Food and commodities producers of the world tend to believe in the growth of individual revenue over industry revenue

Teet Tender

PricewaterhouseCoopers

Advisory Service Line Leader

April  2009

Food and commodities producers of the world tend to believe in the growth of individual revenue over industry revenue

The PricewaterhouseCoopers’ (PwC) Global CEO Survey presented at the World Economic Forum in Davos at the end of January showed unprecedented pessimism among the world’s business elite in regard to the foreseeable future of their companies. Outcomes of the survey in respect of the food and commodities sector indicate that managers’ optimism in regard to the future is a bit higher in this sector than the overall average – after all, consumers will still need milk, bread and soap.

While a year ago half of the food and commodities producers were full of optimism and very confident that their sales turnovers will continue to grow over 12 months, the proportion of optimists had dropped by more than 50% by the end of 2008: 27% of producers believed that the revenue of their companies will continue to grow. The assessment of the increase of their corporate revenue and the future growth of the entire industry over the coming three years was not much lighter, although the distinguishing characteristic of managers in this sector was their belief that the revenue of their companies will grow more than the entire production sector: 31% and 14%, respectively.

The authors of the survey explain this large gap with the fight for the consumers’ wallets between the global brands and the so-called “common products”. The consumers’ price sensitivity grew in the developed Western countries already before the beginning of the economic countries, with consumers increasingly preferring cheaper products. This is bad news for large corporations, although it does not necessarily mean a reduction in income for all of them – quite a few have started selling “parallel products” to economising consumers besides their major brand-value representative products.

Estonian retail traders tend to confirm that the demand for commodities is shifting towards less expensive products – an expected development as people would rather buy cheaper milk than stop drinking milk entirely. I believe (and hope) that the commodities sector in Estonia will be able to realign itself to market needs, considering that there is limited competition between major brands and local products. The main reason for this is, of course, the rather limited “local production” in Estonia.