Extreme weather plus Middle East unrest causing higher commodity prices

Extreme weather incidents around the globe are creating shortages and adding to rising commodity prices. Combined with the recent unrest in the Middle East and the resultant escalating oil prices, higher commodity prices present a huge difficulty for companies.

The World Bank recently warned that high food prices have driven 44 million people around the world into poverty since June.

According to Mylene Kasiban, Finance Director with Kraft Foods, the surging commodity prices have made conditions very challenging.

Kasiban will be a speaker at the marcus evans 4th Annual CFO Forum taking place on 7 – 8 March in Manila.

“It’s a known fact that companies exposed to sugar, dairy and oil price fluctuation will be very much affected. For some companies the end resort will be to increase prices. If companies do not have the right pricing they will erode their top line by going beyond what the consumers can tolerate or accept. Such commodity price increases must be anticipated with some cushion room in place otherwise business will be very unpredictable.  

“There are certain price points that must be offered to consumers. Otherwise a situation will arise where your product or offering will not be of value to your customers. They are not going to prioritise it.”

Although rising food prices are affecting people in the Philippines, electronics and top-ups on mobile phones are still part of their consumption spending, she says.

“Your product has to be essential. Your company and brand must be perceived as of value to consumers - something that offers a proposition, whether it is corporate social responsibility or employer branding, and that will make you relevant to the industry,” she advises.

The past year had been successful for Kraft in addressing such challenges and the company has grown faster. “It takes a lot of contingency planning and making sure you address commodity pressures in offering value to consumers.”

Among the pressing issues facing CFOs and finance directors include how to grow the top line and drive value to increase income but at the same time manage liquidity, according to Kasiban.

“Given the economic crisis it’s all about making sure you are prepared for the worst case and ensuring you have a space where you are able to manage risks."

Kasiban agrees that the role of corporate governance has become extremely important nowadays since the global financial crisis hit.

“In a multinational company, we’re very much in the limelight in making sure that we follow the rules and have the right governance in place. Otherwise the company’s reputation is at stake. Consumers not only look at the brand itself but how responsible the company is. It has become so much more important and it’s not only driven from a corporate level but is also being demanded by customers and employees.”

The marcus evans 4th Annual CFO Forum will take place on 7 – 8 March in Manila.