By Chandranath Chakraborty, Founder & Managing Partner · [email protected]
Cocoa butter and cocoa powder can rise even when cocoa beans fall. A hedge against the bean can therefore show a gain in the same quarter that the factory pays more for its cocoa ingredients.
The Food and Agriculture Organization published its August index on 4 September at 133.3 points, up 1.9% on revised July and the highest level since late 2022. All five sub-indices rose, led by sugar at 11.9%. A few weeks earlier, Unilever and Nestle had both reported first halves in which price contributed little to growth. With less room to raise selling prices, more of the margin work has to come from what companies pay their suppliers.
For Asian businesses, that means looking closely at the costs that actually reach the factory. Palm oil, coffee and cocoa may start with traded market prices, but the products bought by factories include processing, freight and other spreads that move differently from the headline commodity.
MomentumX takes that analysis from the category cost build through supplier negotiation, implementation and confirmed savings.
For the worked model behind this analysis, or to discuss the category: [email protected]
The FAO food price index averaged 133.3 points in August, 1.9% above revised July and 2.5% above August 2025. Every sub-index rose: sugar by 11.9%, dairy 2.3%, cereals 2.2%, vegetable oils 1.1% and meat 1.0%. July had already been the highest reading in three years before it was revised.
Palm oil shows why the headline number is not enough. The Malaysian Palm Oil Council expects crude palm oil to trade between RM4,400 and RM4,650 per tonne in August, supported by Indonesia's B50 mandate. In the same outlook, it says high vegetable-oil stocks in major markets should limit further gains. The same forecast therefore contains both upward and downward pressure.
Coffee has been just as volatile. The International Coffee Organization's composite indicator averaged 248.90 US cents per pound in June, down 2.8% from May. It fell to 231.96 on 9 June, the lowest level in nearly two years, then rebounded 17.4% to 272.39 by month-end. Arabica closed at $3.17 per pound on ICE on 14 August, 5.4% below a month earlier. A quarterly average would hide most of that movement.
The large consumer companies are reading this environment differently. Nestle reported 3.6% organic growth in the half, with 2.1 points from price and 1.5 from real internal growth, and said coffee and cocoa were behind its largest margin headwind of 160 basis points. Unilever reported 4.8% underlying sales growth, mostly from volume, while still lifting underlying operating margin by 10 basis points to 20.3%. Danone's second-quarter growth was 4.2%, split 2.3 points from price and 1.9 from volume. P&G guided to about $150 million of after-tax commodity pressure for fiscal 2026 against about $400 million from tariffs.
These companies buy many of the same inputs, yet they are reaching different conclusions about how temporary the cost pressure is. That difference is useful in itself.
The market indices above price traded commodities. They do not tell you exactly what a factory pays for the processed ingredient that arrives at its gate.
Take cocoa. The market prices the bean, but a chocolate factory may buy cocoa liquor, butter and powder. Liquor is the ground cocoa bean. Butter is the fat pressed from it, and powder is made from the remaining solids. Butter and powder come from the same processing step. Their prices depend on the bean price, on how much grinders are producing, and on what the market wants from each output.
This pattern appears across food, beverage and personal care. The traded commodity is often only part of the delivered cost. The rest sits in processing, packaging, co-manufacturing and distribution. In chocolate the invoice may be for butter, powder and liquor rather than beans. Their relative prices depend on grinding economics and available processing capacity. The International Cocoa Organization cut its estimate of 2024/25 global grindings by 4.2% to 4.606 million tonnes. When grinding slows, cocoa butter can become more expensive even while the bean price falls. A company can therefore show a gain on its bean hedge while paying more for the ingredient.
Coffee and palm oil work in a similar way. The traded coffee contract is for green beans, while factories may buy roasted or soluble coffee. The palm contract is for crude palm oil, while factories may buy refined olein or stearin. In each case a processing step sits between the market price and the supplier invoice, and the economics of that step can move on their own.
