Firms set strategies for 'perfect storm'

By Rick Pendrous

- Last updated on GMT

Related tags: Raw material costs, Food

Firms set strategies for 'perfect storm'
Rising input costs are set to drive new collaborative strategies for businesses operating in the food supply chain, according to a leading economist.

Record high oil prices of around $124 a barrel had fundamentally changed the strategies a lot of businesses had adopted and the food industry was likely to do the same, said Sion Roberts, a senior partner with European Food and Farming Partnerships.

"We are entering a period in the food and farming industry that is different to anything we have ever seen,"​ said Roberts. "Raw material costs may even rise in real times."​ He added: "Certainly, over the next 10 years this will drive a change in strategy in food businesses."

Speaking at a seminar last month, organised in conjunction with consultancy Lauras International, Roberts warned that food manufacturers were now already having to operate within the "perfect storm"​ of rising demand for energy, food and water, which chief scientific adviser Professor Sir John Beddington predicted would come to a head in 2030.

"We are starting to move into a period where we have real resource constraints but we have got to increase food production,"​ he warned.

And while he pointed to a recent rises in business confidence and signs that inflation was dropping, he warned there might be adverse consequences if input costs especially those related to the price of oil continued to rise, and food and drink manufacturers found themselves unable to pass on costs to customers.

"Raw material costs are unlikely to get eaten away because inflation is falling,"​ said Roberts. He expected continued volatility in commodity prices going forward and added: "It is the emerging world that is driving the costs of raw material."

Roberts' comments were echoed by Geoff Eaton, former chief executive of Uniq, who chaired the event: "We are facing a totally different time than we have before a real change in the global economy so we have to be a lot smarter now."

Steve Roger, global md for Lauras International added: "To really get these improvements over the next 20 years, the whole supply chain needs to be focused not just on isolated parts."

Weetabix is an example of a major user of cereals that is changing its approach to working with local farmers within 50 miles of its factory at Burton Latimer in Northamptonshire. While primarily a marketing idea, the move has also delivered additional benefits in ensuring the security and quality of wheat Weetabix required. "The idea is to work with the growers where they don't incur extra cost but we get a better product," said Keith Turnbull, head of quality and compliance at Weetabix.

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