Negligence in Sugar Import
The trade ministry is late in signing sugar import permits that were scheduled for the end of 2019. This has the potential to disrupt the economy.
THE shortage of sugar supplies for industry requirements at the beginning of 2020 further shows that the government has never properly managed this strategic crop. After failing to achieve the target of self-sufficiency, the economic cabinet for President Joko Widodo’s second administration is even late issuing import permits. This negligence could turn into a major problem for the economy.
The plan to import sugar was agreed in a meeting at the coordination ministry fo the economy in September 2019, when Darmin Nasution was still minister. Normally, realization of imports is planned for the end of the year. The demand this time is high because the long drought of 2019 is predicted to lead to lower sugar cane yields, which in turn will mean lower sugar production in 2020. Imported sugar should have begun to arrive in January to top up stocks at the start of the year.
The cabinet changed and the import plan did not continue. Requests put forward by importers since the last quarter of 2019 have piled up at the trade ministry. As of January 2020, there had been no green light for imports of sugar. The reason for this is astonishing: the permits have not been signed because for the whole of that month Trade Minister Agus Suparmanto went on a pilgrimage to Mecca and then paid a visit to the World Economic Forum meeting in Davos, Switzerland.
As a result, stocks of sugar are low, with enough for only two more weeks. The food and drink industries have been screaming. Some small and medium-sized businesses in a number of regions that depend on sugar have stopped production because of the lack of supplies. The shortage of sugar, if not addressed, also has the potential to disrupt industry preparations for the increase in demand during the Ramadan fasting month and Idul Fitri celebrations in May.
Indonesia cannot avoid importing sugar. Domestic production supplies less than half of the national demand for sugar, both for consumption and industry, of 5.5 million tons per annum. Last year, the government threw in the towel, and gave up trying to achieve self-sufficiency in sugar by 2020—subsequently put back to 2024—because the renovation and construction of sugar refineries has not gone ahead.
The government should not treat lightly the problem of the sugar supply chain. The low levels of stocks have led to the price of refined sugar increasing from the normal Rp8,000 to Rp9,000 per kilogram. It is easy to guess that companies will soon increase the price of their products to compensate for higher production costs. On the other hand, the rise in the price of sugar used by industry has started to spread to the price of sugar for consumption, which in the last month has risen to Rp14,500 per kilogram.
This state of affairs, if allowed to continue, could derail the endeavor to keep inflation as low as possible—this year the target is only 3.1 percent. A sharp increase in the price of this strategic commodity could endanger the economy because Indonesia needs to maintain public consumption at a high level to spur economic growth. The ongoing global economic problems have led to other contributors to growth, namely investment and international trade, being weak for the last year.
President Jokowi must evaluate the performance of his ministers in this matter. The import system quota system, a permit system that shares out quotas for importing sugar and other commodities among companies, should not be continued. It has proved to be simply an opportunity for corruption, which eventually also causes Indonesia economic losses because of inflated costs. The government should return to focusing on promoting sugar cane production by ordinary farmers and increasing the capacity of sugar refineries. If it does not side with the farmers, there will be no improvement in the business climate for small-scale sugar cane plantations. The new sugar self-sufficiency target for five years in the future will only be good on paper.