India’s confectioners and biscuit makers are likely to soon raise prices and reduce pack sizes on surging sugar prices, which have almost doubled in a year.
“We are waiting and watching the sugar price movement,” said RS Sodhi, chief general manager of Gujarat Cooperative Milk Marketing Federation Ltd, which makes the Amul brand of chocolates, ice cream and baby food. “If the prices continue to increase we will have to raise prices.”
On Wednesday, the government said it would extend duty-free import of refined sugar to cool prices.
Sugar spike: Cadbury India says the firm cannot rule out price increases in the coming months as input costs continue to rise. Sugar prices rose 71% since January 2009 to Rs3,365 per quintal in December. Frantzesco Kangaris / Bloomberg
“The sugar prices at Rs3,365 per quintal in December rose 71% over January 2009 at Rs1,965,” said Madan Sabnavis, chief economist of commodities exchange NCDEX Ltd. “Even the retail price, according to the ministry of commerce, rose 86% year-on-year at Rs39 per kg as of end of December in Delhi.”
Since India is the world’s largest consumer of sugar, global prices would rise further on the country’s imports, he added.
“We can’t rule out price increases in the coming months,” said Anand Kripalu, managing director of Cadbury India Ltd, India’s largest chocolate and confectionery maker with over 70% share in the Rs2,000 crore market.
“We are now actively looking at increasing prices or then reducing grammage at the price-sensitive price points of Rs5 and Rs10 as our input costs led by biscuits and confectionaries has increased by over 20-25%,” said Chitranjan Dhar, chief operating officer of the foods division of ITC Ltd.
Cadbury India had decreased the size of its chocolate bars in the middle of last year due to rising costs of sugar and cut the weight of its popular Rs5 Cadbury Dairy Milk chocolate from 11g to 10.5g.
Nestle India Ltdhad increased prices of its Munch and KitKat chocolate bars by 15-20% at the same time. It later rolled back the hike for Munch after sales fell. Close to 30% of chocolate sales comes from products in the Re1 to Rs5 range.
Soft drink makers, who use large amounts of sugar in some of their products, are also keeping an eye on rising sugar prices. “We have yet not decided on raising prices even though there is a pressure on our input costs,” a PepsiCo India spokesperson said. Coca-Cola India declined to comment.
According to an earnings’ preview report by Anand Shah of Mumbai-based brokerage Angel Broking Ltd, consumer goods firms, including packaged food makers, are expected to expand margins in the quarter ended 31 December but are likely to face tougher times ahead.
“This is the last quarter where most packaged consumer goods companies will report gross margins expansion,” Shah said. “If at all there will be any operating margins expansion in the coming quarters, it will be due to improving operating efficiencies and cutting costs.”