The Hindu Business Line : Sugar prices: Not a sweet beginning for food industry

THE year has not begun on a sweet note for the food industry. Sugar, a key ingredient in a number of food products including biscuits, confectionery, colas, chocolates and other desserts, has seen a sharp price spurt over the last few days.

And this is keeping food product manufacturers on tenterhooks. Said the President of the Indian Biscuit Manufacturers' Association, Mr B.P. Agarwal, "Sugar accounts for 30-35 per cent of the total manufacturing cost of biscuits and the price spiral has hurt the industry badly. Due to competitive pressures the industry may not increase consumer prices immediately but if sugar breaches Rs 20 per kg, we may have to think of a price hike."

The soft drink industry, which has already seen two rounds of price increases since August last year, is also keeping its fingers crossed. Industry sources said that exclusive of glass packaging, sugar accounts for 40 per cent of other direct material costs and if it continues to rule firm, the cola majors may have to hike product prices further. Already, the 200-ml bottle has become dearer by a rupee at Rs 6, whereas the 300-ml bottle is priced Rs 2 higher at Rs 8 in select markets across the country.

Among the major bulk consumers of sugar is the confectionery industry, which is already witnessing a slowdown. From cumulative growth rates of about 24 per cent till 2001, it is expected to register only about 5-6 per cent sales growth in 2004. And since the industry operates at specific price points of 25 paise, 50 paise and a rupee, it is averse to hiking prices, consequently facing a margin squeeze.

The Lotte India (erstwhile Parrys) Managing Director, Mr N.C. Venugopal, said, "Sugar comprises more than 50 per cent of the industry's ingredient cost. We are affected but are not increasing product prices immediately because of severe competitive pressures."

Analysts said that while most food companies do not want to raise prices just yet, they are looking forward to this year's Budget for various duty concessions. For example, the biscuit industry has sought exemption from the eight per cent excise duty it currently pays as well as reduction in Value Added Tax to 4 per cent. The cola companies have also sought removal of eight per cent Special Excise Duty to be able to contain input costs.

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