Sep 15, 2023

Exploding commodity prices: What you can do now

Exploding commodity prices: What you can do now

Wheat and other raw materials are putting even more pressure on the already tight margins of food producers.

The already expensive ingredients for food production are becoming even more expensive due to the Ukraine crisis. First and foremost wheat, whose price has risen more than 20% since the beginning of the year and has reached a new high since 2012. This is happening in an environment where crop failures, but also supply chain problems, have been putting pressure on input costs and making food more expensive for months.

The reasons for this include rising energy and raw material prices.

For example, the cost of natural gas, which is needed to produce fertilizers, has risen sharply. According to the German Farmers' Association, price increases for fertilizer and fuel mean that costs for farmers in arable farming are rising by up to 30 percent.

In addition to the increase in fertilizers, feedstuffs are also becoming more expensive. Concentrated feed for cattle, for example, has risen sharply as cereals and oilseeds have become significantly more expensive.

How framework agreements can help in purchasing

A master agreement is a contract that is valid for a certain period of time and regulates the purchase of certain goods or services.

In food purchasing, for example, a master agreement can result in the price of a particular product being held for a longer period of time.

On what terms?

That depends on the framework agreement. As a rule, however, there are advantages and disadvantages for both sides. Among other things, the supplier benefits from long-term planning security, while the buyer benefits from a fixed price over a longer period.

Major advantage: sustainable business relationships

Since 2008, we have been working with various contract manufacturers in different areas throughout Europe, but also with raw material importers. Here, we can not only draw on raw materials from framework agreements, but also agree on prices for longer periods in an uncomplicated manner.

Transparency towards your customers

There is an ever-increasing awareness among consumers of rising prices. The supply chain problems have been in the media again and again for months.

Communicate honestly with your customers and transparently show the origin of your products and raw materials, regardless of price increases.

Transparent price development per product at KoRo.

One company that does this particularly well is KoRo Drogerie, which transparently shows in its store why a product has become more or less expensive. Also in retrospect.

Regular price negotiations and backup solutions

The most underestimated issue in sourcing is risk management.

Risk management is used to capture all contingencies that could affect the purchase and/or sale of products.

Regular price negotiations are an important measure to avoid getting into financial difficulties when raw material prices rise. Backup solutions help to react flexibly to unforeseen events.

Part of our checklists at unisource are risk analysis, evaluation and prevention. For private label products (i.e. your own formulation), it is therefore advantageous to have access to several manufacturers.