Demonetisation: FMCG prices set to spike? Pressure on corrugated box industry may lead to spike

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New Delhi | Updated: March 16, 2017 6:37:43 PM

Corrugated board box manufacturers are suffering three pronged pressures owing to an increase in raw material prices in the international market, unavailability of raw material from the domestic market and slow movement of FMCG and other consumer...

Corrugated box manufacturers fear that the packaging cost of goods would go up leading to spike in prices of consumables. (Reuters)

Corrugated board box manufacturers are suffering three pronged pressures owing to an increase in raw material prices in the international market, unavailability of raw material from the domestic market and slow movement of FMCG and other consumer goods as a fall-out of demonetisation announced in November last year.

Corrugated box manufacturers fear that the packaging cost of goods would go up leading to spike in prices of consumables. Packaging accounts between 15% and 60% of the cost of a product, Achuyt Chanda, general secretary, Corrugated Box Manufacturers Association said.

Milan Kumar Dey, president of Eastern India Corrugated Box Manufacturers said at a time when the industry was looking forward to a pick up in a demand, the situation has further worsened since January this year with the Paper Mills in rest of India, increasing the prices of the primary raw material ─ kraft paper by about Rs 3000 per tonne.

“The increase was made on the plea that the prices of their raw material – waste paper have gone up considerably in the international and domestic market as well. But manufacturers of corrugated boxes are also sellers of waste paper generated at their factory and they have not witnessed any significant rise in the price of waste paper”, Dey said.

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Chanda said since India doesn’t have large scale organized plantation to get wood for pulp out of which paper is made, India doesn’t have a virgin kraft paper industry. It makes kraft paper out of first generation waste, which is a product of corrugated box manufactured from virgin kraft paper.

While virgin kraft paper are mainly imported from the US, Canada, South Korea and other Scandanavian countries, India and China are big exporters of recycled kraft mainly in the third world countries.

However, the domestic demand for kraft paper has grown by 16-18% since 2005-2006 but recyclable waste has not commensurate the growth of demand for kraft paper.

While recycling is possible innumerable times, the second generation waste, when created from scrapped corrugated box made from first generation waste, there is a 40% loss for lack of planning in waste collection and unorganized waste management. Hence there is a shortage of primary raw material and prices have increased.

In this backdrop, the mills in Eastern India, who were already getting an enhanced realisation by charging the highest ex-mill rates in India factoring in the additional cost of freight, CST and West Bengal entry tax in importing Kraft Paper from other States, grabbed the opportunity and announced weekly and bi-weekly increases since February this year amounting to Rs 3000 per tonne.

“The mills are expected to ride the upper trajectory wave, with further and frequent increases in rates in the near future”,Dey said adding besides, the cost of human resources, freight, overheads and other inputs such as stitching wire, gum, printing ink, binding cloth, etc. have also witnessed an extensive increase in the last few years, leading to a direct impact on conversion cost by 50-60%.

Since corrugated packaging is the mode of packaging for most consumer products, rise in its cost will lead to inflation and all types of products such as FMCG, food, pharma and other. However, in such a situation working of most of the units in the MSME sector will be adversely affected leading to closure and affecting livelihood of 35 lakh workers and their families. In the process, the supply chain of perishable and non-perishable goods will also be seriously affected due to non-availability of appropriate packaging material, Dey said.

He said while the consumers of corrugated box should consider revision of prices, the government needs to waive customs duty on imports and implement a scientific waste management system.

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