Food inflation still a concern; uncertainty due to shortfall of monsoon: Nestle India CMD

New Delhi: Food inflation is still a cause of concern despite measures taken by the government to check overall price rise and the movement of commodity prices needs to be closely watched for a long-term impact, Nestle India Chairman & Managing Director Suresh Narayanan said on Thursday.

Going by publicly available information, now it is reasonably clear that with a 30 per cent deficit in the monsoon, Kharif crops might get impacted, even if the sowing is good, said Narayanan in a media roundtable here.

With this El Nino impact not fully played out, we still have to watch for the spectre of food inflation, he said.

"There will be pressure in terms of food inflation. Headline inflation will get mitigated because of various steps that the government will take but food inflation is still a cause for concern," Narayanan said.

However, he also added, "Immediately put, I would not say that something alarmist is happening in terms of commodity prices. But we would have to watch this space and see how it evolves, impact being really for 2024 rather than immediate impact we will have." On increased milk prices, Narayanan said it has a few structural issues as well.

"We talked about the post-Covid impact on the milch herd and then we had the lumpy skin disease and various other things, but that still has to be played out and plus the cost of production has gone up sharply. There has been a 30-40 per cent increase in the cost of feed," said Narayanan adding "We do not expect the former to be able to absorb all of them".

Milk will still be seesawing. There will be some relief during flush and then some escalation during the lean season, said Narayanan.

"But the other commodities, a lot will depend on how the Kharif and the Rabi crops come out. But still, there is a little bit of uncertainty there," he said.

Over the rural demand, Narayanan said even though it sounds speculative, if the rural sector gets badly impacted due to rains, then demand from those markets will have an impact.

Nestle India, the makers of popular Maggi instant noodles, Kitkat chocolates and Nescafe, is expanding its rural exposure with relevant offering and currently gets one-fifth of sales from far-flung markets.

"Even though my play is relatively lower at about 20 odd per cent (in rural) it is fairly significant,” he said adding “At the moment, things are looking stable.

In the last June quarter, Nestle had witnessed an uptick in consumer demand in the rural economy.

“But if the thing gets dramatically Southwards in terms of impact, then they could be an impact. But today, I would put it in the realm of crystal gazing. One really has not fully absorbed the impact of shortfall in the monsoon so far because one is expecting that there will be some uptick in September but one does not know. That happens, and then we are back into the sunshine once again.

"The other trends such as premiumization and stronger demand in the smaller categories of towns from tier II to tier 6, continue. Nothing has happened there… One should not keep crying wolf at the same time one should be cognizant that we still have not fully unbound the full monsoon cycle," he added.