Prices of biscuits, snacks, detergents, and soaps may rise by 6-7% in the coming quarter following the government’s decision to increase the basic customs duty (BCD) on crude and refined edible oils by 20% two weeks ago.
Palm͏͏ oil͏͏ surge͏͏ to͏͏ impact͏͏ product͏͏ prices:
Refined͏͏ palm͏͏ oil͏͏ constitutes͏͏ 12-20%͏͏ of͏͏ companies’͏͏ raw͏͏ material͏͏ costs,͏͏ and͏͏ with͏͏ current͏͏ inventory͏͏ lasting͏͏ 1-2͏͏ months,͏͏ price͏͏ increases͏͏ in͏͏ these͏͏ categories͏͏ appear͏͏ inevitable͏͏ after͏͏ a͏͏ nearly͏͏ nine-month͏͏ pause.͏͏ This͏͏ is͏͏ due͏͏ to͏͏ the͏͏ ongoing͏͏ rise͏͏ in͏͏ raw͏͏ material͏͏ costs,͏͏ according͏͏ to͏͏ companies͏͏ and͏͏ analysts.
“Besides͏͏ palm͏͏ oil,͏͏ other͏͏ input͏͏ costs͏͏ like͏͏ wheat͏͏ have͏͏ also͏͏ increased.͏͏ Although͏͏ we͏͏ will͏͏ strive͏͏ for͏͏ cost͏͏ efficiency͏͏ within͏͏ the͏͏ system,͏͏ a͏͏ price͏͏ hike͏͏ of͏͏ around͏͏ 7%͏͏ is͏͏ anticipated͏͏ in͏͏ the͏͏ market͏͏ by͏͏ next͏͏ month.͏͏ This͏͏ adjustment͏͏ will͏͏ help͏͏ balance͏͏ growth,͏͏ which͏͏ has͏͏ primarily͏͏ been͏͏ volume-driven͏͏ in͏͏ recent͏͏ quarters,”͏͏ stated͏͏ Krishnarao͏͏ Buddha,͏͏ senior͏͏ category͏͏ head͏͏ at͏͏ Parle͏͏ Products,͏͏ India’s͏͏ largest͏͏ food͏͏ company.
Import͏͏ duties͏͏ hit͏͏ key͏͏ consumer͏͏ goods:
Almost͏͏ 95%͏͏ of͏͏ India’s͏͏ oil͏͏ needs͏͏ are͏͏ fulfilled͏͏ through͏͏ imports.͏͏ The͏͏ increase͏͏ in͏͏ import͏͏ duties͏͏ affects͏͏ various͏͏ FMCG͏͏ categories.͏͏ Crude͏͏ palm͏͏ oil͏͏ derivatives,͏͏ such͏͏ as͏͏ palm͏͏ fatty͏͏ acid͏͏ distillate,͏͏ are͏͏ essential͏͏ inputs͏͏ for͏͏ home͏͏ and͏͏ personal͏͏ care͏͏ products,͏͏ including͏͏ soaps,͏͏ laundry͏͏ detergents,͏͏ shampoos,͏͏ and͏͏ cosmetics.͏͏ Meanwhile,͏͏ refined͏͏ palm͏͏ oil͏͏ is͏͏ crucial͏͏ for͏͏ food͏͏ items͏͏ like͏͏ biscuits,͏͏ noodles,͏͏ snacks,͏͏ chocolates,͏͏ and͏͏ cakes.
Continue͏͏ Exploring:͏͏ India’s͏͏ out-of-home͏͏ snack consumption͏͏ surges͏͏ 44%,͏͏ three͏͏ times͏͏ faster͏͏ than͏͏ global͏͏ average:͏͏ Report
Companies͏͏ expressed͏͏ concern͏͏ over͏͏ food͏͏ inflation͏͏ affecting͏͏ tea,͏͏ cocoa,͏͏ fruits,͏͏ and͏͏ vegetables.
“We͏͏ expect͏͏ to͏͏ see͏͏ some͏͏ inflation͏͏ in͏͏ the͏͏ second͏͏ half͏͏ of͏͏ the͏͏ year.͏͏ As͏͏ food͏͏ inflation͏͏ rises,͏͏ we͏͏ may͏͏ need͏͏ to͏͏ implement͏͏ price͏͏ increases͏͏ in͏͏ our͏͏ food͏͏ business͏͏ moving͏͏ forward,”͏͏ said͏͏ Mohit͏͏ Malhotra,͏͏ CEO͏͏ of͏͏ Dabur.
