The Compounding Effect of Climate & Geopolitics on Food Security in India: Impact on FMCG

Food security is no longer just a question of agriculture or economics but fast becoming an issue of national security due to the adverse effects of climate change and geopolitics. While each of these has shaped food systems individually, together their compounding effect has proven to be more lethal than governments, corporates, and global supply chains could anticipate and adapt to.

Climate change is responsible for structural breaks in agricultural output with events such as erratic monsoons or heatwaves affecting prices, procurement and margins, while climate adaptation remains reactive and ill-equipped in proactively dealing with climate volatility. Similarly, modern conflict is not limited to military confrontation, extending to economic warfare in the form of sanctions, trade tariffs, blocked routes, and supply chain disruptions. This presents food security risks for non-participating countries during a conflict, because of the highly interdependent nature of global food trade and production. As such, global food systems remain structurally exposed to climate and geopolitics with barely any sign of this exposure seeming to shrink soon, impacting the Fast-Moving Consumer Goods (FMCG) sector significantly.

For a country like India, these two faultlines converge quite harshly. India’s climate dependence on the monsoon season and geopolitical dependence on imports makes it particularly vulnerable. The confluence of both climate change and geopolitical risk can cause considerable damage to India’s food security, urging a shift within its FMCG sector from a purely reactive approach towards a more proactive and pre-emptive approach that considers the realities of its vulnerability.

India’s Climate Vulnerability

India’s agriculture system relies heavily on a single seasonal event i.e., the monsoon. 52% of India’s net sown area is rainfed, with the southwest monsoon contributing to approximately 75% of the annual rainfall. Further, 60% of kharif crop farmers fully depend on this rainfall. Despite an increase in irrigation coverage in the last decade from 49% to 56%, much of India’s farmland remains exposed to monsoon variability. In 11 of the 15 moderate-to-severe El Niño years, India’s agricultural output has contracted, with rainfall falling by an average of 9.7% and kharif foodgrain output dropping to 5.7% in those years.

These structural dependencies turn abstract risk into concrete quantifiable loss best illustrated by the example of March 2022. It was the hottest March in 122 years affecting north-west and central India at wheat’s grain-filling stage, when the crop cycle is most sensitive to heat stress. Productivity fell 10-15%, dropping output estimates from a projected 111.32 million tonnes to around 105 million tonnes. Domestic prices spiked to record highs of INR25,000 a tonne against the government’s INR20,150 support price, and procurement fell by more than half. The same heat spell caused daily milk production to fall by 10-15% as the heat stressed livestock, while also pushing hay prices up 20% overnight.

Not all structural risks announce themselves through visible shocks like the heatwave in 2022; some build more quietly and are realized when the impact is too catastrophic or irreversible. A case in point is India’s water stress. India has 4% of the world’s fresh water supporting 18% of the world’s population. NITI Aayog projects that national water demand will surpass the supply two times by 2030. Groundwater depletion further exacerbates this imbalance, particularly in regions where food security depends on the most like Haryana’s paddy-wheat belt where average groundwater levels have dropped by 5.41 meters over the last ten years. This depletion continues despite increased prevalence of extreme weather events including heatwave or flood, which steadily wears down the same fodder, feed and grain base FMCG supply chains rely on.

Impact on FMCG

These climate shocks not only impact farming but move directly onto the FMCG cost sheet, with approximately a month’s lag before it hits the consumer in most cases. In categories like dairy, poultry and processed foods, feed and fodder often comprise 65-70% of operating costs, meaning a 10% jump in input costs strips 200-300 basis points off margins where companies lack pricing power. This forces a choice between shrinking volumes and shrinking margins.

Dairy offers the clearest illustration of this transmission. Pre-2021, Amul’s retail price changes were sporadic, occurring roughly once in 1.5-2 years. The 2022 heatwave worsened the situation with a surge in feed prices of 25-30%, and the Lumpy Skin Disease outbreak from 2022-23 in Haryana, Punjab, Rajasthan and Gujarat. This triggered near-annual price hikes of around 30% in less than seven years.

Food security is no longer just a question of agriculture or economics but fast becoming an issue of national security due to the adverse effects of climate change and geopolitics. While each of these has shaped food systems individually, together their compounding effect has proven to be more lethal than governments, corporates, and global supply chains could anticipate and adapt to

The disruption extended to equities as well; ITC’s shares dropped over 1.6% the day trading resumed in the markets after the imposition of wheat export ban. Adani Wilmar’s 46% revenue growth for FY22 based on generation from wheat, accounting for 38% of sales of INR18.6 billion, fell apart.

Climate aberrations have increasingly become the norm rather than the exception. Per the Indian Meteorological Department (IMD), the monsoon will exceed the norm of the Last Weather Cycle (LPC) by 92%, with a recorded chance of it being less than satisfactory at 35% (historical rate is 16%). While buffer stocks for rice and wheat can provide some relief, goods like pulses, oils, fruits, vegetables, and dairy goods continue to remain vulnerable. These are also precisely the categories where FMCG growth is concentrated, meaning the sector’s fastest-growing segments are also its most climate-vulnerable.

Geopolitics and Food Security

In modern geopolitical conflict, food trade is frequently weaponized alongside other forms of economic coercion. This is particularly critical given how globally interdependent the flow of global food and energy is with the Strait of Hormuz alone carrying roughly 25% of the world’s maritime oil trade and the Red Sea corridor carrying almost 20% of global rice exports and nearly 15% of global wheat exports (pre-2022).

