Investing in the supply chain means ingredients companies can take control

By Simon Pitman

- Last updated on GMT

Related tags: Investment, Agriculture, Supply and demand

One of the biggest challenges to natural and organic companies is ensuring a reliable supply of quality raw materials, but experts believe investing in the supply chain is a viable solution.

“Compared to simply purchasing crops or semi-processed plant material on the open market, investing in the supply chain means greater control can be exerted,”​ said Judi Beerling, technical manager at Organic Monitor.

In short, companies have much better control over the raw materials they are sourcing, ensuring they are free of any matter of contaminants or trace elements that could jeopardize fulfilling certification requirements.

“It also means that Fair Trade deals can be struck with farmers, which is becoming an increasingly important concern to consumers,”​ Beerling said.

Long-term cost control advantages

Cost control is also a consideration for investing in the supply chain, but generally any cost reductions are likely to come about in the mid- to long-term, as the initial investment in this type of project is often significant.

“It can take five years or more to convert a farm to organic production,”​ said Beerling. “However, it does virtually guarantee continued supply if the market price may suddenly climb due to supply and demand issues.”

Naturally this is a situation that helps to benefit both parties, as the farmers too are guaranteed a fixed price for their crops as well as having a fixed trade.

There are also advantages to communicating this type pf project to consumers, as it can be beneficial for a company to be more transparent about the supply of its ingredients.

Important to communicate investments in the supply chain

However, as Organic Monitor’s director Amarjit Sahota points out, companies often do not go to the trouble of stressing such initiatives.

“Many natural and organic cosmetics companies have been investing in such projects for a number of years but they do not like to communicate them.

“The problem with most companies is that they do not see any reason to communicate these projects as they think they are a normal part of their business,”​ Sahota said.

Conversely, Sahota points out that larger beauty companies and ingredients that largely work outside the organic or natural arena generally undertake fewer projects of this nature but generally do more to communicate them as it looks positive against annual sustainability reports.

Examples of natural and organic companies investing in the supply chain include Dr. Bronner’s, which has invested in Fair Trade olive oil sourced in Palestine; Earthoil Plantations, which has invested in vegetable oils from India and Kenya; and Brazilian ingredients company Beraca, which has invested in the ethical sourcing of raw materials from the Amazon basin.

Disadvantages to supply chain investment

However, both Beerling and Sahota point out that there can be disadvantages to investing in the supply chain, especially given that natural and organic players are often smaller, with more limited resources, combined with the fact that many of the projects are in developing countries.

“You need specialists in that country or experts in the company who can help to cut the red tape and ensure that bureaucracy does not get in the way,”​ said Beerling.

Sahota also believes that on top of bureaucracy, doing business in developing countries means that political instability, trade sanctions and economic turmoil should also be factored into the equation.

The issue of investing in the supply chain will be investigated in greater detail during a presentation given by Judi Beerling at the forthcoming Sustainable Cosmetics Summit​ taking place in New York on 24-26 March.

Related topics: Market Trends

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