Sugar spike puts FMCG margins under fresh pressure
Wholesale sugar prices have surged 40% in two months, threatening to exacerbate the margin squeeze for packaged food companies already reeling from higher input costs. The bigger question is whether rising food inflation could now threaten the durability of India’s consumption recovery.
FMCG companies, particularly those with significant exposure to sugar in their product portfolios, are facing mounting pressure due to a sugar price spike. Raw material costs have surged by 20% in the June quarter, pushing operating margins to a four-year low of 22.2%. This decline is attributed to a combination of higher crude-linked raw material costs and a 30-40% jump in packaging costs due to supply disruptions caused by the West Asia war.
Industry experts predict that the September quarter may see an even worse situation, with sugar prices expected to rise by 40% over two months. The government attributes the price hike to a supply squeeze, driven by excessive rainfall and crop diseases in key sugarcane-growing regions, despite some sugarcane being diverted towards ethanol production.
As a result, sugar output for 2025-26 is now expected at 30.6 million tonnes, 11% below the initial estimate. Analysts anticipate that the supply squeeze will exacerbate the margin woes of food companies, potentially leading to a 50-80 basis point gross margin compression and 20-50 basis point Ebitda margin pressure.
Brief written by urgent.news from Live Mint's own syndicated text. Machine-written — may contain errors; check the original before relying on it.
