The Top 4 Benefits of Signing a Supply Contract for Olive Oil

Posted by Hannah Broaddus

Blog55-Contract-Signing-aBulk olive oil is, in essence, a commodity item. This means that the global market price fluctuates on a daily basis and is largely dependent on the supply of olive oil available in the world. Centra Foods works with manufacturers around the globe to source high quality, authentic olive oil at fair prices. Like all suppliers, we’re still affected by the global fluctuations in price as the market rises and falls. We continually rotate through large volumes of inventory, so without a supply contract to reserve oil and lock in rates, prices are based on the current market.

What is a supply contract?

A supply contract is an agreement between customer and supplier that they would like a particular volume of oil at an agreed upon price for a specific period of time. Contracts can vary from one month to one year; the timeline available often depends on the state of the current market. Sometimes contracts also reserve a particular origin of oil. Suppliers who offer these contracts need to understand their customer’s buying patterns; knowing the approximate delivery dates for orders allows them to plan when and how much inventory is available.

Why would a manufacturer or distributor want a supply contract for olive oil?

Many manufacturers and distributor customers prefer to sign this supply contract, to lock in their oil prices and guarantee product availability. Below is the common situations that would make a business want to sign a supply contract:

1. If they're manufacturing for your own customer with a contracted rate

They’re manufacturing for a specific customer, and are putting together a contracted program. Their selling price for the product for will not fluctuate in that contracted time period, so they need their costs to also be constant. Taking the gamble that the market may go up or down is not worth the risk to their business.

2.  If they're distributing to a specific customer and want to over a locked-in rate

They are distributing to a restaurant chain, food service or wholesale customer who requires a locked-in rate for one year. In turn, the have to lock in their supply and costs for one year to ensure their own profit margin.

3.  To lock in lower pricing before the market goes up

Their buyers watch the market closely, and based on information from suppliers, world news and crop predictions they believe that the olive oil market will be going up in the near future. To maintain their steady, lower pricing, they sign a supply contract while the market is still low to save money in the long run.

4.  To reserve a particular country of origin or flavor profile

They need their olive oil to come from a particular country of origin and have a specific flavor profile. To ensure that exact oil is available from the manufacturer, they sign a supply contract to reserve that inventory.

In conclusion...

In each of these circumstances, it benefits the customer to sign a supply contract. On the other hand, it also helps the supplier. Signing a supply contract gives them a reason and a time line to plan their inventory and make sure it’s always available. It also allows them to work with the manufacturing mills to negotiate special locked-in rates.

Topics: Prices & Saving Money, Harvest/Commodity Market

 

 

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