Smaller packs, higher prices? FMCG weighs options after crude oil prices breach $100 mark amid Iran war

A sharp rise in global crude oil prices triggered by the conflict in the Middle East has pushed fast-moving consumer goods (FMCG) companies to rethink their strategies. Firms may either cut the grammage of product packs or raise prices, according to a report by The Economic Times.International crude prices crossed the $100-a-barrel mark on Monday as tensions intensified in the war involving the United States-Israel and Iran — a conflict that began on February 28.With orders from suppliers in the Gulf disrupted, packaging firms have begun sourcing polymers from alternative markets, according to the report.Polymers — a key material used in FMCG packaging — are derived directly from crude oil and account for a large share of packaging inputs."From the last three-four days, the industry has started to source polymers 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.Kedia added that this could force his company - and others - to move toward weight reduction in snacks packs, because the impact of disruptions of crude is expected to be long-term.“Packaging alone accounts for 15–20% of our costs. If oil prices stay at current levels, we may have to reduce grammage in smaller packs while increasing prices of larger packs,” said Mayank Shah, vice president at biscuit and confectionery maker Parle Products.Crude oil derivatives such as polypropylene and polyethylene films are widely used in packaging for food products, sachets and plastic caps. Another crude derivative, Linear Alkyl Benzene (LAB), is a key input in detergents and cleaning products, accounting for at least half of the raw material cost in detergents.However, the gains from recent cuts in the Goods and Services Tax (GST) — which had begun reflecting in prices over the past couple of months — could be undone, as companies warn that global supply disruptions and rising crude costs may once again fuel inflationary pressures.Firms making soaps, snacks, coffee, noodles, shampoo and other daily essentials had put grammage back in packs after the GST rate cuts last September.