Input cost breather for food FMCGs

Bread, biscuit and beverage makers gain from wheat, sugar price fall.

The crash in sugar and wheat prices in the last six months has turned out to be a bonanza for fast-moving consumer goods (FMCG) companies that make bread, biscuits and beverages.

Since December, wheat prices have slumped about 13 per cent from Rs 11,000 a tonne to Rs 9,500 a tonne due to an increase in output from 69.5 million tonnes last year to 73.7 million tonnes.

Sugar prices have also dipped 18.75 per cent from Rs 16,000 a tonne to Rs 13,000 over the same period owing to a 45 per cent jump in output from 19.2 million tonnes to 28 million tonnes.

According to the All India Bread Manufacturers' Association, about 2 million tonnes of wheat is used annually by the bread industry to produce 1.2 million tonnes of bread.

As this translates into a monthly average wheat consumption of 166,000 tonnes, bread makers are now paying roughly Rs 24.9 crore less every month than what they were paying in December.

The biscuit industry, on the other hand, consumes 3 million tonnes of wheat annually to produce 1.6 million tonnes of biscuit, according to the Indian Biscuit Manufacturers' Association (IBMA). With an average use of 250,000 tonnes a month, the industry has shaved its monthly bill by Rs 37.5 crore.

About half the biscuits made in the country are sweet and the industry consumes 175,000 tonnes of sugar annually. With an average monthly consumption of about 14,584 tonnes, the industry has reduced it monthly bill by Rs 4.37 crore.

BP Agarwala, president of IBMA and CMD of Priyagold Biscuits, admits "the industry is seeing the impact of lower wheat and sugar prices".

"The industry was incurring losses when prices of these inputs were high. With a decline in their prices, the situation has improved," he added.

"The decline has indeed improved realisations. We anticipated the fluctuation in wheat prices and have done forward booking of wheat to ensure good margins," said an executive in the procurement department of Britannia.

The beverages industry, including Coca-Cola and Pepsi, has been another gainer from the crash in sugar prices.

Both companies, on an average, consume 150,000 tonnes of sugar annually, according to sugar industry estimates. At an average monthly consumption of 25,000 tonnes, the two companies could be saving Rs 7.5 crore every month.