The͏͏ price-sensitive͏͏ consumer͏͏ industry͏͏ has͏͏ experienced͏͏ a͏͏ demand͏͏ crunch͏͏ after͏͏ companies͏͏ increased͏͏ sticker͏͏ prices͏͏ by͏͏ nearly͏͏ 25%͏͏ two͏͏ years͏͏ post-COVID͏͏ to͏͏ counter͏͏ rising͏͏ input͏͏ costs.͏͏ However,͏͏ about͏͏ a͏͏ year͏͏ ago,͏͏ they͏͏ began͏͏ reducing͏͏ prices͏͏ in͏͏ response͏͏ to͏͏ consumers’͏͏ clear͏͏ preference͏͏ for͏͏ more͏͏ affordable͏͏ products,͏͏ which͏͏ has͏͏ affected͏͏ their͏͏ value͏͏ growth.
Although͏͏ prices͏͏ have͏͏ remained͏͏ stable͏͏ in͏͏ recent͏͏ months,͏͏ some͏͏ companies͏͏ have͏͏ suggested͏͏ they͏͏ may͏͏ raise͏͏ prices.͏͏ For͏͏ example,͏͏ Britannia͏͏ mentioned͏͏ in͏͏ its͏͏ quarterly͏͏ earnings͏͏ report͏͏ in͏͏ August͏͏ that͏͏ it͏͏ was͏͏ time͏͏ to͏͏ pause͏͏ price͏͏ increases.͏͏ “We͏͏ have͏͏ done͏͏ what͏͏ was͏͏ necessary.͏͏ We͏͏ anticipate͏͏ 4-5%͏͏ inflation͏͏ in͏͏ the͏͏ coming͏͏ months,͏͏ and͏͏ if͏͏ that͏͏ occurs,͏͏ we͏͏ will͏͏ begin͏͏ to͏͏ implement͏͏ slight͏͏ price͏͏ increases͏͏ in͏͏ the͏͏ future,”͏͏ said͏͏ Varun͏͏ Berry,͏͏ executive͏͏ vice-chairman͏͏ and͏͏ managing͏͏ director͏͏ of͏͏ Britannia.
Analysts͏͏ noted͏͏ that͏͏ volume͏͏ growth,͏͏ which͏͏ had͏͏ begun͏͏ to͏͏ recover͏͏ in͏͏ several͏͏ food͏͏ categories,͏͏ could͏͏ be͏͏ affected͏͏ again͏͏ by͏͏ the͏͏ price͏͏ hikes.͏͏ They͏͏ anticipate͏͏ that͏͏ larger͏͏ companies͏͏ will͏͏ perform͏͏ better͏͏ and͏͏ capture͏͏ market͏͏ share͏͏ from͏͏ smaller,͏͏ unorganised͏͏ players͏͏ with͏͏ weaker͏͏ financial͏͏ capabilities,͏͏ who͏͏ may͏͏ struggle͏͏ to͏͏ either͏͏ implement͏͏ higher͏͏ price͏͏ increases͏͏ or͏͏ face͏͏ significant͏͏ financial͏͏ strain.
A͏͏ sharp͏͏ rise͏͏ in͏͏ prices͏͏ is͏͏ expected͏͏ to͏͏ benefit͏͏ larger͏͏ players͏͏ in͏͏ the͏͏ industry,͏͏ as͏͏ they͏͏ typically͏͏ gain͏͏ market͏͏ share͏͏ during͏͏ times͏͏ of͏͏ high͏͏ inflation,͏͏ according͏͏ to͏͏ a͏͏ report͏͏ by͏͏ Nuvama͏͏ Institutional͏͏ Equities.
A͏͏ sharp͏͏ rise͏͏ in͏͏ prices͏͏ is͏͏ expected͏͏ to͏͏ benefit͏͏ larger͏͏ players͏͏ in͏͏ the͏͏ industry,͏͏ as͏͏ they͏͏ typically͏͏ gain͏͏ market͏͏ share͏͏ during͏͏ times͏͏ of͏͏ high͏͏ inflation,͏͏ according͏͏ to͏͏ a͏͏ report͏͏ by͏͏ Nuvama͏͏ Institutional͏͏ Equities.
