The past six years have tested food and drink businesses in ways few could have predicted. A pandemic disrupted supply chains overnight. An energy crisis drove up processing, refrigeration and distribution costs. A trade war repriced imported ingredients across multiple continents. And now, sustained conflict in the Middle East is reshaping oil markets, inflation expectations and currency dynamics — simultaneously.
Each event was described as unprecedented at the time. Taken together, they point to a harder truth: disruption is no longer an exception to plan around. It is the operating condition.
For finance decision-makers in food and drink, the question is no longer whether the next shock will arrive. It is whether your business is structured to absorb it.
The hidden cost of reactive decision-making
Most businesses still anchor their approach to currency risk in a world that no longer exists — one where market signals arrived slowly enough to act on, and where a period of relative calm was a reasonable basis for financial planning.
But when geopolitical risk escalates, currency markets move fast. Sterling, the euro and the dollar are all acutely sensitive to Middle East developments, particularly around energy flows and the Strait of Hormuz. In April alone, sterling strengthened roughly 3% against the dollar as ceasefire conditions held. The euro gained around 1.5% over the same period. For UK importers buying dollar-denominated grains, flavourings or specialist additives, that was a meaningful if temporary reduction in input costs. For exporters, the same move cut competitiveness in US markets.
The problem with reactive currency management is structural. By the time signals align clearly enough to act on, the rate has already moved. Businesses then face an uncomfortable choice: transact at a rate that no longer reflects the economics they were working to, or wait — extending exposure and compounding risk.
Neither is a strategy. Both are symptoms of navigating FX with instinct rather than process.
Today’s outlook: what food & drink businesses are facing
Currency volatility is unlikely to ease. Several forces are converging that businesses with cross-border exposure need to monitor.
Sterling remains vulnerable to shifts in risk sentiment. Persistent energy-driven inflation may prompt the Bank of England — which held rates at 3.75% in April — toward a more hawkish stance. Higher rates would typically support the pound but could suppress domestic consumer demand, adding pressure at a time when margins are already stretched.
The euro faces a parallel challenge. Europe’s dependence on imported energy means any renewed escalation could undermine confidence in the regional outlook. Eurozone inflation rose to 3% in April, up from 2.6% in March. Rising borrowing costs could constrain capital investment for energy-intensive producers, even as a firmer euro offers partial relief on globally sourced commodity imports.
The dollar may regain safe-haven momentum if tensions escalate. Markets are also watching the expected appointment of Kevin Warsh as the next Federal Reserve chair. Seen as more dovish than his predecessor, Warsh may favour earlier rate cuts — potentially weakening the dollar and reducing costs for businesses importing US commodities, while squeezing margins for US exporters selling into Europe and the UK.
The interaction between FX rates, fuel prices and inflation is especially direct for food and drink. Energy costs feed into processing, cold chain logistics and distribution. Currency moves feed into the price of cocoa, coffee, packaging and specialist ingredients. These pressures do not arrive sequentially. They compound.
From reactive to systematic: a smarter approach
The businesses that have navigated successive disruptions most effectively were not those with the most accurate forecasts. They were those that had already built systematic hedging frameworks — with cover levels established and currency decisions anchored in business fundamentals rather than market noise.
A hedging strategy built around a business’s forward exposure, budget rate and cash flow profile does not require a view on every geopolitical development. It makes those movements largely irrelevant to the decision.
Consider a business with $4 million in annual dollar exposure. The finance director structures hedging into predetermined quarterly tranches, covering 20% of forward exposure each time. When a short-term dollar spike follows a geopolitical headline, there is no reactive decision to make. The next tranche is already scheduled. The rate achieved reflects a disciplined average across multiple entry points — not a single call made under pressure.
Research into corporate hedging behaviour consistently shows that firms relying on discretionary timing rather than systematic policy add operational complexity without improving outcomes. The market does not reward attempts to call it correctly.
The strategic imperative for food & drink leaders
For businesses sourcing ingredients globally, managing multi-currency supplier relationships, or selling into export markets, FX volatility is not a treasury problem. It is a margin problem — and increasingly, a competitive one.
Businesses that treat currency management as a reactive, headline-driven exercise will continue to absorb unnecessary costs. Those that build systematic frameworks — aligned to their commercial exposure, planned in advance and executed with discipline — are better positioned to protect margins, forecast cash flows with confidence, and make decisions based on strategy rather than market anxiety.
In an environment where the next disruption is a matter of when rather than if, that distinction matters more than ever.
Lumon Corporate helps food and drink businesses manage currency exposure with flexible hedging products tailored to their trade and supply chain profile. To find out how active FX management could support your margins, speak to one of our specialists.
