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Value-added mix (commodity to specification)
What it is
Shifting output from a commodity base toward grades and products priced on performance rather than on material content - liquid milk to cheese and paneer, plain wire to rope and LRPC, float glass to laminated and coated, native starch to modified grades, Fe 500 rebar to Fe 550D and corrosion-resistant
The commodity base carries the volume and secures the raw material; the value-added tier carries the margin
Impact on industries
- Realisation and margin are set by specification and approval rather than by an input benchmark, so earnings decouple from the commodity cycle
- Qualification into a customer's product or process creates switching costs the commodity business never generates
- The commodity base is not abandoned - it secures procurement scale and absorbs fixed cost, which is what funds the move upmarket
- It is capability-gated and takes years, and reported value-added share is not comparable across companies since definitions differ