Ratings agency ICRA expects sugar prices to fall again on the likelihood of another bumper year of production in 2018-19 (Oct-Sep). Prices of the sweetener have recovered to around 3,350 rupees per 100 kg from a low of 2,650 rupees due to various government measures. Indian Sugar Mills Association has forecast sugar output during the next season at an all-time high of 35.0-35.5 mln tn, beating the record production of the ongoing season at 32.3 mln tn. In June, the government had asked mills to create a 3-mln-tn buffer stock of the sweetener. It had also fixed a floor price for sale of white sugar by mills at 29 rupees per kg for the ongoing season to help them clear cane arrears, which had topped 230 bln rupees in May. After the government measures and recovery in sugar prices, the arrears declined to around 178 bln rupees as on Jul 18. Further, the hike in FRP (fair and remunerative price) is likely to result in margin pressures and provide further impetus to farmers to sow sugarcane, which is likely to exacerbate the oversupply conditions. Earlier this month, the Cabinet Committee on Economic Affairs approved fixing the fair and remunerative price of sugarcane for 2018-19 (Oct-Sep) at 275 rupees per 100 kg. For 2018-19, the government has linked the cane price of 275 rupees per 100 kg to a basic recovery rate of 10% instead of the usual 9.5%, taking into account the increase in average sugar recovery from cane in the past few years. In the 2018-19 season, the government would provide a premium of 2.75 rupees per 100 kg for each 0.1 percentage point rise in recovery rate. At a recovery rate of 10%, this seasons fair price works out to be around 268.4 rupees per 100 kg, which means the effective increase in cane price for 2018-19 is nearly 2.5%.