In this column, I want to cover one aspect of the Ag & Food industry that is fundamental to running a successful food business yet receives little attention within the broader FoodTech ecosystem.

It is part of what I describe as the scaling failure mode of “Limited Industry Understanding." Many founders spend years developing breakthrough science and technology but invest relatively little time understanding how agricultural and food markets actually work. My goal is to help founders anticipate these challenges early and avoid costly lessons later.

Let's start with why raw material sourcing and price risk management are so important.

In many food ingredient businesses, 60-80% of COGS is raw material cost. As a result, margins, profitability, pricing models, and overall business performance are heavily influenced by procurement decisions.

At the same time, virtually every food-producing company is exposed to volatility in raw materials, finished products, energy, logistics, and currency markets. This affects companies throughout the value chain and ultimately impacts every consumer.

Most people have heard about the recent cocoa market crisis and the resulting price volatility. Let me illustrate the impact with a simple example (see chart).

Assume you are a startup producing a novel confectionery product. During your first year, you need 100 metric tons of cocoa for that Product.

Imagine you decide to purchase Cocoa at Point 1 on the chart at USD 5,000/MT because you believe it is a good buying opportunity. Your customer, however, decides to buy at Point 2 when the market has fallen to USD 3,500/MT.

As a startup, you will rarely be able to pass the cost of a poor purchasing decision on to your customer.

The consequence is simple:

100 MT × USD 1,500/MT = USD 150,000 lost margin

For many startups, that single procurement decision can have a material impact on the year's financial results.

This is just one example of how companies can get caught out by market volatility. There is also a long history of large food companies making mistakes in this area, sometimes resulting in multi-million-dollar consequences.

And this is far from a complete list.

I think we can all agree that the number of factors influencing Agri-Food markets is increasing rather than decreasing. As a result, volatility is likely to remain a permanent feature of our industry.

Large food and agricultural companies have responded by developing sophisticated sourcing and risk-management capabilities. Entire teams monitor markets, analyse trends, build scenarios, manage contracts, and execute hedging strategies (see Box Industry reference).

For founders and CEOs, the level of exposure will vary depending on the business model and stage of growth. But I am convinced that if you operate anywhere within a food production value chain, raw material sourcing and price risk management will become increasingly important as your company scales.

Here are some practical recommendations.

Map your raw material and energy cost structure.

Build simple scenarios:

Focus your attention on the inputs that create the biggest impact on your P&L.

Then develop mitigation plans:

How you price your products is often linked to how you source your materials.

Ask yourself:

Many founders spend enormous time optimizing product performance but relatively little time thinking about pricing mechanics and risk allocation.

That can be a costly mistake.

If you use co-manufacturers, clarify early who carries the risk for:

The key question is simple:

Who is in the best position to manage the risk? The answer is not always the startup.

You do not need a professional trading team, but you do need market awareness.

A good starting point is:

The objective is not to predict markets perfectly, but to manage the risk and exposure actively.

If you start building meaningful volumes or decide to invest in your own manufacturing facility, this becomes a different sport altogether. At that point, sourcing and risk management become core business capabilities.

You will need:

Trying to manage these challenges as a side activity is rarely sufficient.

Understanding Agri-Food industry fundamentals is a critical success factor for any FoodTech company.

Raw material sourcing and price risk management may not be as exciting as breakthrough science, AI, or novel ingredients, but they often have a far greater impact on long-term business performance.

As companies scale, these capabilities move from "nice to have" to "must have."

My encouragement to founders, CEOs, and their teams is simple: learn the basics early, monitor the markets that matter, and build the capabilities needed to manage risk before volatility becomes your next growth obstacle.

If you need guidance or want to stress-test your assumptions, feel free to reach out:

LinkedIn for general professional conversations, and email for any founder who wants to talk through a specific scaling challenge directly.