Required Report - public distribution

**Date:** 4/18/2005

**GAIN Report Number:** ID5008

ID5008

**Indonesia**

**Sugar**

**Annual**

**2005**

**Approved by:**

![](media/image1.wmf)Fred Kessel

U.S. Embassy, Jakarta

**Prepared by:**

Chris Rittgers/Niniek S. Alam

**Report Highlights:**

Sugarcane production is forecast to decline marginally to about 25.5
million tons in 2005/06. Similarly, cane sugar output is forecast to
decline to 1.8 million tons in 2005/06. Sugar consumption is forecast to
grow moderately to 3.8 million tons in 2005/06. Sugar imports are
forecast at approximately 1.8 million tons for 2005/06. The GOI has yet
to announce any major changes in the sector, notwithstanding the
continued status of "strategic commodity" for sugar.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Jakarta \[ID1\]

\[ID\]

Table of Contents

[General Summary 3](#general-summary)

[Sugar Cane for Centrifugal 3](#sugar-cane-for-centrifugal)

[Centrifugal Sugar 4](#centrifugal-sugar)

[Production 5](#production)

[Consumption 5](#consumption)

[Stocks 5](#stocks)

[Prices 5](#prices)

[Trade 5](#trade)

[Policy 5](#policy)

# General Summary

The Indonesian sugar industry faces numerous obstacles. Smallholder
farmers, who lack the resources to invest for increased productivity,
dominate sugarcane production. Furthermore, the milling sector, largely
GOI owned, is inefficient and requires significant investment to attain
any sort of business viability. Because of these fundamental problems,
sugarcane yields and production and recovery rates are forecast to
decline in 2005/06. Sugarcane production is estimated to decline
marginally to 25.5 million tons in 2005/06.

Optimal growing conditions (wet during growing season and dry during
maturity), timely harvest, and millings boosted the sugar recovery rate
for the 2004/05 crop to about 7.7 percent. For the forecast year
recovery is expected to decline to about 7.0 percent.

Despite relatively high retail prices for sugar at the retail level: Rp.
4,300/kg (US\$ 462/MT) in 2004 and Rp. 5,265/kg (US\$ 566/MT) in the
first quarter of 2005, consumption is forecast to increase to 3.8
million tons in 2005/06. Total imports for 2006 are forecast at 1.8
million tons raw value to meet growing demand from industrials and
domestic consumption.

## Sugar Cane for Centrifugal

+---------------+--------+--------+--------+--------+--------+--------+
| PSD Table     |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
| Country       | ####   |        |        |        |        |        |
|               | ## Ind |        |        |        |        |        |
|               | onesia |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
| Commodity     | Sugar  |        |        |        | (1000  |        |
|               | Cane   |        |        |        | HA     |        |
|               | for    |        |        |        | )(1000 |        |
|               | Centr  |        |        |        | MT)    |        |
|               | ifugal |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
|               | 2004   | R      | 2005   | Es     | 2006   | Fo     |
|               |        | evised |        | timate |        | recast |
+---------------+--------+--------+--------+--------+--------+--------+
|               | USDA   | Post   | USDA   | Post   | USDA   | Post   |
|               | Of     | Es     | Of     | Es     | Of     | Es     |
|               | ficial | timate | ficial | timate | ficial | timate |
|               | \      | \      | \      | \      | \      | \      |
|               | [Old\] | [New\] | [Old\] | [New\] | [Old\] | [New\] |
+---------------+--------+--------+--------+--------+--------+--------+
| Market Year   |        | 0      |        | 0      |        | 0      |
| Begin         |        | 5/2003 |        | 5/2004 |        | 5/2005 |
+---------------+--------+--------+--------+--------+--------+--------+
| Area Planted  | 375    | 375    | 0      | 360    | 0      | 375    |
+---------------+--------+--------+--------+--------+--------+--------+
| Area          | 350    | 350    | 0      | 345    | 0      | 350    |
| Harvested     |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
| Production    | 25600  | 25600  | 0      | 26750  | 0      | 25500  |
+---------------+--------+--------+--------+--------+--------+--------+
| TOTAL SUPPLY  | 25600  | 25600  | 0      | 26750  | 0      | 25500  |
+---------------+--------+--------+--------+--------+--------+--------+
| Utilization   | 25600  | 25600  | 0      | 26750  | 0      | 25500  |
| for Sugar     |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
| Utilization   | 0      | 0      | 0      | 0      | 0      |        |
| for Alcohol   |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
| TOTAL         | 25600  | 25600  | 0      | 26750  | 0      | 25500  |
| UTILIZATION   |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+

Note: Unit in 1,000 Ha. and 1,000 MT.

Data in the \"Old\" column reflect FAS/Washington data. For Post's
previous PS&D refer to report ID4014.

