I have the power to increase the price of my goods and services.
So what does the analysis say?
I was intrigued with the 2019 Unilever Annual Report and in particular, with their views on how to assess the impact on black tea. They discussed yields and predicted decreases or increases that would leave them exposed to some risk. However they saw an average yield that would increase, albeit smaller even though they were able to obtain acreage growth and improve farming techniques. I mentioned the yield increasing but they sense a price reduction for the next 30 years. Still they assessed the risk as low.
They mention two countries in particular, Kenya and Argentina where there could be higher price risks if more acreage was not attained. They looked to government or land use change policy that would enable that to happen.
I found it interesting that they assessed less of an impact from climate change and more towards extreme weather and man-made factors - all which could affect production and price respectively. Since the frequency and nature of these events cannot be accurately predicted, the impact is limited to individual years.
The quality of the black tea was not a concern in their analysis but that had more impact on price then the yield itself. They found that especially true in India. Water scarcity and temperature stress between 2 and 4 degrees could change black tea quality leading to potential future price risks. There are no substitutes and that further increases the risk profile surrounding tea. Still the risk was low to Unilever, albeit certian countries had there own personal risks and individual plans would be drawn up, defined/refined for each country.
An amazing analysis of how price can be such a lever of power.
