A weak monsoon has always worried India’s farmers. It should now worry the country’s largest consumer companies just as much. India’s next big consumer goods disruption may begin with a failed or scanty monsoon hundreds of kilometres away from their factories and warehouses.
El Niño, a periodic tilt of warmer Pacific Ocean waters towards the American seaboard away from the Asian one that weakens India’s monsoon, is usually watched for its impact on the farm sector.
It deserves equal attention from corporate boardrooms. A season of lower rainfall, longer dry spells or drought in important farming regions can travel through the economy before appearing in the price of a biscuit packet, cup of tea, chocolate bar or health product.
For India’s fast-moving consumer goods (FMCG) companies, a weak monsoon is more than a supply problem. It is a business problem that affects costs, margins and growth. For decades, consumer companies have been judged on their brands, advertising, pricing power and distribution networks. That view is woefully incomplete. Some of their most important assets are not inside factories. They are the farms that produce milk, wheat, tea, coffee, spices, sugar, herbs and edible oils.
A weak monsoon exposes the fragile connection between agriculture and consumer markets. India’s FMCG supply chains were built around the expectation that agricultural production would remain broadly reliable. That assumption is under pressure as rainfall becomes harder to predict. A delayed monsoon, uneven rainfall distribution or prolonged dry spell can affect sowing decisions, yields, crop quality and farm incomes.
While every ingredient does not respond to El Niño the same way, the big problem is dependence. Many consumer products rely on farm commodities produced in regions where water availability and rainfall timing determine output.
When disruption reaches these supply chains, companies face uncomfortable choices. They can absorb higher costs of ingredients such as milk, wheat, sugar or cooking oils, but that hurts margins. They can increase prices, but consumers may reduce purchases. They can reduce pack sizes, but that strategy cannot protect them indefinitely from what they face.
India is under particular pressure because rural households sit on both sides of the equation. They supply many commodities and represent a critical market for consumer goods.
A weak agricultural season can increase costs while weakening demand. This is why the climate conversation within FMCG companies has to move beyond factories. Cleaner energy, efficient manufacturing and better packaging remain important. But a company can run an efficient factory and still face disruption if the supply of farm ingredients falls short or turns unreliable.
Global research on supply chains shows that businesses designed mainly for efficiency can become vulnerable when disruption affects important suppliers or concentrated production regions.
Some leading Indian consumer companies have started preparing for this reality. ITC has an advantage because agriculture has long been central to its business. Its climate-smart farm initiatives focus on improving farm resilience through water management, better cultivation methods and farmer advisory services. Networks originally created to improve sourcing efficiency could serve as protection against monsoon uncertainty.
Nestlé India faces direct exposure because ingredients such as milk, coffee and cereals are central to its product portfolio. Its farmer programmes focus on responsible sourcing and farming practices aimed at improving soil health, water efficiency and long-term productivity.
Hindustan Unilever has also recognized that business risks extend deep into agricultural supply chains. Its disclosures highlight supplier engagement, responsible sourcing and efforts to make the supply of important agricultural commodities more resilient.
But individual company efforts may not be enough. India’s agricultural supply chains remain highly fragmented. Many small farmers who produce essential ingredients do not have adequate access to irrigation, finance, technology or timely weather information.
It makes adaptation a policy challenge as much as a corporate priority. Better water management, improved irrigation, agricultural research, local weather forecasting and easier finance for farmers, apart from being key rural development goals, are becoming essential infrastructure for industries that depend on predictable agricultural production.
The government’s think-tank Niti Aayog has highlighted the need to strengthen water management and build more resilient agricultural systems as pressure on natural resources increases.
Strong brands and low-cost sourcing have long given FMCG companies an edge, but the next competitive advantage in this sector may come from knowing exactly where ingredients originate, understanding the risks facing those regions and investing before the next disruption occurs.
El Niño may possibly see an Indian Ocean dipole effect counter it to a small extent this year, but its lesson is clear: FMCG businesses must mitigate their vulnerability to the adversity it could result in. They have spent decades building brands that consumers can trust.
The future battle for India’s consumer market may begin long before a product reaches a store shelf. It may begin in its farms.
The author is an independent expert based in New Delhi, Kolkata and Odisha. Twitter: @scurve Instagram: @soumya.scurve.