Russia-Ukraine conflict: Consumer companies flag inflation, supply pain

India Inc executives have red-flagged further inflation and supply disruptions as Russia has launched a major military assault on Ukraine and crude oil prices have topped $105 a barrel.

A steep surge in crude oil prices would impact household budgets since crude oil-related products have a share of close to 10% in the Wholesale Price Index (WPI) basket, executives said.

“Oil prices crossing $100 is a matter of huge concern and there is lot of uncertainty on how the situation will move forward,” said Harsh Agarwal, director at edible oils maker Emami.


Analysts said oil prices are likely to remain elevated for several months as the US and many other countries are announcing fresh sanctions on Russia, which accounts for 11% of global crude-oil exports. Brent crude on Thursday rose above $105 a barrel for the first time since 2014.

“There will further be inflationary impact in the short term,” said Saugata Gupta, managing director of hair oils and health foods maker Marico. “Organisations have to absorb some of the cost push through more aggressive optimisation measures and partially pass the balance to consumers.”

Sushil Kumar Bajpai, president at RSPL Group, said the crisis will touch every aspect of Ghari detergent maker’s operations – “from inflating input costs due to high dependence of crude oil derivatives, a key ingredient in soaps and detergents, to distribution and packaging costs after an expected rise in fuel prices”.

“This will also impact demand as consumers will see pressure on their daily budgets due to increasing prices across products,” he said.

Ukraine and Russia are also key suppliers of wheat, corn and sunflower oil. Nearly 60% of all sunflower oil in India, for example, is imported and Ukraine accounts for nearly three-fourths of the imports.

“While we do future buying, there is a limit to which we can buy stocks to hedge future risks,” Agarwal of Emami said.

Most companies buy future stocks for about two-three months only.

Dinesh Chhabra, chief executive of Usha International, said the surge in crude oil prices and the prospect of a recession in Europe are likely to lead to an increase in the consumer appliances maker’s import costs amid scarcity, since Ukraine is a major source of minerals like copper.

“With the geopolitical stand-off between Russia and Ukraine escalating, it could mean a major crisis which is a matter of concern for our industry, especially since we were just about gearing up to shake off the stunting impact of the pandemic,” Chhabra said. “Should the situation escalate further, it is likely to have a grave impact on economies worldwide, India included.”

Mohit Malhotra, chief executive of Dabur India, said the consumer products maker is monitoring the situation closely. “We may have to take another round of calibrated price increases in case the inflationary pressures continue unabated,” he said. “As it is, there has been continued inflation in hydrocarbon derivatives, paper-based packing material, and edible oils.”

A recent report by Nomura said price pressures will remain beyond February and consumer goods companies are set to further pass on higher input costs amid rising commodity prices to consumers in this quarter. It expects retail prices of home appliances, beauty products, and biscuits to go up.

“A sharp rise in fuel prices is likely from March after state elections conclude, unless the government is to further cut excise duties,” the report said. “As the economy normalises, there are likely to be reopening pressures. Finally, elevated levels of household inflation expectations add to the risk of a negative feedback loop back to inflation.”

With surging commodities and packaging costs over the past two quarters, almost all companies had in any case taken calibrated price increases of 5-15% across daily household consumption products.