Sugar industry in Indonesia.

Current Issues

The country's sugar industry has declined in the past decade both in production and

plantation areas despite improvement in the past two years.

The country's sugar production in the past decade shrank by 1,8% annually on the average

and the plantations have not changed from 340,000 hectares in the past five years, The sugar

content is also declining--with productivity down from 76.9 tons per hectares in 1990s to 62.7

tons in the 2000s.

Hoping to improve the performance of the industry, the government has announced plan to

revitalize the industry with a production target set at 1 million tons in 2009.

Revitalization is aimed at increasing the production capacity of sugar factories, productivity

and content of sugarcane and expansion of plantation.

At least 20 sugar factories have been proposed by industrialists to be included in the

revitalization program, which is expected to have support from the banking industry.

Revitalization of the 20 factories also including expansion of plantations is estimated to cost

Rp 4.13 trillion.

Meanwhile the country's products of doubled refined sugar as a basic material for food and

beverage processing industries are facing imported products, which are more competitive in

prices.

Large imports of cheaper in price doubled refined sugar also have impact on the market of

consumption sugar in the country.

Structure of sugar industry

Acreage of sugar plantations expanded

The biggest problem faced by the country sugar industry is shortage in supply of basic

material as a result of shrinking plantation areas and the productivity of plantations.

Data at the Directorate General of Plantation Produciton Development show that in the past

nine years, sugar plantations and productivity have declined significantly.

Many sugar factories, therefore, have operated below their installed capacity leaving large

idle capacity. The industry, therefore, has low efficiency. A number of sugar factories in Java

have a milling capacity of 23.8 million tons of cane a year but they have only a supply of

12.8 million tons of cane a year. As a result they operate only at around 53.8% of their

capacity.

Sugar factories outside Java have a processing capacity of 14.2 million tons of cane but

annual supply of basic materials averages only 8.6 million tons leaving idle capacity of

39.4%.

Sugar plantations in areas are still dominated by smallholders plantations accounting for 50%

of the total plantaiton areas.

Expansion of sugar plantations began in 2004 to 344,793 hectares up from 335,725 hectares

in 2003. The plantations expanded further to 422,734 hectares in 2005 after the government

set a target to achieve self sufficiency in 2007.

Sugar content of cane remains low

The sugar content of canes or the productivity of plantations has remained low in the past

several years.

In 2000, cane sugar content was 7.04% down to the lowest level of 5.85% in 2001. In 2002, it

began to rise to reach 7.57% in 2004, before declining slightly to 7.60% in 2006.

More than 50% of sugar factories older than 100 years

It has been a long known fact that the country's sugar industry has been outdated in

technology using old machines, therefore, no longer efficient. The cane content fell to only

around 6%-8% from 12% when the country was known as the world's largest sugar producer

during the Ducth colonial time. Revitalization, therefore, has been too late. Around 30 units

of 59 sugar factories in the country have been more than 100 years in age.

The oldest is the Gending sugar factory in East Java coming on line in 1830 now having a

milling capacity of 1,300 tons of sugarcane a day.

Most sugar factories in the country use the process of carbonization and treatment with

sulfite turning out sugar with color of IU (ICUMSA) around 110-370.

Production

The country's sugar production has tended to decline in the past 13 years--from 2,453,881

tons in 1994 to 1,488,269 tons in 1998 before rising to 2,051,645 tons in 2004 and to

2,314,712 tons in 2006.

The previous target of achieving self sufficiency in 2007, however, failed. The government

postponed the target year to 2009.

PTPN X and PTPN XI, largest producers

Sugar industry is dominated by state companies. There are six state companies producing

sugar. They are PT Perkebunann plantationsNusantara (PTPN)--PTPN II, VII, IX, X, XI, and

XIV.

The six companies contributed 70% to the country's total production of sugar in 2003. PTPN

X and XI in East Java are the largest accounting for 35% of the country's total production.

In 2004, sugar production of PTPN, which operates 17 factories totaled 353,760 tons. The

production increased as a result of replanting with new seedlings.

Produksi PTPN X 's produciton also increased substantially from 287,000 tons in 2003 to

350,358 tons in 2004. Increase was recorde dby both state and private companies.

Sugar production of Rajawali Nusantara Indonesia (PT Rajawali Nusantara Indonesia I) in

Surabaya rose from 106,698 tons in 2003 to 126,694 tons in 2004. The increase was

attributable to expansion of plantations.

Increase in the sugar production recorded by RNI helped offset losses suffered by two of its

sugar factories operated by Rajawali II in Cirebon--PG Karang Suwung and PG Jati Tujuh.

PT Gunung Madu Plantation and PT Gula Putih Mataram in Lampung also posted sharp

increases of 22.3% and 62% respectively in 2004.

Imports of sugar, 2002-2006

The country's imports of sugar has tended to increase since 2002 to follow growing demand

on the domestic market. In 2002, imports reached 970,926 tons, up to 1,119,790 tons in 2004

and to a peak of 1.98 million tons in 2005 before falling to 1,543,284 tons, valued at US$

589,976,000 in 2006.

