Olam sees potential in splitting commodities and food businesses

Asia’s agricultural commodities trader Olam International is splitting its business into two, commodities and food units, to tap into the ever-evolving consumer market.

The company’s restructuring portrays the soaring need for consumer speciality commodities, in the wake of markets characterised by picky consumers. Buyers nowadays want to know the origin of what they consume, and the ingredients, even as the market continues to gravitate towards protein-focused diets.

In the recent past, protein food companies that are embracing sustainability such as Beyond Meat have been sitting pretty especially since the start of the year, while conventional dealers continue to struggle, forcing them to restructure to survive.

Olam CEO Sunny Verghese will oversee the process one year after the company announced it would undertake substantial changes in its business processes. Among the reasons he cited, Mr Verghese said the restructuring is due to a “growing disposition” for more healthy, sustainable, and nutritious food. He also said a sharp shift in demand from cereal and carbohydrate-based diets to fat and protein-based ones has contributed to its decision to reorganise.

During a Monday interview, Verghese said: “There are a group of investors who like the ingredients story, another group of investors that like the emerging markets story”, adding that the restructuring “allows the different kinds of investors to choose which groups they’d like to be a part of.”

According to sources in the company, the reorganisation may force the respective business lines to issue IPOs or seek alternative sources of funding to spur the group’s specialization plans further.

But Olam said it would also have to cut down on some of the commodities it would be dealing in moving forward: In its strategic plan, the firm said it would be dropping from its list of commodities rubber and sugar, to focus on products with higher potential such as coffee and nuts.

The trader also mentioned it would keep an eye open for viable investments in the commodities space, having set aside about $3.5 billion for new ventures.

So far, the firm is said to have invested over $900 million of the $3.5 billion target. Some of its notable investments include a recent acquisition of an Indonesian cocoa bean processing company and a California-based almond firm.