Farmers, government rule out sugar subsidy as too expensive

Farmers, government rule out sugar subsidy as too expensive

Zakki P. Hakim, Jakarta

The existing regulation limiting the number of sugar importers
is the best option for supporting local farmers as a direct
subsidy -- which is applied by many countries -- is too costly
for the government, sugarcane farmers and government officials
have said.

Arum Sabil, chairman of the Association of Indonesian
Sugarcane Growers (APTRI) said Ministerial Decree No. 643/2002
issued by the industry and trade ministry had proved helpful for
local sugarcane farmers.

The decree has cut down the number of sugar importers to five,
from 180 importers in 1999. The five are state-owned plantation
firms PTPN IX, X and XI, and state-owned trading firms PT
Rajawali Nusantara and PT Perdagangan Indonesia.

Arum said thanks to the decree, local farmers were now more
secure, and the government could boost its sugar revenues from Rp
400 billion in 2002 to Rp 1.5 trillion in 2003.

Some analysts have criticized the decree as ineffective,
arguing that as long as the wide gap between domestic and
international prices for the commodity remained, sugar smuggling
could not be stopped and thus, illicit products would continue to
enter the market and hurt farmers.

According to Arum, white sugar costed around Rp 2,000 (21 U.S.
cents) per kilogram in the international market, while local
prices hovered between Rp 4,000 and Rp 4,200 per kilogram.

Analysts have instead suggested that the government liberalize
sugar imports and provide direct subsidies to farmers.

Arum, however, maintained that the decree was still useful,
and that the unchecked sugar smuggling was caused mainly by its
weak enforcement.

"It's true that the large price gap might have sparked the
rampant smuggling, but the real problem is law enforcement," he
said.

Minister of Industry and Trade Rini M.S. Soewandi said last
week that a sugar subsidy was one of the government's options
before it decided upon the decree to limit sugar importers.

The ministry calculated that in order to compete with Thai
sugar -- which costs about 50 percent of Indonesian sugar, given
the heavy subsidy provided by the Thai government -- the
government would need to provide a subsidy of about US$220 per
ton of sugar.

With a domestic output of 1.8 million tons, this would mean a
national subsidy of about Rp 3.72 trillion per year.

"The state budget could not afford this," Rini said.

To complement the industry and trade decree, the Ministry of
Agriculture launched a program to provide sugarcane farmers with
high-yield seeds with a view to boosting sugarcane production
toward self-sufficiency by 2007.

Hari Priyono, head of legal and public relations at the
ministry, told the Post the program cost the government only Rp
165 billion per year, "far less costly compared to a direct
downstream subsidy".

He conceded that developed economies such as Japan, the
European Union, the United States and neighboring Thailand were
highly committed to protecting their farmers.

For instance, he said, the Thai government bought all the
sugar from its farmers and sold it at a low price on both the
domestic and international markets.

"Indonesia could do the same, but it would require an enormous
budget," Hari said.

Furthermore, he said, if the government provided such a
subsidy to sugarcane farmers, farmers of other commodities such
rice, corn and soy bean would demand a similar facility.

Hari said some countries might not feel the burden of
providing subsidies as Indonesia would, because their sugar
output was not as high.

As far as farmers in developed countries were concerned, they
could urge government protection, given their strong political
standing.

"In Japan, for instance, farmers' groups are a significant
political force in the Diet. Agriculture is perceived as a very
strategic sector there," he said.