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MD & Global Head Natural Fibres Olam
The world's yields have increased by 22% in last...
Jagdish Parihar is the Managing Director and Global Head Natural Fibres of Olam. He converses about various topics related to cotton with Fibre2Fashion Correspondent Manushi Gandhi.
Olam is an international company that manages the supply chain of various agricultural products and food ingredients with its headquarters in Singapore. The natural fibres business is one of the oldest businesses of this multinational company. Its sales revenue for the financial year 2012 was S$17.1 billion. The company operates through 16 platforms across 65 countries.
Jagdish Parihar, the Managing Director and Global Head of Natural Fibres division of Olam is associated with the company for more than 25 years. He started his career with Tolani Shipping in India where he was involved in purchase and sale of bulk carriers. Jagdish left India in 1986 to pursue a career in international agri business and joined the Kewalram Chanrai Group in Africa. He holds a degree in Business Management from Birla Institute of Technology & Science Pilani under the MIT Ford Foundation Programme.
Since how long have you been associated with Olam? How did you start your career?
I joined the parent group Kewalram Chanrai in Nigeria in 1986 where I was mandated to develop cotton agricultural complex consisting of a cotton farm, a gin and an oil mill. Then I moved to London in 1990 for developing agricultural exports out of Africa. This is the time when I joined Olam. Our business in the UK was primarily focused on exporting commodities from Africa and selling them to the merchants in the UK. We moved to Singapore in 1996 and expanded our geographical footprints to Asia, South America, Australia and the US. We also expanded our product range beyond cotton to products such as sugar, packaged foods rubber, timber and rice. Today we have over 16 product platforms covering food ingredients and raw materials such as cotton and wool. We market the commodities to over 12,000 customers worldwide. This is quite an interesting business. Frankly, through my time at Olam it has been a great experience to build a global agri-business, not only in cotton, but also other commodities.
Olam is mainly into exporting of various agricultural products. Can you please tell us in which countries you sell the natural fibres? Can you explain us the full chain of Olam natural fibres?
The value chain of cotton starts from cultivation of cotton, through to ginning and processing, logistics and distribution. Now, the important function is marketing cotton to mills, which is done from our Singapore headquarters.
I would also include retailers in our value chain with whom we are exploring new alliances. We are trying to link our African operations with the retailers and the consumer requirement.
There are over 25 consuming markets for cotton, but the main markets are primarily in Asia, particularly the Far East countries like China and the Indian subcontinent. Over the years, the industry has shifted from Europe to Asia mainly as Asian countries are more competitive on the cost of textile production. Our key markets are in China, India, Bangladesh and Pakistan. All these countries also produce cotton except for Bangladesh.
What is the status of production of natural fibres in the year 2013, when compared to that of 2012?
The production of cotton has been declining as cotton is losing acreage to other competing crops like corn and soybeans. These alternate crops offer better returns to the farmers in Brazil and the US. Cotton production was 26.3 million tons last year, but this year, it is likely to fall to 25.7 million tons.
The land area under cultivation of cotton farming has also reduced considerably from approximately 35.5 million hectares in 2011 to 34.0 million hectares in 2013. However, the yields have remained stable and have been generally rising which compensates the decrease in area under cultivation.
Cotton has also lost its share to polyester. In the previous years, cotton has enjoyed a share of almost 43%, but today it has declined to 36% and is likely to be maintained.
What are the risks involved in the business of natural fibres?
The cotton supply chain is extremely complex. The entire cycle from its cotton production to delivering a garment on a store’s shelf in the US takes about over 12 months.
This exposes the chain to significant risks arising from shifts in demand and supply over the long tenor. At the producer end the main risk is cotton price and weather. Similarly at the mill end the main risk is the counterparty risk which arises from fall in prices after cotton has been committed. In 2011 the price declined over 90 cents in a short three month window, This created havoc in the industry. It is heartening to see a much more stable price scenario.
What kind of tools should be adopted to reduce the risks?
Across the value chain it is only the merchant who practices any real risk management.
Olam provided risk management solutions to help it customers maintain and protect its margins a volatile environment.
There are various spread and futures option tools available to help protect around price volatility. Normally, vanilla risk options available through platforms such as the Intercontinental Exchange (ICE) are very expensive. We have developed customized, affordable and flexible risk management products for our customers. This also includes helping our customers to have better visibility of the emerging supply and demand dynamics through our own market intelligence activities.
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