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Sugar leakage to continue despite auction: Academics

A study has found the auction of sugar for industrial use will not benefit end-consumers but instead lengthen the supply chain and trigger an increase in food and beverage prices, therefore putting the burden on the consumer

Stefani Ribka (The Jakarta Post)
Jakarta
Tue, January 16, 2018

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Sugar leakage to continue despite auction: Academics

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study has found the auction of sugar for industrial use will not benefit end-consumers but instead lengthen the supply chain and trigger an increase in food and beverage prices, therefore putting the burden on the consumer.

Economists and commodity experts involved in the study said the auction would not help fulfill its intended goal of stopping leakage of industrial sugar into the market, which eventually leads to household consumption.

The Gadjah Mada University (UGM) research team calculated the auction would increase the sugar price by up to 15.32 percent to Rp 10,004 (74 US cents) per kilogram, compared to Rp 8,675 per kg in business-to-business (B2B) transactions. At the very least, there could be an increase of Rp 1,000 per kg.

As annual industrial sugar demand is estimated at 3.6 million tons annually, the total price increase amounts to at least Rp 3.6 trillion (Rp 1,000 per kg x 3.6 million tons).

The increase comes from transaction fees payable to the auction operator by big contract buyers at Rp 85 per kg and by micro, small and medium enterprises at Rp 100 per kg, among other fees.

Other administration fees, including non-refundable return fees and guarantee fees, cost an additional Rp 1.2 trillion annually.

“Should the auction be carried out, it’ll add at least Rp 4.8 trillion in costs [Rp 3.6 trillion + Rp 1.2 trillion] and who would incur it? The [F&B] industry wouldn’t take it alone; it’ll be burdened to consumers. Product prices will get more expensive,” said UGM head of sugar research Tony Prasentiantono. The study was done in cooperation with the Indonesian Employers Association.

Last year, the Trade Ministry came up with a plan to conduct B2B industrial sugar transactions using the auction method.

But it was postponed several times amid strong objections from sugar-using industries, from F&B sectors to traditional drug makers.

The auction is scheduled to kick off on Jan. 8 but due to an absence of necessary regulations, it has yet to begin.

The government appointed as auction operator Pasar Komoditas Jakarta (PKJ), which is affiliated with Artha Graha Group owned by tycoon Tomy Winata.

Contacted separately, sugar expert from the Bogor Institute of Agriculture (IPB) Purwono questioned the additional fees, saying the prevailing B2B method was already transparent.

“We should ask where the additional fees of Rp 85 and Rp 100 per kg charged to buyers will go and we should really verify what the PKJ is. Why did it win the tender?” he told The Jakarta Post.

Under the B2B method, firms sign purchase contracts with any of the 11 refined sugar processing factories and must inform the Industry Ministry about it so the latter can issue a refined sugar import permit. This way, the ministry should have known about ongoing transactions among the users and suppliers and where the leakage came from, Purwono said.

Tony said the government knew where the leakage came from and needed only goodwill and effort to resolve the issue.

Leakage, meanwhile, occurs as a result of government policy. To protect local sugar from cheaper foreign sugar, the policy has for decades differed between refined sugar imports (GKR) for industry use and local white sugar (GKP) for households. GKR is sold at between Rp 8,000 and Rp 11,000 per kg while GKP is sold at between Rp 10,700 and Rp 12,500 per kg.

The price disparity has triggered traders to leak the much cheaper GKR to household markets for profits.

“As long as there’s a price disparity, leakage will still occur. The short-term solution to this is to enforce the law against illegal traders and the long-term solution is to improve local productivity to cut local sugar costs and ultimately erase the categorization of GKP and GKR,” Tony said.

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