Rooting Out the Rent Seekers
Government’s plan to transfer licenses for the import of refined sugar directly to the industries that use it has been held up at the ministerial level, even though it could reduce rent-seeking.
THE disagreements over the procedures for importing refined sugar for industrial needs must be quickly resolved. If not, the supply of sugar for the production of food and drinks could be delayed and prices could rise out of control. The government should ensure that the import scheme is oriented towards efficiency and the reduction of production costs, not towards providing even more opportunities for the entry of rent seekers in the supply of this strategic commodity.
A meeting of selected cabinet ministers on the importance of sugar and salt imports for industry at the beginning of October resulted in the correct decision. As stated by Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan after the meeting, the government decided to allow the food industry and other industries that require salt or sugar to import the commodities themselves. At present, the food and drink industry have to wait for supplies from sugar refining companies holding import permits and quotas in line with the Trade Ministry Regulation No. 14/2020.
There are a number of problems with the existing import scheme. Firstly, there are inefficiencies; although several importers do own refinery sugar plant, in practice they are only brokers. The added value created by processing raw sugar into refined sugar is not as high as the additional costs that the food and drink industry has to bear as a result of the lengthy supply chain.
Furthermore, not every sugar refinery is serious in fulfilling its obligations to establish its own sugarcane plantations. The government’s desire to build a basis for sugar production that will lead to self-sufficiency is only a front to retain the rent-seeking in the sugar refining industry.
Evidence of this failure was apparent in January when the Indonesian Food and Drink Companies Association complained that stocks of refined sugar were running low as a result of delays to imports. Production at four food and drink factories had to be halted because of the lack of sugar.
Secondly, there are problems with the determining of sugar import quotas. Because the government does not have a valid basis for data, the quotas never take into account the need to balance the requirements of food and drink factories, the demand from customers in the market, and the interests of farmers. Import quotas that are too high, often because of lobbying by importers, lead to imported sugar finding its way to the retail market. Apart from resulting in lower prices for sugar being paid to farmers, this also causes problems for consumers because pure crystallized sugar is not good for health if consumed directly.
Unfortunately, the decision taken by the meeting of ministers has now been overturned by discussions within the industry ministry. There are reports that the ministry intends to retain the current sugar import scheme. The difference is that only existing importers in the sugar refinery industry will be allowed to import sugar. Besides this, the government has promised to issue permits and quotas in a timely fashion to ensure that supplies of sugar for the food and drink industry are not held up. If this is true, there are concerns that these decisions will lead to the establishment of a sugar import oligopoly. We know that the domestic sugar refinery industry is controlled by a few large companies.
The government’s plan to improve the sugar trade procedures by allowing the food and drink industry to import sugar directly must not be disrupted simply because of lobbying from refined sugar importers. Customers must not be forced to pay higher prices as a result of a supply chain intentionally made longer. In the long term, this type of policy of sharing out the spoils will not result in a national industry that is competitive.