By: Ed Casey, Vice President, Global Payments at AscendantFX
Recent political developments in Europe have had a significant impact on the value of the Euro, with exchange rate volatility increasing the risk for wineries importing oak barrels for harvest. Earlier this year economists predicted the Euro had the potential to usurp the Dollar as the leading world currency, but with Italy’s government plunged into political turmoil, hopes for a rallying Euro have been left in the dust. Unfortunately for winery operators, the price of importing oak barrels will always vary and barrel price fluctuations will always impact the best-laid annual budgets.
Although forward planning and contingency planning are crucial lessons US wineries re learn each year when it comes to paying for imported barrels, it does not have to be this way. Many wineries typically plan to have their imported oak barrels delivered in August / September prior to harvest, with balance of payment due upon landing. With euros left un-hedged, exchange rate fluctuations can create uncertainty for budgets. In an industry with narrow margins, hedging can help wineries manage currency shifts. This is especially true in times of political and economic uncertainty, when exchange rates can differ greatly from one day to the next – creating headaches for those tasked with creating, and keeping to, budgets. This is why it’s imperative that vineyards closely monitor foreign exchange rates to ensure that costs align with those forecasts during budgeting.
Wineries are all too aware of the challenge of controlling high costs, with developing a strong business strategy being ranked as the second most important focus in a recent study, however many are unaware of the importance of streamlining their financial transactions to boost profit margins and protect against exchange rate volatility.
Sending Cross-border Payments Adds Up
Exchange rates will always be prone to political turmoil and resulting fluctuations, but wire and investigation fees coupled with delayed payment execution and late barrel deliveries can also add up. Paying suppliers from different countries can often be a headache due to the complex nature of cross-border transactions. There is no centralized network for handling cross-border payments. International correspondent banks decide how it sends, receives and settles payments, and international financial transactions can end up becoming expensive for wineries, due to the additional service fees multiple banks charge.
Winemakers can control costs by hedging against foreign currency volatility with a forward contract. Forward contracts allow you to lock in exchange rates for future transactions.
In the digital age, currency hedging is now within reach of even the smallest producer thanks to advances in technology. Management teams can also take advantage of financial technology that not only limit their exposure to volatile exchange rates, but also offer lower currency rates and provide real transparency into the execution process – eliminating the ancillary costs associated with payments execution.
Currency fluctuations are not pocket change and can substantially drain profits. Don’t leave your profits lost in translation when it comes to paying cooperages this harvest.
Expert Editorial
by Ed Casey, Vice President, Global Payments at AscendantFX
Ed Casey is the Vice President, Global Payments at AscendantFX. As a commercial foreign exchange executive, Ed has over three decades of experience in corporate foreign exchange in the wine industry. Ed works with clients to structure and deliver improved forex and payments solutions to support their revenue goals. His clients include wineries, importers, distributors, spirit companies, and barrel makers.
About AscendantFX
AscendantFX is a non-bank payments provider that works with all wineries and cooperages. If you are looking for a simple and cost-effective way to pay for cooperage invoices, hedge against currency risk and other related forex products, we can help. Please contact ed.casey@ascendantfx.com if you’d like to discuss further.
