Experience in Various Industries

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The Russia Ukraine War's Impact on Food & Agri

Costs increase across the farming sector in 2022 due to high fertilizer and energy prices.

Grain: 

The global grain supply has been heavily disrupted due to the limited exports out of Ukraine, as ports are closed and rail and road logistics can handle only a fraction of the typical export volume. Ukrainian grain crops and exports will see severe reductions in the upcoming 2022/23 season, keeping global supplies very tight and prices elevated. Russia has continued to export grain since starting the war and is expected to continue to export most of its grain to the world market, as importers need those volumes to ensure food security. Global grain prices, and with them global food prices, are expected to stay elevated throughout 2022 and likely beyond. Australian grain prices have not increased as much as those of export competitors in the US or the EU.

Fertilizer: 

This is another key product exported from the Black Sea region, and elevated input prices will cut into farmer margins. Regions reliant on imports, like Oceania, have to plan for continued elevated prices and, potentially, even some supply shortages in 2022.

Energy: 

Increases in crude oil and diesel prices resulting from the war add to costs in farming and the supply chain. With Europe likely to reduce Russian energy imports further with a ban on Russian oil imports by late 2022, and with Russia preparing legislation to disrupt commodity exports to countries that impose sanctions or supply Ukraine with weapons, we expect energy prices to stay volatile and high. While oil prices above USD 100/bbl already feel expensive, a further >50% price upside is possible as a consequence of those sanctions. Oceania’s food & agri chain will therefore feel a knock-on effect from global price volatility.

Logistics: 

A system already stressed by Covid faces additional pressures from the war. Shipping costs also feel, and will continue to feel, the rise in energy prices. Container freight rates are significantly elevated, largely due to Covid-related disruptions, and it will likely take two or more years to unwind congestion around the world and for freight rates to move closer to historical levels. With respect to goods imported into Oceania, these costs will be passed on to consumers.

The risks of a quick change: 

A quick end to the war, as much as we may wish for it, seems rather unlikely. Still, a resolution of the conflict would likely add price pressure in many markets, from energy to fertilizers and grains. Ukraine’s crop production and exports in 2022/23 have already suffered damage, but volumes, especially export volumes, would likely be better in the event of a quick resolution. Still, moving grain through partly damaged road and rail infrastructure to ports that are surrounded by mines would be difficult. A recovery of Ukraine close to its full production and export potential is likely only possible in future seasons. But as we have seen, prices react sharply and abruptly in the absence of Ukraine, and prices will probably do the same on its return. Unwinding sanctions on Russia and Belarus might take longer, and the pressure on oil, gas, and fertilizer prices may not abate as quickly and strongly as farmers wish.

Some markets and market segments are always more important to the company than others. Therefore, key account selection processes start from market segmentation. After market segmentation, accounts are analyzed by their attractiveness to the organization. These are critical processes to enable organization to allocate its scarce resources effectively. 

Market Segmentation Process 

Market segmentation starts from the market definition and market structure. Market definition is crucial to measure correctly the market share and market growth, to identify main competitors, and to create successful marketing strategies 

Account Portfolio Analysis 

Companies need to know who are the customers who can make a significant contribution towards the company’s long-term objectives

• Key accounts are critical for future business and deserves special attention and resources from devoted key account team. Attraction is mutual and key accounts rate organization higher than other suppliers, but situations may change easily. 
• Key development accounts are those where future potential could lie. Key development accounts currently prefer more competitors offering.  
• Maintenance accounts are good customers, perhaps even loyal. Maintenance accounts rate organization highly, and are certainly personal favourites for many in the organization, but are not viewed as attractive prospects. As these customers are maintenance accounts, resources should be pulled off from these accounts and directed to where resources are the most needed. 
• Opportunistic accounts are those who are served willingly when it suits to own interests. Right customers to do short-term deals for short-term gains. No great attraction for the organization. 

Competitive View Analysis

Competitive view analysis starts by the analysis of the customer business opportunities, ambitions and hopes for the future 

This analysis of the company’s strengths and weaknesses as a supplier is important since it determines the direction for the future relationship, so it must be right and honest. Again, the best way to conduct this analysis is to ask the customer. 

The goal is to identify the areas where 

• the company make a positive impact to the customer’s ambitions, or reduce their concerns; 
• where the company make a negative impact to the customer’s ambitions, or increase their concerns; 
• how company can resolve these weaknesses and how much that is costing. 

Along this discuss, it is also vital to check if the balance of strengths and weaknesses endorse mutual respect and partnership, or is it forecasting long battle over short-term profit 

Key Account Value-creating Processes and Business Needs 

While managing key accounts, the key account manager might be dealing with dozens of individuals who can affect positively or negatively to the relationship. 

Successful KAM aims to find answers to the following questions: What makes the account want a certain type of product and service. What makes the account purchase these products and service from certain suppliers. Account experience is based on account’s expectations, but the experience is not only about the product or service, it is a function of all internal and external factors

First of all, the offered products and service need to fit the account’s value-creating processes in a way that it supports value creation in the organization’s everyday activities. Any offer that does not support value creation is not interesting to the account, because it is not creating the value the account want. 

The account’s everyday activities and value-creating processes are the most important information organization need to know about their accounts. It is essential to understand that the value-creation process itself does not define what kind of service a person in the account organization is looking for. Many suppliers can provide an acceptable solution to the customer, but key accounts require certain wishes on how key account want the supplier and KAM to treat them. This normally narrows the scope of potential service providers with whom the customer wants to do business. 

