How food businesses can stay ahead of unexpected import needs
Food businesses can spend weeks securing replacement stock after a supply disruption, only to discover that exchange rate movements have made the purchase far more expensive than expected.
When a harvest fails, a supplier falls short or demand suddenly surges, procurement teams often have to source products from unfamiliar markets at short notice, negotiate with new suppliers and commit to pricing before the full cost of procurement is known.
The challenge is not simply securing supply. Businesses may also find themselves managing unfamiliar currencies, fluctuating exchange rates and changing import costs, making it harder to budget accurately and forecast procurement spend.
Reliable seasons and predictable demand make procurement planning easier. However, when seasonality fails, importers may need to react to changing market conditions, often expanding into new international markets to secure stock. While this can help maintain supply, it may also make future costs less predictable and increase exposure to currency fluctuations. This can create additional challenges when forecasting costs and managing profitability.
Why is traditional seasonality breaking down?
Climate change, geopolitical disruption and shifting demand patterns can make food sourcing less predictable. Studies show that global warming is affecting crop yields and changing where certain foods can be grown.¹ In some regions, harvests are becoming less reliable because of extreme weather, while elsewhere changing conditions are creating new growing opportunities. The result is a gradual shift in both crop availability and traditional growing seasons.
For food importers, this can make sourcing more complex. Poor harvests and supply shortages can create pressure to secure alternative suppliers quickly, often in different countries and regions. At the same time, geopolitical tensions and labour shortages continue to disrupt global supply chains, adding further uncertainty to procurement decisions.
Food sourcing was once a relatively predictable process. While supply disruptions did occur, they were generally less frequent and easier to anticipate. Today, the combination of climate pressures, global trade disruption and changing demand patterns means businesses are operating in a less stable environment, where established sourcing strategies may no longer provide the same level of certainty.
What happens when supply is no longer reliable?
When a food business can no longer source products from its regular suppliers because of poor harvests, geopolitical disruption or changing demand patterns, it may need to seek alternative sources of supply, often at short notice. This can involve identifying and onboarding suppliers in alternative regions within tight timeframes.
Doing so isn’t always straightforward. It involves forming new supplier relationships, negotiating contracts and working out logistics, all under heavy time pressure. And as businesses scour the globe for new suppliers, new currencies and exchange rates come into the picture. That currency exposure may create additional uncertainty around procurement costs, budgeting and pricing decisions.
When currency exposure creates uncertainty
For many food businesses, the greatest challenge is not finding an alternative supplier. It is understanding what that decision means for costs, pricing and profitability. When procurement teams are forced to source from new regions, exchange rate movements can quickly become part of the wider commercial risk.
When businesses start dealing in currencies they may not be familiar with, new risks emerge. It might be more or less expensive to transact in a new currency compared to one the business is used to, or the exchange rate might fluctuate unexpectedly. Businesses may also have less visibility of the factors that influence a currency’s value and volatility.
This becomes particularly challenging when businesses have to agree pricing with customers before procurement costs are fully known. A movement in FX rates between agreeing a deal and making payment can affect forecasts, alter expected costs and reduce confidence in financial planning. The faster sourcing decisions need to be made, the harder it becomes to build confidence into financial planning.
Beyond the immediate impact on import costs, exchange rate movements can make budgeting and forecasting more difficult . While currency fluctuations can work in a business’s favour as well as against it, they can still create uncertainty when planning future costs and cash flow. Procurement teams may need to make decisions without full visibility of future exchange rate movements, , while finance teams have less certainty around future costs and profitability. As disruption becomes more frequent, managing currency exposure can become an increasingly important part of maintaining commercial resilience.
What currency exposure looks like in practice
How might FX exposure in food supply chains work in practice?
Switching suppliers
A UK importer traditionally sources almonds from Southern Europe, but a prolonged drought in the region disrupts the harvest and sends prices through the roof. So the business looks to California to fill the gap in supply, where yields have been good.
It’s a good solution, but the importer now has to transact in dollars rather than euros, introducing a new layer of cost variability. For example, if the pound weakens against the dollar, each pound buys fewer dollars, raising the cost of the almonds.
If customer pricing has already been agreed, the additional cost may have to be absorbed by the importer, putting pressure on margins and profitability.
Securing new supply
In another example, a distributor needs to secure an emergency supply of avocados to meet unexpected demand after poor harvests reduced availability from existing suppliers. But the deal needs to be done quickly, and the distributor has to agree pricing before final landed cost is confirmed, including the impact of exchange rates. In this scenario, pricing decisions become more difficult because final costs may still be changing while commitments are being made.
How unpredictability can affect business performance
The decline in seasonality can create operational disruption, but its impact often extends far beyond procurement and into wider business performance.
When an importer has to turn to unfamiliar suppliers, profit margins become less predictable. Negotiating at the last minute with new suppliers can incur cost penalties. As costs fluctuate, cash flow becomes less certain and financial planning less reliable. Forecasting also becomes more challenging, particularly when businesses need to make purchasing and pricing decisions months in advance. At the same time, pricing decisions become more complex, and decisions around business investment and expansion have to be made on the basis of speculative rather than concrete figures.
None of this is too much of a problem when supply chain disruption happens once. But the impact can accumulate over time, especially if climate change and trade tensions add a growing number of weak links to the global food supply chain.
Why some businesses are more exposed than others
Some businesses are naturally more exposed to these challenges than others. Some are more reliant on imports, while others may specialise in produce that is more vulnerable to the impacts of climate change. Those that source through a limited number of suppliers may be more exposed than those with a wide supplier base.
Businesses with fixed pricing agreements may be less able to react to uncertainty, while those that are forced to transact in more volatile currencies will face greater exchange rate exposure.
Building resilience in an unpredictable environment
How might affected businesses react to these challenges? One potential solution is to diversify supplier networks. Start planning for the possibility of supply chain disruption before it happens, identifying and building relationships with alternative suppliers before the need becomes urgent.
In some cases, the signs of supply chain disruption may be visible in advance. Food importers may need to explore more sophisticated forecasting solutions and supply chain management systems. Technology in this field can often model responses to a range of scenarios, making your real-world response faster and more effective.
The role of FX awareness in operational resilience
FX awareness can also contribute to more predictable finances. Exchange rate movements are part of a wider commercial challenge when businesses are forced to find new suppliers, negotiate at speed and commit to pricing before costs are fully known.
Food businesses should be conscious of the impact exchange rate volatility can have on costs and margins. That impact can be magnified in times of disruption, when quick decisions need to be made to ensure supply. New suppliers in new jurisdictions can introduce additional currency exposure just as businesses are trying to maintain supply and make informed commercial decisions.
FX risk management can be useful as part of a broader strategy to mitigate the effects of declining seasonality. Alongside supplier diversification, forecasting and contingency planning, understanding currency exposure can help businesses make more informed commercial decisions when disruption occurs.
As sourcing becomes more dynamic and global, understanding the potential impact of exchange rates on costs, pricing and forecasting should form part of every food importer’s contingency planning. Food businesses that prepare for both supply risk and currency risk are likely to be better positioned to respond when disruption occurs.
Sources used:
Climate change and crop yields – Stanford University
Disclaimer:
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.
