Rising cost of packaging materials to impact F&B firms

  • Business
  • Wednesday, 01 Nov 2017

Rising cost, rising prices: MIDF has reiterated its ‘neutral’ call on the F&B sector, as it sees F&B companies being under pressure to raise their retail prices in order to maintain margins.

PETALING JAYA: The rising cost of paper-based packaging materials is expected to significantly impact food and beverage (F&B) companies, according to MIDF Research.

Paper-based packaging materials have seen an increase in cost in recent times, primarily driven by rising paper price both locally and internationally.

Domestic paper prices have been on an upward trajectory since December 2016 and grew by 7.5% year-on-year (y-o-y) in August this year.

MIDF Research said paper prices may continue to increase in the upcoming months as Malaysia is a net importer of pulp and paper.

“F&B players are most impacted by the rising paper price, as food products are usually packaged and shipped with paper-based materials.

“Rising paper price is a concern to F&B players as this will contribute to a higher cost for packaging.

“Our channel check with an industry player confirms that as of this year, there were already two rounds of price increases by suppliers of packaging materials of about 2% to 3% increases each time.

“Hence, it is also expected that packaging materials suppliers will further increase their product selling prices going forward,” the research unit said in a note.

Apart from packaging costs, MIDF Research added that continuously increasing input costs will pressure F&B companies to further increase prices.

“Despite the rising raw material prices as well as packaging cost, on average product prices only increase marginally about 0.5% y-o-y starting from June this year.

“From this observation, we conclude that while F&B players need to increase product prices, the rising input costs were mostly absorbed for now as it is necessary to maintain market share in the current environment,” it said, adding that retail prices of F&B products will continue to increase in the financial year of 2018.

However, MIDF Research indicated that bottled water producer SPRITZER BHD will be less affected by the rise in paper-based packaging material prices.

This was largely due to the fact that Spritzer uses plastic-based packaging for its products and it has revised upwards the selling prices for some of its products by approximately 5%.

The research house reiterated its “neutral” call on the sector, underpinned by the pressure on F&B companies to raise their retail prices in order to maintain margins.

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