Indonesia to Cut Imports & Double Sugar Production in 5 Years

Indonesia, the world’s biggest buyer of sugar, is striving to cut imports by boosting domestic production at a time when rising affluence is increasing demand for sugary food and drinks. And, it is aimed to double sugar production in five years, the country also needs to restrain consumption to limit imports.

State plantation holding company PT Perkebunan Nusantara III plans to expand sugarcane plantations and renovate mills in a bid to double production to 2 million tons of sugar a year by 2025, said President Director Mohammad Abdul Ghani. His comments come as the company is close to securing an agreement with creditors to restructure 45 trillion rupiah ($3.08 billion) of debt.

The target of cutting imports also depends on reining in consumption in the world’s fourth most-populous nation as wealth and population rise. The agriculture ministry expects per capita demand to be above 25 kilograms a year by 2023, but the local sugar association says it needs to come down below 20 kilograms to reduce imports significantly. U.S. Department of Agriculture data show the country’s consumption jumped about 30% in the past five years.

Field workers harvest sugarcane to have it ready for crushing in Purwosekar village in Malang, East Java

The group’s white sugar output accounts for 40% of domestic production, and it hopes to reduce Indonesia’s imports as output increases and market share rises, Ghani said in an interview this week. It’s partnering with state forestry firm Perum Perhutani and small plantation holders to expand the plantation size to 300,000 hectares from 60,000 hectares within five years. The expansion will include conversion of some rubber plantations, Ghani said.

The company has been selling sugar in the retail market this month to help the government stabilize prices. Indonesia has imported almost 700,000 tons of raw sugar and 150,000 tons of white sugar so far this year in a bid to cool the market. To improve its sugar business further, the company expects to develop investor partnerships, with possible joint ventures. An initial public offering is also in the pipeline after it completes its debt restructuring.

The group acts as the holding company for 14 state plantation firms and three agriculture-related firms. Ghani said September is the deadline to complete the debt revamp, which is integral to its plan to expand sugar output. “We have several scenarios in place for the restructuring, including longer loan tenors and lower interest rates,” he said. A new syndicated loan is also being discussed with banks as part of the restructuring, after which all financing needs will be streamlined at the holding company level.

The company’s in the process of obtaining 4 trillion rupiah of government bailout funds to finance activities during the pandemic. Group companies also produce palm oil, and the coronavirus crisis has forced scores of restaurants and hotels, which are major consumers of palm oil, to shut or curb operations.

The Industry Ministry is encouraging the development of sugar plants that are integrated with sugar cane plantations to meet the increasing demand in the domestic market for consumption and the food and beverage industry. The development of such integrated sugar plants would require a strategic policy that can create a conducive investment climate in the country, Industry Minister Agus Gumiwang Kartasasmita said in a statement here on Wednesday.
“We are focusing on the development of new plants which are integrated with sugar cane plantations, hence they can be operated at full capacity,” Kartasasmita said after visiting the PT Prima Alam Gemilang (PAG) sugar plant in Watu-watu village, Bombana district, Southeast Sulawesi.

The minister has issued a ministerial regulation (no. 10/2017) on the facility to obtain raw materials in the development of the sugar industry. The obligation to be integrated with sugar cane plantations means that the plantations would be owned by the factory or held in partnership with sugarcane farmers,” he added.

The sugar plant in Bombana has a production capacity of 12 thousand tons of cane per day (TCD) and 22,797 hectares of nucleus plantation, which has made it the largest sugar factory owned by a local businessman. “We applaud PAG Bombana which has (entered into a) mutual partnership with local residents to improve their welfare and help revive the national economy,” he remarked.

According to the ministry, Indonesia’s sugar production has reached 2.2 million tons per year, while the annual demand stands at 5.8 million tons. “Sugar is an essential good for the public, for direct consumption or (as) industry raw material, with demand continuing to increase in accordance with the growth of the population as well as the food and beverage industry,” the minister said. (INE)