###  

## Centrifugal Sugar

  ------------------ ------------- ---------- ---------- ---------- ---------- ----------
  PSD Table                                                                    

  Country            Indonesia                                                 

  Commodity          Sugar,                                         (1000 MT)  
                     Centrifugal                                               

                     2004          Revised    2005       Estimate   2006       Forecast

                     USDA Official Post       USDA       Post       USDA       Post
                     \[Old\]       Estimate   Official   Estimate   Official   Estimate
                                   \[New\]    \[Old\]    \[New\]    \[Old\]    \[New\]

  Market Year Begin                05/2003               05/2004               05/2005

  Beginning Stocks   1340          1340       1170       1170       970        1120

  Beet Sugar         0             0          0          0          0          0
  Production                                                                   

  Cane Sugar         1730          1730       1950       2050       0          1800
  Production                                                                   

  TOTAL Sugar        1730          1730       1950       2050       0          1800
  Production                                                                   

  Raw Imports        900           900        950        800        0          800

  Refined Imp.(Raw   600           600        400        650        0          1000
  Val)                                                                         

  TOTAL Imports      1500          1500       1350       1450       0          1800

  TOTAL SUPPLY       4570          4570       4470       4670       970        4720

  Raw Exports        0             0          0          0          0          0

  Refined Exp.(Raw   0             0          0          0          0          0
  Val)                                                                         

  TOTAL EXPORTS      0             0          0          0          0          0

  Human Dom.         3400          3400       3500       3550       0          3800
  Consumption                                                                  

  Other              0             0          0          0          0          0
  Disappearance                                                                

  Total              3400          3400       3500       3550       0          3800
  Disappearance                                                                

  Ending Stocks      1170          1170       970        1120       0          920

  TOTAL DISTRIBUTION 4570          4570       4470       4670       0          4720
  ------------------ ------------- ---------- ---------- ---------- ---------- ----------

Note: Data in the \"Old\" column reflect FAS/Washington data. For Post's
previous PS&D refer to report ID4014.

# Production

Encouraged by a higher floor price (increased to Rp. 3,410/kg or US\$
366.7/MT in 2004), sugarcane production is estimated to have increased
considerably to 2.0 million tons in 2004/05 but forecast to decline to
1.8 million tons in 2005/06 to reflect the decline in local supplies of
raw material. The GOI is expected to increase floor price to Rp.
4,000/kilogram or US\$ 430.1/MT before the upcoming cane-planting season
started in May. The sugar recovery rate is estimated to be 7.7 percent
in 2004/05.

With 46 state sugar mills and 2 private mills, The island of Java
contributes 63 percent of sugar production. In terms of ownership, state
owned sugar mills (46 in Java and 5 out of Java) account for 68 percent
of Indonesia's sugar production.

# Consumption

Total annual sugar consumption is estimated to increase moderately from
3.6 million tons in 2004/05 to around 3.8 million tons in 2005/06.
Direct consumption of sugar is estimated at approximately 2.7 million
tons per year, and the expanding food and beverage industries are
responsible for the balance of consumption.

Raw sugar import allocation will soon be announced for the four existing
sugar refineries. Total installed refinery capacity for those four
facilities is 1.3 million tons, but they are reportedly running at much
less than full capacity.

# Stocks

Ending stocks are forecast to decline slightly to 900,000 tons in
2005/06.

# Prices

The industry has proposed to the GOI to increase sugar floor prices (the
price received by farmers) from the current level of Rp. 3,410/kg (US\$
366.7/MT at an exchange rate of Rp. 9,300/US\$1) to Rp. 4,000/kg (US\$
430.1/MT). The average retail price for local sugar was Rp. 4,300/kg or
US\$ 462.4/MT during 2004, compared to imported sugar, which was Rp.
4,105/kg (US\$ 441.4/MT). Responding to increasing domestic fuel price,
local sugar price in 2005 (Jakarta) has increased to Rp. 5,260/kilogram
(US\$ 565.6/MT). It is expected that sugar prices in the local market
will decline with the start of the milling season.

# 

# Trade

To control imports, the Minister of Trade (MOT) grants import licenses
to selected sugar mills for specific quantities, ports, and times of
delivery. Imports are only allowed outside of the milling season. In
2005, four state sugar mills have been licensed to import 500,000 tons
of white sugar: 300,000 tons for Jan-Feb, and 200,000 tons for
Feb-March. However, because the import quotas were not filled (due to
difficulties on funding and transportation), the time frame has been
extended until April 20 (Java) and April 31 (outside of Java).

# 

# 

# Policy

Indonesian sugar policy resides with four different ministries:
Agriculture, Trade, Industry and Finance. As a consequence of the
diffuse policy responsibilities and often competing interests of the
various ministries and their respective constituents, policy formulation
often

appears arbitrary, uncoordinated and non-transparent. To date the new
GOI, installed in October 2004, has yet to provide much in the way of
focus for the industry as a whole. It is unclear when or if substantive
changes may be proposed, and which direction that Indonesian sugar
policy might take should consensus be found.

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