The reason for the hike is the same as in case of bread - unprecedented rise in prices of raw materials used to make biscuits.
This was informed by K P Mohandas, secretary-general, Indian Biscuit Manufacturers' Association (IBMA), as among the key challenges the biscuits sector was facing in the country, while speaking to FnB News over telephone.
In fact, according to Mohandas, smaller players in the industry not only had to deal with raw material price hikes but suffered even more as they were discriminated against by the respective state governments, which levied 13.5-14 per cent value-added tax (VAT) on products manufactured by them.
As a way out, Mohandas suggested, "We would like them to reduce it to five per cent so that it is on par with edibles that aren't consumed by the commoner."
He added, "Three or four years ago (i.e. in 2008-2009), excise duty - known as Central Value-Added Tax (CENVAT) - was applicable to all biscuits, irrespective of their maximum retail price (MRP)."
"Now, biscuits whose MRP exceeds Rs 100/kg are subject to eight per cent CENVAT, and that is what we have urged the government to abolish. To the inexpensive ones, CENVAT does not apply," he explained.
Even then, "Everybody is affected by the price hike (which dates back four years), but bigger biscuit makers have the financial muscle to cope with it," he said.
As for the rising input costs, Mohandas observed, "The price of wheat flour, which had risen by 15 per cent in August 2011, had skyrocketed to approximately 30 per cent in August this year. And sugar prices have risen by 22 per cent this year, which are higher than the 18 per cent hike during the corresponding period last year."
He continued, "Vegetable oil prices, which rose by 14 per cent last year, have registered a 17 per cent increase this year; those of milk or skimmed milk powder have risen from 11 per cent to 16 per cent, and there has been a 10 per cent increase in the prices of packaging material and laminates are up by one per cent."
Incidentally, these figures are for north India only. The percentage of hikes in other parts of the country (namely the east, north-east, south and west) is higher. The reason for this is because the costs incurred in transporting raw material to these regions are added to the price of the raw material.
Not only that, a further increase is expected in the prices because of the low agricultural output, which in turn is a result of the drought-like situation across the country. The costs of electricity, fuel and transportation have also escalated in recent times. The latter is because of the periodic hikes in the prices of petrol and diesel.
While that is the scenario with regard to input costs, IBMA points out, biscuits are hygienic snacks consumed all over India, irrespective of the strata one belongs to, and a staple for the common man in both rural and urban areas. Further, biscuit makers operate on thin margins, because they are price-sensitive and the market is highly competitive. It is for these reasons that the body wants the Central government and all the ministries concerned to look into the issue and take urgent measures to salvage the situation.
Mohandas states, "As the apex forum for the biscuit industry, IBMA made representations to prime minister Manmohan Singh, finance minister P Chidambaram, agriculture and food industries minister Sharad Pawar, food and public distribution minister K V Thomas and the secretaries of the ministries concerned to stop the export of wheat and sugar with immediate effect."
"We want to ensure that there is adequate availability of the raw material here, so that biscuit manufacturers - bulk consumers of wheat - can participate in the Food Corporation of India's (FCI) Open Sales Scheme. In fact, FCI should increase the quota of wheat for the open market as well," he said.
