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AWL Agri Business, a prominent player in India's edible oil sector, has proactively increased its inventories of imported edible oils over the past two months. This strategic move mirrors a similar approach adopted during the COVID-19 pandemic, designed to mitigate potential supply chain disruptions stemming from ongoing geopolitical conflicts, as revealed by the company's CEO to Reuters.
Businesses worldwide are currently navigating significant shipping challenges exacerbated by conflicts in the Middle East and the war between Russia and Ukraine. These persistent disruptions are prompting many companies to re-evaluate their sourcing and logistical frameworks.
AWL, recognized as the market leader in India's edible oil industry and producer of the popular Fortune cooking oil, has extended its inventory cover for imported edible oil from its usual range of 30-35 days to an expanded 40-45 days.
Shrikant Kanhere, CEO and Managing Director of AWL, elaborated on the decision: 'Keeping in mind all this disruption, because we are living today in a very dynamic world and you don't know what's going to happen tomorrow, we have, to some extent, improved or increased the holding days.'
India holds the position of the world's largest importer of edible oils, relying on foreign sources for nearly two-thirds of its domestic demand. Key supplier nations include Indonesia, Malaysia, Brazil, Argentina, Russia, and Ukraine.
Deven Choksey, managing director of fund and wealth manager DRChoksey FinServ, emphasized the evolving nature of supply chain challenges, stating: 'Supply chain volatility is becoming a medium-term baseline (and disruptions are) no longer viewed as short-term blips.'
AWL's decision to accumulate stock follows a period where overall national edible oil inventories had seen a decline in recent months due to reduced imports. However, refiners are now actively rebuilding their stocks in anticipation of heightened demand during the upcoming festive season.
Kanhere indicated that this inventory strategy would remain in effect until he is confident that logistical disruptions are unlikely to reoccur.
According to Choksey, this proactive measure could potentially allow larger brands to gain market share from smaller competitors. Refiners possessing robust balance sheets, such as AWL—which is backed by Wilmar International, one of the globe's largest food producers—are better positioned to maintain larger inventories and thus avoid stock-outs.
Patanjali Foods has also reported an increase in its stock holdings, a development Choksey described as 'a material policy pivot.'
While higher inventories inherently tie up more capital, Kanhere assured that the impact on AWL's profit margins has been minimal. He also noted that cooking oil prices have largely mirrored broader commodity movements, whereas packaged foods face a lower risk of price increases due to their reliance on domestic sourcing. Source: BusinessLine