Home >market >mark-to-market >Consumer companies face headwinds from rising global food prices

Food companies are faced with the prospect of rising input costs, as prices of key agricultural commodities have been rising. High consumer inflation was one of the reasons for weak consumer demand in recent years. A declining trend in broad consumer inflation in recent months was being seen as a positive factor that could help demand get back on its feet.

But rising input costs could put pressure on food companies to increase product prices. The Food and Agricultural Organization’s Food Price Index level in March was up by 2.3% over February, and is up by 5% since January when it was at its lowest level in the past 12 months.

The main culprit in the pack is edible oils, with palm oil prices rising by 14.4% between September end and March end. Used widely by most companies that sell packaged food products and some of its derivatives are even used to make soaps, palm oil prices are a significant influence on the consumer market’s raw material bill. They also tend to have a cascading effect on its substitutes. Weather is the main concern that is driving up prices and is also responsible for rising prices of cereals such as wheat and products such as sugar.

In the domestic market, compared with September average levels, the situation is not alarming though prices have risen compared with a year ago. In recent weeks, sugar prices have risen sharply due to expectations of lower output and rising international prices. Since palm oil is imported, any increase in prices is directly reflected in higher costs for buyers. In the coming quarters, investors should keep a watch on whether food commodity prices continue to increase and how consumer companies respond to it. This could become a key factor influencing how these companies perform in fiscal 2015. And, of course, apart from all this, there’s also the looming threat of an El Niño.

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