Policy Reform to Lower Sugar Prices in Indonesia

Novani Karina Saputri • Hizkia Respatiadi
Policy analysis Center for Indonesian Policy Studies • October 2018 Indonesia

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In the first half of 2018, sugarcane productivity in Indonesia decreased by 2.56 tonnes/ha while the extraction rate fell by 0.36 percentage point compared to 2017. Meanwhile, the demand for sugar is growing steadily, as indicated by an increase in per capita consumption of more than 22% from 2009 to 2017. The combination of lower productivity and higher demand contributes to high prices for white crystal sugar—the domestic price was nearly three times the international market price in August 2018.

High prices impact both private consumers and the food and beverages (F&B) industry. They also affect agricultural workers in general because two-thirds of them are net food consumers paying these higher prices. Government programs to improve domestic productivity via regulations by the Minister of Agriculture (MOA) 53/2015 and Minister of Industry (MOI) 50/2012 have not achieved their intended results.

The implementation of import quotas and limiting licenses to state-owned enterprises (SOEs), as stipulated in the regulation of the Minister of Trade (MOT) 117/2015, aggravates the situation. Restricting entry to the market through a non-transparent import licensing process contributes to Indonesia’s uncompetitive sugar market. As a result, imports cannot lower sugar prices to help the consumers in Indonesia.

We propose a two-step policy reform to lower sugar prices that provides sufficient time for relevant stakeholders to adjust to the new policies. First, within five years, the government should revise MOT 117/2015 Article 5 (2) on import licensing to allow qualified private sector companies to import sugar. This revision must include a more transparent licensing process to prevent cartel practices by either SOEs or private importers. Consumers will enjoy more options when buying sugar thanks to the increasing number of importers. In this first stage of reform, the quantity of sugar imported will remain under government control to limit the impact of the reform on sugarcane prices for the domestic farmers.

The first stage might be insufficient to address the competing goals of lowering sugar prices for consumers and keeping sugarcane prices high to protect farmers. This is why a second stage of reform is necessary. In the first ten years of reform, the government must provide support for restructuring the practices and upgrading the technology used by farmers and sugar milling factories. This support must be accompanied by a specific target for increased productivity. After these first ten years, the government should remove the import quota stipulated in MOT 117/2015 Article 3, allowing imports to satisfy domestic market demand. This timeframe should provide sugarcane farmers and the national sugar industry with sufficient time to prepare for competition with imported sugar. These reforms will result in a more competitive sugar market with lower sugar prices for Indonesian consumers.





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