New Delhi, Jan. 22: Sugar prices are set to rise as output is expected to drop by one million tonnes to 26 million tonnes in 2015-16 on the back of poor rain in Maharashtra, a major cane producing state. A price rise, however, may help mill owners to pay off cane arrears.

"We have revised the sugar production estimates to 26 million tonnes from 27 million tonnes earlier," Abinash Verma, director-general of the Indian Sugar Mills Association (ISMA), told reporters.

Production in Maharashtra is likely to be about 87 lakh tonnes, lower by 3 lakh tonnes, compared with ISMA's first advance estimates of 90 lakh tonnes in September 2015.

This is mainly because of lower water availability, which has affected yields in Maharashtra, he said.

Because of lower rainfall in northern Karnataka, the yields are not as good and, therefore, it is estimated that sugar production will be 43 lakh tonnes in the state against 49.2 lakh tonnes in the first advance estimate, ISMA said.

Sugar mills have produced 11.09 million tonnes till January 15 of the current marketing year (October-September), up 7 per cent from the year-ago period. Sugar production of India, the world's second-largest producer after Brazil, stood at 28.3 million tonnes in the 2014-15 marketing year (October-September).