Product prices won’t increase despite cost escalation: FMCG companies

Mumbai | Kolkata: Top food companies said they will not hike product prices despite cost pressures in terms of raw materials and supply chain logistics which has completely wiped off profits. Companies, that saw their production falling to half of their capacity, also indicated they have restarted few units and logistical hiccups have been fixed gradually.

“We expect operations to be back on track in the next 5-7 days in terms of supply chain. At this point, we are focussed on making and delivering products and absolutely no focus on profitability,” said Mayank Shah, category head at Parle Products, the country’s biggest biscuit maker by volume.

Packaged food products and staples that are completely dependent on agri-products for sourcing raw materials operate on a much lower margin compared to personal care and household segments. Companies said supplies have been erratic with raw materials costs being volatile and vary across states.

“In few markets, we are also seeing prices drop due to the demand-supply mismatch as farmers are stuck with excess inventory. So we don’t see any need to increase prices because these issues should be temporary,” India‚Äôs largest dairy firm Amul MD RS Sodhi said.

Most food companies saw supply cut after factories were shut in several places due to enforcement authorities, who were also halting movement of trucks, impacting supplies of both raw material and finished goods. The government has allowed factories supplying essentials and packaging materials to be operational now, which companies said will ease some of the existing supply chain bottlenecks.

“We are seeing some progress on-ground. Some factories have received permissions to manufacture essential hygiene products, at reduced capacity. Some CFAs too have received permissions to distribute goods. The district authorities will need to ensure that the government guidelines are uniformly implemented and required permissions are given quickly, ideally online,” said Vivek Gambhir, MD, Godrej Consumer Products Limited.

However, unavailability of labour still remains the biggest issue. Adani Wilmar said it has opened nearly all its 80-odd depots compared to just 35 operational last week, but labour shortage has worsened.

“There is a significant shortage of truck drivers and factory workers and our industry is not so automated that we can operate with limited workforce. We have also seen 50% increase in freight rates and significant pressure from currency devaluation too,” said Adani Wilmar’s deputy CEO Angshu Mallick adding that it will take a hit on margins but will not hike prices.

ITC too said it is not increasing price of any essential products despite the escalation of cost. The company is also continuing manufacturing and distribution with minimum people who are still working.

“While we have progressively obtained permissions in some states, availability of trucks continues to be the biggest challenge at the moment. Interstate and local truck movement has been severely impacted together with the challenge of shortage of manpower in factories. We believe it will take a few more days for the entire eco-system and processes to be streamlined for movement of essential goods,” an ITC spokesperson said.

A senior industry executive said most large packaged food companies have three months purchase cycle of commodities and hence can hedge the rise in input cost right now. Companies like ITC have further increased their cost cutting measures to absorb a portion of the hike in input cost.

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