Managing FX Risk on Olive Oil Imports

In brief. FX risk arises as soon as you pay in a currency different from the one you resell in. Between the order and the payment of the balance, the rate can move and wipe out your margin. Three protections: choosing the right invoicing currency (ideally yours), hedging the amount forward with your bank, and inserting a revision clause into the contract. A container is paid over several weeks: that period is precisely the window of risk.

You negotiate a price per kilo, you validate your margin… and two months later, when it's time to pay the balance, the currency has moved a few points. On a container of bulk olive oil, that's enough to shave — or even cancel — the margin you thought you'd secured. FX risk is invisible until it materialises. Here's how to neutralise it.

What is FX risk on imports?

FX risk is the potential loss linked to the variation in the rate between two currencies between the moment you set a price and the moment you pay. If you buy in euros but resell in euros, it doesn't exist. It arises as soon as a foreign currency (dollar, other) enters the operation, and runs throughout the payment period.

Concretely: the longer the time between the order and the payment of the balance, the wider the window of risk. An olive oil import, paid with a 30% deposit + balance against documents over 6 to 12 weeks, therefore exposes the balance to market movements throughout that period.

When are you exposed (and when are you not)?

• Invoicing in your currency (e.g. a euro-zone importer who pays in euros): no FX risk. The supplier bears the risk if it has costs in another currency.
• Invoicing in a third currency (often the dollar in certain markets): you bear the risk on the entire amount not yet paid.
• Buying and reselling in different currencies: double exposure, on purchase and on sale.

First rule: negotiating the invoicing currency is the simplest lever. Having the contract denominated in your own currency transfers the risk to the seller — but they can price it in.

Three ways to hedge the risk

1. The choice of invoicing currency

This is the free protection. If you obtain invoicing in your currency, the risk disappears from your side. Otherwise, be aware that a supplier may accept one currency over another depending on its own costs: it's a negotiation point in its own right, just like the price or the incoterm.

2. Forward hedging (forward exchange)

The forward exchange consists of locking in today the rate at which you'll buy the currency on the payment date. You therefore know in advance, from the order, the exact cost in your currency. It's the most common and simplest tool: you fix your margin whatever happens in the market.

Its downside: if the rate moves in your favour, you don't benefit from the gain — you've traded uncertainty for certainty. For an importer wanting to protect a margin, it's generally the right trade-off. Ask your bank for the conditions (the cost depends on the interest-rate gap between the two currencies).

3. FX options

An FX option gives you the right, without the obligation, to buy the currency at a set rate. You're protected against an unfavourable move while keeping the possibility of benefiting from a favourable one. In return, it has a cost (the premium). Reserved for significant amounts or regular importers for whom the flexibility justifies the premium.

The revision clause in the contract

Beyond banking tools, a price revision clause can provide for an adjustment if the rate exceeds a certain range between signing and payment. It shares the risk between buyer and seller rather than placing it on one alone. Useful when neither party wants to bear the FX risk alone.

Also think about the incoterm: whether it's FOB, CIF or other, the exposed amount and the outlay schedule change. The incoterms guide sets out who pays what and when, and the import cost calculator helps you reason in delivered cost, in your reference currency.

Insert: the 3 angles of FX risk

• Buyer/importer side: your margin is at stake. Negotiate the invoicing currency first; hedge forward if you pay in a third currency; insert a revision clause if the amount is heavy.
• Exporter side: accepting the buyer's currency is a commercial argument, but transfers the risk to their side; they'll pass it on in the price or hedge it themselves.
• Bank side: it sells you the hedge (forward exchange, option) and advises the instrument suited to the amount and your appetite for risk.

The classic mistake

Validating a margin on the spot rate and forgetting that you pay weeks later. The margin shown at the order is only real if the exchange is fixed or hedged. Without that, you're not selling olive oil: you're speculating on a currency without meaning to.

FAQ

When am I exposed to FX risk on imports?

As soon as you pay in a currency different from the one you resell in, and throughout the period between setting the price and paying. If you buy and resell in the same currency, you're not exposed.

How do you simply eliminate FX risk?

Negotiate invoicing in your own currency: the risk then passes to the seller. It's the simplest protection with no direct cost, but the supplier may price it in.

What is forward hedging?

An agreement with your bank to lock in today the rate at which you'll buy the currency on the payment date. You know your exact cost in advance and fix your margin, without benefiting from any favourable move.

Should you prefer an FX option or a forward exchange?

The forward exchange fixes the rate (simple, often without a premium): ideal for protecting a margin. The option costs a premium but lets you benefit from a favourable move: useful for large amounts or regular importers.

What is a price revision clause?

A contractual clause that adjusts the price if the exchange rate exceeds a defined range between signing and payment. It shares the risk between buyer and seller instead of placing it on one alone.

Does FX risk also concern imports in euros?

No, if you're in the euro zone, pay in euros and resell in euros: no risk. It only appears with a third currency (often the dollar) or a resale in a currency other than the one of purchase.

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Want to secure your margin before ordering? Request a quote: we quote by format and incoterm and specify the invoicing currency. See also how to finance your import and insure your cargo.