Nation facing uphill task to boost sugar output

Nation facing uphill task to boost sugar output

Eva C. Komandjaja, The Jakarta Post, Jakarta

The government has launched a program to boost sugar output in
a bid to reach self-sufficiency by 2007, but industry players say
this will be an uphill struggle.

From being the world's second largest sugar producer in the
Dutch colonial era, Indonesia has slumped to be the world's
second largest sugar importer after Russia at the present time.

The fall in output is due to a continuous decline in sugar
production since 1993 while the consumption rate has been
steadily climbing. Sugar production in 1993 stood at 2.5 million
tons, while in 2002 it declined to 1.8 million tons.

On the other hand, Indonesia's sugar consumption has been on
the rise, up from 2.7 million tons per year in 1993 to around 3.2
million tons in 2002, a rise of approximately 2.5 percent per
year.

Given these figures, Indonesia has been unable to avoid a 200
percent increase in sugar imports from 1995 to 2002 as local
production cannot fulfill the consumption gap of 1.4 million
tons.

One of the reasons behind this continuous decline is that
Indonesia's sugar plantations' productivity rate has fallen from
an average 15 tons per hectare in the colonial era, with a total
area of 190,000 hectares under sugarcane, to the current 4.5 tons
per hectare, with a total area of 340,000 hectares under
sugarcane.

According to state-owned plantation firms PT Perkebunan
Nusantara (PTPN) IX, X, XI and PT Rajawali Nusantara Indonesia
(RNI) during a hearing with the House of Representatives
Commission V for industry, trade and cooperatives last week, the
decline in output partially came about as a consequence of the
issuance of Presidential Instruction No. 9 of 1975 on the
intensification of sugarcane farming.

The four firms are the main sugar producers of the country.

The decree states that sugarcane farmers are allowed to manage
their own fields, while in the past they cultivated their land
under the management of state-owned plantations.

During the hearing, the PTPNs and RNI said farmers were not
managing their sugarcane fields efficiently.

For example, they said, many farmers never adhered to the
eight-year planting cycle for sugar cane. Rather than using new
seeds, they just take seeds from the old plants.

Further, the farmers only fertilized the land after the
sugarcane had grown to 1.5 meters. Under good practice, the land
should be fertilized when the plants are younger.

This led to a decline in the sucrose content of the cane.

This has had a big effect on the overall output rate of
Indonesia's sugar industry since more than 63 percent of the land
under sugarcane is owned by individual farmers.

To bring the output rate back to its original state, state-
owned plantation firms have proposed on a number of occasions
that they be allowed to take over plantation management.

However, no decision has been made by the government on the
proposal, which the firms resurrected once again during last
week's hearing.

To cope with declining sugar output, in April this year
Minister of Agriculture Bungaran Saragih announced the
government's plan to accelerate the replanting of sugarcane
plantations in Java with the goal of increasing sugar
productivity to eight tons per hectare in 2007.

He said that the government had allocated Rp 68 billion (US$8
million) to purchase quality sugarcane seeds to be distributed to
lfarmers through state-owned plantation firms.

For example, PTPN IX would distribute R579 seeds which produce
cane with an 8 percent sucrose content, compared to the average
of 6 percent in the case of the seeds normally used by farmers.

By doubling productivity, the government hopes to boost the
country's sugar production to three million tons in the next four
years with an output growth of 9.6 percent a year. Based on this
scenario, Indonesia is expected to reach self-sufficiency in
2007.

However, the plan has not being progressing as smoothly as
expected. A number of state-owned plantations reported that they
had experienced several problems in implementing the plan.

PTPN IX's president Suhardjo said that farmers had lost
interest in sugarcane farming due to the plunge in sugar prices
last year and the influx of cheap imported sugar.

He also mentioned that the implementation of the program had
been hampered by the long drought this year.

Suhardjo of PTPN IX, and Duduh Sudarakhmat of PTPN X, also
said in their reports to the Commission V that delays in the
disbursement of government funds had also hindered the "sugar
output acceleration plan".

For box

Govt struggles to curb sugar imports

The flood of low-priced imported sugar, both legal or illegal,
is believed to be one of the causes of low sugar output in this
country.

Currently, Indonesia has a sugar supply shortage of 1.4
million tons per year. The low output of local sugar forces the
government to import sugar from neighboring countries such as
Thailand and Malaysia.

Until the government curbed sugar imports in September last
year, imported sugar sold for as little as Rp 2,600 (30 U.S.
cents) per kilogram on the retail market in Java, while local
sugar sold at a price of Rp 3,500 per kilogram on the island.

Local producers are unable to beat the imported sugar on price
as their production costs reach Rp 3,100 per kilogram.

To protect sugarcane farmers in Indonesia, Minister of
Industry and Trade Rini MS Soewandi issued a ministerial decree
last September to curb sugar imports and to help farmers. The
decree targets sugar prices for both local and imported sugar at
between Rp 3,400 and Rp 4,200.

Under the decree, only manufacturing companies that take 75
percent of their raw materials from local farmers are allowed to
import raw, refined and white sugar. The firms which received
licenses to import sugar include state plantations PT Perkebunan
Nusantara IX, X, XI and RNI.

However, in September this year, the government also gave a
license to PT Perdagangan Indonesia (PPI), a purely trading firm,
to import sugar for outside Java. PPI is the product of a merger
between PT Pantja Niaga and PT Dharma Niaga, which in the past
monopolized the importation of alcoholic beverages.

Analysts say the government gave the license to PPI as the
result of concerns arising from the failure of the existing
import license holders to distribute sugar outside Java, which
led to shortages of sugar in some areas outside Java. This in
turn prompted increased smuggling.