Despite being the world’s second largest sugar producer and exporter in the 1930s, Indonesia’s sugar industry has been in a state of decline. Production output decreased by 30% over the course of 1995-2000 due to the closing of several out of date mills on advice from the IMF. Production figures have improved again since 2004 to over 2 million MET and reaching 2.39 MET in 2010. Indonesia is South East Asia’s largest consumer of sugar and the world’s third largest importer, mainly for raw sugar. Total demand stood at 5.01 million MET for 2010 with imports making up the remainder mainly from Australia, Thailand and the Philippines. Production levels have failed to keep pace with the increased demand in domestic consumption and industrial use which is estimated to reach 5.7 million MET by 2014.
Indonesia Sugar Production
Source: Statistics Indonesia (BPS)
Sugar production and refinery is mainly carried out in Java by private sector companies, state owned plantations and community plantations. Of the country’s 63 sugar cane factories, 54 are operated and managed by SOEs (Ministry of Industry). The Indonesian Research Centre for Sugar Plantations estimates total optimal capacity of existing factories to be 3.54 million MET, which 2010’s production figures fall far short of. In the private sector, the five main players including Angels Products and Jawamanis Rafinisi are operating at an estimated 70% of capacity due to feedstock capacity. Currently, the government does not offer incentives for sugar cane plantations and therefore farmers can pick and choose which crop to plant depending on market price, leaving production levels open to fluctuation. Rising sugar prices at the end of 2010 as a result of revised output figures for Australia and India due to poor weather has made the sugar issue all the more pressing.
As of 2010, the government is aiming to make the country self sufficient in sugar production and processing by 2014. Self sufficiency will require an increase of at least 2 million MET annually to mainly make up for the shortage due to demand from the industrial sector and will be a very difficult task to achieve. Refined sugar is mainly used by the food and beverage industry for processed foodstuffs and soft drinks that are consumed domestically and for export. Future demand for high quality sugar cane for second generation biofuel is a potential area of increased demand that must also be prepared for. Yet, the issue is a politically sensitive one given the strength of licensed sugar importers who make substantial gains from import quotas issued by the government. Other challenges are found in the persistent issue of the need to build the necessary infrastructure to support the industry as well as acquiring more land for cultivation. To meet government targets an additional 300,000–500,000 hectares of new plantations would have to be acquired based on existing productivity levels. The Ministry of Forestry is currently delineating areas where such cultivation could take place with areas in Papua and Sulawesi already earmarked.
The government is actively collaborating with both state and private sector actors to accelerate the sugar industry. In 2009, $5 million USD was distributed to nine sugar companies for investment into new equipment. State owned plantations are investing $858.4 million USD for land expansion and modernisation of existing factory facilities. Numerous investment opportunities are now being offered to private investors in order to achieve future goals of 11 new factories; at the Merauke Food Estate in Papua sugar is one of the key crops with up to 200,000 hectares being set aside for cultivation. Two large scale investors in the form of Wilmar International and Rajawali Group are already participating. Other opportunities include a 35 thousand hectare sugar plant in Northern Aceh that requires up to 1 trillion RP in investment. The private sector has also been active with the announcement at the beginning of 2011 of a further 1 trillion RP sugar mill in Pukateja, Purbalingga in Central Java by PT Putra Giri Manis and another by PT Gendis Multi Manis. Incentives are also being offered to attract investors in the form of VAT exemption on import of capital goods and income tax break of 5% a year for the first 6 years for both the upstream and downstream sugar industry.
Global Business Guide Indonesia - 2012
Contribution to GDP: 13.88% (Q3 2015 including Fisheries & Livestock)
Number Employed in the Sector: 40.12 million (February 2015)
Main Products: Palm Oil, Palm Kernel, Rubber, Cocoa, Coffee, Tea, Tobacco, Rice, Sugarcane, Maize, Cassava, Tropical Fruits, Spices, Poultry, Fisheries.
Main Export Markets: China, USA, Japan, India, Singapore, Malaysia, Pakistan, South Korea, Italy, Netherlands, Bangladesh, Egypt.
Relevant Law: Presidential Regulation No. 39 of 2014 on the Negative Investment List imposes varying degrees of foreign ownership limitations in plantations depending on the crop type, and Government Regulation No. 98 of 2013 limits private plantations to 100,000 hectares.