FMCG companies in wait-and-watch mode as global crude oil prices climb

While packaging and freight costs may rise, FMCG companies are holding off on price increases, citing hedging cover and watching for sustained crude price trends

Fast-moving consumer goods (FMCG) companies expect some impact from the rise in crude oil prices but say it is still too early to determine whether it will affect overall demand.

 

While packaging and freight costs could rise, companies are still in wait-and-watch mode before increasing prices of finished items ranging from biscuits to soaps, where derivatives of crude oil are used.

 

Freight and packaging typically account for up to 20 per cent of FMCG companies’ costs. Consumer goods companies also hedge their raw material positions for a period of three to six months, depending on the commodity.

 

In June, the price of Brent crude oil rose 19.5 per cent to $74.63 per barrel.

 

Managing the impact of rising crude oil prices while staying contiguous with strategy and ensuring products remain relevant to consumers is a challenge for the team, said a senior executive from an FMCG company. The executive explained, “We have to face the situation and find solutions to the issue. These are challenges we will keep facing, but we will face them and move forward.”

 

Parle Products, known for its Parle-G biscuits, says it is too early to take a call on raising prices. “We have to see how the situation pans out. If we see crude oil prices going up sizeably, then we may increase prices. A major portion of the impact of higher crude oil prices is seen in freight and packaging costs,” said Mayank Shah, vice-president at Parle Products.

 

The rise in crude oil prices comes at a time when companies expect demand to pick up in the coming months, driven by the Reserve Bank of India (RBI) cutting interest rates from the start of 2025, the government announcing income-tax relief, and expectations of a good monsoon. 

 

“We remain optimistic about consumer demand in the near term. Factors such as the RBI’s repo rate cuts, tax benefits introduced in the Union Budget, and the early onset of the monsoon are expected to positively influence consumption and household spending. However, geopolitical tensions in West Asia could pose short-term headwinds by driving up crude oil prices. This may raise the overall purchase basket and pinch consumers,” said Krishna Khatwani, head of India sales at Godrej Consumer Products. 

Time to devise contingency plans  

• Brent crude oil prices have risen 19.5% in June
• Freight and packaging expenses typically constitute up to 20 per cent of FMCG firms’ costs 
• Usually, consumer goods players hedge raw material positions for three to six months