FMCG firms see rural green shoots, but wage stress weighs

Latest available data from the Centre for Monitoring Indian Economy (CMIE) shows that real rural wages contracted in as many as 25 of the 27 months up to February 2024. February, in particular, saw a big contraction, of 3.1%. PTI

The revival of the monsoon after a deficient June spell is good news for the fast-moving consumer goods (FMCG) market, especially in rural areas, top executives have told FE. But a closer look at rural inflation and real wage growth suggests rural revival will be gradual as consumers in the hinterland contend with shrinking wages and higher prices. Latest available data from the Centre for Monitoring Indian Economy (CMIE) shows that real rural wages contracted in as many as 25 of the 27 months up to February 2024. February, in particular, saw a big contraction, of 3.1%.

The highest contraction recorded before this was 2.9% in September 2022, CMIE says.Rural inflation, meanwhile, has outpaced urban inflation for 11 months in a row to May 2024, according to the Ministry of Statistics and Programme Implementation (MoSPI). It stood at 5.3% in May, exceeding urban inflation by 110 basis points. As rural households tend to spend more on food, the proportion of food and beverages in the rural basket is more than half at 54.18%, compared with 36.29% for urban areas, say experts. So, changes in food inflation tend to affect rural inflation more than anything else.

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Yet, there are concerns, admits Mohit Malhotra, chief executive officer (CEO) at Dabur India, among the country’s leading FMCG companies with a high exposure to rural areas. While the FMCG industry derives around a third of its sales from rural areas, Dabur and Hindustan Unilever (HUL) get about 40% of their sales from rural areas, according to sector analysts.“Real wage growth is a concern because it could hurt FMCG consumption in rural areas. For now, though, we’ve been seeing a revival in rural areas, which we believe will get a fillip with the monsoon getting back on track,” Malhotra says.

Market researchers Kantar and Nielsen say rural markets have been a “bright star” for the FMCG sector, with rural growth overtaking urban growth in the January-March 2024 period in five quarters.“Rural may consolidate its position in the June quarter and will see better growth levels compared to urban in the remainder of the (2024 calendar) year,” Kantar said last week in its outlook on the FMCG market.

Mayank Shah, vice president at Parle Products, among the country’s leading biscuit makers, says buying sentiment within the FMCG retail trade will improve with the revival in monsoon. He also sees kharif sowing improving, which could increase crop output and therefore farm incomes and FMCG consumption. “As I see it, a good monsoon has an impact on multiple levels in rural areas. The retail trade will be excited so buying sentiment will improve. Farmers will be happy as sowing will gather momentum,” he says.

Brokerage Morgan Stanley said  in a recent report it sees  terms of trade improving for the rural sector as rural FMCG growth outpaced urban growth. It also sees improvement in labour demand conditions after a slowdown in 2023, which could help improve wages.On Friday, the agriculture ministry said the combined sown area of key kharif crops was up 32% year-on-year in June despite a week-long monsoon break between June 17-22. Though the area under paddy, the most important kharif crop was the same as last year, sowing of pulses and oilseeds saw sharp spikes, the ministry said.