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Jakarta Post

Sugar imports needed shortly to curb price increase as demand surges

  • Benget Besalicto ST

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Jakarta   /   Tue, February 18, 2020   /   12:34 pm
Sugar imports needed shortly to curb price increase as demand surges Field workers harvest sugarcane to have it ready for crushing in Purwosekar village in Malang, East Java. The cane will be sold either to brown sugar makers or large sugar factories, depending on its quality. Better quality cane will fetch a better price among brown sugar makers. (JP/Aman Rochman)

Even though world sugar prices are predicted by the Indonesian Sugar Association (AGI) to remain almost stagnant this year, rising only from US$270 to $304 per ton or an average of $288 per ton to $296 per ton for October delivery, sugar prices in Indonesia have increased from Rp 12,000 ($0.90) per kilogram to Rp 14,000-15,000.

If there is no additional supply, the sugar price could increase to more than Rp16,000 per kg as demand will be even higher, especially because of the approaching fasting month of Ramadan in April.

Industry Minister Agus Gumiwang Kartasasmita said recently the government planned to import sugar this year as local production would not be sufficient to meet the steadily rising domestic demand.

However, any import plan for agricultural products usually stirs controversy as such a policy would hurt Indonesian sugarcane farmers whose production costs are much higher than those in other ASEAN countries.

But the blunt fact is that over the past several decades domestic sugar production has never been able to fulfill domestic consumption. In fact, Indonesia’s sugar production declined from 2.55 million tons in 2008 to 2.19 million tons in 2018 or a decrease of about 14 percent. According to the AGI, last year’s sugar production reached around 2.23 million tons, which is only slightly higher than the 2.19 million tons in 2018. This year, sugar production is predicted to remain stagnant.

In 2016, the sugar industry produced 2.2 million tons of raw sugar, a drop from 2.3 million tons in 2010. In contrast, in the same period, raw sugar imports increased by 14 percent from 2.8 million tons to 3.2 million tons.

Certainly, as the country’s sugar consumption increases, the share of imported sugar increased as well. The increasing dependence on imported raw sugar indicates problems among our sugar producers. A few problems had been identified a long time ago but have yet to be resolved.

Some of the problems hampering the country’s sugar production are low productivity of the land used to cultivate sugar cane and low productivity of sugar mills.

The chairman of the Indonesian Sugar Experts Association (Ikagi), Dwi Satriyo Annurogo, told a sugar conference in Surabaya, East Java, late last year that stagnant sugar production was caused by a host of on-farm and off-farm problems, including the low productivity of sugarcane plantations and obsolete equipment of most state-owned sugar mills.

Based on the United States Department of Agriculture (USDA) report in 2018,  Indonesia’s sugarcane productivity averaged 68.29 tons per hectare, compared to almost 70 tons per ha in Brazil and India.

Besides unfavorable weather conditions, the low production was also caused by poor land treatment and a decrease in plantations areas, especially on Java island. Currently, the sugarcane plantation acreage is around 411,000 ha, which is far below the 900,000 ha needed to produce the needed supply for domestic consumption.

The low output should also be blamed on the low extraction rate at sugar mills because about 40 of the 63 sugar mills operating in the country are more than 100 years old. The oldest is 184 years old.

But while sugar production has remained continually stagnant, domestic sugar demand has risen steadily by about 5 percent a year because of the increase in population and economic growth, which stimulated the development of the food, beverage and pharmaceutical industries.

Last year, local demand for sugar (for household and industrial consumption) reached more than 6 million tons, while the local supply was only 2.2 million tons, or just 37 percent of the total consumption. The demand this year is predicted to grow by around 10 percent, while production is predicted to only reach 2.05 million tons.

To solve the problems, the government has implemented a revitalization of the sugar industry by allowing investors that build sugar refineries to initially import raw sugar for domestic refining for industrial use. But not a single new plant has been built so far.

Seemingly, there is no other choice left for the government to solve the sugar problem soon, except by importing sugar to meet domestic demand in order to check inflation.

Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.