Bitter sugar for farmers

The government and the House of Representatives have agreed to increase sharply import tariffs on sugar and other main farm commodities, such as rice, soybean and corn, to protect local farmers from unfair competition caused by foreign farm produce believed to have been dumped on the domestic market.

The policy decision was prompted by mounting protests, especially by sugarcane farmers who are now perhaps the best- organized group in the agricultural community, through the Association of Sugarcane Growers.

This association has aggressively lobbied not only the government, the House and mass media but also the International Monetary Fund, which they consider the instigator of Indonesia's farm import liberalization, to support their campaign against unfair trade competition from imports.

Suspecting that foreign sugar has been entering the country illegally either through smuggling or underinvoicing of consignments, the association recently raided freighters unloading imported sugar at Semarang's port, Tanjung Emas, Central Java, and Surabaya's port, Tanjung Perak, East Java, and intercepted and prevented trucks hauling imported sugar from West Java from entering Central Java.

Raising import tariffs could indeed help protect local farmers from unfair competition brought about by commodities dumped by foreign producers. But this trade policy instrument alone is not sufficient to achieve the ultimate goal of securing an adequate supply of sugar at prices affordable by consumers at large.

The blunt fact is that the country now has to rely on imports for almost 50 percent of its sugar needs, and unfortunately the most likely indications point to even heavier dependence on foreign sugar because of the decline in domestic output caused by the cumulative impact of shrinking crop acreage, decreasing yield and aging sugar mills.

Latest data shows that sugarcane yield per hectare has declined from 100 metric tons with sucrose content of cane ranging from 8 percent to 10 percent, during 1970 to 1985, to 60 tons and a range of 6 percent to 8 percent respectively now. Likewise, sugarcane acreage has shrunk steadily due to farmland conversion to other uses and the increasing shift from sugarcane to other more profitable crops. At least two sugar mills in East Java have closed down due to lack of sugarcane to process.

Hence, without a feasible, comprehensive program to increase domestic sugar production, the high tariff policy will not be effective in decreasing the country's dependence on imports. It will instead cause suffering to consumers as they will have to pay punitively high prices, not only for sugar but also numerous other foods that contain sugar.

Yet more damaging, without a thoroughgoing reform of the customs service, the high tariff barrier will only increase the profit margin for smugglers and corrupt customs officials. Sugar also is still highly vulnerable to underinvoicing in collusion with customs officials if the commodity continues to remain subject to ad valorem tariffs, as it is now, and not specific tariffs.

The problem is that Central and East Java are the only provinces that have so far been surveyed as the most suitable areas for sugarcane crops. But the possibility of expanding sugarcane acreage in these provinces is very low due to the small margin that accrues to farmers and the increasing conversion of farmland to industrial uses.

As most of the land suitable for sugarcane crops is owned by smallholders, who are, after all, not obliged to grow that crop, it is well-nigh impossible to attract private investment to this industry. Small wonder that most of the 45 state-owned sugar refineries in the two provinces, which were built by Dutch colonial companies hundreds of years ago, have not been rehabilitated. Yet more discouraging is that most of the sugarcane estates opened in Sumatra, Sulawesi and Kalimantan in the 1980s have failed due either to inadequate soil surveys or lack of trained laborers and financing.

The high tariff policy therefore should be supplemented by a national sugar policy covering such measures as pricing, credit financing and the development of business relations between growers and refineries. And this policy should be translated into a production development program encompassing research and development to create new high-yield varieties for irrigated and rain-fed land, extension services to farmers and reliable soil surveys in provinces outside Java to find new areas suitable for sugarcane.

However, large private investment cannot be expected to finance sugarcane acreage expansion, given the land limitations in Java -- currently the largest sugar producer -- where sugarcane has to compete with rice and other crops -- and in view of the still unfavorable economic, social and political environment for large plantations outside Java.

There should therefore be a national policy decision to allocate more public sector resources to development of the sugar industry, at least until the overall condition is favorable for private investors to come in. Most important too is that there should be a political consensus that we should be willing to pay more for sugar to decrease our reliance on imports and vulnerability to international price fluctuations.