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Rural India boosts FMCG firms' sales

July 30, 2008 14:26 IST

ITC, Godrej Agrovet, DCM Shriram and other companies expanding in rural areas may eclipse the growth of their urban counterparts, including Reliance Fresh and the Future Group-owned Food Bazaar chain, helped by higher farm income that is spurring a boom in sales of fast moving consumer goods, consumer durables and apparel.

The FMCG sector in rural areas is expected to grow by as much as 40 per cent compared with the growth of 25 per cent in urban areas, industry experts said.

"The growth in rural income has been better than urban income since the minimum support price for crops like wheat and paddy has been substantially hiked. Even prices of pulses, rice, oilseeds and milk have increased dramatically over the last one year. The disposable income with the farmer is higher now," said Rajesh Gupta, the president of DCM Shriram Consolidated-promoted Hariyali Kisaan Bazaar.

The firm runs 180 stores and is present in Uttar Pradesh, Punjab, Haryana, Rajasthan and Maharashtra. These stores saw a 30 to 40 per cent growth in FMCG sales and a three-figure growth in grocery sales during the April-June quarter.

"The FMCG growth at 25 per cent in the April-June quarter (over the corresponding period last year) is higher than earlier years. Better prices for farm produce, the increased government spending and remittances from workers in urban areas have contributed to higher income," said S Sivakumar, chief executive (agri-business), ITC. It has 23 stores in Uttar Pradesh, Madhya Pradesh and Maharashtra.

Sivakumar added that sales of agricultural inputs have done even better. With higher prices for the produce providing the incentive, on the one hand, and shortage of labour spurring the use of inputs, on the other hand, there is an increase in sales of the farm input.

Rise in food prices is not the only reason. Large retail players like Reliance, Spencer's and Subhiksha procure farm commodities in bulk directly from the fields and this has cut out the middle man's commission, which farmers used to pay.

Moreover, farm earnings do not attract income tax. The future is set to see a further improvement in the disposable income from agriculture due to the Rs 71,000-crore farm-loan waiver and increased government spending on raising the farm output through schemes.

"When disposable income goes up, a part of it is spent on apparel, FMCG and education. I feel we are going through this phase. At the same time, the farm-loan waiver and debt-relief scheme, which became public about four months ago, has also been factored into by farmers," Gupta said.

Ajay Modi in New Delhi
Source: source