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)