Whalesbook
Rising packaging costs, tied to crude oil prices, pose a major challenge for India's food industry and exporters. This cost surge comes amid a shaky global economy and ongoing Middle East tensions, forcing companies to rethink their prices and how robust their supply chains are.
Oil Prices Drive Up Packaging Costs
Global tensions in the Middle East have caused crude oil prices to swing wildly. Brent crude was around $89.20 per barrel on March 10, 2026, after briefly hitting nearly $120 earlier in the week. This price volatility directly raises the cost of polymer granules, a key material for plastic packaging. Sanjay Gupta of DS Group reported a 20% rise in some packaging types, driven by higher polymer prices and extra market charges due to tighter supply. Mayank Shah of Parle Products echoed this, stating packaging costs, which make up 15-20% of their total expenses, have climbed by a similar amount. If prices remain high, they may need to increase prices for consumers. Exporters, such as those in the rice industry, have seen packaging costs jump from 3% to 5% of their product expenses. They are asking the government to allow temporary duty-free imports of polymer granules to ease this financial strain.
FMCG and Packaging Sector Concerns
The wider FMCG sector is preparing for reduced profits. Analysts from Nomura and CLSA warn that steady increases in raw material costs could impact FMCG margins starting in the first quarter of fiscal year 2027. Companies like Hindustan Unilever and Godrej Consumer Products might feel this impact more than Britannia Industries. CRISIL predicts 7-9% revenue growth for FMCG in FY25, thanks to higher sales volumes and rural demand. However, they note minor raw material cost rises in the food and beverage sector. In the packaging industry itself, companies like Uflex and Cosmo Films are also dealing with rising costs. Uflex reported mixed financial results, with higher interest expenses affecting its profits. Cosmo Films, however, saw its after-tax profit double in FY25, supported by strong specialty sales and cost management. Yet, Indian packaging converters saw their profit margins hit a ten-year low of 8% in 2024 because of unpredictable input prices. ICRA expects packaging sector margins to improve in FY26-FY27, but higher raw material costs remain a worry.
Past Responses and Policy Needs
In the past, Indian governments have lowered import duties on polymers during times of high inflation and cost pressure. Industry groups have frequently asked for lower duties on polymers to improve competitiveness, pointing to lower rates in trade blocs like ASEAN and China. FMCG companies have previously dealt with oil price shocks by raising prices or reducing product sizes. The current call for duty-free polymer imports reflects an ongoing trend of seeking outside help to manage domestic cost increases.
Global Factors and India's Vulnerability
The International Monetary Fund (IMF) has warned that growing Middle East tensions pose a serious risk to global trade, energy prices, and inflation. They caution that extended conflict could slow economic growth. India relies heavily on energy imports, especially from West Asia (85% of its crude oil, 50% of LNG). This makes the country very vulnerable to disruptions in key shipping routes, such as the Strait of Hormuz, which handles about 21% of global oil traffic. These geopolitical worries worsen existing problems for India's export competitiveness, which is already affected by slowing global trade and higher tariffs in major markets. Concerns also exist about potential price jumps in petrochemical raw materials, with Emkay Global predicting 10-20% price rises in the chemical sector if conflicts continue.
Structural Issues and Export Competitiveness
This situation highlights India's heavy reliance on imported crude oil and petrochemicals, leaving its packaging and food sectors exposed to global events and price swings. This dependency hurts the competitiveness of Indian packaged goods exports, adding to pressures from global trade barriers and shipping costs. While businesses are asking for immediate help like duty-free polymer imports, past government actions on duties have been inconsistent. Companies face a dilemma: absorbing higher costs hurts profits, but passing them on could damage consumer demand that is still recovering. This balancing act is made harder by strong competition and economic uncertainty. It's also worth noting that DS Group has previously faced allegations related to tax evasion and plastic packaging rules, raising questions about compliance, despite its strong revenue growth.
Outlook and Solutions
Crude oil price swings are likely to continue, depending on how the Middle East situation develops, according to the IMF. This means Indian FMCG and packaging businesses will probably keep facing higher costs. Companies are expected to focus on improving efficiency, offering premium products, and making careful price changes. For firms like Cosmo First, expanding into specialty films and chemicals could offer better profits and less dependence on basic commodity markets. Nevertheless, the urgent request for temporary duty cuts on polymers shows the critical need for government action to help the sector now. Building lasting strength may require significant changes to supply chains and developing domestic material sources, rather than just depending on imports.