Olam - Cashew slowdown offset by market share gains

According to a recent article from Vietnam Business Finance , Vietnam, the world's largest cashew nut exporter, expects a 10% decline in overseas shipments this year because of lower demand amid the global recession. The article cited the president of the Vietnam Cashew Association who indicated that export of the nut, which accounted for 11% of total agricultural exports last year, may reach 150,000 tons in 2009. Orders in February have slid about 50% from a year earlier, and export prices may fall 30% this year. While low-quality cashews account for a large part of the country's crops, customers have ordered mostly high-quality nuts in the first two months of 2009, further damaging sales.

Cashews are one of the 17 primary food raw materials (out of 20 products in its portfolio) and Olam highlights demand for these products are reasonably resilient to recessionary conditions. Cashews are a major product for Olam and is categoried within the Edible Nuts, Spices & Beans segment of their business (13.6% of group sales; 18% of net contribution for 1HFY09A). Cashews account for about 30% of volumes within this segment. Our checks with Olam indicate that Vietnam is experiencing a short crop this year and they think the volume drop could be due to this. In 1H09 (ending Dec 08), Olam's Edible Nuts, Spices and Beans business saw volumes increase 28.8% yoy, revenues up 23% yoy and net contribution up 39.4% yoy. Olam has a global market share of 17% for Cashews and is not affected as they are still gaining market share and volume growth in Vietnam given their diversified sourcing in 15 origins, their own processing operations in key origins and marketing presence across Asia, Oceania, Middle-East, Europe and Americas.

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