Govt raises producer price of sugar

Govt raises producer price of sugar

JAKARTA (JP): In a move to support producers, the government has raised the producer's selling price of sugar by 29.74 percent, to Rp 91,080 (US$41) per quintal, while at the same time abolishing the excise on sales of the commodity.

In a written statement made available to the press over the weekend a spokesman for the Ministry of Finance said "The decision, effective this month, is made with the consideration that the producer's selling price of sugar has not been raised for two years."

He also stated that the price rise is required to increase incentives for farmers growing sugar cane and to better their livelihood.

Despite the price increase, the government aims to maintain the retail prices of sugar, at its present level of Rp 1,300 to Rp 1,400 per kilogram, by abolishing the four percent excise on the commodity and by lowering the management fees for village cooperatives.

It is unclear whether the government can achieve this objective because besides the producer's selling price and management fees of the cooperatives, distribution costs are also vital in determining retail prices on the consumer level (See table).

Distribution costs are directly related to the fact that the sugar trade is virtually single-handedly controlled by the National Logistic Agency (Bulog).

Efforts

The Ministry of Finance's statement does not specifically address how it plans to coordinate efforts with Bulog in keeping the retail prices at their current level, despite the increase in the producer's selling price.

The government's policy, set to promote the country's self- sufficiency in sugar, virtually insulated Indonesian sugar prices from the world, causing local retail prices to be far higher than the world market.

Various observers, including the World Bank, have noted that sugar trade regulations allow the government to set the farm gate price to sugar cane growers, the mill buying price and the ex- factory price.

Analysts also said that the sugar policy has also virtually forced, and practically subsidized, farmers to grow sugar cane -- instead of other crops that can be cultivated on their limited land -- which are to be supplied to the mostly state-owned sugar mills.

The World Bank, in its 1994 confidential report on the Indonesian sugar industry, said "...there are welfare losses from the fact that the protection reduces the value of sugar consumption by more than the value of the transfer to farmers and mills, and from the fact that protection encourages domestic sugar production at levels where the cost of producing it exceeds its price in the world market."

Despite such criticism of the industry and the producer's selling price increase, an Eastern Java farmer group has already expressed their support to the move. (hdj)