The Hindu Business Line : Rising input costs drive FMCG, food firms up the wall

Not only are companies facing the pressure in terms of transportation and the cess, even raw material prices have hit the roof due to erratic monsoons this year.

New Delhi , Sept. 4

AMIDST talk of a severe pressure on margins, the FMCG and food companies have a new worry.

This time it is the combined onslaught of a steep rise in input costs of key raw materials, coupled with the two per cent cess levied in this year's Budget and the recent truckers' strike.

And to top it all, there is a continuing worry over increasing global oil prices.

The PepsiCo India Chairman, Mr Rajeev Bakshi, admits the recent transporters' strike was like the proverbial last straw breaking the camel's back.

"The strike was a very difficult period for us. While a part of this overall input cost rise will be offset by the price hike we have announced recently, we are watching the situation closely."

PepsiCo hiked prices of both its 200 and 300 ml pack sizes a fortnight ago and has indicated that another round of price hikes is being considered.

The Dabur India Ltd Chief Executive Officer, Mr Sunil Duggal, says prices could go up even in the most competitive FMCG product categories unless the present "inflationary trend" subsides.

"Over the last few months, we have succeeded in containing the inflationary effect and not passing it on to the consumer. But if this trend continues till the end of this fiscal, there will have to be a rethink."

And while DIL is not increasing product prices just yet, it has begun to put smaller value packs in the market for toothpastes, baby massage oils and hair oils to gain volumes.

Not only are companies facing the pressure in terms of transportation and the cess, even raw material prices have hit the roof due to erratic monsoons this year.

The Gujarat Cooperative Milk Marketing Federation (GCMMF) General Manager - Marketing, Mr R.S. Sodhi, says that while product MRPs cannot be increased frequently, GCMMF is banking on a downturn in petroleum prices.

Also, good monsoons in late August will help contain any damage to raw material costs.

"However, we have taken a price increase in some instances. Prices of all products which are packaged in tin containers were raised by about Rs 2 per kg to offset the 10 per cent higher packaging material costs," Mr Sodhi said.

And even as Mother Dairy officials pooh-poohed any cost push, they did concede that raw material prices like those of milk powder have gone up by up to 15 per cent in recent weeks.

A Cadbury's spokesperson said, "The company is working closely with its group of loyal vendors to bring down costs through contracts where feasible."

The Coca-Cola India President and CEO, Mr Sanjeev Gupta, had said earlier that not only has the cess levy "affected us significantly, other input costs have also shot up. Sugar (a key ingredient in soft drinks) costs are up, pre-formed resin (needed for plastic bottles) and steel prices are also up. These hikes pushed us to raise prices."

But while soft drink companies have taken the crucial step of increasing prices marginally, most other FMCG companies seem to have adopted a wait-and-watch policy.

Will the current pressure on input costs mean the consumer will have to shell out more for his grocery and other household purchases? Could be, if not now then over the next few months.

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Rising input costs drive FMCG, food firms up the wall