Rising sugar prices are squeezing India’s packaged-food makers ahead of the festive season, prompting companies to weigh price increases and smaller pack sizes as they try to absorb higher input costs without hurting demand.
Sugar prices are about 20% higher than a year ago and 20% higher sequentially, making it one of the biggest raw-material cost pressures for companies that use it across candies, confectionery, chocolates, biscuits, baked goods, sweets and beverages.
Data from the consumer affairs ministry showed the all-India average retail price of sugar at ₹62 per kg in September, up from ₹47 per kg in June.
Sugar availability has also tightened amid weather-related damage to sugarcane crop. The government expects sugar production for 2025-26 at 30.6 million tonnes, 11% below the initial estimate of 34.3 million tonnes.
Companies now have to decide how much of the higher cost to pass on to consumers and how much to absorb through margins, pack sizes, procurement or product mix.
“Sugar has seen a sharper rise over the past few weeks, putting pressure on our sweets portfolio,” said Rishabh Jain, chief financial officer of snacks and sweets maker Bikaji Foods International Ltd, adding that the company has built procurement coverage ahead of the festive season, providing some cushion.
Bikaji is also evaluating procurement coverage, product mix, operational efficiencies and calibrated pack sizes, Jain said. “We do expect to take a calibrated price increase once the other levers such as procurement coverage, product mix, operational efficiency and pack-size calibration have been fully evaluated.”
The timing of a price increase is tricky, though. “We are very close to the season, and taking a price increase now is tough. We are evaluating closely about a price increase,” Jain said.
For food companies, commodity prices do not translate immediately into finished-product costs. Companies can buy raw materials at spot prices or lock in quantities through forward procurement, meaning the impact varies across brands. A company that has secured supplies earlier can be insulated from a spike, while spot buyers feel the increase faster. Retail prices can lag as companies use older inventory.
Not so sweet
The pressure is broader than sugar this festive season. Palm oil prices are up 21% year-on-year as of the end of August, while mustard, soya, sunflower and groundnut oil prices have risen 8%, 9%, 14% and 10%, respectively, brokerage firm Equirus Securities said in its 3 September report. Meanwhile, cocoa prices are up 48% quarter-on-quarter. Crude oil is 38% higher year-on-year and HDPE (high-density polyethylene) prices are up 30%, adding to packaging costs.
Naveen Malpani, partner and consumer industry leader at Grant Thornton Bharat said higher sugar and palm-oil prices are likely to affect carbonated beverages and packaged foods, while sweets and chocolates could see an impact during the gifting season. Premium gifting and sweet products may prove more resilient, particularly low-sugar and better-for-you offerings, Malpani added.
High sugar prices and packaging costs are likely to pressure near-term margins of consumer goods companies, including Britannia and Nestle, said analysts at Nomura, in a 29 August report.
Queries emailed to HUL, Nestle, Britannia, ITC and Dabur did not elicit a response till press time.
Analysts at Anand Rathi, in a 25 August report, said they expect near-term margin pressure on FMCG companies to be partly offset by pricing, cost savings and operating leverage, keeping earnings growth healthy at around 15% for FY26-FY28.
“We remain positive about consumption over the next two quarters, with the festive period expected to support FMCG demand," said Jyotiroop Barua, business head of DS Group, which makes the popular candy Pulse.
The pressure could make the second quarter challenging for companies dependent on sugar and jaggery, said Diganth P., strategic commercial adviser at Gopal Snacks. “Companies will leverage pricing now. Either they'll cut their margins, or they will cut the distributors' margins too. So, Q2 would be challenging for all companies dependent on sugar, jaggery, etc."
He said prices of jaggery, sugar, cooking oil, and wheat tend to rise during the festive season, but this year, the added risk is El Niño which could affect sugarcane production, while geopolitical issues could affect wheat prices. Companies have already shrunk ₹5 and ₹10 packs, leaving little room for further reductions, he added.
“By the end of December, there may be some relaxation from price rise,” he said.
Meanwhile, it's a wait-and-watch approach for beverage maker Sosyo Hajoori Bevs, the joint venture partner of Reliance Consumer Products since 2023. “We are in a wait-and-watch mode. At this point, we are not planning to increase our costs," said Aliasgar Hajoori, director. "Most of our drinks have around 10% sugar, and because of the increase in sugar prices and the demand we are seeing, we are increasingly working towards releasing non-sugar variants soon. Otherwise, there is no change in the ingredients, MRP or pack size of our existing products,” Hajoori said.
At Bengaluru-based Lal Sweets, forward procurement is helping. Prateek Athwani, chief executive officer and founder, said the company had forward-booked sugar and would receive it at the older price until September 15.
“We would be raising the price by around 5%. We thought in this season we will stick to 5 only so that the entire burden should not be passed on to our consumers,” Athwani said, adding the company does not plan to reduce pack sizes, while established recipes will remain unchanged.
Packaged food players believe they can manage raw material price hikes for some time. "At an overall level, our raw material costs may have increased by around 5-10%, but we are currently able to absorb the increase," said Sneh Jain, managing director and co-founder at The Baker's Dozen. "If the increase in our costs moves closer to the 15-20% range, we may have to evaluate pricing to ensure that margins remain sustainable."