Sugar policy good for customers: Economists

JAKARTA (JP): Economists backed on Friday the government's controversial decision to liberalize sugar imports, saying the move was good for consumers.

But they called on the government to speed up the rejuvenation process of the local sugar industry to enable local producers to compete with foreign sugar makers.

Program director of the Institute for Development of Economics & Finance (INDEF) Nawir Messi said local sugar producers were no longer competitive.

"The sugar industry should be improved to enable it to compete with foreign producers," he said on Friday at a discussion on the sugar import tariff policy.

He said the government should relocate sugar mills from Java to other islands, equip the new mills with modern machinery and install better management.

The Ministry of Industry and Trade and local sugar producers have been at odds over the government's decision last September to liberalize sugar imports, previously handled by the State Logistics Agency (Bulog).

The new policy, issued to follow reform programs agreed with the International Monetary Fund (IMF), also exempts sugar importers from import duties. As a consequence, local sugar has become much more expensive than imported varieties, especially after the strengthening of the rupiah against the U.S. dollar to below Rp 8,000 two months ago. A surge of the rupiah to the Rp 7,000 level within the last few weeks has further hurt local sugar producers.

Economist Didik Rachbini said most local sugar producers in Java -- a majority of which are state-owned companies -- still used old machines and did not have their own sugarcane plantations.

He said such weaknesses had made the local sugar industry extremely uncompetitive as the industry had high production costs, produced less and sold it at higher prices.

"The price of locally made sugar has always been almost triple the price of imported sugar, while the latter are usually much better in quality," Didik said during a session on Friday.

Locally made sugar is currently selling at about Rp 2,500 per kilogram, while imported sugar is selling at between Rp 1,600 and Rp 1,800 per kilogram.

Chairman of the Indonesian Sugar Association Faruk Bakrie, who was also present at the discussion, strongly rejected Nawir and Didik's accusation of inefficient performances at local mills.

"In terms of efficiency, Indonesia is currently ranked between 21st and 31st among the 62 worldwide sugar producers," he said.

Faruk also said the government's subsidy policy had not worked well, as farmers said they had not received funds from the program.

To protect farmers from the falling price of sugar on the local market, the government ordered all sugar mills in Java to procure locally produced sugar at Rp 2,500 per kilogram. It confirmed that it would pay the difference between the price of cheaper imported sugar and local sugar.

The Indonesian Chamber of Commerce (Kadin) questioned the government's zero import tariff policy, arguing it was an improper strategy for a country with a high dependency on imported sugar.

"Such a free trade policy is most unlikely to be adopted, even by the more efficient sugar producer countries," Kadin chairman Aburizal Bakrie said on Thursday.

Faruk argued the policy not only hurt sugarcane farmers, but also sugar producers.

"We know we are being attacked by consumers because of our stance. But it is impossible to apply zero percent import duties on the sugar trade," he said.

INDEF's senior economist Bustanul Arifin said the policy did not affect sugarcane farmers in any way, because the number of farmers who owned and ran sugarcane plantations had significantly decreased since the implementation of Inpres 5/1998.

He said many farmers had either sold or rented their plantations to producers, changing the proportion of plantation ownership to only 25 percent for farmers, from up to 75 percent previously.

"With most of the plantations now being managed by sugar mills, their arguments about sugar price reductions only damaging farmers' businesses is then completely unjustifiable," he said. (cst)