Bitter sugar for farmers

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.