Olam invests $61m in first Asian cocoa plant

Olam invests in first Asian plant, but 'significant capacity increase' is needed to meet region's fast growing demand.

Agri-giant Olam International has announced plans to invest $61m in a new cocoa-processing plant in Indonesia, its first in the region.

The company said the investment would well-equip the firm “entering a phase of exceptional growth in Asian demand”. It said the new plant was part of a wider cocoa strategy aiming to integrate its global cocoa bean supply, addressing the "growing outsourcing trend" by confectioners and the rising global demand for sustainable high quality cocoa products, particularly Asia markets.

The new plant is expected to open for business in early 2016, with an initial capacity of 60,000 metric tonnes (MT) for use in cocoa butter, cocoa cake and high quality cocoa powders. This figure comes in at 10,000 MT less than the capacity estimated for competitor Cargill’s new Indonesian plant

Indonesia rising

The investment is the latest in a recent flurry of construction and investment in the area from the likes of Barry Callebaut and Cargill in East Java and Sulawesi respectively. Indonesia is the world’s third largest cocoa grower, behind the Ivory Coast and Ghana.

Olam refrained from giving specific details of where its Indonesian site would be, saying instead that it was in, “final stages of negotiation on a suitable site, with another suitable location already chosen as a viable alternative”.

On where the beans would come from, it said the plant would primarily grind Indonesian beans sourced from its “traceable cocoa network”, which includes 32,000 farmers in Indonesia as well as beans from its farm-gate networks in Africa. Part of this supply will come from its Seram Island plantations acquired in 2013 – part of the Indonesian Maluku islands between New Guinea and Sulawesi. The company spokesperson said this would depend on the quality and flavour requirements of its customers.

Last year the Indonesian trade minister said a review of the country’s cocoa import policy may be needed, after investment in grinding facilities meant this capacity was not being fully utilised by the amount of beans produced domestically.

Commenting on this the company told us: “Indonesia has already turned into an importer of beans, we do see a significant capacity increase will be needed to meet the fast growing demand in the region. Also, the cocoa industry in Indonesia is expected to grow in response to the country’s and Asia’s demand for cocoa products. Our plant is expected to commence operations in early 2016.”

Asian demand

Olam’s managing director and global head for cocoa, Gerry Manley, said: “Olam’s decision to make a strategic move to establish a processing facility in Indonesia is based upon our long term investment in sourcing cocoa in the country and perfectly meets the requirements of Olam Cocoa’s strategy. We strongly believe that we are entering a phase of exceptional growth in Asian demand, which will redefine the consumption trends for cocoa and the requirements for high quality products by our customers. The ability for the Indonesian facility to be a hub for Asia underlines our belief in the strength of the Indonesian economy and attractiveness for investment.”

Concerns over cocoa supply have been brewing for some years, as old and diseased trees in principal producing Africa provided disappointing yields and many farmers turned to more profitable crops like rubber and palm. This decline in production has been coupled with a rise in demand from emerging regions like Asia.  

According to Rabbobank estimates in December last year, we should expect a cocoa deficit of 207,000 MT for the 2013/14 season, a figure it upped by over 100,000 MT in the course of seven months. 

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