton. Olam is committed to building long term relationships with US growers through innovative sourcing programs designed to maximize revenues to the participants.
Olam has established origin presence in the rapidly growing cotton sector in Brazil. With an interest in number of other commodities investments in warehousing, logistics and quality will be a key focus.
In Central Asia Olam has Tashkent as a hub for sourcing cotton in this region. In Kazakhstan Olam has an established leased ginning operation since 2005. Olam’s has a strong team of trained classers who have an excellent understanding of the growing areas and the ginning operations.
In the growing Extra Long Staple sector (3% CAGR in past 6 years and world trade of 0.35 million tons), Olam has developed its sourcing activities in Central Asia, U.S.A, Egypt and Sudan. Olam enjoys a dominant share with a loyal and growing ELS customer base in the key markets of India, Pakistan and Bangladesh.
Marketing
Olam's marketing operations are strategically located in Singapore to serve the growing needs of the key Asian markets. Olam has sales offices in China, Turkey, Netherlands and Vietnam. In other markets, Olam has an established network of experienced agents who have an in-depth understanding of the buyers.
Olam has significant market share in Bangladesh, Pakistan, Indonesia, Vietnam, China, India and Turkey where it has privileged relationships with key customers and a growing presence in Korea, Taiwan and Thailand.
Olam's superior network can secure proprietary information, access to which allows the trading team, based in Singapore, to make informed decisions and advise their customers. Olam provides integrated risk management and financing solutions to cotton producers, ginners and spinners to help them to manage risks and inventory costs in a volatile environment. Our primary aim is to assists its customers to achieve price protection and secure basic margins.
Olam’s origination strengths, combined with specific emphasis on quality and timely delivery, enhanced by strong management processes, enable Olam to provide a superior service and enjoy a preferred status with many spinners.
Olam's future plans
Olam has plans to play an active role post privatization of the West African state marketing boards by investments in procurement infrastructure. As and when privatization happens Olam will make use of its strong origin management and local infrastructure to support effective quality buying of cotton.
To help address environmental concerns and specific needs of the customers, Olam is also exploring opportunities to produce and gin organic cotton in Uganda, Tanzania and India.
Olam is committed to serving the needs of the spinning industry. We regularly provide to the industry perspectives on risk management, cotton buying and market analysis and forecasts.
With a strong foundation established in key producing countries and its plans to develop further the future for Olam's cotton business holds significant promise.
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