From steel to dairy, companies in a fix as suppliers shun long term contracts

Inflation has added another worry for industry: suppliers are reworking long-term contracts to ones lasting only 2-3 months as they are uncertain about how long prices of raw materials will hold out.

This is impacting sectors as varied as dairy cooperatives to steel and cement sectors.

“One-year contracts were the norm earlier but now suppliers want to commit to only two or three months at a time,” Nitin Saluja, founder of Chaayos, told The Times of India.


In the dairy sector, the shortage of raw materials has added on to the long ongoing problem of labour shortage in Industries due to Covid-19 pandemic. Radhey Shyam Dixit, CMD at Ananda Dairy, said the dairy sector is facing labour shortage along with input cost pressures.

The suppliers are either moving-out of the deal or charging extremely high prices. Similarly, the non-payment of advance is another factor adding on to the situation.

The prices of raw materials have shot up historically in the past few months owing to bans from key producers and the Russia-Ukraine war. The recovery has been slow recently because while companies have been able to maintain profit margins by increasing prices of raw materials, factors such as labour and freight are hindering the process.