Is investing in Nigeria’s milling market the right move for Olam?

Wheatbased products are all the rage in the country.

The agribusiness company is poised to double its wheat milling capacity through acquisitions in the Central African country, making waves in the high-growth milling market with volumes expected to reach 5m metric tonnes in 2020 as population growth and urbanization increase the demand for wheatbased products.

According to analysts from OCBC, the move will provide access to strategically located, port-based assets that are increasingly scarce due to lack of undeveloped land at the port.

OCBC adds that the move makes sense, as it will create demand for its upstream origination business.

“And by going the integrated route, we believe that Olam can also capture more margins; this as it expects to derive cost savings from larger scale, better utilization, and combined purchasing power,” OCBC said.

“Recall that Olam has a very food staples and packaged foods segment – it generated about 36% of overall group revenue in FY14 – and was the largest revenue contributor as well,” OCBC added.