Packaging costs surge as West Asia conflict squeezes India’s FMCG and alcohol sectors

India’s fast-moving consumer goods (FMCG) companies, as well as leading liquor and beer brands, are witnessing a sharp rise in packaging costs as the ongoing West Asia conflict has driven crude oil prices above US$100 per barrel, pushing up the cost of petroleum-linked inputs.

A significant portion of packaging materials used in India, ranging from plastics and laminates to chemicals, is derived from crude oil and sourced from West Asian markets. As a result, the sharp jump in global crude prices over the last month has resulted in an increase in input costs across industries.

Industry executives indicate that prices of crude-linked inputs, including packaging materials, chemicals and coal, have increased by as much as 20–25% compared with pre-conflict levels, Business Today reported. The inflationary pressure is also feeding into adjacent sectors, including edible oils, where supply dynamics are shifting due to increased diversion towards biofuel production.

Companies are reporting a direct correlation between crude oil movements and raw material costs. As oil prices rise, demand for biodiesel increases, reducing the availability of edible oils for consumption and intensifying price volatility across categories, Business Today added.

The FMCG sector in particular is facing a severe impact as packaging makes up a substantial share of production costs. According to industry estimates, packaging can account for up to 15% of total manufacturing expenses in daily essentials, placing considerable strain on margins.

Executives in the sector note that key packaging materials such as PET, HDPE and specialized laminates have seen sharp price fluctuations, with resin prices rising by 30–50% in recent weeks. Supply chain disruptions have compounded the issue, with speculative stockpiling in secondary markets creating artificial shortages. Smaller and mid-sized packaging converters, lacking direct access to primary suppliers, are bearing the brunt of these distortions.

According to the Business Today report, despite the pressure, several FMCG firms are trying to absorb the cost increases rather than passing them on immediately to consumers. These companies are trying to diversify sourcing, improve manufacturing efficiencies and leverage scale to manage inventory more effectively.

Beverage industry seeks price hike

The beverage segment has been hit particularly hard, as packaging accounts for a much larger share of costs, estimated at 45-50% in categories such as soft drinks and dairy. Rising PET resin prices, which have surged by nearly 50%, have pushed packaging expenses close to historic highs, resulting in a 6–7% erosion in gross margins for some players. While selective price increases have been introduced from early April, companies acknowledge that these adjustments only partially offset the rise in input costs.

The pressure is equally visible in India’s alcohol industry, where brewers and distillers are seeking price hikes from state governments to cope with escalating costs, Storyboard18 reported. Leading industry bodies have requested price increases of 12–15% for Indian Made Foreign Liquor (IMFL) and beer, citing sharp inflation in packaging and other inputs.

Alcohol pricing in India remains tightly regulated at the state level, with excise duties forming a major source of revenue for state governments. While some states such as Maharashtra, Karnataka and Goa allow relatively flexible pricing, companies are still required to obtain approval for revisions. In states operating under annual supply contracts, mid-year price adjustments are often restricted, adding to industry challenges.

Industry representatives argue that the inability to pass on rising costs could disrupt supply chains and discourage production. They warn that companies may prioritize markets with more flexible pricing regimes if approvals are delayed, potentially leading to uneven availability across states.

The broader cost environment has deteriorated sharply across packaging inputs. Plastic components such as caps and PET resins have recorded increases of 31-40%, while glass prices are up 8–20%. Paperboard cartons have nearly doubled in cost, and other crude derivatives, including LDPE, BOPP and adhesives, have risen by 20-25%.

The crisis has also exposed vulnerabilities in the supply chain. Disruptions in aluminum supplies from West Asia are affecting can manufacturers, while shortages of commercial liquefied natural gas (LNG) are putting pressure on glass producers. Industry participants warn that prolonged constraints could lead to partial or complete shutdowns of glass manufacturing units, further tightening supply.

At the same time, financial markets are reflecting the strain, with listed alcohol companies witnessing an approximate 8% decline in stock performance over the past month, broadly tracking wider market weakness, Storyboard18 reported citing Capitaline data.