Below is a legal- and deal-ready Offtake Pricing Formula Model designed specifically for a Saudi commodity trading arm in a JV agarwood + SFE platform.
This is written so it can be lifted directly into an Offtake Agreement Schedule or appended to the JV Term Sheet.
OFFTAKE PRICING FORMULA MODEL
Agarwood & Supercritical CO₂ Extracts
(Saudi Trading Arm – Take-or-Pay Structure)
1. Pricing Philosophy (Why This Works for Traders)
The model balances:
- Downside protection (cost + margin floor)
- Upside participation (market-linked premium)
- Grade differentiation (no averaging dilution)
- Predictability (financeable, bankable)
This is not spot pricing.
It is formula-based trade pricing suitable for long-term supply security.
2. Product Classification (Price Anchors)
Each product is priced independently to preserve margin clarity.
| Code | Product Type | Typical Use |
|---|---|---|
| A | CO₂ Oud Oil – High Grade | Luxury perfumery |
| B | CO₂ Oud Oil – Commercial Grade | Blending / incense |
| C | Agarwood CO₂ Resin Extract | Bakhoor / chips enhancement |
| D | Agarwood Chips (Processed) | Trading / resale |
3. Core Pricing Formula (Per kg)
Price = Floor Price + Upside Premium
4. Floor Price (Cost-Plus Protection)
Floor Price (FP) is calculated as:
FP = (Cₚ + Cₑ + Cₗ + Cₐ) × (1 + M)
Where:
| Component | Description |
|---|---|
| Cₚ | Plantation & raw material cost |
| Cₑ | Extraction & processing cost |
| Cₗ | Logistics, insurance, export |
| Cₐ | Admin, QA, halal certification |
| M | Agreed margin (typically 20–30%) |
📌 Purpose:
Ensures JV profitability and guarantees supply continuity even during market downturns.
5. Upside Premium (Market Participation)
Upside Premium (UP) applies when market prices exceed the Floor Price.
UP = (Benchmark Price – FP) × Sharing %
Typical Sharing %:
- Saudi Partner: 50–70%
- JV / CESI: 30–50%
📌 Benchmarks may include:
- Historical Saudi import prices
- Agreed GCC trader indices
- Rolling average of recent arm’s-length sales
6. Final Delivered Price
Final Offtake Price = FP + UP
Subject to:
- Grade verification
- QA approval
- Contracted volume compliance
7. Example Pricing Scenarios (Illustrative)
Example: CO₂ Oud Oil – Grade A
| Item | Value |
|---|---|
| Floor Price (FP) | USD 9,000 / kg |
| Market Benchmark | USD 12,000 / kg |
| Difference | USD 3,000 |
| Saudi Share (60%) | USD 1,800 |
| Final Price | USD 10,800 / kg |
Result:
- JV protected
- Saudi partner captures upside
- Still priced below spot market
8. Take-or-Pay Adjustment Mechanism
- Minimum annual volume guaranteed
- Unlifted volumes:
- Carried forward or
- Paid at FP (Saudi option)
- Prevents underutilization of SFE assets
9. Currency & Settlement
- Currency: USD (SAR-pegged)
- Settlement:
- LC at sight or
- 30–60 days post-delivery
- Escrow: Optional for high-value grades
10. Price Review & Reset
- Review Frequency: Every 12–24 months
- Adjustments allowed only for:
- Verified cost changes
- Regulatory changes
- Expansion into new grades
- Floor margin never reduced below agreed minimum
11. Anti-Gaming & Protection Clauses
- Independent grade verification
- Arm’s-length benchmark sourcing
- Audit rights (limited, professional)
- No unilateral repricing
12. Why This Model Is Trader-Friendly
- Bankable cash flow
- Predictable landed cost
- Margin upside retained
- Inventory planning certainty
- Works with Islamic finance structures
Optional Enhancements (Board-Level Decisions)
- Saudi-exclusive grades
- Volume-based rebates
- Blending or finishing premiums
- Index-linked escalation caps
One-Line Commercial Thesis
This pricing model converts agarwood from a volatile luxury input into a structured, financeable commodity with protected downside and shared upside.
Next (Highly Recommended)
I can now:
- Convert this into legal Schedule language
- Build a pricing sensitivity table (IRR impact)
- Align it to Islamic trade finance
- Customize for oud-only vs multi-botanical
- Prepare a Saudi board slide with charts
Tell me which one to finalize next.