Last week, the World Bank warned of a ‘new norm’ of high and volatile food prices unless there is action to support sustainable agriculture, nutrition programmes and safety nets. In the meantime, PwC says that better collaboration could help deal with this new norm, as raw material prices continue to put pressure on all links in the grocery supply chain.
“Long term volatility and short term price shocks in the food and drink supply chain are set to continue,” said PwC agri-food partner Stephen Oldfield.
“Dealing with volatility in availability and price requires … a collaborative approach with their major customers to collectively manage the effects of price movement.”
According to a recent PwC survey of 50 industry executives attending an event on commodity price volatility, customer insight was voted the most important requirement (53%) throughout the supply chain in order to succeed in this environment, followed by innovation (27%), and convenience (16%). (Product availability, quality and price were assumed.)
80% haven’t taken significant action
Meanwhile, only a fifth of those polled said they had taken significant action to deal with commodity price volatility.
Oldfield added that companies in the middle of the supply chain, such as food manufacturers, need to address what they are doing to manage their exposure to commodity-related risks and be able to explain their actions 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,” he said. “In particular, in a period of short term rising raw material prices, failure to recognise these issues could cause suppliers significant economic hardship.”
What about retailers?
Chief retail and consumer adviser to PwC Christine Cross said that price increases at the food manufacturer level are starting to be passed on to retailers, who increasingly need to be aware of commodity markets to better manage product pricing and promotional effectiveness.
“The ability to respond to consumers' needs for product innovation and convenience also differentiates the winners in this market,” she said.