"The government is set to face elections in less than a year and its top priority will be to keep sugar prices low for the consumers, and, at the same time, ensure a higher sugarcane price for farmers," said C B Patodia, an advisor to the Birla Group of Sugar Companies, which owns seven mills.
"In both cases, it is the industry that will have to take a hit," added Patodia, who is also the president of the Uttar Pradesh Sugar Mills' Association. Governments in leading sugarcane-producing states are likely to pitch for a higher price to farmers.
"I doubt if the sugar mills would make good money because the government will try to keep prices low. Moreover, farmers, who are badly hit due to inflation and a rising input cost, particularly diesel, would also expect a better price for sugarcane," said Sanjay Tapriya, director at Simbhaoli Sugars.
The government, in its bid to check inflation, has forced a three-month price freeze on prices of steel and cement. It also banned cement export (though relaxing it partially later) and imposed export duty on certain steel products.
The Manmohan Singh-led government also withdrew export-related incentives on various commodities. A ban on export of wheat and pulses is on for more than a year while export of non-basmati rice and maize has been banned recently.
Sugar is vulnerable to price control measures since it has a high weight in the wholesale price index (WPI) inflation. The sweetener's weight at 3.62 per cent is more than cement's 1.73 per cent, wheat's 1.38 per cent and just lower to iron and steel's combined weight of 3.64 per cent.
Sugar export was banned in 2006 for a six-month period to check its prices. This, coupled with a record output led to a 35-40 per cent crash in sugar prices, caused mills to incur huge losses.
"Interest cost on borrowing and manpower cost are rising, and inputs like sulphur and other chemicals have become expensive. The impact of increased diesel cost would also been felt in the next season. As a result of this, we will have an additional expenditure of nearly Rs 15 crore for transporting the cane ," said Vivek Saraogi, MD, Balrampur Chini Mills.
