If steep rise in prices of daily essentials have been impacting your monthly budget for the past two years, you may finally expect some respite this year. As prices of agri-commodities are softening, daily consumed packaged foods like biscuits are expected to become affordable again, according to top executive from the industry.
According to Mayank Shah, Senior Category Head at biscuits majors Parle Products, after repeated price hikes in the past two years a round of price cuts on daily consumer packaged goods like biscuits is now in the horizon. Parle Products manufactures and markets some of the most popular brands of biscuits and confectionaries like Parle-G, KrackJack, Moncao, Hide & Seek, Melody and Mango Bite, among others.
“If the current trend continues and prices of commodities keep coming down, then manufacturers will start passing on the benefits to the consumers. I expect promotional offers like free offers like '10-20 per cent extra' and/or larger packs at the same price being offered to consumers. With demand scenario now improving, companies are now more confident about their finances, which bodes well for the sector,” Shah told Business Today in an exclusive conversation.
Shah’s prediction is not without rationale. After touching all-time highs earlier this year, prices of key agri-commodities are now coming down. “The situation is improving. Prices of commodities like wheat are cooling off. Additionally, price of palm oil has begun to fall and so have crude oil prices. Overall, in various essential commodities we have witnessed 15-20 per cent price correction in the recent past. So, you will not see further price hikes”, he said, adding that if this trend continues Parle Products may soon start slashing prices of its packs and/or increase grammage in them.
In the last one and half years, companies had no choice but to increase prices even at the risk of losing volume uptick as consumers begun to cut down on their spending, says Shah. Leading manufacturers of packaged goods like Hindustan Unilever and Nestle India, not only witnessed their volumes dip during the period but also suffered margin squeeze during the period.
While COVID-related operations and supply chain disruptions and container shortages had led to steep rise in prices of crude oil and other commodities. The Russia-Ukraine crises had led to increase in prices of wheat and sunflower oil as the region is a major supplier of these two products globally. Additionally, in May, an export ban imposed by Indonesia had resulted in spike in crude palm oil prices globally as the country supplies over 50 per cent of palm oil to what global markets including India. As a result, since COVID pandemic begun in March, 2020, production costs for companies like Parle Products shot up by 35 per cent.
However, imposition of ban on wheat exports from India has brought down domestic wheat price, while removal of export ban by Indonesia has improved supplies and cooled off palm oil prices since June. According to Solvent Extractors' Association of India, as a result, in June edible oil imports in India rose 31 per cent year-on-year - improving supply.
“Prices of these commodities had risen so much that they became unsustainable. Moreover, the fear of a recession and consumers cutting down on their purchases have led suppliers increase their availability. Of late, the volatility in prices have also gone down bringing respite to manufacturers”, said Shah.
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