Increase in FRP for sugarcane by 11% to affect sugar millers’ margins: ICRA

HYDERABAD: An 11% increase in fair and remunerative price (FRP) for sugarcane is likely to impact sugar millers’ margins, says rating agency ICRA.

The Cabinet Committee on Economic Affairs (CCEA) has fixed the FRP at Rs 255 per quintal for sugar season (SY) 2017-18. The increase in the FRP by Rs 25 per quintal for sugarcane, by the Central Government for the season SY2017-18, is likely to result in an increase in the cost of production by around Rs 2,500–2,700 per ton of sugar.

Sabyasachi Majumdar, senior vice-president and group head, ICRA Ratings, said, “At the current sugar realisations, the mills are likely to be able to absorb the higher costs, although the margins are likely to 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.”

According to ICRA, the increase in the sugarcane production costs, coupled with the increase in the sugar prices, which has enhanced the sugar mills’ ability to pay the 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% to Rs. 230/quintal.

The cane price is linked to a basic recovery rate of 9.5%, subject to a premium of Rs 2.68 per quintal for every 0.1% point increase in recovery above that level. The FRP, which is the minimum guaranteed cane price to the farmers, is fixed based on the recommendation of the Commission for Agricultural Costs and Prices (CACP).