Food manufacturing runs on thin margins, and raw materials are the largest and most volatile line in the cost of finished goods. | Photo Credit: RUPAK DE CHOWDHURI

Food manufacturing runs on thin margins, and raw materials are the largest and most volatile line in the cost of finished goods. When a commodity price moves, it moves the whole cost base. Yet manufacturers cannot pass that movement on: retail prices are lagged, private label competition caps how far a brand can climb, and demand turns elastic at a threshold. When input costs spike, the increase lands on gross margin. Procurement is one of the few levers a manufacturer holds over profitability. Yet, manufacturers understand and control their raw materials exposure less well than the numbers reported to the board might suggest.

For a hedgeable input such as flour, the landed cost is rarely one number. It is a stack of components, the underlying commodity, the basis, freight, the milling conversion, and a byproduct credit. Only the flat commodity trades on an exchange; basis, freight, and packaging and do not, so coverage is always partial. The rest is handled through supply contracts, and a single contract can carry many prices, varying by delivery terms, volume, and timing. Energy adds another volatile layer. The true cost is assembled from books that do not naturally meet and the result is a fragmented view of the landed cost of finished goods.

Unlike trading, hedging is driven by expected consumption. A manufacturer forecasts what each plant will use and tracks how much is already priced. Those coverage numbers feed board reports and securities filings, so an error there becomes an error in public guidance.

The uncomfortable reality is that much of the industry runs this exposure on ERP modules never designed for commodity coverage, stitched together with spreadsheets. Coverage, position, P&L and spend live in desktop spreadsheets, exported to accounting and back, and every hop lets a version drift. Kept in separate systems, the physical, financial and accounting views of a position stop agreeing, and the gaps are big enough to matter. Hedges get set against stale numbers, spend does not reconcile at close, and audit trails do not hold up. The margin quietly slips away.

Two forces are making that fragility more expensive. Traceability regulation, led by the EU Deforestation Regulation from December 2026, binds provenance and contracts to the same records that carry price and coverage, which spreadsheets cannot hold. And geography: India imports roughly 56 per cent of its edible oil and the Gulf states close to 85 per cent of their food. These markets also have the chance to build stronger procurement and risk infrastructure to counter the volatility they import from global markets, and to do it without decades of legacy workarounds to unwind.

The target state is a single system of record for raw materials risk. It models the full cost stack; links the consumption forecast to coverage; reconciles the physical, financial and accounting views to one number; and produces reporting fit for the board and an auditor. This is the problem that can be solved. Strategic planning and procurement can build a manufacturing cost model for each product, resolving hedgeable and non-hedgeable costs into one true material cost with full visibility of coverage, spend and exposure. For manufacturers in India and the Gulf, building this capability now means establishing discipline before workarounds calcify. Data integrity in raw materials risk is a direct contributor to margin, market access and competitive advantage. In an industry defined by the difference between input cost and product price, knowing your true covered cost with confidence is the margin itself.

The author is chief growth officer, Ion Commodities

Published on October 18, 2026