Poor rains: Liquor prices may rise by 10-15%

The below-average monsoon this year and the subsequent shortfall in the production of sugarcane in India will see the prices of Indian Made Foreign Liquor increase by 10-15 per cent in the next financial year, say industry experts.

This would make it the second year of price increases. The IMFL industry had already affected an average label price increase of 8-10 per cent in April this year on account of rising prices of raw materials like molasses and glass bottles.

Molasses, a by-product of sugarcane, is the main raw material for making neutral spirits, which is used by IMFL manufacturers like United Spirits, Radico Khaitan, Tilaknagar and others for making whisky, rum, gin, brandy and vodka.

"There will be a shortfall of 25-30 per cent in the production of molasses-based neutral spirits this year, compared with last year, resulting in a 5-7 per cent increase in the per litre price," said Rajendra Kalra, general manager at India Glycols Ltd, manufacturers of the IGL brand of spirits and one of the largest suppliers of neutral alcohol to United Spirits.

Besides molasses, the IMFL industry is seeing its other input costs, like that of glass bottles and freight charges, rise too. For instance, prices of glass bottles have increased from Rs 6,000 a tonne to Rs 16,000 a ton in the last 18 months.

According to V N Raina, general secretary, All India Distillers Association, "Alcohol prices will go up by 10-15 per cent by April 2010 on account of rising input costs and this could slowdown the volume growth in the IMFL industry."

The total IMFL market in India is estimated to be 190 million cases a year, of which molasses-based liquor accounts for more than 90 per cent.

"In the financial year 2008-09, the IMFL industry grew at 12-15 per cent, of which value growth was 8-10 per cent and volume growth was 3-5 per cent," said Pramod Krishna, director general, Confederation of Indian Alcoholic Beverage Companies.

He further explained that volumes have seen a slight dip due to the slowdown in the economy, which has effected the consumption of premium brands, especially in the on-trade segment, that is, restaurants and hospitality.

Over the last year, the IMFL industry reduced its dependency on molasses-based neutral spirits with substitutes in the form of grain spirits. Grain spirits are more expensive (8-10 per cent) than neutral spirits made of molasses.

With the crushing season still another 6-8 weeks away and the monsoon period still underway, Amit Dhanukar, chairman and managing director of Tilaknagar Industries, which owns the Mansion House brand, said: "It is premature to comment. The impact of the drought will be felt next year."

An email sent to United Spirits went unanswered.