I have seen this repeatedly over two decades in procurement at Disney, Nike, Unilever and P&G. It is often explained away as mix. In practice it is usually a real price spread between the traded input and the processed product, and nobody clearly owns it.
There is also an organisational reason this gets missed. Food, beverage and personal care makes up 15.1% of the 729 companies held by the 47 Asian private-equity firms mapped this year. In many businesses Treasury hedges the traded commodity while Procurement buys the delivered ingredient. The difference between the two sits between functions, so it is rarely measured or challenged.
Take a chocolate case with a delivered cost of 100 units. Cocoa-derived ingredients account for 30 of those units: 18 for butter and 12 for powder. Now assume the cocoa bean price falls by 10%.
If butter and powder fall by the same 10%, the cocoa cost drops from 30 to 27 and the delivered case cost falls from 100 to 97. A hedge may offset part of that benefit, but the category still records a modest saving.
Now assume grinding volumes fall and cocoa butter rises 15% while powder stays flat. Butter moves from 18 to 20.7, powder remains at 12, and the cocoa cost rises to 32.7. The delivered case now costs 102.7, even though the bean price fell and the hedge still shows a gain. The two movements appear in different parts of the accounts, under different owners, and at different times.
The figures are illustrative. The direction is consistent with the ICCO's lower grinding forecast and with the way cocoa processing economics work.
The practical fix is to separate the cost drivers. A Cost-Driver Card™ breaks the delivered price into its parts instead of calling all of it cocoa. Each part gets its own line: butter, powder, liquor, conversion, freight and packaging. Rate-Anchored Should-Cost™ then links each line to an objective reference. That gives the buyer a cost build that can be challenged with evidence in a supplier negotiation.
The worked file behind this piece is available on request: [email protected].
For large ingredient contracts it can be useful to separate the price into two parts: a commodity element linked to a named public index, and a conversion element priced and reviewed separately. The hedge and the supplier invoice then refer to the same underlying cost. Changes become easier to explain and to challenge.
Suppliers will push back, and reasonably so. A grinder or refiner may not want to disclose its conversion economics, and may simply shift margin into the commodity element if asked to open the cost. A two-part price can also move some volume risk back to the buyer. That matters when processing capacity is under-used.
Those are real limitations, so this approach is most useful on the largest product families where the spend is meaningful and the buyer has real bargaining power. Where the processor holds more power, the practical goal can be simpler. Name the index, agree the lag, make sure price reductions flow through as well as increases, and cap the conversion element. That is not full open-book costing, and it is enough to make the movement measurable.
MomentumX can take this from the initial cost build through contract changes, negotiation and verification of the saving in the accounts.
For food, beverage and personal-care companies the risk is simple. Treasury may hedge one market price while Procurement pays a supplier price built on something different. When selling-price increases are harder to take, that gap matters more.
For consulting teams the challenge is speed and credibility. A should-cost model has to be built quickly enough to use in the engagement, and it has to be strong enough to stand up to the supplier's own commercial team.
For private-equity sponsors, consumer businesses are the largest concentration in the Asian portfolios mapped here. Their gross margins can be influenced more by the gap between commodity and processed-input prices than by the headline commodity price discussed at the board.
The practical question is straightforward. Which input costs have fallen, and which supplier prices have actually followed them down?
For the worked model behind this article, a Confidential Spend Review of a specific category or contract, or a discussion on an APAC cost programme: [email protected]
MomentumX works from opportunity identification through commercial strategy, negotiation, implementation and verified value delivery.
A Confidential Spend Review — a senior look at a single category or contract, on client data under a non-disclosure agreement or on an illustrative basis.
Or the Spend Exposure Index, a confidential self-assessment completed privately, with no data shared.
Written by Chandranath Chakraborty, Founder & Managing Partner, MomentumX Consulting. Two decades running procurement for The Walt Disney Company, Nike, Unilever and Procter & Gamble, with structural cost reductions above 12 per cent across a US$1B+ regional spend base in his most recent role. LinkedIn · [email protected]