Thursday, July 23, 2020

ICC conducts research with regard to the current high price of sugar. One of the results is the existence of the issue of high price of granular sugar or that of the national consumption sugar stemming from two aspects, namely the performance of the sector and the behaviours of business operators. The performance of this sector is related to price-setting factors (such as production, storage, and distribution). Business actors’ behaviours are related to how business actors interact in conducting their business activities. These two aspects can certainly be interlinked. As stated by ICC in its previous press release, the behaviours of business actors are handled in the ongoing law enforcement proceedings. Meanwhile, the performance of the sector is handled in a study or research process.

Indonesia is in need of approximately 3 million tons/year of sugar consumption. Out of this amount, 73% or around 2.1 million to 2.2 million tons is fulfilled by domestic production, meanwhile the rest is imported. The supply is conducted by 24 (twenty-four) business actors with a total ownership of 58 (fifty-eight) sugar factories. Out of the total domestic production, up to 36% is fulfilled by private sugar factories that obtain sugarcanes from smallholder sugarcane plantations. The rest or approximately 800 thousand to 900 thousand tons are fulfilled through imports, both in the form of raw sugar or white crystal sugar. With an oligopolistic market trend, the fulfilment of sugar supply and distribution is conducted by several business actors, both in the form of State-Owned Enterprises or private business actors.

The competitiveness of sugar producers in Indonesia is determined by their ability to produce in an efficient fashion. In a sense, to what extent sugar producers are capable of producing at the best cost price. At present, such capabilities are still different. Based on the research conducted at ICC, it finds that private business actors who have their own plantation land and manage it in an efficient manner are capable of producing at a cost price ranging from IDR6,000 to IDR9,000 per kilogram. Meanwhile, the production cost of sugarcane farmers who act as partners with sugar factories, based on the information provided by the Association of Indonesian Smallholder Sugarcane Farmers (APTRI) is around IDR12,000 to IDR14,000, which can also be above the reference price of sales. Such high production cost of sugarcane farmers certainly reduces the ability of sugar produced by farmers to compete with the sugar produced in an efficient fashion by sugar producers.

On the other hand, efficient business actors benefit more from the existence of the reference price set by the Government (viz. IDR12,500/kg). This also happens to importers of white crystal sugar (both direct white sugar and through processed raw sugar), the production cost of which is also low. This profit has increasingly become more significant with the current high market price. As an illustration, take for example, with the ability of the most efficient factory production costs ranging from IDR6,000/kg, as compared to the current market price of IDR17,500/kg, thus, the profit earned can reach 190%.

ICC values the views of business actors who consider the value of the highest retail price of IDR12,500/kg, as determined by the government at this time as too low, is not appropriate. The idea to raise the highest retail price basically does not touch the substance of the problem. Smallholder farmers are not the ones who benefit the most. This increase actually benefits large national business actors and business importers the most, due to the large price differences.

The price of sugar in Indonesia is now far being above the reference price of sales at the consumer level, and it is even much higher as compared to the international prices. Previously ICC stated that based on the data from the International Sugar Organization, the national sugar price could reach 240% – 260% higher as compared to the international prices in April and May 2020. As we all know, the international sugar prices in the last 1 (one) year have a tendency of being stable at the price of IDR5,000 to IDR6,000 per kilogram. Several international price indicators have shown a significant declining trend for the last 2 (two) months, viz. March and April 2020.

ICC values that the costs borne by consumers to pay higher are much larger as compared to the cost of the government to optimize the productivity of sugar industry of the smallholder farmers. To that end, the Government needs to provide a policy in support of sugarcane farmers so that they earn profitable results.