We keep our chin up in fluid commodity futures market
It’s been a tough year for FMCG companies that are heavily dependent on cash crops for their raw ingredients. The sharp volatility in prices this year has caught them by surprise, making it impossible not to increase MRP.
By Nidhi Nath Srinivas, TNN |
It’s been a tough year for FMCG companies that are heavily dependent on cash crops for their raw ingredients. The sharp volatility in prices this year has caught them by surprise, making it impossible not to increase MRP.
Even futures trading have not brought respite in some commodities for large corporates. But despite the uncertainty and squeeze in margins, traders should keep their chin up, says executive vice-president of Dabur Jude Magima.
How has futures trading in guar impacted your business?
We have a small guar business which is to a large extent non core to our vision of being the ‘best’ player in the FMCG space. However, as the business is extremely profitable and well oiled we continue running it and try to get into more value added guar segments. We do trade in the NCDEX.
However, this is only to hedge the open orders position from the risks associated with a volatile commodity like guar. The exchange has impacted us by providing a new variable into an already fluid commodity. The regulatory authorities must ensure that there are more actual users than speculators to assure proper price discovery.
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What changes are needed to ensure that guar sheds its reputation as being highly volatile and prone to speculation?The change is simple: we need to increase the margin money to about 85% in all commodities till the time the commodity exchanges stabilise.
World over, commodity exchanges have only 5 to 10% of physicals but as they are mature markets we do not see the peaks and troughs that we see in India despite no fundamentals changing. Mentha, guar, maize, chana are all examples of how fundamentals are not leading to price discovery but how wild speculation is actually the driver to discover price.
How are you coping with steep rise in the price of all basic commodities as they form the inputs for all your food and FMCG products?
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We have an extremely capable team of forecasters who give us an edge by predicting when to be long or short. This has helped us significantly on a mark to market basis. As we do not trade and are actual users we have to be doubly sure of the price we pay for our inputs as compared to our competition. However, this year we have also been forced to pass on some of the increase to customers.Do you think there is genuine cost saving if FMCG and retail companies centralise their procurement systems instead of letting each vertical find its own best prices?
Yes. However, it will take a long time to get everyone under one banner. As of now retail is yet to do anything substantially different in the procurement space.
What are the three hot tips you would like give supply chain managers to help them get more value for their money in today’s volatile commodity markets?
Take calculated risks with clear stop loss/gain limits. Wringing your hands due to inflation is not going to help.
Inventory is not a bad word but cost is. The cost of carrying is significantly lower than the spikes in commodities therefore do not be afraid to carry inventory.
Keep your chin up. Commodity cycles don’t last as industry always finds equilibrium in some time. Use technology for knowledge warehousing, auctions, etc.
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