Warning on volatile markets for food suppliers

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Supermarkets and suppliers must work closer together if they are to deal with price volatility and competitive market places, a Yorkshire rural commentator has warned.

Randal Casson, retail partner at PwC in Leeds, said that it was no longer an option to “assume your trading partner has a perfect hedging strategy in place”.

According to a PwC survey, undertaken at a recent client forum around volatility in commodity prices, only a fifth of those attending said they had taken significant action.

“Long-term volatility and short-term price shocks in the food and drink supply chain are set to continue. Dealing with volatility in availability and price requires urgent and business-wide commodity risk management led by the boards of UK food and drink businesses, and a collaborative approach with their major customers to collectively manage the effects of price movement.

“Companies in the middle of the supply chain need to address what they are doing to manage their exposure to commodity price and availability risk and be able to explain it to their supermarket customers.

“Together, they then need to reach an economically sustainable solution to the way they do business with each other and not deal with it simply at a short term transactional level. In particular, in a period of short term rising raw material prices, failure to recognise these issues could cause suppliers significant economic hardship.

“At the other end of the supply chain the supermarkets themselves are dealing with consumer pressure for quality and availability at a fair price to ensure they maintain or grow their grocery market share in the new normal of, what is at best, a static market. Product availability, price and quality are an absolute must to retain shopper loyalty and it’s just got more difficult.”