Commodity Risk Assessment Plan
The following provides guidance regarding the format and content of a risk assessment plan that should become part of a commodity strategy. Risk assessments can also be developed independent of commodity strategies.
Section 1: This section includes an external intelligence report that describes in detail the supply market for the commodity/material. Who are the major suppliers and where are they located? Who are the major customers? What are the supply trends? Are there specific supply and demand price drivers? What is the overall competitive environment of the market for this commodity?
The major suppliers are small, family-run cocoa farms in ...view middle of the document...
Meanwhile, with the fact that more customers begin to choose chocolates based on their good flavors and potential health benefits, chocolate companies are strict on the selection of good-quality and enough-quantity cocoa, thus may rising the demand price. The competition between different chocolate companies may also end up with a potential increase of demand price. As stated above, the overall competitive environment of cocoa market was formed by increasing demand from manufacturers fighting for limited cocoa resources.
Section 2: This section identifies and categorizes risk(s), including a detailed description of each risk (i.e., not a generalization such as “potential supply disruption” or “bad weather”).
1. Like other crops though, cocoa trees can be attacked by a number of pest species including fungal diseases, insects and rodents - some of which (e.g. frosty pod rot and cocoa pod borer) have increased dramatically in geographical range and are sometimes described as "invasive species". Among those potential diseases, Cacao swollen-shoot virus (CSSV) is most terrible one. Within one year of infection yields decrease by 25%, and within two years by 50%. The trees are usually killed by CSSV within 3 to 4 years.
2. In 2001, About 120 hectares of cocoa farms at Nyinase Kwafre and Tarabere in the Nkoranza district, have been destroyed by bushfire. And the same thing may happened in the future as coca trees are such Inflammable plants.
3. Early in this year, the drought parching Singapore and swaths of Malaysia and Indonesia threatens most crop farming industries in this world’s oldest tropical rain forests. Cocoa plants also suffer from this climate volatility. And this becomes a thing that need to pay attention to by the supply chain management due to aggravation of climate changing during the recent years.
1. The most critical strategic risk may come from policy changes made by governments or professional associations. It is a fact that cocoa is less profitable comparing with some other planting such as rubber. Therefore, if the local government promote policies with aim of improving local fiscal revenue, more cocoa farmers will switch to other planting activities due to incentive from governments.
Section 3: This section requires the development of a risk scenario map with each risk plotted on the map. The dimensions of the map can include the probability of a risk...