Using brand recognition to streamline and shorten commodity value chains

Transcription

1 GLOBAL COMMODITIES FORUM 7-8 April 2014 Using brand recognition to streamline and shorten commodity value chains by Mr. Docherty Windward Commodities CFC The views expressed are those of the author and do not necessarily reflect the views of UNCTAD.

2 Using brand recognition to streamline and shorten commodity value chains Windward Commodities Windward Strategic Ltd Slide 1

3 Introduction; windward commodities Windward Commodities turns low-interest commodities into high-value brands for the benefit of producers in emerging markets by applying private sector marketing and supply chain principles to development objectives. This leverages intellectual property to capture value for producers by streamlining global value chains. partners Sugar Global Coffee Mexico Oil Caribbean Energy Latin America Chillies Zimbabwe products Nutmeg Grenada Pineapples Ghana Salt Southern Africa Metals United States Cassava Tanzania Windward Strategic Ltd Slide 2

4 Problem; the commodity bottleneck Agricultural supply chains are increasingly dominated by a small number of major buyers who form a bottleneck between consumers and producers. This is partly responsible for the increasing value captured by downstream activities. Branding has the potential to provide leverage to producers through consumer demand: Circumventing the buyer bottleneck through branding Adapted from Grievink (2003) Consumers Consumer marketing demand BOTTLENECK leverage Retailers Customer Processor Trader Leverage and commercial value increases from upstream to downstream activities BRAND Farmers Producer Windward Strategic Ltd Slide 3

5 Problem; the limitations of certification Certification marks such as Fairtrade or Rainforest Alliance provide leverage in value chains at a low risk to producers but their proliferation there are now over 126 separate marks has lead to confusion and limited competitive advantage as it has become more mainstream Windward Strategic Ltd Slide 4

6 Opportunity; ingredient branding Due to the dominance of manufacturing and own-label in commodity markets, Windward focuses on developing ingredient brands (e.g. Intel inside) that support manufacturers and retailers own brands rather than competing directly with them: low reward medium high product brands high geographical indicators ingredient brands risk med supports manufacturers product brands cer fica on brands uses geographical & cer fica on brands as a pla orm low Windward Strategic Ltd Slide 5

7 Opportunity; product differentiation Windward takes as a starting point that physical similarity is not necessarily a barrier to branding. This is illustrated by three well known examples of primary product categories, water, salt and oil where value has been successfully added despite highly limited product differentiation: US$0. 02/ litre! US$2.03/ Litre! US$0.76/ kg! US$24.0/ kg! US$0.78/ litre US$0.92/ litre Windward Strategic Ltd Slide 6

8 Case study; Barbados sugar In common with many other Small Island Developing states, Barbados lacks economies of scale to compete on price in world markets with global sugar producers. This has been exacerbated by reductions in EU subsidies and a traditional bulk export model that limits total benefits from the global value chain. $1, $1, $1, $ $ $ World price EU subsidised price Barbados cost $ $ Jan 06 May 06 Sep 06 Jan 07 May 07 Sep 07 Jan 08 May 08 Sep 08 Jan 09 May 09 Sep 09 Jan 10 May 10 Sep 10 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13 May 13 Sep 13 Jan 14 Windward Strategic Ltd Slide 7

9 Case study; branding objectives The West Indies Sugar & Trading Company was created as a partnership between Windward and the government of Barbados in order to, Build a sustainable business that supports the Barbados sugar industry through the development of a profitable portfolio of sugar brands for domestic and export markets. Windward Strategic Ltd Slide 8

10 Case study; value chains A focus on intellectual property and control of downstream operations has streamlined the sugar value chain, creating significant added value for Barbados producers. However, this has required extensive outsourcing, partnerships, expertise and the resources to establish & manage complex supply chains: traditional bulk sugar model Producer Manufacturing Bulk sales Trader Shipping Financing Import-Export Processor Processing Distribution, IP, Sales Customer Retail Food Service Manufacturing Consumer Increased leverage and commercial value with end customers and consumers branded sugar model Producer Manufacturing Intellectual Property Sales outsourced Shipping Import-Export outsourced Processing Distribution Customer Retail Food Service Manufacturing Consumer intellectual property management Windward Strategic Ltd Slide 9

11 Case study; impact Streamlining value chains through branding has created transparent, quantifiable added value for producers. However, it is only one, partial solution to structural issues in Barbados. Branding is a high risk activity, returns on investment can be slow and need to be viewed in the context of wider industry costs and operations. $1, $1, $1, $ $ $ $ $ $ $ $ Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 US$2.93m incremental income in in 2014 world price WISTCO price Windward Strategic Ltd Slide 10