Fair Pricing Negotiation Practices

Procurement Low Ambition Off-taker Trader Downstream supply chain actors

Definition

Fair Pricing Negotiation Practices in procurement refer to ethical and transparent approaches used by buyers and suppliers to collaboratively determine terms and prices, ensuring equitable and mutually beneficial sourcing agreements. These practices aim to contribute to improving farmers' income and the overall sustainability of agricultural supply chains through ethical sourcing, promoting inclusivity, maintaining brand reputation, ensuring regulatory compliance, and empowering suppliers. Buyers that implement this innovation aim to build long-term relationships, based on clear contractual terms, transparent cost structures and mutually determined sourcing agreements, which often includes guaranteed offtake as a means to build security and other benefits for both buyers and suppliers.

Lead Actors

Off-taker; Trader; Downstream supply chain actors

Target Demographics

Farmer Groups; Off-taker; Trader; Wholesaler; Processor

Objectives addressed

Farmer related

Increase farmer income: Fair pricing practices ensure farmers receive a fair return for their produce, contributing to increased income. Market research and negotiation practices can also ensure that farmers are informed and can negotiate better prices, leading to increased income.

Increase climate resilience: When fair pricing negotiation practices are tied to the sustainability of products, it can incentivise environmentally-friendly farming practices. This contributes to a healthier environment and may also lead to eligibility for certain financial incentives related to sustainable farming.

Business related

Increase revenues: By implementing fair pricing practices, buyers/off-takers enable farmers to further invest in their farms, increasing the quality and/or volume of their produce, which in turn favours buyers' revenue as they sell more / better quality produce. Additionally, ethical sourcing and fair pricing can improve brand reputation, potentially driving consumer demand and leading to higher revenues.

Reduce side-selling: The main reason farmers will side-sell is if they can get a better price elsewhere. If farmers are involved at the price negotiations, they will be less inclined to side-sell. Ensuring information flow between buyers and farmers develops trusting relationships, which also reduces the risk of side-selling.

Address sourcing needs: Farmers are incentivised (contractually and financially) to provide high quality and timely produce.

Contexts Best Suited to

Markets with low price transparency: Fair negotiating practices can reduce exploitation and be a competitive edge.

Key Risks

Increased Procurement Costs: Strict adherence to fair pricing practices may lead to higher than expected procurement costs and affect the company’s bottom line/profitability.
Supplier Market Constraints: Intense market competition may limit the effectiveness of fair pricing negotiations, particularly in situations with a limited supplier pool.

Environmental Impact

Limited: Limited direct environmental impact. Indirect potential to enhance social sustainability of the supply chain, by ensuring all parties in the supply chain are treated equitably.

Ambition level
Low

Time

Moderate upfront investment to conduct thorough market research, establish fair and ethical sourcing policies, provide negotiation skills training, define clear contractual terms, establish performance metrics and monitoring mechanisms. Recurring investment to maintain transparent cost structures, utilise data analytics for price trends, ensure legal and regulatory compliance, encourage cross-functional collaboration.