Nov. 9 (Bloomberg) -- Sugar mills in India’s Uttar Pradesh, the country’s second-biggest producer, will start crushing cane on time, allaying concerns of delay caused by a dispute between farmers and mills, a trade body said.

Factories in western part of the state will start crushing between Nov. 12 and Nov. 15, and those in the central region will begin Nov. 15 to Nov. 20, C.B. Patodia, president of Uttar Pradesh Sugar Mills Association, said in a phone interview today.

Timely start to crushing may help ease a shortage that’s made India the biggest sugar importer and pushed up prices to a 28-year high in New York. The country may remain a net buyer for a third year next crop season as the largest consumer seeks to build inventory, Triveni Engineering & Industries Ltd., India’s third-biggest producer, said last week.

Prices in Vashi, Mumbai, India’s biggest wholesale market for the commodity, today fell 2.2 percent to 3,457.75 rupees per 100 kilograms, the biggest drop since Oct. 6. The prices fell on concern the start of plants on time may increase supplies of sugar in the local market, said Harish Galipelli, head of research at Kochi-based JRG Wealth Management, which advises traders. Sugar rates have risen 82 percent this year.

“Prices have risen sharply in the last one week on expectation of a delay in crushing,” Galipelli said by telephone. “Timely crushing will open the gates for appropriate supplies.”

Fixed Prices

Mills have agreed to pay growers prices fixed by the Uttar Pradesh state, which are as much as 31 percent higher than the uniform rate set by the federal government, as a smaller crop has reduced supplies of the main raw material, Patodia said. The northern state is home to at least 130 mills, including those run by Bajaj Hindusthan Ltd., the top producer, and Triveni.

“We are not expecting any problem and there will be normal operation of mills,” Patodia said. The crop year started Oct. 1.

States must bear the difference if they order mills to pay a higher price than the single tariff of 129.84 rupees per 100 kilograms (220 pounds) set by the government, the food ministry said in an Oct. 22 notification. Uttar Pradesh Oct. 23 ordered mills to pay 165 rupees for general grade cane, and 170 rupees for the early-maturing variety.

“Mills are ready to pay the state advised price and the state doesn’t need to pay the difference,” Patodia said.

Still, farmers in Uttar Pradesh met on Oct. 29 to plan a strike to protest the government’s plan to set a uniform price. They’re also demanding a further rise in the state price, said V.M. Singh, the head of Rashtriya Kisan Mazdoor Sangathan, a group that participated in the congregation.

The farmers won’t sell cane below 280 rupees per 100 kilograms, Singh said today by phone.

“We are still talking to the farmers on this issue and some decision will be taken,” Patodia said.

To contact the reporter on this story: Pratik Parija in New Delhi at pparija@bloomberg.net;

Last Updated: November 9, 2009 08:45 EST