The plummeting prices of oil is driving down global food prices according to a new report from Rabobank.
Food manufacturers are benefiting from the decline in oil prices as it lowers the cost of production and distribution – but this could cause increased competition in the industry. The sectors gaining the most from low energy costs were named as horticulture, coffee and milk powder, potato processing and beer production as these are typically high in gas consumption.
The bank predicts that the prolonged low cost of oil will put a downward pressure on food prices, and some products will reach multi-year lows. Lower oil prices could also open opportunities within transport and distribution, improving the reach of fresh produce. Food experts at QADEX predict that businesses may look for ways to reduce costs further by negotiating with suppliers and distribution companies.
Tracey Cranney, Operations Manager at QADEX, said, “The sharp drop in the cost of oil has had a positive effect on many industries – the food and beverage sector included. Savings will be passed from processors to retailers, and eventually the end consumer. Competition within the industry is then likely to push down prices even further.”
For well managed procurement teams, the fall in oil prices could present an opportunity to identify parts of the supply chain which are anticipated to see reduced costs - and attempt to negotiate prices downwards. This could result in competition between suppliers, and retailers may need to change suppliers which could open up a number of risk factors.
Switching to a new supplier has the potential to cause problems; fraudulent activity could take place from people cutting corners lower in the supply chain, and there is always risk involved if sourcing from a supplier with no history. Additionally retailers and manufacturers will likely experience costs of approving and managing new suppliers – but would it all be worth it to keep end prices as low as possible?
Tracey added, “Switching suppliers is often risky and can be a very stressful time for retailers and processors. Our software streamlines the process, and ensures all suppliers are risk assessed and up to date on certification before being approved. The team at QADEX are ready to help retailers and processors tackle the result of falling oil prices directly.”
