Explanation: What is Impact of climate change on FMCG, Rural Markets, and Food Prices?
Weather Patterns indicated. that it’s shifting from EL Niño to La Niña, which is again a positive implication for consumption/FMCG companies across the globe.
The current situation is that EL Niño is still dominant but, the US National Oceanic and Atmospheric Administration (NOAA) says that there’s a chance of more than 60% that it will be converted into La Niña by June - August 2024.
But wait….Let me explain to you first what’s EL Niño and La Niña!!
What is El Niño?
El Niño is a phenomenon where certain parts of the ocean near the equator get warmer than they usually are. This change creates a mess in weather and results in less rainfall in some places, causing droughts, and can cause other types of extreme weather too.
What is La Niña?
La Niña is the opposite of EL Nina, in this phenomenon certain parts of the ocean near the equator get cooler due to which there’s lot a of rain in some places and basically, it makes some areas a lot cooler than they usually are.
But the question here is how are they both affecting India?
How did El Niño impact India?
On 4th July 2023, it was declared that due to the dominating impact of El Niño this an uneven distribution of rain which led to continued low performance in rural areas. This significantly affected the income of Teir-3 cities of rural areas as they heavily rely on agriculture.
As there’s weak rainfall, food inflation in India has grown. In February 2024 food inflation was measured by Consumer Food Price Index which found that food inflation had grown from 8.3% to 8.66% in January. however, it is slightly lower than 9.53% in December 2023.
How does this matter to a stock market investor?
The topline consumption companies are affected due to weak demand in rural areas, due to domination El Niño conditions the nifty FMCG has a flattish growth, rising 1.8%. However, the Nifty 50 index has grown 14% during the same period.
How does La Niña create an impact on domestic consumption/FMCG companies?
The shift in climate conditions from El Niño to La Niña improves rainfall in India. which will directly increase the disposable income and favorable agriculture yields of the people in rural areas.
Due to higher disposable income in rural areas, it will boost the weak demand for FMCG goods in the rural area which will be beneficial for the FMCG companies affected by weak rural demand.
It will contribute to reducing overall food inflation and create a needed volume growth.