FMCG Input Costs Mixed: Wheat Eases, Sugar & Coffee Jump - What's Next for Brands?

FMCG Raw Material Costs Show Mixed Trends

FMCG companies are navigating a complex landscape of raw material costs, with input prices showing mixed trends, according to a recent report by Equirius Securities. While some key agricultural inputs are easing, others like sugar and coffee are experiencing price hikes, creating a challenging environment for manufacturers.

Key Agri-Input Trends

• Wheat and rice prices have remained broadly stable quarter-on-quarter, with year-on-year declines of 10 per cent and 1 per cent respectively.
• Maize prices continued their downward trend, falling 14 per cent year-on-year in the September quarter.
• Barley also saw a 4 per cent year-on-year drop in prices.
• However, sugar prices moved against the broader trend, increasing by 8 per cent year-on-year due to output constraints.

Beverage and Cocoa Costs

• Coffee prices remained firm, with Arabica prices surging 18 per cent quarter-on-quarter and 46 per cent year-on-year, driven by supply disruptions. Robusta prices also climbed 15 per cent quarter-on-quarter.
• In contrast, cocoa prices extended their correction, falling 8 per cent month-on-month and 26 per cent quarter-on-quarter.
• Tea prices remained subdued, down nearly 4 per cent year-on-year.

Edible Oil and Milk Prices

• Volatility persists in edible oils. Copra prices remained elevated year-on-year, up 60 per cent, due to production issues and festival demand, although they have eased from recent peaks.
• Palm oil prices edged up 2 per cent quarter-on-quarter.
• Mustard, sunflower, and soybean oils showed firm trends, with year-on-year increases of 13 per cent, 11 per cent, and 6 per cent, respectively.
• Milk prices have begun to soften with the onset of the flush season, improving supply. Prices for Skimmed Milk Powder (SMP) are also showing early signs of easing.

Packaging and Overall Impact

• A gradual easing in crude oil prices is expected to lead to lower packaging costs for FMCG companies.
• The report highlighted that easing cereal prices are constructive for companies like Britannia, Nestlé India, Mrs. Bectors Food Specialities, United Breweries, Tata Consumer Products, and ITC.
• Softer milk and SMP trends are beneficial for margin recovery in Nestlé India, Zydus Wellness, Britannia Industries, Tata Consumer Products, and HUL.
• Correction in palm oil and PFAD prices will be a key monitorable for companies exposed to edible oil volatility.
• A softening crude and polymer basket is favourable for home and personal care companies such as Godrej Consumer, Hindustan Unilever, Jyothy Labs, and Dabur, due to lower packaging costs.

Impact

• This news provides crucial insights into the input cost environment for India's FMCG sector, affecting profitability and pricing strategies of major consumer goods companies. Investors can use this information to assess potential margin pressures or improvements for companies like Hindustan Unilever, Nestlé India, and Britannia. The varied cost trends suggest that companies with diverse product portfolios might be better positioned to absorb shocks or leverage price declines.
• Impact Rating: 8/10

Difficult Terms Explained

• FMCG: Fast-Moving Consumer Goods. These are products that are sold quickly and at a relatively low cost, such as packaged foods, beverages, toiletries, and over-the-counter drugs.
• q-on-q: Quarter-on-Quarter. This refers to a comparison of financial or economic data from one quarter to the next.
• y-o-y: Year-on-Year. This refers to a comparison of financial or economic data from one year to the same period in the previous year.
• Copra: Dried kernel of a coconut, used for its oil.
• Palm oil: Edible vegetable oil derived from the mesocarp of the fruit of oil palms.
• PFAD: Palm Fatty Acid Distillate, a by-product of palm oil refining.
• SMP: Skimmed Milk Powder. Milk from which the cream has been removed, then dried.
• Arabica: A species of coffee plant known for its aromatic and mild flavour.
• Robusta: A species of coffee plant known for its stronger, bolder flavour and higher caffeine content.