Priyanka Shaw

November 11, Chennai

Packet sizes of fast-moving consumer goods (FMCG) will shrink further as companies struggle to maintain profitability after price hike in palm oil-an important raw material for FMCG products.

The government increased the tariffs on palm oil from 5% to 27.5% in September to support local farmers. Domestically, palm oil prices have also increased in Malaysia and Indonesia by 26% and 20% respectively in the last two months, according to the data from Bloomberg.

Both these countries are among the largest suppliers of palm oil to India. India imports $11.1bn of palm oil making it the largest importer globally, according to the Observatory of Economic Complexity, a
platform for international trade data.

Major FMCG companies such as Godrej Consumer Products and Hindustan Unilever Ltd use 30% and 17% of palm oil as a raw material respectively, said an analyst on the condition of anonymity.

Companies have already reduced the product sizes to maintain profit, said an analyst of Emkay Global Financial Services, who did not want to be named. “A commodity that weighed 25 gm earlier, now weighs 22.5 gm for the same cost”.

There is no cheaper alternative to palm oil and companies cannot reduce the packet size beyond a certain threshold, said an economist at Madras School Economics on the condition of anonymity. “If inflation remains elevated, companies may face limitations in reducing product sizes, potentially leading them to raise prices outright”.

The companies have already increased prices of bigger packets of some FMCG products, said an Equirus Group analyst on the condition of anonymity.

“We manage cost challenges through economies of scale, improving formulation efficiency, and maintaining product integrity without raising prices.” said a Nestle spokesperson.

Calls and E-mails sent to Godrej, Parle, ITC did not elicit a response.