Taking control: Indonesian government aims to dominate sugar sector in same way as palm oil

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Indonesia’s sugar trade has been in deficit for many years, with data from the Observatory of Economic Complexity (OEC) showing that as of 2020 the country exported just US$25.1mn in raw sugar, but imported US$1.46bn of it.

It is the fourteenth most imported product by Indonesia.

Given rising commodity cost pressures and an as-yet-unrecovered supply chain, it is no surprise that Indonesia – which hit 5.95% inflation in September 2022, with food a major upward pressure at 7.91% – is seeking out strategies to reduce costs and stabilize its local food supply.

The Indonesian government recently established state-owned company PT Sinergi Gula Nusantara (SGN) which controls 36 sugar mills in the country and will be implementing further land expansion for sugar cane to 700,000 hectares over the next six years till 2028, making it the largest sugar company in the country.

“PT SGN is one of Indonesia’s National Strategic Projects that will be continually controlled by the government, and will run alongside other such existing projects for palm oil and asset management,”​ Indonesian Minister of State-Owned Enterprises Erick Thohir said via a formal statement.

“It is expected that PT SGN will control 60% to 70% of the national sugar market by 2028, and will be capable of supplying sugar for local demand as well as to improve local farmer welfare – the 700,000 hectares of land will not only be government land but managed in collaboration with them.

“[On the back of this project], national sugar demand for consumers is expected to reach self-sufficiency by 2028, and for industrial use by 2030.”

As an added measure against inflation and fuel cost hikes in particular, Thohir added that the government would also be looking at encouraging the production of bio-fuel from sugar derivatives.

Possible sugar tax

That said, the government has made it clear that this does not mean it is encouraging increased sugar consumption by the Indonesian public in any way, by way of announcing including sugar-sweetened beverages (SSBs) as taxable items in the 2023 budget.

“Sugar-sweetened beverages [cause] a lot of negative impacts on public health, [but the ministry is still] calculating how much the taxation would affect the economy,”​ Indonesian Finance Minister Sri Mulyani said at a press conference after the announcement was made.

“[Implementation] of this tax will be dependent on how quickly [Indonesia’s] economy recovers next year, [but we] will try to find the right balance.”

According to Finance Ministry Strategic Communication Special Staff Yustinus Prastowo, the ministry has already conducted a study on this sugar tax and concluded that this is necessary to control local sugar consumption for public health.

“The challenges [for implementation] lie in the economic recovery from the effects of the COVID-19 pandemic, as well as the large scale of this [as] sugar-sweetened beverages are produced not only by the large [organized] sector, but also small [non-organised] companies,”​ Yustinus said in a Twitter Space dialogue.

“The smaller companies are not under the control of the Food and Drug Supervisory Agency (BPOM), and there are also challenges on the exact process of implementation as well as evaluation.”

Indonesia is the world’s fourth-most populous country, with many people and small businesses running in rural areas and likely far from government supervision – as of 2021, around 43% of the country’s population is still rural, according to World Bank data.

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