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.