Sugar industry deserves our support

Sugar industry deserves our support

Agus Pakpahan, Jakarta

If we assume that the average annual growth of the Indonesian
economy is 5 percent, Indonesia will reach the level of
Malaysia's 2002 per capita income in 2035.
Using Malaysia's 2002 economic structure as our benchmark shows
that in 2035 our economy will still be dependent on agriculture.
It means that we have not only to focus our attention on how to
revitalize agriculture but also have to care for agriculture.

When we say that our future will still be dependent on
agriculture, what precisely do we mean by agriculture?
Agriculture is an industry that is based on culture. Culture is
simply the way a community thinks and feels and what it believes.
In terms of cultivation, agricultural communities, i.e., farmers,
based on their wealth of knowledge and technology, utilize solar
energy, soil, water and plants or animals to serve people's needs
for food, fiber, energy and other products.

Sugarcane is one of the oldest cultivated plants on Java. One
story tells us that sugarcane has been used since King Aji Saka
in 75 A.D. There are some myths or legends about sugarcane in
Indonesia that reflect the importance of sugarcane in our
culture. Marco Polo who visited Java in 1285 noticed that
sugarcane was a modern industry at that time. In 1930, sugarcane
production on Java reached almost 3 million tons and Java was the
world's second largest sugar exporter in that period.

Sugar was one of the most valuable commodities in the 19th
century and early 20th century. That is why due to its
contribution to the Dutch economy, sugarcane, together with
coffee, was a top commodity in the cultivation system
(cultuurstelsel). However, there is a growing opinion that the
sugar industry is in its sunset years. Therefore, its prospects
are not bright.

To what extent that view is right depends on the context. The
newest era in global civilization is reflected in an economy
based on knowledge and information economy.

However, even though we know that the new economy would give
us bright prospects, most of our labor force is not equipped for
the new economy. Most of our people are still in the agrarian
age.

In fact, agriculture will still dominate in 2035. Therefore,
we have no other recourse but to make a living by revitalizing
agriculture. Our agriculture is in a very difficult position now.
One of the most frightening indicators is the decline in the
annual total factor productivity (TFP) from 2.6 percent (1968-92)
to -0.1 percent (1993-2000) (Fuglie, 2004).

There are many factors that have contributed to declining
productivity growth. One of the most important factors is
farmers' income. Declining agricultural prices over a long period
has been a significant contributing factor to farmers' declining
income. According the World Bank the world's agriculture price
index (aggregate) had declined from 208 in 1960 to 87 in 2000.

As an illustration, the price of palm oil and sugar on the
international market was US$1507/metric ton and $0.33/kilogram in
1960, respectively. The price of palm oil and sugar declined to
$307/ton and $0.18/kg, respectively in 2000.

Among agricultural commodities in Indonesia, sugar is one of
products that experienced both increasing production and farmers'
income. Indonesia's sugar production was only 1.49 million ton in
1998. Sugar production in 2005 is predicted to reach 2.2 million
ton. A major cause of increasing sugarcane production is
improvement in sugar prices received by farmers.

Why has the price of sugar been improving since 2002? The
major reason is the increasing capability of farmers'
organizations to organize themselves to market their sugar.
Before 1998, farmers' sugar was marketed by external agencies,
namely State Owned Enterprises SOEs). Since 1998, farmers have
marketed their sugar themselves. Sixty-five percent of sugar
produced on Java is owned by farmers, and the rest is owned by
SOEs.

The Sugarcane Farmers Association initiated a marketing
arrangement between farmers and a large sugar trader in 2001. One
of the most important arrangements was the trader provided a
minimum price to sugarcane farmers agreed upon by both parties.
In addition, farmers also received a proportion of price
difference between the minimum price and an auction price.

In order to stabilize the sugar market from sugar smuggling,
the association asked the government to enact Ministry of
Industry and Trade Decree No. 643, 2002. Since then farmers'
sugar trading has followed that scheme.

There have been some disputes about the above scheme since the
beginning. However, if we use farmers' income and production
growth as the main yardstick we cannot deny that the marketing
arrangement initiated by sugarcane farmers and their partners
(traders who later became investors) is important knowledge for
innovative marketing of other agricultural commodities.

We have followed studies and seminars, and we have also
developed institutions and commissions to find ways to solve
poverty, employment opportunities, and sources of income. We have
spent so much energy and money, but we have not seen any results.
We should appreciate what has been contributed by sugarcane
farmers. Such an innovative approach is also applicable to rice,
corn, palm oil, rubber, etc., if we want to be able to revitalize
our agricultural sector.

The sugar industry is one of the most developed agrarian-based
industries we have.

The writer is the chairman of the Union of the Association of
Indonesian Crops Farmers (Gapperindo).