Food and beverage prices set to increase

Adianto P. Simamora, The Jakarta Post, Jakarta

The price of food and beverage products will rise by 5 percent to 10 percent after the government has increased the import duty on sugar, according to chairman of the Indonesian Food and Beverage Association (Gapmi) Thomas Darmawan.

"I predict they (local producers) will start raising the price of food and beverage products next month," Thomas told The Jakarta Post on Thursday.

The finance ministry has increased the import duty on unrefined and white sugar to Rp 550 per kilogram (kg) and Rp 700 per kg, respectively. The import duty on double-refined sugar has also been set at Rp 700 per kg.

The new policy, effective from July 3 and valid for two years, is aimed at protecting local farmers from cheaper imported sugar products.

The tariffs for unrefined sugar and white sugar were previously set at 20 percent and 25 percent respectively, which, in rupiah terms, was equal to Rp 405 per kg for raw sugar and Rp 534 per kg for white sugar.

"We agree the government should protect local sugarcane farmers but the government must also help us (food and beverage producers) to survive, that's why the producers will raise their prices to cover production costs," Thomas said.

He claimed that several food producers had voiced concern over the hike in the import duty on sugar.

"I've just received letters from several local food producers and also from the Indonesian Pharmaceutical Association demanding the government help them to seek a win-win solution," Thomas said.

Thomas urged the government to impose sugar tax on imported sugar-based products to help protect local industry against imported products.

Import tariffs on sugar-based products are now set at 5 percent.

Thomas pointed out as an example that European countries had applied an 8.5 percent import duty on sugar-based products, plus a tax of about US$0.50 per kilogram for imported products.

Indonesia produces approximately 1.5 million tons of sugar annually, while domestic consumption stands at about 3 million tons per year.

Indonesia imported about 2.1 million tons of sugar in 1999 and 1.2 million tons in 2000.

The country also has the lowest import duty on the commodity. The European countries impose a 240 percent import duty on sugar, and the United States 150 percent. Neighboring countries Thailand and the Philippines impose import duties of 95 percent and 100 percent, respectively.

Meanwhile, Bustanul Arifin, an economist at the Institute for the Development of Economics and Finance (Indef) said the increase in food and beverage prices would not have a significant impact on inflation because sugar-based products were not considered to be basic commodities here.

He said that the major contributor to inflation in the country was transportation costs and the price of basic commodities like rice.

However, he said that the higher import duty on sugar would not necessarily affect the welfare of local farmers because it would largely benefit traders.

"This (the tariffs) will not provide much benefit to local farmers," he said.

Both Thomas and Bustanul urged the government to take action to boost farmer's productivity in a bid to increase local sugar output.

Minister of Agriculture Bungaran Saragih has planned to launch various measures to boost local sugar output by improving the productivity of sugarcane farmers so that output this year could increase to 1.9 million tons, compared with 1.7 million tons last year.

It is projected that sugar output in 2007 could jump to 3 million tons, equal to the current domestic consumption level.