You May Have To Skip Chakna Next Time You Have A Drink. The Reason — Inflation

Is your packet of potato chips and chakna feeling lighter and costing more? Turns out its not just vegetables but snacks too are feeling the price heat. While domestic supply disruptions have pushed up the prices of winter veggies, global supply disruptions and import duty hikes closer home, are making palm oil—a key ingredient in packaged foods—more expensive.

Retail prices of palm oil have risen to the highest in over two years and continue to see an uptick. According to high frequency data by the department of consumer affairs, palm oil prices rose for the fifth straight month, coming in at Rs 130.5 per kg on an all-India average.

After reaching a four-year peak in November, potato prices too have continued to rise in December. As of December, potato prices have reached Rs 37.59 per kg, according to data from the Ministry of Consumer Affairs.

"We saw never before kind of prices in potatoes in November," said Manoj Verma, chief operating officer, at snack maker Bikaji Foods Interantional Ltd.

While we normally see fresh potato crop by early or mid November, this year saw a delayed crop that pushed up potato prices, he explained. Even as potato prices are already seeing some signs of softening, palm oil, that comprises a large cost for this category, also continues to see higher prices, Verma said. This has resulted in most companies undertaking price hikes.

Companies are absorbing part of the rise in cost, passing on part of the cost and resorting to de-grammage, he said. While Bikaji has raised prices by 2-3% so far, it will raise prices of products by another 2-3% in the next quarter, culminating in total price hikes of about 4-5%, Verma said.

For Bikaji, palm oil comprises about 28% of the costing, he said. Prices have gone up by over a fourth in less than an year, he said, adding that while the company was expecting prices to trend at levels closer to 110, it rose further after import duty hikes.

To address inflationary pressures in palm oil and safeguarding margins, Gopal Snacks Ltd., at its investor call for the last quarter, said that they implemented corrective measures in September. This included reducing grammage in the Rs 5 price point and Rs 10 price point, along with revising MRP for larger packs.

At the Rs 5 price point, regional players sell at cut-throat pricing, and with increase of palm oil prices, it will become unsustainable for them as well, Naveen Gupta, chief business officer at Gopal Snacks, had said in the earnings call.

"When we installed our capacity sometime two-four years back, at the Rs 5 price point, we were offering close to 30-35 grammage of products," Mukesh Shah, chief financial officer at Gopal Snacks had said in the call. "Now over a period of years, this 30-35 grammage has come down to 20-22 grammage."

The rise in raw material prices comes at a time when the macro economy is not in a good state, Varma said. Consumption in metros has slowed and is proving to be a challenge, he said. While jobs appear to be fewer in number, wage and salary hikes too haven't kept pace with inflation, hurting the consumption story.

This quarter and next quarter will not be great in terms of consumption, according to Verma's expectations. Still, things might be looking up with inflation showing signs of trending down.

Food and beverage inflation eased to 8.2% in November from 9.69% in October. Going forward, food inflation is likely to soften in the fourth quarter, with seasonal easing of vegetable prices and kharif harvest arrivals; and good soil moisture conditions along with comfortable reservoir levels auguring well for rabi production, the Reserve Bank of India had said during a media event post its latest MPC decision, projecting inflation at 4.5% in the January-March 2025 quarter.

For Varma, too, there is some relief from softening prices of moth dal—used as a base ingredient in several packaged snacks.