The significance of critical maritime chokepoints has never been more evident given the ongoing tensions in West Asia and consequent blockades along the Strait of Hormuz and Red Sea corridors. Geopolitical conflicts today entail tariffs, sanctions, and blockades, triggering trade measures with global impact on agriculture and food. Roughly 22-23% of all maritime trade between non-neighbouring countries passes through the Red Sea’s chokepoints and will be impacted by a blockade despite no direct involvement in the conflict.

Further, modern agriculture’s dependence on a concentrated set of fossil fuel and fertiliser suppliers leaves food systems doubly exposed, to sanctions and trade wars on the input side, and to speculative capital flooding into commodity markets during periods of political instability. This further amplifies price swings well beyond what physical shortages alone would justify. Trade protectionism can further exacerbate food security risks during geopolitical tensions or conflict, as governments facing domestic inflation lean towards imposing sudden export bans, worsening global shortages as demand for alternatives spikes.

India’s Geopolitical Vulnerability

India relies on imports of essential goods such as edible oils, fertilizer, and energy, making it vulnerable to conflict-driven price hikes for agricultural inputs and disruption to supply of essential food imports. India imports roughly 60% of its edible oils, over 40% of its energy and is one of the world’s largest fertilizer importers, making domestic food prices and the farming sector directly sensitive to geopolitical conflict and trade flows. Additionally, a significant share of India’s fertilizer inputs passes through volatile and vulnerable maritime chokepoints such as the Strait of Hormuz and the Red Sea.

Impact on FMCG:

• Gulf tensions (2026): Given the ongoing conflict and constrained shipping through the Gulf, India saw an increase in its wholesale price index as of April 2026 (8.3% year on year) driven primarily by crude petroleum and natural gas. Per reports, FMCG companies are currently facing 15-20% cost increases in raw material due to elevated crude oil prices (above USD100 per barrel) further impacting packaging costs linked to crude oil, as well as edible oil and inflation. Britannia confirmed a nearly 20% rise in fuel and packaging costs along with 10% increase in material costs due to geopolitical developments in the Gulf since March 2026. Other FMCG companies like Hindustan Unilever Limited, Dabur, Godrej Consumer, Marico, and Pidilite indicated similar trends due to the conflict. To recover the increased cost from price hikes, several FMCG companies in India revisited their Stock Keeping Unit (SKU) strategies and subsequently not only increased product price but also made grammage cuts and adjustments with smaller pack sizes.
• Russia-Ukraine (2022): Before the Russia-Ukraine war in 2022, India imported over 2 million tonnes of sunflower oil annually, with more than 85% sourced directly from Russia and Ukraine. During the conflict, frozen shipments at the Ukrainian Black Sea ports drove Indian refiners to desperately secure substitutes such as palm and soybean oil, increasing global prices for these to historically high levels. In the following years, India diplomatically re-routed its sourcing strategy, with Russia now supplying roughly 56% of India’s sunflower oil imports and filling the gap.

This vulnerability to geopolitical exposure directly impacts India’s FMCG sector translating into real margin and pricing pressure. India’s structural dependence on imported energy, edible oils, fertilizers and strategic minerals is likely to persist in the foreseeable future despite its active pursuit of supply chain diversification, domestic manufacturing initiatives and strategic partnerships to reduce reliance on critical imports.

Compounding Effect of Climate & Geopolitics on FMCG

India’s FMCG sector is evidently facing the compounded effect of climate change and geopolitical risk through its margins, consumer behaviour and sourcing, all at once. Moreover, the nature of these two fault lines suggests that risks will continue to be felt in waves and not as singular events as we move towards an underwhelming monsoon and sustained turbulence around maritime chokepoints. As such, several FMCG companies have also started to see climate change and geopolitical risks not just as sporadic disruptions to be managed reactively but as permanent structural variables requiring long-term foresight in procurement and business planning.

Some measures in response to these faultlines have proven genuinely effective at absorbing rather than simply transmitting these shocks. Diversification of sources across geographies and crops have enabled companies to soak up shocks instead of transmitting them entirely; India’s transition from Ukrainian to Russian sunflower oil being a prime example. The strategy of longer-duration purchasing and forward contracts for essential resources has provided some degree of protection from sudden price increases, while investments in cold storage and logistics have provided safety for dairy and volatile goods during crises like the 2022 heatwave.

However, not every response has been positive such as the aggressive use of SKU strategies i.e., passing the cost to customers through grammage cuts and adjustments in addition to increasing product price. Harsh SKU strategies can often push consumers to switch to inferior brands. This results in a double loss of revenue and affects brand equity built over previous growth cycles, while struggling on the supply side to source products. This played out most visibly during the pandemic when commodity spikes coincided with a broader shift towards unbranded and value alternatives. While SKU flexibility is a useful shock absorber, it is not a substitute for addressing the underlying sourcing exposure.

Way Forward

India’s food security remains inadequately managed at the structural level as the tools available to address the compounding effect of climate change and geopolitical risks will take years to build. Companies that waited to react to the 2022 shock before building alternatives found themselves doubly exposed by the time the next shock arrived in 2026, highlighting the desperate need for a shift from a reactive to a pre-emptive approach for multinational FMCG companies.

Some suggested starting points could be:

• Embed geopolitical and geoeconomic considerations into decision-making. Continuous monitoring of climate and geopolitical signals to be integrated directly into procurement decisions.
• Business resilience planning for alternatives and solutions in hypothetical but realistic scenarios.
• Maintaining pre-identified alternate sourcing geographies and pre-empting worst-case scenario supply chain disruptions beforehand.
• Integrate prevention and mitigation measures from the earliest stages, without waiting for escalations.
• Strategic and pricing planning in preparation for potential adverse actions and disruptions.
• Geographic and crop-level diversification as a structural priority, rather than a stopgap measure.

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