Food Inflation Concerns Far From Over, Says Nestle India Head Suresh Narayanan

The persisting concerns around high food inflation are likely to linger for longer than anticipated earlier this year, according to Suresh Narayanan, chairman and managing director at Nestle India Ltd.

Although unfavourable weather conditions are playing a big role in food prices, the structural factors relating to commodities like milk are significant, he said during a media briefing on Thursday.

"The post-Covid impact on the milch herd and then the lumpy skin disease and various other things, all of that still has to be played out ... Plus, the cost of production has gone up sharply."

According to him, there has been a 30–40% increase in the cost of feed, and it is not financially viable for the farmers to be able to absorb all of it.

The price of milk is expected to remain elevated in the near term, he said. Some moderation can be seen between October and March, which is considered the flush season for milk production. However, an unfavourable monsoon could play spoilsport by impacting the production of cattle feed crops and keeping the input prices elevated.

The higher prices may have a bearing on margin in the ongoing quarter, as the company doesn't intend to take any price hikes immediately. As far as the other commodities are concerned, a lot will depend on the Kharif and Rabi seasons output. "Still, there is a little bit of uncertainty."

The El Nino impact has also not fully played out yet, he said. "It is reasonably clear that with a 30% deficit in the monsoon, the productivity of Kharif crops might get impacted, even if the sowing is good ... We need to watch this space closely."

While headline inflation will be mitigated because of various government interventions, food inflation is still a cause for concern, Narayanan said. "I would not say that something alarmist is happening in terms of commodity prices immediately. But we would have to watch this space and see how it evolves... the impact being really for 2024," he said.

The maker of Maggi instant noodles and Kitkat chocolates is not seeing the impact of food inflation on rural demand yet. In the June quarter, Nestle India witnessed an uptick in consumer demand in the rural economy. But that's partly because it has been expanding its rural exposure. Currently, the rural segment comprises about one fifth of sales.

The hope of easing inflation hinges on a likely uptick in the monsoon in September, according to Narayanan. "If that happens, then we are back in the sunshine once again."