FMCG firms keep fingers crossed

Predictions of below normal monsoon rains have poured cold water on the bullish growth plans of fast-moving consumer goods companies, which have continued to show robust growth of 17-18 per cent in the face of rising input costs and the economic downturn.

That has been possible due to sustained demand from the rural sector, which is now under threat. “Recently, rural India has been driving consumption growth on the back of various government stimuli. This segment is vulnerable to a pull-back,” says a report by JP Morgan India.

Rural India buys more than half the country’s FMCG sales, including feeder supply from wholesalers in urban India to tertiary markets.
 

MONSOON BLUES
Company	Rural share of revenues (%)

HUL50 Dabur50 Emami35-45 CavinKare35-40 Colgate30-35 Marico22-25 ITC22-25

Most FMCG companies say they will not be affected if the monsoon arrives by the first week of July. A delay beyond that will however be another matter. “A delay of about a week to 10 days is not a matter of concern. More than the monsoon, it would be the government’s policies on creating rural jobs and loan waivers that would have a greater bearing on how rural demand grows this year,” says Dabur India chief executive officer Sunil Duggal.

Although the average rural household spends less than half of what its urban counterpart spends, the rural market’s appeal lies in its sheet size. “A poor crop will deflate the current buoyancy in farm incomes,” says a report by CLSA Asia-Pacific Markets. No wonder, Aditya Agarwal, director with Emami, is looking skywards with hope. “As a citizen, I am worried and hoping that rainfall will be as per the requirement and that the farmers have a good crop,” he says.

CavinKare, on the other hand, feels that it is still too early to predict a bad monsoon. “It is still early to say that there is a deficiency,” says Ramesh Vishwanathan, the company’s executive director.

There’s some solace in the fact that farmers are no longer just farmers, says a Reliance Equities research report. They are diversifying into other businesses: Selling buffalo milk, working as labourers on other people’s land, taking jobs from the National Rural Employment Guarantee Scheme, and other such. Only about 40 per cent of the income is agri-based in the hinterland and farmers often multi-task. Labour forms 35 per cent of the occupation break-up and rich farmers also double up as real estate barons.

(Additional reporting by Pradipta Mukherjee)