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The increase in the fair and remunerative price (FRP) for sugarcane may not necessarily lead to higher acreage as the onset of the South-West monsoon and its progress would dictate the cane output in the 2017-18 sugar season, starting October.
The Union cabinet on Thursday approved an increase of ₹25 a quintal in the FRP to ₹255 after it was left unchanged last season. This is expected to push up the cost for sugar producing companies and result in a rise in prices for consumers.
Narendra Murkumbi, Managing Director, Shree Renuka Sugars, said the hike in FRP would not have much of an impact for the next two seasons as prices are firm.
However, he said, with the Government moving to a revenue-sharing model as recommended by the Rangarajan Committee on sugar decontrol, there should not be a hike, principally when the revenue of sugar companies is low.
Moreover, once the FRP is hiked to such levels it would be difficult to lower it when there is a surplus, he added.
Coming out of the worst-ever drought, the area under sugarcane is expected to be higher in Maharashtra and Karnataka during the next season, said Murkumbi.
The cost of production in five states — Uttar Pradesh, Uttarakhand, Punjab, Haryana and Tamil Nadu — that still follow state advised pricing (SAP) would go up further if the respective State governments hike the state advised price. Currently, the SAP in these states is much higher, at ₹305-315 a quintal, compared to the FRP of ₹230 a quintal.
Abinash Verma, Director General, Indian Sugar Mills Association, said the cost of sugarcane accounts for 75 per cent of sugar production and whether sugar mills will be able to pass on the cost would depend on the demand and supply equilibrium at that point in time.
Impact in West, SouthHowever, he said sugar mills in the western and southern regions would be worst hit as they are coming out of a very bad season, with capacity utilisation dropping to 50-60 per cent on the back of production costs.
Sugar production in India will not be more than 238-240 lakh tonnes in the season ending this September, said Verma. The country produced 251 lakh tonnes in the 2015-16 sugar season.
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