Redefining the Indonesian Sugar Policy

Redefining Indonesian sugar policy
Hatanto Reksodipoetro, Jakarta | Wed, 02/16/2011 10:18 AM | Opinion
Agus Pakpahan, in his article "Seeking a made in Indonesia policy" (The Jakarta Post, Jan. 17), was correct on a number of points. It’s true that Indonesia must be concerned about the future price of sugar.
Indeed current world sugar prices have been on the rise over the last few years. Increases in oil prices over the last several months and the floods in Queensland, Australia, were among the very visible signs for the need to anticipate a shortage of sugar in the world, hence the continued high prices of sugar.
Quoting this paper’s editorial of Jan. 18, “The FAO food-price index, which rose for the sixth consecutive month by 4.3 percent in December, driven by sugar and cereals, is projected to continue to rise.” It’s also very true that up to the 1930s Indonesia was a major sugar supplier to the world.
Unfortunately since then, production has deteriorated and today the country has had to import not only white sugar but also raw sugar for its refineries. This is despite the adoption of a strong policy during president Soeharto’s regime.
How is sugar production in Indonesia nowadays? Well, suffice it to say that we are in no way close to meeting consumer demand. In the last several years production has declined from 2.8 million tons in 2008 to an estimate of less than 2 million tons in 2010. The weather is partly to blame. But one should not only blame the obvious.
The question is did other man-made mistakes contribute to the poor performance of our sugar industry. The answer is definitely yes.
State intervention is not at fault. Since Soeharto’s time until now the government has intervened with different kinds of state programs under the moniker of “intensification”. In 2006, President Susilo Bambang Yudhoyono himself gave an instruction to his ministers for what was called the “revitalization of the food sector”.
The real issue is twofold. First, Indonesia is the only sugar-producing country left in the world that has “state mills” that are responsible for more than half of its national production. The second issue concerns “reliable” data. Different ministries and agencies — such as the Agriculture Ministry, Trade Ministry, Industry Ministry and last but not least the Central Statistics Agency — have different sets of data.
So state intervention, the IMF, sugar imports and a lack of farmers are not behind what Pakpahan termed as the “chaos”. If we want to be true to ourselves, the real reason behind the inefficiency of the system is the government control of sugar production through the state mills.
The most crucial thing needed to start solving the problem is accurate data. Data collection should be left to an independent third-party, preferably from the private sector. Then the government must open itself to the question of whether we still want sugar production dominated by the state-owned mills.
If yes, then there must be a total revamp of the mills to increase productivity. It’s not just the question of old machinery. The most important thing is to have a “transparent” system. If not, then the government must quickly open the sector to private investment and ease restrictions on the private sector to enter the sugar industry. The government must encourage them to “partner” with cane farmers. And last, the government must set up independent inspectors to ensure transparency.
Whatever the answer is the ultimate objective must be to develop a national sugar industry that will not only be capable of meeting domestic demand, but world demand — just as Indonesia used to do during the Dutch colonial era.
Government policy must be consistent with its goal of developing the agriculture sector. A significant portion of the Indonesian population is still comprised of subsistence farmers. Combining policies to supply “refined sugar” and imported raw sugar to domestic food industries with policies to meet local consumer demand will only aggravate the matter and furthermore suppress farmers’ income, as well as going against its goals.
When the idea of developing sugar refineries in early 2000 was initiated, it was specifically aimed at producing sugar of very high quality to cater to the specific needs of specialized food industries in the country. The amount wasn’t supposed to be very significant. But as more and more refineries were built and capacity started to exceed the needs of those industries, the problems started.
Refined sugar began to be seen in the consumer market. But at the same time efforts to increase local sugar farming seemed stillborn. On one hand there was a shortage of local sugar and on the other hand there was an excess of refined sugar made from raw imports from Thailand and India.
The government regulation is actually quite clear: “Refined” sugar is only for the direct supply of specialized food industries. But alas, the shortage was much too attractive in the eyes of the refineries, especially when the government increased the minimum sale price year after year. The consequences then started to snowball.
If there is going to be a “new” policy to promote local sugar production, the government must determine who must be prioritized: local subsistence farmers or refineries. New “rules of the game” must be put in place. The government must then also ensure that the rules are strictly applied and enforced.
A new Indonesian sugar policy must include both the refineries and the farmers in the picture to be politically accepted by all players.


The writer is former secretary-general of the Trade Ministry.