Ukraine Conflict To Likely Result In 10% Higher Prices For Fast Moving Consumer Goods

Ukraine conflict to result in 10% higher prices for Indian consumers
Ukraine conflict to result in 10% higher prices for Indian consumers

The escalating Russia-Ukraine conflict has pressured fast-moving consumer goods (FMCG) companies in India to consider another round of price hikes to offset an unprecedented rise in commodity prices such as wheat, palm oil and packaging materials.

The price of crude oil and a broad range of commodities have risen since Russia attacked Ukraine on supply worries.

India's inflation pressures were already rising even before Russia invaded Ukraine on February 24. Indeed, retail inflation for February rose above the Reserve Bank of India's upper-end target range of 2-6 per cent for the second straight month. 

That was even before the impact of the Ukraine conflict had begun and did not consider a sharp rise in international oil costs.

Crude oil prices have risen sharply to above $100 a barrel, and FMCG firms predict a further rise in wheat, edible oil, and crude costs.

Companies such as Dabur and Parle are watching the situation and will undertake calibrated price increases to offset those inflationary pressures.

According to some media reports, makers such as Hindustan Unilever (HUL) and Nestle have increased the prices of food products last week.

"We are expecting a 10-15 per cent hike by the industry," Parle Products Senior Category Head Mayank Shah told PTI.

Mr Shah further noted that the prices are witnessing high fluctuation, and hence it would be difficult to tell about the same increase due to volatility of the price.

The price of palm oil increased to Rs 180 per litre and has come down to Rs 150 per litre. Similarly, he added that crude oil prices had risen to nearly $140 a barrel and have now slipped $100 per barrel.

"However, it is still higher than what it was earlier," Mr Shah said, adding that the companies are also hesitant in taking price increases significantly because demand was reviving after COVID. They do not want to tinker with that.

Last time, the makers did not take the price hike to mitigate the impact completely and absorbed some part of that.

"Everybody is currently talking about a price hike of 10-15 per cent, although the input cost has gone much more than that," he said.

When asked whether Parle would also go for a hike, Shah said right now it has enough stock of packaging materials and other stocks and would take a decision after a month or two on this.

While expressing similar thoughts, Dabur India Chief Financial Officer Ankush Jain said inflation remains unabated and is a cause of concern for the second year.

"The inflationary pressures and resultant price increases have led to consumers tightening their purse-strings and relooking at discretionary purchases, while also downgrading to smaller packs. We are closely watching the situation and will undertake calibrated price increases to mitigate the inflationary pressures," he said.

Commenting on the current situation, Edelweiss Financial Services Executive Vice President Abneesh Roy said FMCG makers are passing high inflation to consumers.

"FMCG companies like HUL Nestle have high pricing power. They are passing on inflation in Coffee and packaging materials. We expect all FMCG companies to take a further hike of 3 to 5 per cent in Q1FY23," he added.

According to some news reports, FMCG major HUL and Nestle have increased the prices of food items such as tea, coffee and noodles, passing off some burden to the consumers to maintain margins.

The reports had claimed that HUL had hiked prices of Bru coffee, Brooke Bond tea etc., as the company was facing inflationary pressure.

While Nestle India has increased the price of its famous Maggi noodles by 9 to 16 per cent, it has also taken a price hike for milk and coffee powder, the reports added.

An HUL spokesperson had said: "We are witnessing consumer volume titration due to the impact of high inflation. In this environment, our priority is to provide value to consumers, invest behind our brands and protect our financial business model."

"We mitigate cost inflation first by driving our savings agenda harder, looking at all cost lines with a laser-sharp focus and removing any non-value-adding cost," he said.

"Considering the inherent strength of our brands and our execution prowess, we have been able to provide the right price-value equation to the consumer, thus helping protect our business model in a highly inflationary scenario," added the HUL spokesperson.