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MD & Global Head Natural Fibres Olam
Olam is involved in many other businesses related to agricultural products. What is the significance of natural fibres in total business output of Olam? Will you be able to determine any percentage share?
Natural fibres are one of our oldest businesses. Olam has been involved in textiles for over a century, but we have been growing the cotton business over the past 20 years. Today, Olam is the second largest merchant in the world.
Tell us something about the acquisition of Queensland Cotton in Australia? Why was Olam interested in this acquisition?
The QCH acquisition was completed in 2007 which has expanded expand our footprints in Australia, the US and Brazil. It has also made us a universal supplier as today we have all the different varieties of cotton in our portfolio, right from low grade to medium staple to extra long staple cottons.
What is your opinion about BT cotton?
BT Cotton has been a successful initiative in India and contributed to increase in domestic production. There are some regulatory constraints on the use of BT seed in some African countries which need to be tackled in the interest of increasing cotton production.
What is the role of Africa in the global cotton market?
Africa is very close to our heart. We are a leading player there. Africa used to produce over 2 million tons of cotton but its share in world production has declined from 8% to 5%. This decline occurred post privatization of the industry in Africa when adequate investment was not committed to agricultural research and logistics solutions.
The industry was exposed to several low price regime years in the last decade when cotton prices fell by 40% to 50%. This led to a lack of providing timely supply and at such low prices farmers could not even recover their cost of production leading to continuing decline in cotton farming.
The African yield today is at a low level of around 350 kg per hectare which is below 50% of the world’s yields. When compared to Australia, it is 16% of the Australian yields. The world’s yields have increased by 22% in last couple of years level. However, this is changing and we are seeing production and prices begin to improve.
To support this, at Olam, we not only aim to achieve good farming systems, but also ensuring that the chain is traceable as well as sustainable. Today, we engage directly with more than 100,000 cotton farmers across Africa to assist them with quality agricultural inputs and agronomic services to improve farm yield and quality. We have also established a very strong corporate responsibility and sustainability programme called the Olam Livelihood Charter where we work closely with African farmers to ensure they make the best use of their land, motivating them to increase their productivity by providing an assured income. We have also invested in developing cotton gins close to the smallholder farmers to improve supply chain efficiencies of transporting the raw cotton which has in turn created more local jobs and together all these facets are starting to create a more thriving cotton industry in parts of Africa.
Is the demand for organic cotton very low in the international market?
Yes, this is correct and recently when I was in the US, I saw some shirts containing 5% of organic cotton. It seems consumers are unwilling to pay any substantial price premium for such products. In food industry the benefits of organic food are clearly visible but the USP’s are limited for the buyers of organic cotton products.
Organic cotton supply chains are unviable as it is costly to produce, difficult to certify and controlling its use in the supply chain is complex.
Instead of organic cotton, there are many other cotton sustainability schemes like Better Cotton Initiative (BCI) or Fair Trade cotton that put the social and environmental factors at the heart of production. Through our work independently and with the Better Cotton Initiative I believe that there is more potential in these initiatives where there is genuine attempt to produce sustainable cotton and ensure ethically-driven supply chains as these also have a more commercially feasible proposition as well.
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