FMCG companies brace for heightened inflationary pressures amidst Russia-Ukraine crisis

Meenakshi Verma Ambwani | | Updated on: Feb 25, 2022
Some of the companies may pass on the hike to consumers in a calibrated manner

Some of the companies may pass on the hike to consumers in a calibrated manner | Photo Credit: SRIRAM MA

Players say another round of price hike is imminent as crude, commodity prices are seen flaring up

FMCG companies are scrambling to understand the impact of the fast evolving geopolitical conditions and bracing for heightened inflationary pressures amidst the ongoing Russia-Ukraine crisis.

Fresh inflationary pressures come in the backdrop of consumer product companies battling challenges of escalating raw material and commodities costs since April last year.

Saugata Gupta, MD and CEO, Marico Ltd, said, “The evolving geo-political scenario can flare up the prices of crude oil and other commodities which will have a cascading impact on raw materials and packing materials. Organisations will have to gear up and take measures to absorb some of the cost through aggressive optimisation initiatives and perhaps pass on some of the pressure to consumers in a calibrated manner.”

To impact growth

Analysts also pointed out that any hike inf petrol and diesel prices will have an impact on consumers’ disposable incomes impacting volume growth of FMCG companies.

Mayank Shah, Senior Category Head, Parle Products, said that challenges are mounting for food product companies in terms of raw material costs. “Factors such as surge in crude oil price will have a direct impact on packaging and logistics costs. Edible oil prices are also expected to further inch up. While players like us have forward contracts covered for the next 2-3 months but if conditions persist beyond that things will become challenging,” he added.

Senior executives said another round of price hike may be needed in the April quarter.

“Russia and Ukraine together account for 90 per cent of sunflower oil requirement. The country’s dependence on sunflower oil is around 15 per cent of all the oils. Things will be as usual if situation gets normal within 7-10 days as oil importers have inventory of 45 days. Having said that, if we assume that the situation continues with oil factories remaining closed and no vessel available, then we may feel some scarcity in April with some shift from sunflower oil to soyabean and palm oils,” explained Angshu Mallick, CEO & MD, Adani Wilmar Ltd.

“ Pricingdepends completely on supply. Prices will come down if things normalise within 7-10 days. At Adani Wilmar, we have deep insights on global scenario as we are the largest importer of sunflower oil. Also, our partner Wilmar has factories in Ukraine and Russia so we have managed our stocks better,” he added.

FMCG companies such as Dabur India and Nestle India had earlier this month flagged concerns around inflationary pressures with prices of some commodities touching 10-year highs.

Pointing to continued inflation in hydrocarbon derivatives, edible oils, raw honey and packaging costs, Mohit Malhotra, CEO, Dabur India, had earlier this month said in an investor call that another round of calibrated price increases will need to be taken by the company in case the inflationary pressures continue unabated.

Published on February 25, 2022
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