Price Hikes Loom for Biscuits, Snacks, and Soaps as Customs Duty on Edible Oils Rises by 20%

Introduction

The Indian FMCG sector is bracing for a wave of price hikes following the government's decision to increase basic customs duty (BCD) on crude and refined edible oils by 20%. This move, aimed at controlling imports, is expected to have a cascading effect on the prices of everyday essentials such as biscuits, snacks, detergents, and soaps. Industry experts predict a 6-7% increase in product prices, especially in the next quarter, as companies begin adjusting to rising raw material costs.

Impact of Edible Oil on FMCG Pricing

Refined palm oil, a crucial ingredient for many food products and personal care items, constitutes 12-20% of raw material costs for companies. With 95% of India's edible oil requirement met through imports, the hike in customs duty is expected to directly impact product pricing. According to Krishnarao Buddha, Senior Category Head at Parle Products, the cost increases are inevitable:"A price hike of about 7% is expected in the market by next month due to the rising costs of palm oil and other ingredients such as wheat."

Broader Implications for the FMCG Sector

The price hike is not limited to food products. Crude palm oil derivatives, such as palm fatty acid distillate, are widely used in home and personal care products, including soaps, laundry detergents, shampoos, and cosmetics. With the increase in customs duty, companies like Dabur and Britannia have hinted at potential price adjustments. Mohit Malhotra, CEO of Dabur, warned of impending inflation, saying:"We might have to take some price increases in the food business going forward as food inflation continues to grow."

Consumer Impact and Market Dynamics

The FMCG industry has already faced significant pricing pressure post-Covid, with companies raising prices to offset higher input costs. However, the recent stabilization in pricing may come to an end as the new customs duty on edible oils drives costs up again. While large players like Parle, Dabur, and Britannia may be able to absorb some of these costs or pass them on gradually, smaller and unorganized players could struggle, leading to market consolidation.Analysts from Nuvama Institutional Equities noted that larger FMCG companies tend to benefit during inflationary periods:"Sharp price increases are likely to benefit larger players, as they often gain market share during periods of high 

Conclusion

The recent customs duty hike on edible oils will likely lead to price increases across a wide range of FMCG products, affecting both food and personal care categories. Consumers should brace for a 6-7% rise in prices as companies pass on the additional costs in the coming months. While large brands may navigate this inflation more efficiently, smaller players could face significant challenges, potentially reshaping the competitive landscape in India's FMCG sector.

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