REVITALIZATION OF THE INDONESIAN SUGAR INDUSTRY
Sugar, economically and politically a strategic commodity in Indonesia, always gives controversy and heated public debate. A fundamental problem surrounding the sugar industry currently is recent rampant smuggling affairs of raw and refined sugar despite a series of government regulations and efforts to combat illegal imports of sugar in order to protect the domestic sugar industry and sugar cane farmers. Several reasons are given and identified as being the cause of the ailing industry such as demand is much higher than domestic supply, distortion of the sugar world market marked with high import duty imposed by sugar producing countries, retail price being much higher than export price due to heavy subsidy provided by the governments of sugar producing countries to the sugar cane farmers, the decline in the sugar production area and out put in recent years as well as low productivity of the sugar factories due to obsolete production equipments and technology. In reality, however, for the first time after nearly 8 years, the Indonesian sugar production began to rise in the year 2004, reaching a total production out put in excess of 2 million tons, a figure, which is the out put level of the pre-economic crisis year of 1997. The overall good sugar market prices and rejuvenation program implemented by several sugar cane plantations in the country as well as a much higher production capacity of the private-owned sugar factories are attributable to this positive development in the production out put, development of which is expected to continue rising in the next following years by an estimated 10% annually.
Meanwhile, the total sugar consumption in Indonesia, which consists of consumption by the private households and by the industries, has always been much higher as compared to the production output. In average, the total domestic sugar consumption in recent years has been fluctuating in the level of between 3 million tons to 3.3 million tons annually, whereby the private households consume around 70% and 30% by the manufacturing industries. The high demand for sugar and the low sugar production out put, causes a supply and demand disparity, which has so far forced the government to overcome this shortage problem by relying on imports of sugar from several world sugar producing countries such as Brazil, India, Thailand and Australia.
Considered a strategic commodity for the overall economic development, the sugar trade was until the year 1998 heavily regulated by the government; imports were the monopoly of the enterprise BULOG, a state-owned logistics company, dealing in the importation and distribution of, among others, important agricultural commodities. In late 1998, committed to trade liberalization, the Indonesian government de-regulated the sugar trade by allowing imports of sugar by any registered Indonesian trading company, abolishing the sugar subsidy but on the other side implementing a kind of domestic sugar benchmark price as well as abolishing the import duty on sugar and the sugar import monopoly enjoyed so far by the BULOG company. This new policy, however, was not acceptable and beneficial to the sugar cane farmers and the domestic sugar factories, who actually suffered under the abolishment of the sugar import duty; the sugar cane farmers and the sugar factories had to sell their sugar way above the benchmark price set by the government, with another words, they produced at losses.
Under heavy pressures from angry sugar cane farmers and sugar factories, the government re-imposed import duty on sugar in the year 2000 and accordingly, imported raw sugar and refined sugar were first of all subject to a 20% and 25% import duty respectively. Sugar cane farmers and the sugar factories were demanding an import duty percentage of 110%, as this has been set in the agreement with the WTO. In 2002, the government regulated the importation of sugar, whereby only producers/ importers and approved/registered sugar importers are allowed and licensed by the Ministry of Trade to import sugar; accordingly, imported cane and refined sugar are imposed to a tariff structure of Rupiah 500.- and 700.- per kilogram respectively. This import tariff structure is variable, i.e. the import duty percentage is adjustable and follows the domestic sugar market development. The volume of sugar allowed to be imported annually will be determined based on the recommendation made by the Indonesian Sugar Council, DGI, the Indonesian Sugar Association, AGI, the Indonesian Chamber of Commerce as well as other related business associations, and will normally be announced towards the end of the year. In order to protect domestic sugar prices, refined sugar may not be imported during the so-called crushing season, which normally runs from May to November of each year. Rampant smuggling of sugar somehow remains out of control in spite of series of government regulations issued against illegal imports of this particular commodity. Lately, a smuggling affair involving a substantial volume of some 73.000 tons of sugar and a well known local politician and business person has shaken the country; this case is currently under court proceedings, the illegally imported sugar, however, has been auctioned at a price level far below the benchmark price set by the government, which caused another heated public debate and upset.
The core problem faced by the Indonesian sugar industry is actually multi-faceted; first of all is the fact, that a decline in the sugar plantation area has been noted in the past decades due to land conversion for other purposes especially on the island of Java, where 80% of the Indonesian sugar industry is concentrated. Secondly, low efficiency and productivity of the sugar cane plantations and the sugar factories are the cause for low sugar production out put in general. Thirdly, disincentive government policies in developing the domestic sugar industry causes that the sugar cane farmers are felt being treated unfairly and, therefore, lost interest in growing sugar cane, which, during the period of between 1994 to 1998 was the cause for a number of sugar factories having to close down their factories in view of shortage in supply of raw sugar cane.
