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FMCG firms face inflation strain due to expected hike in raw material costs

The year-on-year wholesale prices of many items used by the FMCG companies either in manufacturing or packaging of products have seen double-digit growth.

Published: 26th September 2021 09:39 AM  |   Last Updated: 26th September 2021 09:39 AM   |  A+A-

Retail inflation, shopping

For representational purpose. (File Photo)

Express News Service

NEW DELHI: Consumer goods manufacturers have been facing the inflation problem like never before. Price pressures are visible in the commodity market as costs of all raw materials - from copper, aluminium to lumber and crude oil etc. - have been on the rise, and are likely to move upwards.

The year-on-year wholesale prices of many items used by the FMCG companies either in manufacturing or packaging of products have seen double-digit growth. Base metal prices, for example, have gone up year-on-year by 27.5 per cent in August 2021, oil seeds by 54 per cent, vegetable and animal oil fats by 40.5 per cent, textiles by 17 per cent, rubber and plastics by 14 per cent, Chemicals by 12 per cent, and paper & paper products by 11 per cent.

While companies are trying to mitigate costs, if cost pressures continue, they may have to pass on some part of the cost to consumers by increasing prices of products in their portfolio. Industry majors like Marico and Hindustan Unilever Ltd (HUL), Dabur and PepsiCo have already gone for a price hike across brands. 

A Tata Consumer Products’ spokesperson informed TNIE that the past year saw unprecedented inflation in a key raw material for one of their businesses - India tea, where prices moved up by 70-80% at peak.

"We are now seeing a moderation in tea prices sequentially. We are continuing to track these movements closely and will make sure that we balance between consumer price sensitivity and margins to ensure a strong momentum in the business," they said.

"During the inflationary period in India tea business, we had consciously not passed on the entire cost to consumers. There is a fine balance to keep between impact on the consumer, price elasticity and competitive dynamics. By doing that, we ensured that volume momentum in the business was maintained," they added.

"In the last few months, we have seen some inflation in packaging materials and freight. However, we have been able to mitigate part of the impact through synergies from the integration of our F&B business. For example, synergies from optimising our network, scale led efficiencies in supply chain etc," they added.

Nestle India Chairman and MD Suresh Narayanan at a recent press conference had also said that there are pressures on raw materials as large economies around the globe are reopening strongly. He warned that the forward pressures are likely to be more acute than what we have been through at the moment.

The government has recently slashed the customs duty on crude edible oils, because of which the wholesale price of edible oils has been showing a decreasing trend over the last week.

The customs duty on crude palm oil has been reduced to 2.5 per cent from 10 per cent, while the same on soy oil and sunflower oil has been reduced to 2.5 per cent from 7.5 per cent. Emami Agrotech CEO Sudhakar Desai says that all three major oils - soyabean oil, sunflower oil and vegetable oil (palm oil) have seen a drop of Rs 3-4 per litre in terms of market operating consumer prices post the duty reduction, but mustard oil hasn’t seen any price drop as yet.

Desai explains that after the duty reduction of 5.5 per cent on the 10th of this month, the consumer prices have gone down marginally by about 2-3 per cent as global markets continue to be firm, major reasons for which are tight supply in palm origin countries and continued demand from India and also the global biofuel sector.

"In the domestic front, the crushing sector is also running low leading India to be more import-dependent to meet the forthcoming festival demand. We expect the prices to effectively come down during November and December 2021 with increased domestic oil supplies off kharif crops especially for the ones which are derived from groundnut, soya, cotton, rice bran etc," he says adding, however, mustard oil prices are expected to be firm at the domestic front as the next harvest of mustard crops in India is scheduled only in February/ March 2022. 

The price rise in raw materials like base metals, plastic and rubber has also hit the consumer electrical and electronic appliances companies. The smaller manufactures in this space have been especially hit as they are less equipped to deal with supply chain constraints and spiralling commodity prices.

Candes Technology co-founder Vipin Aggarwal believes that price rise has placed strain on the companies with high-priced appliances as inflation made them even more costly. "Our USP being affordable and innovative products steered the boat for us at even greater speed," said Aggarwal. 

However, he added, "But eventually if the situation keeps on rising the way it is now, then we will try and make sure that our customers don’t suffer much, probably 5-7 per cent increase in the price of the products might be seen."



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