Fast-moving consumer goods (FMCG) companies are confronted with a unique problem this year. While crude and palm oil (used to make soaps), and inputs such as soda ash (used in detergents) are showing a downward price trend from a year ago, food inflation, which is visible in milk, wheat and tomato prices, has surged.
The result of this divergence is showing up in the pricing action by companies. Home and personal care companies such as Hindustan Unilever (HUL), for instance, are cutting prices of soaps, detergents and shampoos as they pass on raw material gains to consumers. HUL’s chairman Nitin Paranjpe, during the company’s annual general meeting last month, said that the focus for the firm would be on shoring up volume growth, as inflation moderated.
On the other hand, food companies such as Nestle and Britannia may either increase product prices or take a hit on their margins as commodity costs surge, said sector experts. Fast-food chains such as McDonald’s, meanwhile, have temporarily dropped tomatoes from their menu, amid quality issues.
The price of tomatoes, for instance, has increased nearly 189% or almost three times to Rs 1,950 per 25 kgs from Rs 675 in the last one year. In the last one month itself, the price jump has been 550% or six-and-a half times, according to data compiled by FE Research Bureau.
“This year is interesting versus last year when inflationary pressures were felt across the commodity basket,” says G Chokkalingam, founder and MD, Equinomics Research, a Mumbai-based firm.
“This year, one half of the commodity basket, which is crude-linked, is showing a downward trend thanks to recession concerns globally, while the other half, which is linked to agri-commodities, is moving up because of the unseasonal rains in the June quarter and monsoon fury now,” Chokkalingam says.
Companies such as Parle Products have indicated that agri-commodity inflation would be a key monitorable for the future. “For food companies, agri-commodity inflation will be tracked closely as food inflation surges,” Mayank Shah, senior category head, Parle Products, said.
“Price of fruits and vegetables, in particular, have increased the most. It does not impact us. What matters to us is edible oil, sugar, milk and wheat. These have shown a mixed price trend,” Shah says.
While milk prices have remained firm over the last few months, wheat prices have fallen marginally in the last one month, FE Research Bureau data shows. The retail price of sugar, on the other hand, has remained stable at about Rs 42-45 per kg, commodity traders told FE.
Edible oil prices, on the other hand, have fallen by over 50% in less than a year, hit by lower consumer demand in developed economies, easing of supply in the Black Sea region and strong production of oilseeds, Adani Wilmar said in its June quarter update last week.
Adani Wilmar has also said that this downward price trend could reverse in the future, which means that edible oil prices may firm, adding to food inflation woes.