Bikaji Foods is already in the process of rolling out about a 2% price increase across its sweets portfolio, said CFO Rishabh Jain. Even though the steps taken by govt have helped in checking price rise to an extent, the cost of procuring sugar is still higher by around 20% compared to the last couple of months, Jain said. For brands with a core presence in sugar-heavy categories such as beverages, biscuits and confectionery, the quantum of hikes could be large.
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Because of the surge in sugar prices, cost calculations and budget planning by companies have gone for a toss, a senior executive with a large packaged foods company told Times of India on condition of anonymity.
“There is a considerable difference between what we had initially estimated (cost of sourcing sugar) and the current cost scenario. Companies have no option but to pass on price increases to consumers. Ultimately, the lower price points will get affected because grammage will have to be cut and value realisation will come down,” the executive said, adding that high cost of raw materials could nudge companies to slash marketing spends, impacting visibility of new launches. “Unlike personal care, in the case of foods, the cost of goods makes for a much larger component,” the executive said.
The fresh cost pressure comes as companies are already grappling with war-driven commodity inflation. Firms including Hindustan Unilever (HUL), Marico and Dabur have already implemented multiple price hikes, ranging between 2% and 7%.
In a note late August, analysts at Anand Rathi said that rise in prices of sugar, tea, coffee over the past three months could potentially trigger another 2-5% round of price hikes/shrinkflation (grammage cut) particularly in packaged foods. “There is some impact on margins. Ideally, we would not want to take a price hike at the moment and we are increasing our efficiencies ahead of the festive season,” said Mayank Shah, chief marketing officer at Parle Products. Data published by the consumer affairs ministry showed that the all India average of monthly retail sugar prices stood at Rs 62/kg in Sept against Rs 47 in June. Average wholesale rates in Sept are at Rs 5,747 per quintal compared to Rs 4,350 in June.Sugar production during the current season (Oct to Sept) is expected to be around 306 lakh metric tonnes (LMT) compared to the initial estimate of around 343 LMT as a mix of pest infestation and waterlogging weighed on production, according to govt estimates. Govt allowed raw sugar imports for the first time in a decade and imposed stock limits to contain prices. “Even though the measures are likely to cater to peak demand during the festive season, it may not provide long-term respite for consumers on the price front,” said Pushan Sharma, director, Crisil Intelligence.
“India’s sugar recovery has declined from 10% to 9.3% between season 2022 to 2026. India needs to move towards better varieties to increase its sugar production,” said Sharma.
(With inputs from Times of India)