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ACCA Strategic Professional · Strategic Business Leader · Managing, monitoring and mitigating risk

Kestrel Foods, a listed manufacturer, buys most of its wheat from one region. A drought there causes a sharp rise in input prices, and the board notes the company cannot pass the full increase on to customers. Which type of risk is primarily illustrated?

The risk is commodity price risk, a form of market risk, compounded by supplier concentration. The drought raised input costs the company could not pass on. It is not an internal process failure or a regulatory breach, so operational and compliance classifications are wrong.

  1. AStrategic risk arising from a poor choice of business model
  2. BOperational risk caused by failed internal processes
  3. CCompliance risk arising from breach of regulation
  4. DCommodity price risk, a form of market risk, combined with supply concentrationCorrect

Explanation

The exposure arises from volatile input prices and dependence on a single supply region, which is market (commodity price) risk with supplier concentration. No internal process failed, no regulation was breached, and the business model was not itself flawed, so the other options misclassify the source of the loss.

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