What a floor price actually costs us
We pay 340 smallholder partners 12% above the regional average on multi-year agreements. Here is the arithmetic, including the years it hurt.
Vo Thanh Son
Director, Agricultural Operations
· 6 min read
Published sustainability commitments usually omit the cost. Ours is a floor price 12% above the regional average, paid within seven days, on agreements that run three years.
In a high market it costs nothing
When the market is above our floor, the floor is irrelevant and we pay the market. That is most years, and it is why the commitment is affordable enough to make.
In a low market it costs a lot
In 2023 the market fell below our floor for nine months. The commitment cost us roughly 4% of divisional gross margin that year.
What we got in return was that none of our 340 partners sold to anyone else in 2024, when supply was short and our competitors could not fill containers.
“It cost 4% of divisional margin in 2023. In 2024 none of our 340 partners sold elsewhere.”
The commitment only works if it is multi-year
A floor price that can be withdrawn at the point it becomes expensive is not a floor price. Three-year terms are what make it credible to the growers, and credibility is the entire asset.
Vo Thanh Son
Director, Agricultural Operations
Writes about the work as it actually goes, including the parts that reflect badly on us.
