You’ve been watching the commodity markets. Some ingredients might be up, others easing, but it’s the unpredictability itself that’s become the problem. You’ve had the difficult conversations about supplier pricing, painful ones about what you can realistically pass on to customers.
The first mistake is considering it a raw materials problem – when it isn’t, not entirely.
What most food and beverage businesses are contending with is actually a currency problem; the two are inseparable in ways that aren’t always obvious until there’s an invoice in your hand.
The dollar dominates commodity pricing
Most globally traded food and drink commodities, including cocoa, coffee, grains, sugar, palm oil and soya, are priced in US dollars. And that’s regardless of where they were grown, processed or shipped from. The international benchmark price is set in USD, so that’s what your suppliers are working from.
For UK businesses, there’s compounding effect. When sterling weakens against the dollar, the effective ingredient cost rises, even if the commodity price in dollars hasn’t moved at all. When commodity prices and the exchange rate move against you at the same time, the impact can be severe.
This risk is not theoretical. In 2025, GBP/USD traded in a range of roughly $1.21 to $1.32, a swing of around 11 cents or approximately 9% from high to low. A substantial portion of input costs for UK food and drink producers are directly or indirectly linked to the US dollar, and so a 9% shift in the exchange rate can materially effect your margins. That’s before a single commodity price has changed.
And we’ve seen that commodity prices do change, sometimes dramatically. Amid the cocoa crisis in 2024, for example, the ingredient more than doubled in price. Arabica coffee saw highs and lows ranging around 43% in the same year. While these are exceptional moves, they sit on top of the baseline currency exposure that already exists for any business buying internationally.
The dollar’s impact in action
With that context, consider this hypothetical example: a mid-sized UK drinks manufacturer that sources cocoa, coffee and packaging materials. These are all quoted in dollars, accounting for roughly 40% of their annual cost base of £10 million: in other words, £4 million in USD-linked spend.
In January 2025, with GBP/USD around $1.25, that £4 million translates to approximately $5 million of buying power. By April 2025, with sterling having weakened toward $1.21 at its low point, the same dollar requirement now costs closer to £4.13 million, an increase of £130,000 from currency movement alone. Layer on top the aforementioned cocoa and coffee cost pressures, and the picture becomes even more challenging to navigate.
Of course, the market can equally move both in favour or against you – for example, if sterling were to strengthen against the dollar, businesses might find they have lower commodity costs – the real challenge is mapping that against your financial planning.
If the business that budgeted on early-year rates and commodity prices, without accounting for either moving, it could find itself thousands of pounds off-forecast by mid-year without an obvious resolution.
A finance leader’s instinct might be to try renegotiating with suppliers or looking for alternatives, but this doesn’t address the underlying currency exposure.
Why reacting is the problem
Most businesses that find themselves in this position are managing reactively. A supplier price increase arrives, they review the numbers, they make a call to their FX provider. But by the time the invoice changes, the FX rate has already done its work.
This reactive posture creates three distinct pressures that finance leaders in food and drink will recognise immediately:
- Margin compression that’s hard to model. When your costs are partly determined by a rate you didn’t lock in, there’s a lot of additional guesswork to forecasting. Previously approved budgets may bear little resemblance to actual costs six months on.
- Repricing risk. Passing cost increases on to customers is never straightforward. Done too often or too sharply, it damages relationships and invites them to look elsewhere. The businesses likely to struggle most are those forced to keep repricing reactively.
- Planning indecision. When you don’t know what your inputs will cost in three months, committing to new contracts, expansion plans or R&D becomes harder to justify internally.
You can’t control the rate, but you can control how exposed you are to it.
The good news for businesses is that while you can’t control where the market moves with regard to commodities or currency, you can control your approach to managing exposure.
Businesses that manage this well tend to share one characteristic: they’ve made a deliberate, proactive decision about how much currency risk they’re comfortable carrying. That can approach will look different from one business to another. For some, that might mean exploring tools like currency hedging to bring more predictability to their future costs. For others, it means simply understanding the exposure better before deciding what to do with it.
This publication is provided for general information purposes only and does not constitute financial, legal, tax or other professional advice from Lumon, nor is it intended as a substitute for obtaining advice from appropriately qualified professional advisers. Foreign exchange services provided by Lumon are offered on an execution‑only basis. Lumon makes no representations, warranties or guarantees, whether express or implied, as to the accuracy, completeness or timeliness of the content of this publication. Foreign exchange transactions involve risk. There is a cost to purchase currency forwards which is higher than transacting at the current spot rate.
