A worker walks by a sugarcane milling room at the Tasikmadu sugar factory in Karanganyar regency, Central Java, on Monday (15/5). In the grinding season this year, the sugar mill is targeted to process 320,000 tons of sugarcane. The processing capacity of the mill, which was built in 1871, will be raised from 3,050 tons of sugarcane per day to 4,000 tons per day.
JAKARTA, KOMPAS – Trade Minister Enggartiasto Lukita reaffirmed on Monday (15/5/2017) that the government would not set the government’s buying price (HPP) for crystal white sugar this year. As such, the price for crystal white sugar will continue to refer to the highest reference price and retail price that the government has set.
Two sugarcane farmers associations have proposed HPP prices to the government. However, the government will not establish the said HPP. Among the reasons is the difference of the core production cost (BPP) between government-owned and private sugarcane factories. The average BPP is Rp 7,500 (US$0.56) per kilogram for private factories and Rp 10,000 per kg for government-owned factories.
“On the other hand, we have set the HET [ceiling price] of sugar at Rp 12,500 per kilogram at the consumer level. The selling price for sugar at the producer level is Rp 11,900 per kilogram,” he said.
Therefore, the government will set the new sugar price without the HPP this year. The price will refer to the ceiling price and reference price at the farmer level as set out by the government.
On the consumer level, the price of crystal white sugar is in line with the ceiling price of Rp 12,500 per kg. At the farmer level, the reference price is Rp 9,100 per kg. “I have approved the reference price of sugar at the farmer level, which is Rp 9,100 per kilogram. It will be put into effect as soon as the bylaw is approved. This reference price will replace the reference price in Trade Minister Regulation No. 63/2016,” Enggartiasto said.
Proposing HPP
The Indonesian Sugarcane Farmers Association (APTRI) submitted a HPP price proposal to the Trade Ministry and Agriculture Ministry on April 11. APTRI secretary general M. Nur Khabsyin said that the proposed HPP of Rp 11,760 per kg was based on the consideration that government-owned sugar factories processed sugarcane with a 7 percent rendemen (the level of sugar content in sugarcane).
“The HPP proposal has also considered a 20 percent annual BPP increase. The BPP is Rp 10,697 per kilogram this year and was Rp 8,557 per kilogram last year,” he said.
The establishment of the ceiling price will only make the sugar auction price at the farmer level fall. Sugar traders usually offer to buy sugar at between Rp 9,500 and Rp 10,000 per kg from farmers. This price is below the ceiling price of sugar at the producer level. At the first stage of the auction in Central Java, sugarcane farmers do not sell their sugar due to the low price.
Last year, the government set the HPP price for sugar at Rp 9,100 per kg at the farmer level, lower than APTRI’s proposal of Rp 10,644 per kg. Meanwhile, the ceiling price for sugar is Rp 12,500 per kg at modern retail markets and Rp 10,900 per kg at the distributor level.
However, recently farmers have objected not only to the ceiling price but also to the Industry Ministry’s policy of permitting raw sugar imports to fulfill the need for raw ingredients at new sugar factories.
Raw sugar imports
Industry Ministry Regulation No. 10/2017 on the Facilitation to Obtain Raw Ingredients for Sugar Industry Development opened the opportunity to import raw crystal sugar as a raw ingredient within five to seven years.
“Investors of new factories should have prepared sugarcane plantations first as a source of their raw ingredient. Through the regulation, investors can build the factory first and later import the raw ingredient. Only 20 percent of the factory’s processing capacity is absorbed from local farmers’ produce,” APTRI advisory board chairman Arum Sabil said.
Sugar import quota permits should be issued based on the needs of users (industries) instead of on the factories’ processing capacity.
If this condition is neglected, processed imported sugar will flood the market. Processing imported raw sugar is easier and more profitable than processing sugar from local farmers as it only comprises a single process.
There are concerns that the flooding of processed imported sugar will leak into the market for household sugar that is supplied by local farmers’ sugar. The household sugar market will be eroded and eventually the locally sourced sugar industry will be destroyed. The burden on local farmers right now is heavy enough due to the raw sugar crisis and production cost efficiency issues.
East Java plantation agency head Samsul Arien said that the lack of a sugarcane supply was caused by the continuous decrease in areas designated for plantations.
East Java had 205,000 hectares of sugarcane plantation in 2015. This decreased to 198,000 hectares last year. The reduction in plantation areas resulted in the decrease of crystal white sugar production from 1.2 million tons in 2015 to 1.03 million tons in 2016.
Similar conditions also occurred in Central Java. Data from the province’s Aptri branch show that the province produced only 180,996 tons of sugar in 2016, a sharp decrease from the previous year’s 289,000 tons.
The condition was caused by a failure to achieve the target of preparing 60,000 hectares of plantation. Only 44,169 hectares of land was readied.
The decrease of sugar production last year was also caused by poor levels of sugar content in sugarcane. At only 6.3 percent, this was far below the ideal content of between 8 percent and 10 percent. This low sugar content resulted in the high BPP.
