Sugar policy good for customers: Economists

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)