T here has never been a better time for the cereals industry to cement partnerships across the supply chain, which will strengthen it going forward and increase profitability for all.
Huge volatility in cereals markets has pushed up the prices paid by millers and maltsters, as well as the prices they are charging their customers. For those at the producer end of the market, this could be seen as an ideal opportunity to make money after many years of supplying a buyers’ market. While markets will continue to be volatile over the next few years, forming supply chain partnerships will help to ensure security of supply for buyers and guaranteed markets at sensible prices for sellers.
However, there are other reasons why a model of co-operation makes sense under the present circumstances. In future, brands will continue to dominate the marketplace - both retail brands developed by the supermarkets and producer brands. While there will undoubtedly continue to be sales at the ’value’ end of the market, there will also be considerable opportunities at the ’premium’ end, where consumers have shown themselves willing to pay more for better products.
For example, in the baking industry, Warburtons has shown how to deliver a successful brand promise to the consumer through its premium products. Brand attributes that can command a premium include: better taste; better for you; and provenance.
The recent example of the co-operation between Camgrain, Whitworths and Sainsbury’s shows how supply chain partnerships can create new markets, and deliver margins for everyone in the chain. Too often in the past, supply chains have been confrontational, with each party trying to negotiate the best deal out of the other. While this model may work for commodity markets, co-operation and partnership can add value right along the chain and achieve higher margins.
One example I often refer to is that of WestHove waxy wheat, which is being grown by farmers in France, having been developed in Australia. It helps the production of certain products that traditionally use dairy ingredients to give them a ’creamy’ texture and thus helps to reduce costs, as well as enabling consumers to cut down on fat.
The Home-Grown Cereals Authority (HGCA), together with the Food Chain Centre, has been involved in a three-year programme of activity called the Cereals Industry Forum. One of the key themes to emerge was the need for greater collaboration and communication across supply chains. HGCA is now putting together case studies on how communication and collaboration can work in the cereals industry.
Those companies that co-ordinate and are willing to work directly with partners, suppliers and customers, will be financially more successful than those who just play the market.
* David Hughes is emeritus professor of food marketing at Imperial College, London