Brace for more players in processed foods

The decision to reduce the goods and services tax (GST) rate on processed foods such as pickles, sauces, ketchups and preserves could entice more entities to enter the sector, experts said.

Instead of 18 per cent, these products will attract a GST of 12 per cent from July 1. While price cuts by incumbents such as Nestlé or Hindustan Unilever (HUL) could be in the offing, as a result, entry of majors such as ITC Foods is possible.

Sachin Menon, partner at consultancy KPMG India, says: “The revised rate structure for some processed foods makes it attractive for players looking to get into new categories. The government’s motive of slashing the GST on these products was | The GST Council on Sunday slashed the rate on processed foods to 12% from 18% As a result, new players players could enter categories such as pickles, sauces, ketchups and preserves, experts say intended to aid value-addition in food. The entry of new players could give this motive a fillip."

Abneesh Roy, senior vice-president at Edelweiss Financial Services, said existing players could either cut prices or increase launch activity in these segments. ITC Foods has been looking to get into new food categories as it looks to expand its revenue from this business. It has already stepped into luxury chocolates and gourmet coffee in recent months and is expected to strengthen its presence in juices and dairy. The company is also refocusing on the potato chip and cookies categories to grow share, beside working on segments such as noodles, where it now has 23 per cent, from an earlier 17 per cent. An HUL spokesperson, when asked, said the company would pass on net benefits from tax rates. While Nestlé India declined comment on the issue, the company is said to be evaluating the scenario.

Ketchups, for the record, have largely two key players in Nestlé and HUL. Preserves, that is, jams, has one key player in HUL. Pickles, in contrast, is largely dominated by regional brands.

Countervailing duty include excise duty on cotton 6% and polyester 12.5% with Cenvat credit

Optional duty of 2% with abatement of 40% on it (i.e. 0.80%) means effective duty of 1.2% without Cenvat credit

4% of special additional duty, which along with cess, educational cess and others wok out to ~5.5%. Thus, duty protection of 5.5% from cheap import No protection, as both domestic manufacturers and importers would require to pay same duty