The Hindu Business Line : `Biscuit industry reels under high input costs'

The spurt in wheat, oil and sugar prices seem to be bearing down on the biscuit industry, which has been already reeling under the impact of high input costs. In fact, industry watchers point out that if the current cost pressures continue, consumers may soon have to dish out more for a biscuit pack.

Already, major manufacturers, including Britannia, ITC Foods and PriyaGold, are either studying the implications of increasing prices over the next couple of months or have already done so.

Industry analysts attribute the necessity to increase prices to rising costs of raw materials along with other associated costs. While wheat prices have shot up by 20-25 per cent this year as compared to last year, sugar and vegetable oil too have witnessed a 10-12 per cent price increase during the same period.

And, it is not just agricultural inputs that have been subject to price volatility, crude oil too has been on a steady rise, touching almost $70 a barrel, adding to freight and transportation costs of the companies.

Mr Neeraj Chandra, Head - Sales, Marketing and Innovation, Britannia Industries Ltd., said: "There has been an unprecedented rise in costs this year, and this is putting an immense pressure. If it continues, we might be left with no option but to increase prices in a couple of months time."

PriyaGold has already announced prices hikes. Mr B.P. Agarwal, Chairman of Surya Foods and Agro Ltd (makers of PriyaGold), said: "We hiked prices by 10-15 per cent on April 1 as our input costs have risen significantly." Wheat prices are around Rs 1,000 a quintal against Rs 800 last year, adding to our woes, he added. Price increases are in the range from Rs 1 to Rs 5 depending on the pack sizes.

Although most manufacturers are contemplating passing on the cost burden to the consumer, market analysts are sceptical about the feasibility and acceptability of such a move. Sources point out that Parle had earlier (in January) increased prices by almost Rs 2-2.5 per kg and later rolled back the change.

An industry watcher observed: "The biscuits category is highly price sensitive, with majority of the consumers hailing from the lower economic strata.

"Besides, being a highly competitive category, any change in prices gets directly reflected on the demand."

Mr Ravi Naware, CEO of ITC Foods Ltd, told Business Line: "We are still studying the matter and the implications of a price increase as we know that other players had to roll back price hikes some time ago. This year wheat prices have been very bullish and everyone is feeling the strain. The company will take decisions regarding any changes over a month or so".

In spite of such market forces affecting the pricing strategies, manufacturers like Britannia are saying that they are trying to absorb the cost pressures by implementing cost saving measures. "We are looking at various cost saving technologies such as more efficient logistics and factory systems," Mr Chandra said.

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