The Uttar Pradesh government's decision to hike the state advised price for sugarcane, from Rs125 to Rs140 per quintal for the current season, may pose a significant threat to the earnings of sugar mills in the state at a time when low demand has kept sugar prices unchanged for the past few months.
The decision would hit hard sugar mills in the state which are yet to recover from the effects of a previous price revision that resulted a court battle between the sugar mills and the state government.
The price revision would result in a major hike in cane procurement costs for the mills. This would deprive the sugar mills of the benefits of firm sugar prices expected this year.
Sugar prices, which had gone up by about 22 per cent in the domestic market since the beginning of the year, have since come down by about 10 per cent on increased supplies for the festive season and lower global sugar prices.
The Allahabad high court had, earlier this year, upheld the UP government's decision to raise the state advised price (SAP) of sugarcane to Rs125 per quintal for cane procured in the state in the 2007-08 season.
The decision had a major impact on the performance of leading sugar producers in the state as they were forced to review their expenditure and profits for 2007-08.
The court ruling affected several large private sugar mills in the state, including Bajaj Hindusthan, Balrampur Chini Mills, Triveni Engineering and Dhampur Sugar Mills, which had reported their 2007-08 results based on a cane price assumption of Rs110 per quintal.
Sugar mills in the state are expected to challenge the SAP hike of 12 per cent in the court as it would absorb a good portion of the higher realisations that may be possible from rising sugar prices.