Achieving High Performance in Agribusiness through Commodity Trading & Risk Management

The commodity market faces increased volatility and regulatory scrutiny. Although many agribusinesses have devoted considerable attention to physical risks associated with supply chains and producers, commodity trading and risk management have received scant attention. Where companies have created commodity trading and risk management programs, they are often disconnected from physical risk. Now more than ever, agribusinesses need to develop a more structured, holistic approach to managing risk and liquidity. Not only can it assist in mitigating existing risks, but it can help agribusinesses prepare for the future, seize growth opportunities and outmaneuver competitors.

Many companies are feeling the pinch, squeezed between an increasingly tight supply and demand equation. A growing global population and significant dietary changes in emerging markets have boosted demand. On the supply side, increasing energy and freight costs coupled with climate instability have put downward pressure on profit margins. To cope with these changes and other industry trends that are amplifying market volatility, agribusiness companies will need to examine their commodity trading and risk management practices.

Using our proprietary High Performance Business methodology, Accenture recently analyzed 56 agribusiness companies with annual revenues in excess of US$1 billion to determine key characteristics of high performers. The research revealed that one of the four distinctive capabilities of high performing agribusiness companies was effective trading and risk management. High performers effectively manage physical, financial and sustainability risk, as well as their revenue.

Accenture research indicates that managing financial risk together with physical risk is essential to achieving high performance.

As global economic volatility continues to cause huge swings in commodity and resource prices as well as packaging and transportation costs, financial risk poses a growing threat to agribusiness companies.

While many companies are addressing physical risks associated with their supply chains or producers to ensure product quality and safety, financial risk—whether credit, market or liquidity risk—is often handled separately, despite there being an important connection to physical risk.

In an increasingly volatile market, having a robust, integrated commodity trading risk management capability won’t be optional—it will be essential. With it, companies will be better able to react to existing risks and prepare for future ones, whether it means developing more stringent reporting requirements to meet new derivatives trading legislation or planning for yield or price volatility.

Companies can use commodity trading risk management as a mechanism to protect their capital and liquidity but also transform their business by identifying new opportunities and strategies that can increase efficiency and spur revenue growth.

Latin America/Global Lead
Eduardo Barros
+55 11 9281 3371
eduardo.barros@accenture.com

North America
Darryl Heath
+1 469-665-5588
darryl.heath@accenture.com

Europe and Africa
Rob van der Krogt
+31 20 593 9055
rob.van.der.krogt@accenture.com

Asia
Bruce Liang
+65 6410 6975
bruce.liang@accenture.com