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Business News/ Politics / News/  Normal rains to lift rural demand for FMCG firms
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Normal rains to lift rural demand for FMCG firms

Rural consumption declined for the sixth consecutive quarter in the December quarter, while urban markets showed positive momentum, according to data by market researcher NielsenIQ

Demand for non-discretionary items in rural markets rose in the March quarter, but that for discretionary items stayed tepidPremium
Demand for non-discretionary items in rural markets rose in the March quarter, but that for discretionary items stayed tepid

New Delhi: If monsoon rains turn out as predicted and raw material prices continue to cool, rural demand for fast-moving consumer goods could recover in the next three to six months, companies and industry experts said.

Earlier this month, India Meteorological Department (IMD), the official weather forecaster, said it expects normal rains in the June-September monsoon, despite the likelihood of El Nino conditions—a phenomenon usually associated with droughts—appearing by July. The forecast could spell good news for rural India, as nearly half of India’s kharif crop area lacking assured irrigation depends on monsoon rains, Mint reported earlier.

The prediction seems to be of a good and normal monsoon, which should support an early recovery of rural demand, said K. Ramakrishnan, managing director of South Asia at the Worldpanel division of Kantar, which tracks household FMCG consumption across India.

Rural consumption declined for the sixth consecutive quarter in the December quarter, while urban markets showed positive momentum, according to data by market researcher NielsenIQ. Rural volumes declined 2.8% year-on-year in the December quarter, the researcher said. Data for the March quarter is yet to be released.

Several companies Mint spoke to said demand for non-discretionary items in rural markets improved during the March quarter, while that for discretionary products such as personal care remained tepid. “While beverage companies are reporting an uptick in rural demand, we are yet to see that in personal care. The quarter gone by was good; now, based on the monsoon report and commodities easing off, we think the next few quarters will be good even for discretionary," said Jaideep Nandi, managing director of Bajaj Consumer Care Ltd, which makes hair care products.

Urban markets are still growing faster and outpacing rural, Nandi said, adding rural demand will bounce back in the next two quarters. “Rural is growing, but recovery in discretionary or personal care is not as strong. In the next two quarters, rural will catch up with food prices coming down, cooling-down of raw material inflation, as well as a normal monsoon," said Nandi.

Overall, consumer demand and sentiments remained tepid during the March quarter. “Staples demand in rural remained weak and failed to show any recovery; urban pockets remained steady during the quarter," Amnish Aggarwal, head of research at Prabhudas Lilladher Pvt. Ltd said in a note dated 11 April.

A normal weather forecast has eased concerns of the agriculture sector, others said. “The forecast of the rainfall has been termed ‘normal’ this year with 96% of the long-period average, which means it would not impact negatively on the yields of crops sown in the kharif season. This further implies that the FMCG sector will also remain majorly unaffected. For instance, we rely heavily on potato and pulses yields for the chips and namkeen categories, respectively. Therefore, during the time of its harvest, if the El Nino condition supports, it will not have an adverse effect," said Manish Aggarwal, director, Bikano, Bikanervala Foods Pvt. Ltd.

Aggarwal said inflation continues to pose a threat to the FMCG industry. “However, we anticipate this to get overpowered by strong demand from consumers, resulting in profitable outcomes," he added.

India’s annual retail inflation for March eased below the central bank’s upper tolerance level for the first time this year and eased to 5.66% from 6.44% in February. Food inflation, which accounts for nearly half of the overall consumer price basket, moderated to 4.79% as vegetable prices eased.

Retail intelligence platform Bizom said food inflation is set to ease worldwide in the current fiscal. This could help lift demand in general. “Also, in India, with the competitive scenario intensifying for FMCG, we do expect to see a drop in prices across categories, which could definitely help boost consumption," said Akshay D’Souza, chief of growth and insights at Bizom.

“A normal monsoon will be a boon to the nation, particularly rural markets. We already see green shoots from both the hinterlands as well as their urban counterparts," said Krishnarao Buddha, senior category head at packaged foods company Parle Products.

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ABOUT THE AUTHOR
Suneera Tandon
Suneera Tandon is a New Delhi based reporter covering consumer goods for Mint. Suneera reports on fast moving consumer goods makers, retailers as well as other consumer-facing businesses such as restaurants and malls. She is deeply interested in what consumers across urban and rural India buy, wear and eat. Suneera holds a masters degree in English Literature from the University of Delhi.
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Published: 16 Apr 2023, 10:58 PM IST
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