Olam VietnamSustainable Black Pepper Supply Chain

Brief description of the business• Olam International was established in 1989

with 1 product in 1 country.

• Olam entered Vietnam spices in 2002, and has since become a global market leader in spices and vegetable ingredients.

• Olam Vietnam Ltd (Spices) started the pilot project in 2013 to establish a Sustainable Pepper Supply Chain in Vietnam

• 98 farmers supported to achieve Rainforest Alliance Certification (RFA) for sustainable pepper production in 2014– Location: Chau Duc District, Baria-VT Province,

Vietnam

What makes the operation inclusive?

• Benefits to Producers & Olam:

• Services provided to farmers:– GAP Training; SAN Standard training & documentation– Regular/on-demand Agronomy & Pest/disease information– Assistance to build waste disposal pits, First Aid kits and Labour safety equipment

etc.

What makes the operation inclusive?Multi-stake holder engagement

- Olam has signed dual contract with Farmers’ Cooperative & Local Buying Agent- Olam guarantee s for buying at the daily market price with 2% premium- All quantity must be channeled though the approved LBA & farmers get paid immediately- Farmers are free to sell their crop in the open market & Crop failure risk is on the farmers

The business sense of the inclusiveness

• Challenges– Initial apprehension of the farmers in joining such a sustainable project initiative– Changing the old habits/practises of the farmers– Unwillingness of the Customers to pay additional premium– Farmers not bound by contracts to participate fully in the project and supply to Olam– Predatory buying by competition from the project farmers

• Inclusive Goals– Farmers are assured of being able to sell entire produce at a premium– Improved living conditions & environment creating a deeper involvement of the farmer household– Regular agronomy & price information availability; fast/accurate intervention possible in case of

onset of disease/pest– Market Intelligence - Olam gets a group of farmers whose pulse it can sense & also closely track the

pepper crop throughout the year• ROI

– Reduction of farmer operating costs by 10-15%.– Too early but we expect better realisations in future for sustainable and residue free pepper

Innovation and scaling• Business Model

– No direct contract or business transaction with any of the farmers; MOU signed with Farmers’ co-operative instead

– The model developed ensures that all business transactions are made through a local licensed agent

– Expert farmers appointed as Group Leaders for assisting Olam in group administration & monitoring

– Daily price info from Olam made available to farmers– Farmers are free to sell to anyone but when selling to Olam

they get a 2% premium– Olam bears all the cost of training & certification and

maintains the RFA certificate in its name

Farmmers Co-operative

Farmer(Group of Farmers)

Group Leaders

Olam's Agronomy

Team

Olam's Sourcing

Team

Olam Factory

Processing

Global Customers

Olam's Buying Agent

Olam

• Potential- Potential for scale up is available; we can increase number of farmer groups and extend it to all nearby communes in the district- Total of 4K farming households are in the district with more than 6000 mt production- Our strategy is to gradually increase the size of the farmer groups (by more than 50% in the first 3 years)- This year 2015, planned addition of 72 new farmers that will take the total to 170 RFA certified farms

• Constraints- Govt. policy of no direct contact with farmers by a FDI company- Involvement of too many middle parties would lead to complexity for big scaling up of the project- We have bore the cost of premium in the initial years

Sustainable Pepper 2013 2014 2015

Project StatusProject Launched

RFA Certified

Project Scale Up

Number of participating farmers

110 98 170

Total farm area under sustainable production (HA)

NA 94 164

Total Sustainable Pepper produced (MT)

NA 296 450

Recommendations• Policy makers:

– FDI companies should be allowed to contract & procure directly from the farmers

– Provincial government should have targets to achieve sustainable production

• Support for Scaling up– Built a successful template on a small scale – multi stake holder

engagement is required for scaling it up.– The key support required is for increased monetary

compensation and training to farmers in the initial years – through customer linkages, donor linkages etc.

• Setting up infrastructure in terms of warehousing, logistics etc.• Full fledged agronomy team• Support for Price Premiums in the initial years

– Post a couple of years, farmers would be convinced about sustained yields at reduced costs.