Companies

Commodity inflation pressures likely to get more acute in 2022: Nestle India

Meenakshi Verma Ambwani New Delhi | Updated on September 20, 2021

Suresh Narayanan, CMD, Nestle India

“Forward pressures in terms of commodity inflation is likely to be more acute,” says Suresh Narayanan, CMD, Nestle India

Nestle India on Monday said that while prices for raw materials such as milk and wheat were relatively stable in the first half of the year, commodity inflation pressures are likely to get more acute in the coming months.

The company, which had earlier announced plans to invest ₹2,600 crore in the next 3-4 years, also said that it has already invested about ₹1,000 crore on its new facility in Sanand and on augmenting capacity in existing plants. The company has also submitted its proposal for the Centre’s Production-Linked Incentive (PLI) scheme for the food processing sector but did not share thedetails.

Pressure on agri-commodities

Speaking to media, Nestle India, Chairman and Managing Director, Suresh Narayanan said, “Going forward 2022, clearly looks to be a difficult year. There is clearly an uptick in prices of milk due to pandemic disruptions and non-replacement of the milch herd in the country leading to a depleted supply base.”

“Globally coffee prices are also going up. Also, some of the South-east Asian countries like Vietnam, which is one of the largest grower of coffee, haven’t still come out of the clutches of the pandemic. Factors such as consumption levels coming back and large economies getting back to growth trajectory, is also expected to put pressure on agri-commodities going forward. So, forward pressures in terms of commodity inflation is likely to be more acute ,” he added.

The silver lining is that the rabi crop is expected to be decent backed by a good monsoon and this is expected to help in mitigating some of this impact, Narayanan added. “While India is largely a locally-sourced economy in terms of raw-materials but there will definitely be an impact. So we are closely monitoring this situation. It is going to be something that we will have to factor in as far as the coming months and the coming quarters are concerned,” he added.

In line with its penetration-led strategy, the company said it so far taken a modest price hike in the range of 1-3 per cent in certain categories in response to inflationary pressures seen in packaging and edible oils. The company said it will also leverage on economies of scale as a large player to get the best prices possible using sustainable sourcing practices. It is also looking at internal cost efficiencies and other measures to try to tackle these inflationary pressures.

Festival outlook

Replying to a query on festival outlook, Narayanan said, “There is a strong expectation that this Diwali will definitely be better than the last one as restrictions around mobility get eased and I hope it does not take a turn for the worse. However, I think we will have to wait a few more quarters to be really sure that this sustainable demand is here to stay.”

He pointed out that there will be constraints and concerns on household budgets in the next couple of quarters and a larger part of the consumer basket is expected to consist of essential products.

The company has now strengthened its distribution coverage to about 90,000 villages and aims to expand it to about 1.2 lakh villages. Rural markets have continued to outpace urban markets growth rate for the company. Rural India contributes about 20-25 per cent to the company’s domestic sales.

Published on September 20, 2021

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