How US-Iran war is affecting India's FMCG sector
What's the story
The fast-moving consumer goods (FMCG) industry is grappling with a major increase in packaging costs, which have gone up by 15-20%. The spike has been attributed to the ongoing conflict in West Asia. Rising crude oil prices, higher logistics costs, and rupee depreciation are all contributing to the disruption of the packaging supply chain across various sectors.
Production challenges
Industry bodies urge government for relief measures
The rationalization of commercial LPG has also affected the production of glass bottles for the beverage sector. In light of these challenges, industry bodies have urged government officials to take measures to ease the burden on smaller players. These include expediting input tax credit releases and removing anti-dumping duties on certain materials, allowing companies more flexibility in sourcing raw materials.
Cost impact
MSMEs struggling with working capital management
The surge in raw material costs, some by nearly 50%, is severely impacting business margins. MSMEs are particularly struggling with working capital management. For example, the landed cost of PET resin has skyrocketed to ₹133.50 as of April 8 from ₹90 earlier, a senior executive at a leading consumer goods company said.
Supply concerns
Fears of shortages have emerged
With India having limited manufacturing capacities for many crude derivative materials, fears of shortages have also emerged. Suraj Mehta, Chief Strategy Officer at Hindusthan National Glass & Industries Ltd, said their company is currently operating with up to 50% cuts in commercial LPG supplies across six plants. Despite increasing reliance on alternatives like LNG, capacity utilization remains between 40-60%, affecting high-demand sectors such as beer and soft beverages.
Cost surge
Longer lead times and allocation-driven supply
Mayank Shah, VP of Parle Products, confirmed that packaging costs for the FMCG industry have gone up by 15-20%. Thimmaiah NP, MD & CEO of Alternicq, also noted tighter supply conditions in the packaging industry with longer lead times and allocation-driven supply. He warned that if these conditions persist, some cost pressures may gradually be passed on to product pricing.