Confectionery sector braces for price hikes as supply chain disruptions loom

• Price hikes highly likely with escalations in Red Sea
• No immediate price reductions despite utility price decrease
• LCMA renews calls for reforms and incentives in export trade 

By Nuzla Rizkiya

The prices of the confectionery items in Sri Lanka, which have gradually decreased following the economic downturn, are now facing the risk of rising again, due to the potential supply chain disruptions caused by the developments in the Red Sea, the Lanka Confectionery Manufacturers Association (LCMA) said.

Though no immediate price hike is expected, the impact on the key material imports and their costs would likely have a hit on the pricing, as Sri Lanka is entirely dependent on imports for key raw materials such as fat, sugar and wheat flour, according to LCMA Immediate Past President S.M.D. Suriyakumar. 

“We are in close watch of the developments in the Red Sea because we get our primary supplies through this route. So far, there has been no direct impact but we anticipate that there could be some disruptions. We don’t see an immediate need to increase the prices but it is likely they could go up,” Suriyakumar told Mirror Business.

The confectionery sector was one of the hardest-hit industries during the economic crisis period in 2022, which saw the dollar appreciate significantly, leading to almost a 200 percent increase in the cost of raw materials for the sector.

This resulted in a 40 percent drop in production volumes, along with a severe decline in purchasing power that the industry still continues to grapple with, amidst its gradual recovery. 

The sector has managed to recapture around 25 percent of the lost volumes, owing to the improving market conditions such as reduced bank interest rates and a stabilised dollar rate, according to Suriyakumar.

“Right now, the biggest challenge is the low purchasing power of consumers. It is yet to return to the pre-crisis levels, as people are still seeking cheaper options. After the crisis, we did receive some concessions on major raw materials, which were definitely passed on to the consumers. Overall, we have managed to reduce the prices by 20-30 percent since the crisis,” Suriyakumar said.

“Even if the utility prices are coming down, we don’t see any immediate further price reductions. But, if the key raw material prices such as fat, sugar and wheat flour decrease, we can certainly offer them,” he added.

He went on to highlight the challenges in the industry’s export sector, pointing out that the current complex duty structures and lengthy procedures have weakened the global competitiveness of products, compared to the regional counterparts such as India, Bangladesh and Indonesia. 

The association renewed its calls for reforms to simplify trade procedures, with incentives to encourage both small and large manufacturers to compete in international markets.

“The government needs to focus on making exports easier for us. We are not asking for concessions but a feasible environment to grow. The TIFE scheme, for instance, requires a 40 percent value addition, which is difficult for the manufacturers. If this threshold could be reduced to 30 percent, it would be much more manageable,” Suriyakumar said.

Despite the challenges, Suriyakumar stated that the industry remains optimistic for a strong festive season, with companies planning to maximise sales through product promotions and relaunches.

“Businesses have now begun to strategise expansions, product innovations and promotions. The situation is not bad but it’s not the best either. Survival was once difficult but now it’s assured. The industry stakeholders are actively working to recapture the volumes,” Suriyakumar said.