Aware of the multi-faceted problems encountered by the industry, the government haslaunched a revitalization program for the sugar industry with the objective of getting self-sufficient in sugar by the year 2008. The basic requirements for Indonesia to become a potential sugar-exporting nation are given in the country; climate and soil are suitable for sugar cane plantations, vast regions in the eastern part of the country are available and so far, not been adequately exploited.
Favorable government policies are needed in order to provide incentives to the farmers and sugar factories as well as to guarantee market stability and eliminate rampant smuggling activities. Without a good coordination from all parties involved in the industry, the potential of Indonesia and targeted aim to be self-sufficient in sugar will remain an empty slogan.
Meanwhile, the total sugar consumption in Indonesia, which consists of consumption by the private households and by the industries, has always been much higher as compared to the production output. In average, the total domestic sugar consumption in recent years has been fluctuating in the level of between 3 million tons to 3.3 million tons annually, whereby the private households consume around 70% and 30% by the manufacturing industries. The high demand for sugar and the low sugar production out put, causes a supply and demand disparity, which has so far forced the government to overcome this shortage problem by relying on imports of sugar from several world sugar producing countries such as Brazil, India, Thailand and Australia.
Considered a strategic commodity for the overall economic development, the sugar trade was until the year 1998 heavily regulated by the government; imports were the monopoly of the enterprise BULOG, a state-owned logistics company, dealing in the importation and distribution of, among others, important agricultural commodities. In late 1998, committed to trade liberalization, the Indonesian government de-regulated the sugar trade by allowing imports of sugar by any registered Indonesian trading company, abolishing the sugar subsidy but on the other side implementing a kind of domestic sugar benchmark price as well as abolishing the import duty on sugar and the sugar import monopoly enjoyed so far by the BULOG company. This new policy, however, was not acceptable and beneficial to the sugar cane farmers and the domestic sugar factories, who actually suffered under the abolishment of the sugar import duty; the sugar cane farmers and the sugar factories had to sell their sugar way above the benchmark price set by the government, with another words, they produced at losses.
Under heavy pressures from angry sugar cane farmers and sugar factories, the government re-imposed import duty on sugar in the year 2000 and accordingly, imported raw sugar and refined sugar were first of all subject to a 20% and 25% import duty respectively. Sugar cane farmers and the sugar factories were demanding an import duty percentage of 110%, as this has been set in the agreement with the WTO. In 2002, the government regulated the importation of sugar, whereby only producers/ importers and approved/registered sugar importers are allowed and licensed by the Ministry of Trade to import sugar; accordingly, imported cane and refined sugar are imposed to a tariff structure of Rupiah 500.- and 700.- per kilogram respectively. This import tariff structure is variable, i.e. the import duty percentage is adjustable and follows the domestic sugar market development. The volume of sugar allowed to be imported annually will be determined based on the recommendation made by the Indonesian Sugar Council, DGI, the Indonesian Sugar Association, AGI, the Indonesian Chamber of Commerce as well as other related business associations, and will normally be announced towards the end of the year. In order to protect domestic sugar prices, refined sugar may not be imported during the so-called crushing season, which normally runs from May to November of each year. Rampant smuggling of sugar somehow remains out of control in spite of series of government regulations issued against illegal imports of this particular commodity. Lately, a smuggling affair involving a substantial volume of some 73.000 tons of sugar and a well known local politician and business person has shaken the country; this case is currently under court proceedings, the illegally imported sugar, however, has been auctioned at a price level far below the benchmark price set by the government, which caused another heated public debate and upset.
The core problem faced by the Indonesian sugar industry is actually multi-faceted; first of all is the fact, that a decline in the sugar plantation area has been noted in the past decades due to land conversion for other purposes especially on the island of Java, where 80% of the Indonesian sugar industry is concentrated. Secondly, low efficiency and productivity of the sugar cane plantations and the sugar factories are the cause for low sugar production out put in general. Thirdly, disincentive government policies in developing the domestic sugar industry causes that the sugar cane farmers are felt being treated unfairly and, therefore, lost interest in growing sugar cane, which, during the period of between 1994 to 1998 was the cause for a number of sugar factories having to close down their factories in view of shortage in supply of raw sugar cane.
Aware of the multi-faceted problems encountered by the industry, the government haslaunched a revitalization program for the sugar industry with the objective of getting self-sufficient in sugar by the year 2008. The basic requirements for Indonesia to become a potential sugar-exporting nation are given in the country; climate and soil are suitable for sugar cane plantations, vast regions in the eastern part of the country are available and so far, not been adequately exploited.
Favorable government policies are needed in order to provide incentives to the farmers and sugar factories as well as to guarantee market stability and eliminate rampant smuggling activities. Without a good coordination from all parties involved in the industry, the potential of Indonesia and targeted aim to be self-sufficient in sugar will remain an empty slogan.
posted by Zumrowi Yunus at
2:27 PM
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