Whalesbook
New Packaging Rules for Edible Oils
The Department of Consumer Affairs is pushing to update rules for edible oil packaging. This comes after many companies used "shrinkflation"—reducing package size while keeping the price—since 2023 when they were allowed to set their own pack sizes. The government wants to enforce standard volumes like 200ml, 500ml, 1L, 2L, 3L, 4L, 5L, 15L, and 20L. The goal is to stop consumer confusion caused by odd sizes like 810ml or 870ml, which often hide higher costs per liter.
Industry Adjustments and Competition
This regulatory change impacts the edible oil sector, which has used varied pack sizes to manage fluctuating raw material costs. Companies like Adani Wilmar and Patanjali Foods have used flexible sizing as a way to deal with inflation. Industry groups, such as the Solvent Extractors’ Association (SEA) and the Soybean Processors Association (SOPA), have supported the return to standard sizes. They argue that current practices have created an unfair market, with smaller companies losing ground to those using misleading packaging to appear cheaper. Implementing these new sizes will require manufacturers to adjust their filling machines and supply chains, which is expected to add costs during the proposed three-month transition period.
Financial Risks for Oil-Focused Companies
Standardizing pack sizes presents financial risks, especially for companies heavily dependent on imported palm oil. Unlike diversified consumer goods companies, those focused solely on edible oils face a tough choice: absorb the new operational and packaging expenses or increase prices for consumers who are already sensitive to cost. The rule also excludes packs smaller than 200ml, intended to help low-income consumers, but this could create an opportunity for larger brands to offer "hidden" price points. This regulation limits the flexibility companies once had to conceal shrinking profit margins. If further measures like stricter unit pricing or clearer front-of-pack labels are introduced, maintaining current profit levels could become challenging.
Moving Forward with Compliance
With 90% of the industry supporting the proposed changes, the shift to standardized packaging seems likely, assuming the government sticks to its timeline. The market may see a consolidation, favoring companies with efficient supply chains and strong distribution networks. Companies should watch for the official notification under the Legal Metrology Act, as the transition period will reveal how major players adapt to these new requirements.