Have you heard predictions that your bul oil ingredient price will increase because the commodity market is going up? Hearing this news can be frustrating for purchasing managers, because you have no control over the market. You are, however, still responsible for protecting your business from rising costs. So what can you do?
There is, in fact, something that you can still do to cut your bulk edible oil costs in times like this. It all has to do with the global commodity market, where your oils are coming from and your buying strategy.
Cutting Bulk Oil Costs By Switching Country of Origin
One of the easiest ways to avoid a rising commodity market in one country is to buy your ingredient from a different producing country. Each country that grows the crop and makes the oil has different prices. Sometimes, the easiest way to lower your prices is simply switch the country that you buy from.
The best part is that you if you have a strategic supplier who buys smart themselves, all you need to do is have a conversation and they can do the sourcing for you.
Why A Simple Switch Can Cut Costs
Your bulk oil cost is based on the commodity market. That price depends on the availability of the oil and the demand for it by manufacturers and buyers like yourself-- supply and demand.
Sometimes, prices go up because supply is too low, or demand is too high. I’ll explain.
Country A: If production of a bulk oil goes down in one country, this can cause the price to rise. This is a simple result of supply and demand.
Country B: If at the same time, another country is producing the same oil, and their production levels have remained steady, their prices would (in an isolated market) remain the same.
If you were buying from country A, and your prices are going up, what should you do? The obvious answer to some is buy from country B! It should only be that simple.
Switching Origins Is Not That Simple For Manufacturers
Switching the country of origin of your bulk ingredient is not always that simple for a manufacturing company that has QA or R&D processes in place.
To have an ingredient okayed for use in a product, it must go through testing in R&D and full analysis in QA. If this ingredient is okayed, it’s common for manufacturers like yourself to simply keep buying this item (which is from one particular country), and not look at evaluating any alternatives.
If that country’s oil commodity market goes up, however, it can negatively affect your company by increasing your prices.
Today’s Real Life Examples Bulk Oil Commodity Markets That Are Affecting Manufacturers -- and How To Save Money By Switching Origins.
The following real life examples are affecting the oil industry right now.
Olive Oil's Impending 2014/2015 Harvest And Spain’s Rising Prices
The olive oil market in Spain has risen about 20% from July through September this year. This has to do with concern about the next 2014-2015 harvest season, and the fact that production is unknown over the next year. The speculation has caused prices to rise and concern to spread throughout the global olive oil community.
The reason that Spain's prices matter so much is because they produce 50% of the worlds all of oil. If their prices change, other countries follow, because they are the price driver for the market.
Many food manufacturers are comfortable buying only from Spanish origin, because it’s what you’ve always gotten. This origin usually has the lowest price because of their immense volumes. Most likely, it’s what you have approved in the past through QA or R&D. It's probably what you’re comfortable with.
If Spain is the only origin of olive oil that’s been approved by your R&D/QA departments, this could be a detriment to your company as the Spanish market goes up.
If you decide to continue buying only Spanish oils, your prices will continue to rise. If you want a low cost alternative, the best thing to do is consider a different country of origin. Perhaps it would be Turkey, or Tunisia or Argentina even. You’d get the same quality oil, but save money because those countries are not experiencing the same issues that Spain is.
Want some more resources on the 2014/15 harvest? Request to consult with one of our oil industry experts, to discuss what's going on and begin to plan a good strategy.
The High Demand And Prices Of Organic Sunflower and Safflower
Over the last six months, organic sunflower and safflower oil has been in very high demand by food manufacturers. At the same time, supply levels In the US have been low. That's because farmers are still trying to build up their supply of the crop. Demand is growing exponentially right now, so they're struggling to keep up. You can learn more about why the market is what it is in this article, How The Tight Supply Of Bulk Sunflower Oil & Safflower Oil Affects You.
On the other hand, organic sunflower and safflower oil is also available as an imported oil. This oil crop has been established for a longer period of time, and supply is more readily available.
If you are a food manufacturer that has struggled in recent months to get organic sunflower or safflower, you could do yourself a large favor by considering imported oil-- not just domestic. Prices will be lower, and supply is more readily available.
However, you do have to weigh in that you will have a longer lead time for orders and you may need to sign a supply contract.
Your Plan of Action, Starting Now
If you are using only one country of origin, talk to QA or R&D about using a number of different origins. The best thing to do is to not restrict your options-- that will allow your to get the lowest market price possible.
Get samples and do testing of different origins if necessary. Start the testing process now, before your prices go up.
Make sure you’re working with a supplier who buys from a variety of origins, rather than just one. This ensures that you’ll get the lowest pricing possible, because they’re always strategically sourcing for you.
Restricting the country of origin that you will accept an ingredient from will always restrict the lowest prices that you can get. Open yourself up a bit!
- If you're looking to save money on any bulk oil, don't restrict yourself to a particular country of origin.
- In times where you really need to save money, ask your supplier for pricing and samples to begin the QA approval process for a new country of origin.
- Always ask your supplier about what is going on in the global market for each particular oil, and the pros and cons to buying from different countries of origin.
Bottom line for olive oil buyers? If you buy bulk olive oil, it's time to approve some other countries of origin so that you can save the most money possible over the next year as prices begin to rise in Spain.