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Withdrawal of Rs 500, Rs 1,000 notes impacts FMCG food products’ sales
Tuesday, 29 November, 2016, 08 : 00 AM [IST]
Ashwani Maindola, New Delhi
The recent drive by the government to withdraw notes of the denominations of Rs 500 and Rs 1000 has impacted the sales of fast-moving consumer goods (FMCG) food products. According to one estimate, the sales have fallen by 50 per cent in the wake of less spending by consumers. However, industry experts have also put the rider that it is too early to assess the situation.

Sagar Kurade, president, All India Food Processors’ Association (AIFPA), said that there has been considerable reduction in the demand for FMCG products because of selective spending by the consumers due to demonetisation.

“There has been a drop in demand by almost 30-50 per cent for a number of FMCG products, including juices, snacks, sauces, bakery items, chocolates, etc. There is a cash crunch, so people are now spending on the essential things first,” he added.

Kurade stated that it was too early to see the complete picture, and it would take some time for the complete picture to emerge.

“There hasn’t been any study into what has been the total impact on the food processing industry, but temporarily it has impacted the operations as demand has gone down by half,” he added. Kurade hoped the situation would improve as and when the cash inflow in the market would grow.

The trickle-down impact on the industry is also being felt and demonetisation has an impact on other issues, such as labour and supplies as well.

“We have observed the impact on the food processing sector on FMCG goods. We hope this would be temporary and the situation would ease by January. But it has impacted transportation as well as the supply side. Obviously as the demand is low, transportation will be impacted, because the number of orders have also been reduced to almost half. However, the industry has already ensured supplies for a fortnight at least,” Kurade stated.

Sujit Dilip Subhedar, general manager, Veritas Logisticts Pvt Ltd, Mumbai, said, “The effect on packaged foods will be seen clearly in the end of next month. Demonetisaton has affected companies which depend on daily-wage labour force for their work are largely affected.”

“As for players like us, who operate on a larger level, our warehouses, cold storage units and transport have already been paid for for the next two or three weeks. So it is not a big thing to worry about, but those reserves of paid bookings for storages will be over by the first half of December,” he added.

“The last 15 days will put us all to the test. Generally in such situations, we, as a part of the food industry, work on credit or go cashless. But some significant expenses like octroi, wear and tear of vehicles and machinery, maintenance of cooling systems and warehouses, maintenance of hygiene in the premises and facilities to the employees has to be taken care of,” Subhedar stated.

He rued, “It is observed that the expenditure on processed foods and beverages has reduced. People are hesitant to buy them, as it will reduce their cash in hand. Our vehicles cannot move out of our premises with mere orders in the market, as it doesn’t offer economies of scale. Several processed food manufacturers are now coming to us for storage systems as ample quantity of it is produced, but the consumption rate is low.”
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