Food inflation spectre will haunt us in 2022, says Nestle India chief

Says 2022 going to be difficult year on higher commodity prices

Rising food inflation may have severely crimped household budgets in the past few quarters, but the inflation bogey still lurks. Suresh Narayanan, chairman and managing director of food and beverage major Nestlé India, expects further rise in food prices next year. Surging prices of agri-commodities, oils and packaging materials, coupled with greater economic activities across key economies, are expected to inflate food prices further.

“2022 clearly seems to be a difficult year. While there is an uptick in milk prices, opening up of the economy will lead to higher economic activities and surge in demand - leading to escalation (in prices). Globally, coffee prices are going up significantly, supply-side disruptions in cocoa, the oil complex, and packaging materials have led to cost escalation of 4-5 per cent. There is going to be a spectre of food inflation that will haunt us,” he said.

Unlike many of its industry peers, Nestlé remained less impacted due to rising input costs as prices of milk and wheat remained stable. According to Narayanan, price hikes by Nestlé have not been substantive in the recent past. The company has raised prices by 1-3 per cent (depending upon categories). He, however, did not reveal the extent of reduction Nestlé has effected in its pack sizes.

Faster recovery in larger economies will have a bearing on commodity prices in the quarters to come. “In the global context, many of the large economies like the US, European countries, and China are opening up strongly. There will be pricing pressure on raw material. The pressure is likely to be more acute than what we have been through so far,” he said.

At a time when job losses and cutback in income have strained the purchasing power of a section of consumers, rising cost of essentials have further burdened households. In a few quarters, a major fraction of household budgets will be spent on essentials; discretionary and premium items will get less priority.

While Nestlé is actively working towards cost optimisation, a better monsoon and decent rabi crop - leading to robust output in the agriculture sector - will be crucial. But it may not be enough to mitigate the prospective rise in costs fully. “We have to factor in the prospective jump in input costs in the coming quarters,” he said.

Moreover, manufacturers still face the risk of losing customers due to price pinch. While sales have picked up since early-2021, it is still unclear whether they will sustain. According to Narayanan, manufacturers “have to watch a few more quarters to be sure that the current levels of demand are sustainable and not pent-up”.

After a prolonged pause in out-of-home consumption and massive disruptions in modern trade channels, the market has begun to stabilise. Bumper growth in e-commerce channels that all leading players had recorded in the June quarter may be slowly tapering off. According to Narayanan, growth in “e-commerce is gradually coming down, while modern trade has begun to show traction with people on the move”.

In this context, sales during the festival season are now expected to be much better than they were last year, he added.