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Weak monsoon may hit FMCG cos

Nithya Subramanian

NEW DELHI, July 31

THE poor monsoon will not merely dent the sales of tractors, fertilisers, pesticides and other farm inputs. The resultant decline in rural incomes will also badly affect consumption of several fast-moving consumer goods (FMCG), analysts say.

Rural areas (including small towns with populations below two lakhs located near the countryside) account for 30-60 per cent of the total sales of a host of consumer goods ranging from biscuits to toothpastes, shampoos and washing powder.

Market survey data compiled by ORG-Marg (now called AC Nielsen retail audit), during the five-year period between 1997-2001, shows that the rural share in the consumption of biscuits, batteries, washing powders/liquids, shampoos, toothbrushes, toothpastes, packaged tea and safety razor blades has actually risen significantly. Even sales of refined edible oils have gone up substantially, though from a low base.

The increase was particularly sharp in the three years till 2000, after which sales slowed down or even declined in the case of detergent cakes/bars (from 4.71 lakh tonnes to 4.67 lakh tonnes), toilet soaps (from 2.44 lakh tonnes to 2.3 lakh tonnes) and toothpastes (from 25,472 tonnes to 25,315 tonnes). The slowdown is said to have been largely on account of the falling prices of most agricultural commodities, which is seen to have impacted on agricultural incomes.

This year's weak monsoon activity and the likely decline in output of most kharif crops could cause a further decline in rural purchasing power, which, in turn, would obviously affect FMCG sales as well. At present, no FMCG major - be it Hindustan Lever, Colgate Palmolive, Dabur or Godrej - is willing to hazard a guess on how much sales would be hit and are preferring to wait and watch.

Analysts tracking the FMCG sector say that the 1995-2000 period saw many companies spreading their net to attract new buyers from small towns and rural/semi-urban centres. The potential gains from harnessing the large untapped markets in these areas - fuelled by good monsoon years and reasonably high commodity prices - more than made up for the additional marketing costs involved. The process of market penetration and attracting new potential consumers is bound to receive a setback now.

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