From GST gains to crude pain: FMCG firms shift polymer sourcing, weigh shrinkflation and price increases

Consumer goods companies are on the mend again as executives consider either reducing grammes in packs or raising prices, as international crude oil prices crossed the USD 100 per barrel mark on Monday amid the escalating US-Israel war over Iran.

This development could undo the significant gains from the Goods and Services Tax (GST) cut that began to emerge a few months ago, as companies expressed concerns about global supply disruptions and a resurgence of inflationary pressures.

Additionally, packaging company officials said they have started sourcing polymers (which are key in FMCG packaging and are derived directly from crude oil) from suppliers other than the Gulf region, such as China, Thailand, and Singapore.

Mayank Shah, Vice President of biscuit and confectionery maker Parle Products, said, "Packaging alone accounts for 15-20 per cent of our costs. Reducing grammage in small packs and increasing prices of bigger packs are options we are considering if oil prices remain at current levels," as quoted by ET.

Packaging industry officials said that due to supply shortage, prices are bound to increase.

"For the last three to four days, the industry has started to source polymers (which dominate FMCG packaging and are derived directly from crude oil) from suppliers other than the Gulf region – such as China, Thailand and Singapore. Before the current crisis, imports of polymers were sourced more or less evenly between the Gulf region and South East Asian countries," said Vimal Kedia, founder and promoter of rigid plastic packaging giant Manjushree Technopack, as quoted by ET.

ET reported, citing a senior executive, that they will need to do weight reduction in snack packs because the impact of disruptions of crude is expected to be long-term. Even if there are alternatives to crude supplies, prices are soaring as demand-supply dynamics have kicked in.

Companies manufacturing soap, snacks, coffee, noodles, shampoo, and other daily-use products had put back grammage on packs after the GST rate cut last September.