Mandatory Sugarcane Plantations for Refineries Could Disrupt Investment, Says IndoPremier
The Indonesian government has proposed that all refined sugar refineries in the country must possess their own sugarcane plantations, a policy projected to create investment uncertainty, increase production costs, and complicate efforts to achieve national sugar self-sufficiency. This week, industry experts and agricultural associations assessed that such a move could exacerbate the cost burden on consumers and add pressure to an agricultural sector that is already producing below target.
Key points include:
11 refined sugar refineries currently operate independently near ports.
The government proposes that each refinery must possess 8,000 to 10,000 hectares of sugarcane plantations.
National sugar production for 2025 is expected to reach 2.67 million tonnes, far below the requirement of 6–6.5 million tonnes.
National sugarcane yield is currently only 6–7 per cent, compared to 11–13 per cent during the 1930s era.
Domestic sugar prices are estimated to be approximately 40 per cent higher than imported sugar.
Why is the mandatory plantation policy viewed as a disruption to investment?
The policy disrupts investment by forcing sugar processing companies to pivot into the plantation sector, which lies outside their core competencies. Anthony Budiawan, Director of Political Economy and Policy Studies, explained that the business model for refined sugar refineries was originally designed to process imported raw sugar; therefore, the addition of plantation obligations requires massive capital investment and alters the companies’ risk profiles. Beyond the capital requirements, companies must also secure tens of thousands of hectares of land, which, according to AEPI observer Khudori, is difficult to achieve given that most refineries are located in port areas. Logistics constraints and land acquisition costs add to business uncertainty, potentially causing potential investors to delay or divert funding to other sectors. Consequently, the acceleration of sugar processing projects may slow down, disrupting industrial plans to increase self-sufficiency.
What is the impact of the mandatory plantation requirement on production costs and sugar prices for consumers?
The obligation to own sugarcane plantations increases sugar production costs because domestic raw materials are produced at a much higher cost compared to imported raw sugar. Anthony Budiawan added that domestic sugar prices are currently significantly more expensive than imported sugar, meaning the additional cost burden will be passed on to consumers. Low national sugarcane yields, currently ranging between six and seven per cent, exacerbate the inefficiency of the extraction process and increase the amount of sugarcane needed to produce one tonne of sugar. As a result, producers must bear higher production costs, which ultimately raises the selling price of sugar in the domestic market. End consumers, including the food and beverage industry, will experience price increases that could reduce purchasing power.
What is the current state of national sugar production and why is the self-sufficiency target difficult to achieve?
National sugar production remains far below domestic demand, leaving the reliance on imports high. The gap between production and demand necessitates annual imports exceeding five million tonnes. Low sugarcane yields and declining productivity per hectare are hindering output increases, while many refineries are still using equipment that is over seventy years old. The target for consumption sugar self-sufficiency of three million tonnes, as stipulated in Presidential Regulation No. 40/2023, will be difficult to achieve without significant improvements in productivity. Therefore, without fundamental reforms in both upstream and downstream technology, efforts to achieve sugar independence will remain hindered.