This is why KAM needs to know how to treat the account in a way that fulfil his or her technical and functional dimensions of perceived service quality. Knowledge requirement is related to the value system of the customer, which determines what kind of solutions are acceptable and what are out of the question. 

Key Account Profitability (Illustrated below)

By calculating the lifetime value of accounts, key account managers reach to information on which relationships are critically important to the organization, which relationships make little contribution to the total profitability

Logically, evaluating key account management must be based on the profitability of each of the individual accounts which are receiving the treatment. Although they may be large, they should not be numerous, so making their profitability visible should not be too onerous. It is curious, then, that so few companies have effective measurement of key customer profitability in place.

Some customers are good at bargaining back any savings made on their business, others consume large amounts of internal resources, and in some expected sales growth does not materialize.

Customers that the supplier ‘likes’ are often in frequent contact and consuming a lot of profit-reducing resources or, again, so-called ‘large’ customers may be buying big volumes of low margin products, resulting in minimal profits. Which is all the more reason why any supplier should have proper profitability figures.

In the absence of this information, suppliers are in grave danger of misunderstanding which customers give them a poor return and spending more time and money on them, while neglecting customers who give them a better return and may therefore be appealing to competitors. It is reasonable to ask why they put themselves in this position

Product Customization Projects (Illustrated below)

A key account manager needs to be prepared for the individual requirements of account. Requirements for large product customization should be seen as opportunities for new ideas and future business. However, the selection of product customization needs an approval criteria to identify inherent issues. This approval criteria should be strategically relevant with company objectives and include financial justification.

This includes important infrastructure projects such as the roll out of the Mass Rapid Transit Line 3, which will help jump-start the construction sector and create new economic focal points in areas that will benefit from improved accessibility. Similarly, the East Coast Rail Link that will provide a rapid connection between Port Klang in Selangor to Kota Bharu in Kelantan and be a catalyst for growth along this corridor. 

Additionally, the Johor Bharu-Singapore Rapid Transit System will inevitably revive cross-border property interest in the southern state, while the transformation of Penang South Islands into a mixuse sustainable city will draw international attention.

In Klang Valley, massive undertakings such as Bandar Malaysia and Tun Razak Exchange (TRX) will create world-class business and residential attractions, which will also satisfy local appetite for residential, commercial and retail options

Big property bets in 2022

In terms of areas that saw noteworthy capital growth across the country, Puchong in Selangor performed the best in H1 2021, witnessing a 32.6% increase. Other areas that performed well were Ipoh in Perak with 30.4% growth, Shah Alam in Selangor with 28.1% growth and Tebrau in Johor 16.0%

In KL, key areas that performed well in terms of recent asking prices in Q3 2021 were Taman Desa Petaling, which saw average prices move up by 7.29% QoQ, Bandar Sri Manjalara moved up by 4.88% and Bandar Tun Razak moved up by 4.81%. 

In Penang, the highest asking price movements were recorded in Gelugor in Timor Laut (3.76%), Nibong Tebal in Seberang Perai (3.52%) and Sungai Ara in Bayan Lepas (3.05%).

Italian confectionary giant Ferrero said it will stop sourcing palm oil from Sime Darby Plantation Bhd after the US found the Malaysian planter used forced labour in a reputational blow to the palm producer and Malaysia.  

Labour practices across the Southeast Asian country have come under scrutiny in the past two years, with six companies including Sime Darby banned by US customs over forced labour allegations.   

Palm oil, the most widely used vegetable oil, is a key ingredient in Ferrero Rocher chocolates and Nutella spread, giving the iconic products their smooth texture and shelf life.

Although Ferrero buys relatively little of the edible oil from Sime Darby, its move — following similar halts by Cargill Inc, Hershey Co and General Mills Inc — could hurt Sime Darby's standing as a leader in sustainably produced palm oil.

Sime Darby told Reuters it had taken steps in the area of human rights and that all its stakeholders who are committed to sustainability can be assured of its commitment and leadership in the industry. Ferrero is not a customer, it added.

Palm oil is one of the cheapest and fastest-growing vegetable oils used in products from food and cosmetics to biodiesel. But the industry has faced scrutiny over the years for widespread deforestation in Southeast Asia and exploitation of migrant workers.  

Migrant workers from countries like Indonesia, India and Bangladesh account for around 80% of the palm oil labour force in Malaysia, the world's biggest producer of the commodity after neighbouring Indonesia.

Indonesia's ban on palm oil exports

The president of Indonesia announced in late April 2022 that the country will stop exports of cooking oil and its raw material to control domestic cooking oil prices. Global palm oil prices rose following the announcement, as the world couldn’t cope with the loss of all Indonesian palm oil export volumes, even if it’s only for the short term. 

Following this price action and government comments, it seemed that the ban was only going to be imposed on exports of RBD palm olein, which represent about 40% of Indonesian Palm oil exports. A huge amount, but not as shocking. However, the final announcement extended the ban to crude palm oil too. The ban is expected to be temporary (otherwise Indonesia will be swimming in palm oil) but the piecemeal announcement has been causing huge volatility across the vegetable oil sector and as it does not give any certainty about the length of the ban. 

The uncertainty in the vegetable supply chain is huge. Let’s remember we were at record prices before the Ukraine war (which wiped out Ukrainian sunflower oil exports – about half of global sunflower oil exports).