- The Indian government recently announced a wheat export ban, reversing its stance the previous week.
- It added restrictions on sugar exports and waived import duties on palm oil, which could curb rising commodity prices for packaged food.
- This could provide much-needed relief to FMCG companies such as
HUL, ICCand Brittanyamong others, experts say.
The Indian government seems determined to bring inflation under control with interventions such as wheat export ban, sugar export restrictions and import duty waiver on palm oil, etc.
In addition to easing the burden on grocery bills, these measures can help consumer packaged goods giants such as
While inflation is a phenomenon in which the prices of goods and services increase, stagflation takes inflation and combines it with slow economic growth and high unemployment. Imagine the high prices of everything and consider that your income fails to keep up – you’re essentially making less money than before.
Packaged food companies like Nestlé and Britannia are getting a break
Analysts, however, hailed the government’s decision, saying it will bring much-needed respite to packaged food companies like Nestle and Britannia.
Wheat, sugar and palm oil account for 40-60% of the total cost of raw materials involved in the manufacture of cookies, noodles, bread, beverages, among others.
“Packaged food companies faced hyperinflation in the ready-to-wear basket as international prices for most commodities were at an all-time high following the Russian-Ukrainian war and the imposition of the ban on palm oil exports by the Indonesian government last month,” Naveen Kulkarni, chief investment officer at Axis Securities, told Business Insider.
This, combined with Indonesia
decision Lifting the palm oil export ban should bring immediate relief to Hindustan Unilever and Godrej Consumer, Kulkarni said, saying palm oil accounts for 20-25 percent of the companies’ raw material cost.
However, it should be noted that the decision to ban the export of wheat is a preventive measure, intended to prevent the rise in wheat prices in the country. An unexpected outcome of this could be a spike in the price of wheat alternatives like rice, said Sonal Varma, chief India economist at Nomura. “The impact of the wheat export ban on India’s domestic food inflation is likely to be muted. However, with domestic wheat production likely constrained by the heatwave, local wheat prices may not moderate significantly,” she said.
Therefore, this decision could have an impact on farmers’ income. “With domestic grain price inflation still on the rise, the current export ban could also be long-lasting, if global food prices remain high,” Varma added.
It appears the government has heeded warnings from top bosses of India’s FMCG giants. Whether it will pay off or not is something only time will tell. Until then, hang in there.
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