'Sourcing excellence' re-enters the feed-to-food chain
19-6-2009 | Food and Agribusiness news
“More than ever, purchasing raw materials at less favourable conditions than competitors can have a huge impact on corporate profitability and, of course, survival,” said Rabobank analyst Albert Vernooij in a report released at the Agri Vision conference 16-18 June 2009. Volatility in commodity prices has brought the pricing of raw materials or ‘sourcing’ back to the table for food and agribusiness profitability in the feed-to-food chain.
Adapting sourcing strategies
During the recent commodity boom, ‘sourcing’ re-entered the animal feed-to-food value chain at full speed, and will remain a focus in the coming decades. Retail and foodservice companies are now adapting their sourcing strategies with suppliers. Therefore, operating procedures, business relationships and even the suppliers’ sourcing strategies are changing all along the chain and between each link.
“The global feed-to-food value chain has switched from being supply driven with a long-term sustainable share for each link in the chain, to being demand driven. This is placing the retail and foodservice sectors in the leading positions, and farmers and abattoirs (slaughterhouses) have become the weaker links,” said Albert Vernooij, author of the Rabobank report ‘Changing Industry Landscapes’.
Sourcing excellence
Rabobank believes companies need to develop ‘sourcing excellence’ strategies. Being the best at sourcing can reduce costs, but can also help cope with potential supply risks for quality, logistics, animal welfare and food safety.
“By moving from total price risk to low price risk strategy, and shifting the risk upstream in the value chain, a company has the ability to source more parties and look for lower raw material costs. This could result in higher rewards than bearing the total risk,” said Vernooij.
Industry innovation
Since Rabobank is expecting a 50 percent growth in meat consumption by 2025, sourcing strategies for grains and oilseeds will become even more important key success factors in company strategies into the future. Senior Industry Analyst, Ken Shwedel contemplates what this will do to grain sources in the future.
“With today’s technology, and a 50 percent increase in consumption, it will take a significant increase in the production of grain to feed all those animals. While businesses in the animal protein sector will have to put more emphasis on sourcing, they will also have to look at new technology, innovation and a change in business model to be able to support this kind of consumption growth,” said Shwedel.
Tailoring Food & Agri products
As an Agri Vision speaker, Sipko Schat also shared his views on volatility in the feed-to-food value chain. “Prices are forcing the feed industry to optimise sourcing, establish strong realtionships with their suppliers and apply different hedge strategies to ensure their profitability and mitigate risks.”
“We expect commodity prices to continue to be very volatile in the coming decade once demand grows again in response to recovery of the economy as the effects of the financial and economic crisis fade away,” said Schat, member of Rabobank’s Executive Board.
Rabobank has also been sharpening its strategies internationally and is right-sizing operations. “Food and Agribusiness is our ‘sweet spot’ and we have already started to tailor our professional products more to the Food & Agri market,” said Schat.
Every two years, the Agri Vision conference brings current and future concerns in feed-to-food chains to the podium. Organised 16-18 June 2009 by Nutreco in cooperation with Rabobank, the international food and agribusiness event attracts companies involved at the beginning of the chain in feeding animals and meat processing, all the way to the end of the chain with marketing and food consumption.
