Govt to review policies on sugar (2)

Govt to review policies on sugar (2)

By Beddu Amang

This is the second of two articles based on a paper presented
in the International Sugar Council meeting in London on Nov. 28,
1997.

LONDON: The domestic sugar market continues to require
imports. Even before this year's currency crisis, the government
expected that the sugar supply shortfall would be around 800,000
tons.

Of course, today's economic environment is radically different
from that a few months ago and some of the plans to establish new
sugar mills will need to be reviewed as the rupiah has
experienced a significant depreciation against the U.S. dollar.

To restore confidence in the economy, the government has
undertaken a wide range of policy reforms, including decisions to
rein in government spending and to open the economy as much as
possible to international trade.

How do these changes affect the sugar industry in Indonesia?
Obviously, such a large change in the economic environment has a
range of effects on the sugar industry, some of which are even
beneficial.

Indonesian sugar, for instance, is suddenly much more
competitive against producers from other countries, as dollar-
denominated imports now cost much more in rupiah terms. Some
mills that previously could not produce efficiently may find it
possible to compete at the new world price. Thus, the rupiah
depreciation has fundamentally altered the competitive position
of the Indonesian sugar industry.

Domestically, consumers will pay more in the future for their
sugar. With imports costing more, the average cost of sugar in
rupiah terms is bound to rise. Retail prices are expected to
adjust quickly to partly-import levels.

The rising domestic price of sugar will in turn cause a
decline in the domestic demand. Although it is not the intention
to discourage domestic sugar consumption, a slowdown in the
demand for imported sugar will be welcomed at this time, as
Indonesia tries to restrain imports to help improve the balance
of payments. The shift towards greater consumption of domestic
sugar and lower reliance on imported sugar will help Indonesia
move towards its objective of sugar self-sufficiency.

Finally, the new economic environment forces Indonesia to
review its plans to expand domestic production. To stabilize the
economy, a wide range of investments have been postponed. But
where investments in sugar appear profitable, private investment
will be encouraged to proceed without much direct government
assistance.

We remain committed to the objective of self-sufficiency in
sugar production, but development in this direction must be
guided by market incentives. The National Logistics Agency
(Bulog) has been charged with protecting the food security of all
Indonesians, and this can be accomplished best by expanding
domestic supply where and when it is efficient to do so, while
relying on the world market to ensure that domestic requirements
are met.

Indonesia, and indeed most Southeast Asian countries, have
weathered a number of turbulent months recently, but our economy
remains strong and more open than ever before. The government
feels that there are still reasons for Bulog to remain involved
in the sugar sector, and we will continue to perform our function
as long as we are called on to do so. Protecting the food
supplies for the fourth most populous nation on earth, with
people spreading throughout the archipelago of 13,000 islands, is
a huge but rewarding task.

Nonetheless, as the Indonesian economy develops and
connections between markets become more reliable, the need for
Bulog's involvement will decline. The recent economic turmoil
provides an excellent opportunity to raise the efficiency of our
domestic sugar industry.

Dr. Beddu Amang is chairman of the State Logistics Agency and
president of the Asian Society of Agricultural Economists.