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Consumer goods companies face monsoon heat

FMCG industry firms, especially those that make food products, are bracing for a difficult year ahead as truant monsoon rains and the spectre of a drought-like situation is casting a shadow over both the cost side and the demand side of their businesses.

business Updated: Jul 08, 2009 20:38 IST
Ruchi Hajela

Fast moving consumer goods (FMCG) industry firms, especially those that make food products, are bracing for a difficult year ahead as truant monsoon rains and the spectre of a drought-like situation is casting a shadow over both the cost side and the demand side of their businesses.

Poor rains mean an increase in the prices of commodities that make raw materials on the one hand, and weak demand resulting from lower disposable incomes on the other. Industry executives are in a dilemma on whether to raise product prices or not.

“Commodity prices have gone up by 15 to 20 per cent. FMCG players will either have to live with lower profits or increase prices,” Sunil Alagh, former chairman of Britannia Industries Ltd said this week. “My feeling is that prices will increase by August-September if the monsoon gets delayed.”

Packaged food items are certainly in for a monsoon punch.

“Climatic conditions in North India this year are not favourable and this is likely to push up prices of rice, wheat and sugar further,” Shekhar Agarwal, managing director at Delhi-based Surya Agro & Food Ltd which manufactures Priyagold biscuits told Hindustan Times. “We haven’t increased prices but have reduced grammage by up to 15 per cent but we will increase cost.”

Sugar is now being imported, while it was exported last year, and that is adding to biscuit makers’ woes.

“Sugar prices have gone up from Rs 18 per kg to Rs 26 and the same is likely to happen now that wheat exports have been allowed,” said Agarwal.

Oil-based products are safer.

“We have not increased prices so far and have no plans to do so in the near future,” Harsh Mariwala, chairman of Marico Ltd, which makes packaged coconut oil, told Hindustan Times.

Dabur, which makes a wide range of toiletries and food items, has ruled out an immediate price increase but showed a cautious mood. “We have undertaken stocking initiatives and have hedged our existing position,” a company spokesperson said.