The increase in Fair and Remunerative Price (FRP) by 11 per cent at Rs 255 quintal for SY2017-18 season (sugar year beginning from October 1) is likely to raise the cost of production by around Rs 2,500-2,700 per tonne, ICRA said in a report.
The Cabinet Committee on Economic Affairs (CCEA) has fixed the FRP at Rs 255 per quintal for SY2017-18, an increase by 11 per cent compared to the previous year.
The FRP, which is the minimum guaranteed cane price to the farmers, was fixed based on the recommendation of the Commission for Agricultural Costs and Prices (CACP).
"The increase in the FRP by Rs 25 per quintal for sugarcane by the government for SY2017-18, is likely to result in an increase in the cost of production by around Rs 2,500-2,700 per tonne of sugar," ICRA Ratings Senior Vice President and Group Head Sabyasachi Majumdar said.
He said, at the current sugar realisations, the mills are likely to be able to absorb the higher costs, although the margins may fall from the current levels.
"On the other hand, hike in FRP is likely to incentivise farmers to increase cane acreage and, thus, ensure better raw material security for the sugar year SY2018-19 onwards. This is a positive from the perspective of south and Maharashtra-based mills, many of which have witnessed volume contraction because of the agro-climatic factors in the past two sugar years," he added.
According to ICRA, increase in sugarcane production costs coupled with increase in sugar prices, which has enhanced the sugar mills' ability to pay higher cane costs, has triggered an increase in the FRP for the SY2017-18 season.
The FRP was last increased in SY2014-15 by around 5 per cent to Rs 230 per cent quintal, ICRA added.
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