Food for Thought: How to Ride out Commodity Dips and Surpluses in the Food Industry

May 12, 2016 Kelly Donoghue

Large global stockpiles and low crop prices have companies riding out volatility differently. While some food companies are enjoying higher profits amid a major milk surplus that sent milk costs plummeting, it’s not so easy for many ingredients and commodities manufacturers that are searching for stability to offset lower revenues due to oversupplied grain markets and lower global food prices.

As Cargill CEO David MacLennan stated in a recent Reuters article, “Barring weather events, we don’t anticipate a near-term improvement in market conditions for agriculture. In these kinds of cycles, and we’ve been through them before, we focus on the levers under our control.”

But volatile commodity prices are just one of the many pressures food manufacturers and distributors face every day. There’s also rising energy costs, powerful customers and fierce competition that also threaten your pricing strategy and margins. While you can’t control global stockpiles or commodity costs, you can shift your focus to improvements you can control, such as increasing efficiency throughout the supply chain.

That’s why food manufacturers and distributors are getting smarter and taking a new, proactive approach to pricing to optimize margins by balancing price and demand within operational constraints.

Insight and agility are key. With the right analytical tools and intelligence for food and beverage manufacturers, you can make better decisions across the entire pricing process.

Below are five capabilities all food manufacturers and suppliers should be able to do on the fly:

1. Analyze every item, daily, to understand which price drives overall profitability and sales.

2. Understand customers’ reactions and sales impact to the pricing actions of every item.

3. Adjust prices dynamically to account for shifts in underlying commodity prices, changes in market conditions, and up-to-date supply information.

4. Highlight opportunities for price adjustments, trade deals, and other promotions by having more visibility into supply and inventory.

5. Know what adds value to the business, whether it’s deals, discounts or promotions.

With this data in hand, food manufacturers are better equipped to weather commodities and market volatility and realize revenue and profit potential.

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