The Bitter Tale of Sugar Imports
Inconsistency in the regulations governing sugar imports caused food and drink companies scrambling to find supplies. Investment projections could be affected.
THE recent chaos over the import of refined sugar is like a never-ending soap opera. The foot-dragging over this problem would not have occurred if the government had since the outset consistently opened up imports using the mechanism of the market. With the requirements of the food and drink industry increasing every year, the government should not restrict import permits and quotas only to old players in the sugar refining industry.
Unfortunately, the flawed import mechanism is reinforced in a proposed regulation, which is now being harmonized at the justice and human rights ministry. As well as providing opportunities for the entry of rent seekers, import restrictions will only lead to the flourishing of oligopolies. This new scheme will not guarantee that food and drink factories will be able to obtain more supplies of raw ingredients then they can at present.
The government did actually come up with the right decision to regulate the availability of sugar for industry. In a meeting of a number of cabinet ministers at the beginning of October 2020, the government decided to allow food and drink companies requiring industrial sugar to import it directly. As well as being more efficient and reducing production costs, this scheme would have been able to match the quantity of imports to requirements. Ironically, the decision reached by ministers was overturned by a proposed regulation discussed at the lower ministerial technical level.
These policy inconsistencies have begun to cause problems. As a result of the unending delays regarding import procedures, a number of food and beverage companies are reported to be scrambling to find supplies. Large companies such as Nestle, Coca Cola and Indolakto—a member of the Indofood group—are among those affected by the shortage of supplies. All three companies use liquid refined sugar to produce milk and food. They rely on supplies from new sugar refineries that have been built to satisfy their requirements. The shortage of raw materials has obviously disrupted production.
Ironically, the initiative from food and drink companies to secure supplies by building new sugar refineries was originated from a demand by the ministry of industry. A few years ago, the government asked food and drink companies to build sugar refineries to prevent industrial sugar reaching traditional markets. Subsequently, refineries were built that could absorb sugar production and process liquid refined sugar, as well as increasing domestic sugar production. After investing hundreds of billions of rupiah, it is understandable that these companies are now in confusion.
The ministry of trade has allowed 1.9 million tons of imports to meet demand for the first half of this year. However, the import permits and quotas were only given to old companies controlling the production of crystallized sugar. The limited supplies of refined liquid sugar will lead to price instability of food and drink in the market. Consumers will end up losing out because they will have to spend more money.
Not only this, the uncertainty of supplies of raw materials will also affect the expansion plans of food and drink companies. Any delays in expansion plans in this industry will hamper flows of the investment that the government is hoping for. The ongoing chaos in the industry will make Indonesia look foolish in the eyes of foreign investors.
To prevent a repetition of these delays in the supply of sugar every year, the government must promote a fair import mechanism that provides the same opportunity for all businesses. Open competition is essential to prevent collusion between a small number of people in order to make huge profits. Without all of this, improvements to sugar trading will go nowhere.