The high price of wheat in the domestic market has been significantly impacting companies in the fast-moving consumer goods (FMCG) sector, particularly those involved in producing wheat-based products like bread and biscuits. Due to these increased costs, FMCG companies have been forced to raise the prices of their goods.

However, this price hike has posed a challenge as it risks reducing demand and consumption, especially in urban areas, which account for nearly 60% of total FMCG sales.

In the recent July-September 2024 quarter, many FMCG companies saw a decrease in dividends, partly because they were unable to raise food prices as much as anticipated due to intense competition in the market.

Additionally, with wheat prices consistently rising for the past year, companies have been forced to reduce the size of their product packaging in an attempt to maintain profit margins without raising prices too much.

To address this growing concern, the central government has stepped in to alleviate some of the pressure on these companies.

It has directed the Food Corporation of India (FCI) to release 25 lakh tonnes of wheat from its stock to flour millers and processors over the next four months, under the open market sale scheme.

The wheat will be sold at a much lower price than the current market rate, which is expected to help reduce the cost of wheat-based food products.

This government intervention is expected to provide significant relief to FMCG companies by lowering their raw material costs, allowing them to better manage their pricing strategies and reduce the need for smaller packaging sizes.

This should help them maintain their margins and reduce the likelihood of further demand decline in urban markets.