With sugar prices skyrocketing over the past few months, the country’s antimonopoly watchdog said it was on the cusp of launching a formal investigation.
“As part of the effort to prevent monopolies and protect the public from the consequences of unfair business practices, the Business Competition Supervisory Commission intends to ascertain whether rising sugar prices are the result of the hoarding of sugar stocks or cartel-like practices,” Ahmad Junaidi, the antimonopoly commission’s director of communications, said on Wednesday.
He said the commission, also known as KPPU, would first survey the markets in Makassar, Balikpapan, Surabaya, Batam and Jakarta to identify the causes of the price hikes.
However, analysts said the hike was not entirely surprising, given that bad weather in the world’s two biggest producers, Brazil and India, have pushed global sugar prices to a three-year high. White sugar fetched $485 a metric ton on Wednesday.
And it looks like prices are set to continue climbing. The Financial Times on Tuesday quoted Nicholas Snowdon, a soft commodities analyst with Barclays Capital in London, as saying the weather problems have paved the way for “a global deficit of historic proportions, thus offering a seemingly irrefutable fundamental case for a strong price performance.”
Locally, the price of white sugar has risen from an average of Rp 6,649 (66 cents) per kilogram in January to about Rp 8,491 per kilogram in July.
White sugar is of a lower grade than refined sugar and is normally for household use, while refined sugar is used by the food and beverage industry.
When asked about the impact of high international prices, KPPU’s Ahmad said, “The price increases here should not be continuing for so long as domestic stocks are sufficient for this year, according to the sugar industry and the government.”
Taufik Ahmad, KPPU’s director of public policy, said the commission would also study whether the government’s policy of restricting sugar imports had unduly affected supplies and encouraged speculators to take advantage of the situation.
“The focus of the study will be on finding out the major causes of the prices rises - whether they are related to unfair business practices or the impact of government policies, such as the sugar trading mechanism, sugar import quotas and import bans,” he said. “However, there appears to be strong indications that sugar distribution is being controlled by speculators and cartels, as prices remain high even though the milling season started in May.”
The onset of the milling season in Java normally leads to a fall in domestic prices.
Separately, Subagyo, the Trade Ministry’s director general of domestic trade, said he also believed speculators and hoarding might be behind the price rises.
“The traders sometimes hoard their sugar even though we have instructed them to do nothing to disrupt the market,” he said.
Among those most incensed by the surging sugar prices is Thomas Darmawan, the chairman of the Indonesian Food and Beverage Association (Gapmmi), who said that current prices would eventually feed through as higher food and beverage prices.
However, he insisted that food processors were doing their best to contain prices. “Even though production costs have risen by up to 3 percent, producers are trying not to pass these on, given the current weak purchasing power of consumers,” he said.
Total consumption of white and refined sugar this year is predicted to hit 4.85 million tons, with 2.7 million tons destined for household use and 2.15 million tons for industrial use, he said.
The Indonesian sugar industry can be viewed as a tale of two segments - the white sugar industry, obsolete and dominated by state companies, and the modern, efficient refined sugar industry, controlled by the private sector and whose output is sold primarily to the food and beverage sector.
During the colonial era, the country was at one stage the second biggest sugar exporter in the world.
Since then, however, production has declined due to outdated cultivation techniques and obsolete machinery in the state sugar factories. To turn the industry around again, the government has launched a revitalization plan to achieve self-sufficiency in white sugar by 2014, but little success has been achieved to date.