2013-11-18   facebooktwitterrss
Forward Purchasing Saves on Fuel Costs

Members of the AtlasFram farmers’ cooperative who participated in a forward purchasing initiative this summer collectively saved £132,936 on the cost of their red diesel requirements during the harvest period.

The initiative was developed by AtlasFram to avoid members being at the mercy of unpredictable ‘spot’ market prices at a critical time of the year when their use of red diesel is greatest and they must have access to guaranteed supplies. The initiative enables them to forward-order a specific volume, at a specific price for delivery between 1 July and 30 September.

Farm Images

photo © farm-images.co.uk

“Last year 45 members committed to take delivery of 800,000 litres of red diesel during harvest,” explains Katya Wilkinson of AtlasFram. “After we had fixed a price of 63.79 Pence per litre (ppl) with our fuel supplier the ‘spot’ market rose above 70ppl, generating a saving for members of 6ppl, or approximately 10 per cent, on their committed volume.”

“The success of the scheme in 2012, combined with strong oil prices and global political unrest at the start of this year, meant that the level of interest for harvest 2013 was much greater and borne out by a four-fold increase in actual commitment. This year 114 members committed to purchase 3.3 million litres of red diesel, but because the volume was so much greater we decided to split it between two of the UK’s leading fuel distributors. We fixed the price at 64.5ppl in June, which subsequently provided participating members with a saving of approximately 4ppl compared to the prevailing spot market rate.

“This initiative has been very well received because farmers have very few opportunities to contract forward for fuel on a fixed-price basis. This is largely because fuel companies need a large, committed volume before they will offer such a deal and farmers’ cooperatives generally do not have sufficient financial resources to offer their members such a facility without being exposed to significant financial risks. AtlasFram’s very strong financial position and guarantee of payment to suppliers, combined with a large committed volume allows it to negotiate very competitive prices.

“Our Purchasing Department works closely with Framtrade, a wholly-owned non-member trading business within the AtlasFram Group, and together they continually analyze global oil markets and fuel prices. Given the savings which we have achieved for members in each of the last two years we believe that this method of purchasing fuel for harvest delivery will become even more popular in the future.”

Richard Anscombe, CEO of the AtlasFram Group, comments:
“AtlasFram purchases £190 million of products and services annually on behalf of 1250 farmer members, who farm in excess of 350,000 hectares throughout the UK, enabling them to obtain best value from the supply chain and minimise their input costs. This includes approximately 45 million litres of fuel, 110,000 tonnes of fertiliser, 100,000 tonnes of livestock feed and agrochemicals to the value of £30 million.

“Our members rely on us to provide them with totally-impartial advice, save them money on farm inputs and reduce their administrative burden. With markets for all key farm inputs and outputs now increasingly volatile, timing purchases and sales to achieve the best-possible prices is critical to the profitability of our members’ businesses.

"The cost of fuel has become such a significant factor for our members that the ability to forward purchase at least a proportion of their anticipated harvest requirement provides them with another very significant risk management tool and underlines the benefits of belonging to AtlasFram.”

Atlas Fram

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