8 Facts About Food Commodity Procurement

Commodities are any raw or primary agricultural product that can be bought and sold. Although there are slight differences between producers in the market these products are interchangeable with each other. Examples of commodities include wheat and coffee.

For something to be a commodity it must satisfy three conditions:

  • It must be standardized
  • It must have a shelf life (e.g it must eventually expire/go bad)
  • Its price must vary enough to justify creating a market for the item.

Have you ever heard about commodities and their role in the food manufacturing industry? If you haven’t that it isn’t surprising. Many people think of just getting food from their local farmers and that is true. Though commodities take this to a whole new level.

Although each of us has a personal connection to food we sometimes forget that food is a business and their are many jobs that make up the business side. There are jobs such as management, accounting, finance, marketing, production.

So who takes on the role on purchasing/selling these commodities?

Commodity Merchandisers of course!

This week FoodGrads is taking a look at Commodity Merchandisers and how they acquire supplies for food companies.

1. Commodity Procurement/ Merchandiser buy and sell commodities

Commodity Merchandisers are professionals who:

buy and sell agricultural products in the form of commodities. They can work as a middleman, buying commodities from farmers and then selling it to other companies or they can can purchase product from farmers/processors and have it processed at the company they work for.

A key aspect of this job is developing and implementing buying strategies that provide optimal price, quality, reliability, availability and inventory for all the raw materials. When purchasing commodities they overall want the lowest possible price for the highest quality product. There are many strategies that a commodity merchandiser can use but usually these strategies revolve around fostering/managing relationships with suppliers.

Merchandisers build and maintain relationships with suppliers and customers, by keeping customers aware of the current market news. They investigate major vendor issues such as bankruptcies, quality failures, delivery failures, relationship failures and establish satisfactory resolution’s.

Merchandisers play an important role in the food supply chain because they must follow the flow of a product throughout the year. Processors (food manufacturing plants) typically do not have the capabilities to store the amount of raw materials they need consistently need. Therefore, they get merchandisers to buy agricultural products at harvest, find a place to store them and distribute it to users over the year.

Finally, merchandisers coordinate shipping schedules to move agricultural products. They coordinate by providing administrative support which include emailing and phoning suppliers/ transportation companies.

2. Commodity Merchandisers analyze markets

Supply and demand are the two things that determine the prices of commodities. Lower supplies drives up demand, which equals higher prices, and vice versa. This sounds simple on the surface but trying to figure out ahead of time the price of commodities is a difficult business. Things such as droughts and technological changes can effect these supplies.

Agriculture commodity merchandisers spend their time trying to figure out when these price differences will occur by forecasting trends. Merchandisers use specialized methods of predicting prices which include analyzing past price patterns and commodity stock levels.

All this is to figure out when is the best time to buy at a cheaper price!

3. Commodity Merchandisers have this education

Commodity merchandisers generally have a post-secondary degree in agriculture, commerce or business administration (or equivalent post-secondary education). Degrees on the business help to prepare students learn to deal with the constantly changing economy and make decisions concerning risk and uncertainty of agricultural production. In contrast, agricultural degrees help students to understand the actual commodity and the actual physical factors which affect them.

In rare case you are able to to become a commodity merchandiser without a degree but you need to have experience in this field. Typically, these individuals begin their careers in entry level roles and work their ways through the system. Eventually going to sales and then other related business jobs.

4. Commodity Merchandisers develop relationships

The ability to build and maintain strong relationships is a key aspect for any merchandisers job. Selling/buying commodities is dependent on good relationships because merchandisers are responsible for negotiating contracts with clients. Building relationships takes time and sometimes these relationships can span for decades!

Merchandisers are always on the lookup for new business openings spending a large part of their time visiting suppliers, meeting with clients, and overseeing logistics arrangements for them. In this case the suppliers would be farmers. Relationships are dependent on constant communication and even just talking over the phone.

5. Commodity Merchandisers understand the company they work for

How a commodity merchandiser conducts business is dependent on the company that they work for. It is very important for a merchandiser to know what exactly the company needs. They don’t want to purchase the wrong type of grain or have a delivery method that doesn’t suit the company.

Merchandisers constantly undergo internal meetings at work to ensure their daily duties align with product lines, production, business team and functions.

6. Commodity Merchandisers understand economics

Having a sound knowledge of basic economic principles is they key to becoming an expect commodity merchandiser. Constantly throughout the year prices of commodities will change causing challenges in a merchandisers job. Supply and demand will change as well as grain storage costs and transportation costs.

These professionals will learn basic economics in college/university and apply it to their jobs. They might use hedging as an alternative way to lock in prices during period of of high demand.

Commodity merchandisers will learn over time how to manage the pipeline of commodities from producer to end-user, including supply chain logistics, contract execution, and quality control. Overall, they understand the economics of how each each step effects the price of a commodity.

7. Commodity Merchandisers perform risk management

A commodity risk is the risk that a business’s financial performance or position will be adversely affected by fluctuations or position will be adversely affected by fluctuations in the prices of commodities. In other words, agricultural commodities always pose a level of risk because they tangible things. Environmental events can occur like floods or political events which affect the price and of agricultural products.

A commodity risk is the risk that a business’s financial performance or position will be adversely affected by fluctuations or position will be adversely affected by fluctuations in the prices of commodities. In other words, agricultural commodities always pose a level of risk because they tangible things. Environmental events can occur like floods or political events which affect the price and of agricultural products.

To combat these uncertainties commodity merchandisers perform risk management-a practice used to identify potential risks in advance so that you can take precautionary steps to reduce the risk. As a buyer here are some of the examples of how they mitigate risk:

  • Supplier negotiation: Approaching a supplier for an alternative pricing plan. This includes lowering the price when buying in larger volumes and alternatives to the commodity.
  • Alternative Product Sourcing: More than one farmer sells the same product. Therefore, procurement merchandisers can try to find new suppliers.
  • Production process review: Sometimes commodity merchandisers can get involved in the production of agricultural items. They might look to their company to suggest improvements for manufactures to more product using less at a higher price. Continually reviewing product processes is the keep to keeping prices down.

8.Food Commodity Merchandisers have these set of skills:

Being a quality assurance professional requires a range of skills however there are a few which are more essential than others. These skills include: :

  • Negotiation skills: Food commodity merchandisers use negotiation skills on a daily basis. Example situations include negotiating a lower price on a commodity and a shorter delivery time on a shipment. How they negotiate will be dependent on the merchandiser but it always include a lot of talking over the phone and in person!
  • Analytical and interpreting skills: There are many tasks that require a commodity trader to be analytical. One of the prime examples is gathering data and determining what information is important for buying and selling commodities. On the surface this sounds easy but predicting market trends is all dependent on picking out the right information.
  • Math Skills: The agricultural commodities market is all about the mathematics, especially probability. Commodities must be produces and stored which always poses a certain level of risk. Remember commodities are agricultural items so there a level of risk that (ex. a drought could occur). Commodity merchandisers use mathematics to determine probabilities and how much risk they would like to incur.

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