Commenting on the increase of sugarcane statutory minimum price (SMP), which has been hiked from Rs 81.18 a quintal level, rating agency ICRA said, it would push up cost of production in the long run. Sugar year runs from October to September.
However, ICRA said, this is unlikely to have any impact on either the cost of production or profit margins of sugar mills (in 2009-10) as most sugar mills had already paid well in excess of the SMP in 2008-09 season itself.
"This situation is unlikely to change in the coming sugar year either," the ICRA report said.
Further, for mills which have recovery rates of lower than 9.5 per cent, this could have a significant impact, particularly in years of over production.
It said the new SMP would result in an increase in cost of production of sugar (including capital charges and profit margins) for standalone non-integrated mills from around Rs 13 per kg to Rs 15.50 a kg.