High palm oil rates trigger price hikes
2 min read 14 May 2021, 11:25 PM ISTPalm oil prices have more than doubled in the past yearIndia, the world’s biggest consumer of the edible oil, imports most of its requirements from Indonesia and Malaysia
PremiumPackaged goods companies are considering raising prices of products because of a surge in the price of palm oil, a key input for goods ranging from snacks to soaps.
Palm oil prices have more than doubled in the past year. India, the world’s biggest consumer of the edible oil, imports most of its requirements from Indonesia and Malaysia.
Subhashis Basu, chief operating officer of Indore-based Prataap Snacks, the company that makes Yellow Diamond chips, said the price surge is “bleeding" the salty snacks industry.
Dependence on the commodity is particularly high for the packaged snacks industry, said Basu. With prices rising steadily over the past year, the company has had to reduce the grammage of its chips and salted snacks.
“We also did some price corrections across brands, but the price rise is too much to be offset fully," Basu said.
The company does not directly import palm oil but buys it from large importers.
Rival snacks company Bikano is worried, too.
“Palm oil is one of the major ingredients in our deliverables, including sweets and namkeens. The prices of other edible oils will also soar with the rise in palm oil prices," said Manish Aggarwal, director, Bikano, Bikanervala Foods.
The company faced a similar problem last year, too. “This rise in palm oil pricing is only adding to the already existing food inflation that our economy is going through," Aggarwal said. “If the prices continue to rise, we will definitely have to look at increasing the prices of our food items," he said.
The company may look at substitutes such as rice bran oil and cottonseed oil, he added.
Sunil Kataria, chief executive officer for India and Saarc at Godrej Consumer Products Ltd, said the maker of Godrej No.1 and Cinthol soaps has taken a price increase of 5-7% since January on its soaps.
The company plans to double down on cost-saving measures to tide over inflationary pressures. “We want to do a very calibrated and smart balance between volume growth and price corrections," he said, adding that the company will watch how the situation evolves before taking further hikes.
“Commodity plays are volatile. We expect this inflationary trend to continue for another three to four months," Kataria said.
The price increases have been taken across different stock-keeping units to ensure volumes remain intact. Covid has led to the soaps category performing exceedingly well as consumers turn to heightened hygiene habits.
Rivals Hindustan Unilever Ltd and Wipro Consumer Care and Lighting, too, initiated price hikes in soaps in the last few months.
Hindustan Unilever said it saw a significant impact of the inflation in palm oil on its skin cleansing portfolio. “Palm prices have risen by 40-50% year-on-year and, even sequentially, have gone up significantly from the December quarter.
The industry will need to raise prices somewhere in the middle of 10-13% just to cover the cost," Srinivas Phatak, Hindustan Unilever’s former chief financial officer, said at a conference call with investors last month.
