FMCG companies fear West Asia unrest may drive up input prices
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Companies making packaged foods and beverages, detergent and paint said the ongoing West Asian conflict may drive up crude oil prices again and potentially hurt demand further, just as input costs had started to stabilise."Geopolitical tensions in the Middle East could pose short-term headwinds, by driving up crude oil prices," said Krishna Khatwani, head of sales, Godrej Consumer Products , which makes Cinthol soap and GoodKnight mosquito repellent. "This may drive up the prices of the overall purchase basket and pinch consumers."Conflict has broken out at a time when consumer goods companies had started to indicate early signs of demand picking up after five quarters, buoyed by interest rate cuts by the Reserve Bank of India (RBI), tax benefits introduced in the budget and the early onset of the monsoon."Disruptions to the Middle East's energy infrastructure could trigger a significant supply shock, driving up crude oil prices," said Angelo George, chief executive of packaged water company Bisleri International. "This may lead to a medium-term escalation in the cost of crude-based packaging materials-posing a challenge for companies heavily reliant on plastics."Two weeks back, Bisleri had announced a strategic partnership with Dubai retail chain Apparel Group to manufacture, market and distribute the Indian company's products in West Asia and Africa, beginning with the United Arab Emirates (UAE).While companies hedge and engage in forward buying for at least six months, any disruptions in crude could derail the relief companies were expecting after a protracted slowdown, especially in urban markets, executives said. Dabur is closely watching the geopolitical situation in West Asia, said Mohit Malhotra, chief executive at the maker of Real juices."With retail food inflation cooling to a seven-month low and the forecast of a good monsoon this year, coupled with the fiscal stimulus measures announced by the government recently, the industry was hopeful that FMCG (fast-moving consumer goods) demand would bounce back in the second half of the year," he said.A few weeks back, producers of daily essentials had halted price hikes after three consecutive quarters of increases on the back of prices of commodities such as palm oil and wheat stabilising. The prices of groceries had risen 5-20% amid surging raw material and packaging costs. Researcher NielsenIQ had said in its January-March quarter update that the FMCG industry grew 11% year on year by value, driven by a 5.6% price hike.Petroleum derivatives contribute to 20-25% of makers of foods and about 40% for paint companies. These are widely used in the FMCG sector , as direct raw material in products such as paints and detergents and in the material used for packaging foods and beverages among others. After falling to its lowest prices in three years, Brent crude-the main international benchmark-is now at $75, over 15% higher than last month.The past few quarters have seen inflation-impacted consumers either downtrading to buy lower-priced products or cutting back on discretionary spending, hurting demand.
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