Sugarcane price hike by 11% to hit sugar mills' margin in FY18: Icra

The government's decision to hike sugarcane price by 11 per cent for the season beginning October 2017 is likely to impact the margin of sugar mills, credit rating agency Icra said on Tuesday.

The Fair and Remunerative price (FRP), the minimum guaranteed cane price to the farmers, has been fixed at Rs 255 per quintal for 2017-18 season as compared with Rs 230 per quintal this year. Some states like Uttar Pradesh fix state advisory price (SAP), which is normally higher than FRP.

According to Icra, the increase in sugarcane FRP is expected to raise the cost of sugar production by Rs 2,500 to 2,700 per tonne.

"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," Icra Ratings Senior Vice President and Group Head Sabyasachi Majumdar said in a statement.

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 2018-19 onwards, he said.

"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.

There are more than 600 sugar mills, including private and cooperatives in the country.