Imports 2007 only 47% of plan

The government allows imports up to 2.91 million tons this year but realization has only

reached 47% or 1.38 million tons.

Based on data at the Trade Ministry, by Sept. 1, 2007, imports of refined sugar reached

99.71% of the import quota of 450,000 tons.

Imports of double refined sugar totaled only 552,650 tons or 48% of the quota set for it.

Imports of raw sugar has also been not yet up to target. Raw sugar import is needed to utilizie

idle capacity of sugar factories in the country. Raw sugar is divided into three categories--as

basic material for white crystal sugar, as basic material for double refined sugar and for

MSG industry. See the following table.

Sugar Exports

Sugar exports have increased in the past several years to peak at 9,933 tons in 2004 after

declining to 695 tons in 2003 from 816 tons in 2002.

Replanting and good prices in international market contributed to the surge in the exports in

2004. See the following table.

Government's policy

The government has issued series of regulations on sugar trade and industry including import

duties as it is categoriuzed as a strategic commodity in the country.

It is not easy to issue regulations on sugar sector as it concerns growers and consumers

representing large groups of people with conflicting interests. See the following table.

World's sugar industry and trade

In general, the world's sugar production has continued to increase since 2003. Brazil is he

world's largest producer with production rising from 26.4 million tons in 2003, to 28.175

million tons in 2005 and 28.7 million tons in 2006--or 19.42% of the world's total production.

The European Union has recorded a decline in production lagely because of shrinking

plantation areas and consumption. Similarly a decline has been recorded by the United

States and Australia.

The United States recorded a decline in production from 7,146 million tons in 2005 to 6,824

million tons in 2006 and Australia from 5,388 million tons to 5.2 million tons. India, which is

the second largest producer of sugar in the world has a 14.37% share of the world's total

production increased its produciton from 14,2 million tons in 2005 to 18.4 million tons in

2006 and China from 9.8 million tons to 10.5 million tons. See the following table.

Sugar Consumption in developing nations tends to rise

Sugar consumption in India, China, Pakistan, Indonesia and other developing nations has

increased to follow the population and economic growth.

World's sugar policy protective

Sugar producing countries in the world including Indonesia have their own policies to protect

their sugar industry. Major producers and consumers provide heavy subsidy and protection

causing market distortion in the the world. Sugar prices in the world averaged US$ 8.36/lb in

he past decade far below the production cost of US$ 17.46/lb.

Subsidy in the Unted States accounts for 67% of income of sugar producers. The United State

uses Farm Security and Rural Investment Act of 2002 (2002 Farm Act) as the legal basis for

its subsidy policy. Among important policies used to protect sugar farmers include price

support loan, tariff-rate quota, export subsidy, re-export programs, and payment-in-kind.

West Europe has worst distortion in sugar market. Government's interventions is found in

almost all aspects in industry and trade. High import duties are slapped to protect domestic

farmers.

Marketing aspects

Market size

The market size of sugar industry in Indonesia has expanded from year to year--from

2,725,543 tons in 2002 to 2,628,124 in 2003 and to a peak of 4,221,056 tons in 2005.

Sugar consumption low

Sugar consumers are households as direct consumers and industries as indirect consumers.

Industries need sugar as basic material for their manufactured products such as food and

beverage products.

Consumption of househod sugar in the country is low compared with in other

neighboring countries. Per capita consumption in the country is only 13-14 kg a year as

agains the world's average of 20 kg a year.

The low per capita consumption is attributable to weak purchasing power of the people.

Higher increase in sugar consumption in the country is recorded in the manufacturing sector.

See the following table.

Sugar stocks

The prices of sugar in local market average Rp 6,500 per kg. The price is relatively expensive

for the low income people. The high prices on the domestic market followed the prevailing

prices in internaitonbal market when the price rose becasue of shortfall in supply.

The increase in the price of sugar in international market followed a decline in production in

major producing countries like the Philippines, Thailand, China and India.

Long drought last year also caused a decline in domestic production. The trade director

general of the home affairs ministry said the country's stock is sufficient until the end of this

year despite a deficit of 600,000 tons including 200,000 tons for the industry.

In order to cover the deficit the government issued two decisions to import white sugar for

buffer stock until May 2008. Stock by Sept. 1, 2007 totaled 700,050 tons, including 52% held

by sugar factories, 34% held by traders and 9% held by farmers.

Sugar trade regulation maintained

Because of the strategic function of sugar, the government always intervenes in sugar

marketing especially in imports. In the past the government's intervention was even greater

by giving the monopoly of sugar imports to state-run Board of Logistics (Bulog).

Since 1998, the government launched a series of deregulation measures such as abolition of

sugar subsidy and the use of sugar basic price.

In February 1999, the import duty on sugar was abolished at the same time with the abolition

of Bulog's import monopoly.

In September 2002, the trade and industry minister issued a decision regulating again sugar

trade by imposing import restriction.

Under the regulation, imports are allowed only by sugar producers and registered importers

licensed by he trade minister. Importer producers are sate sugar factories and registered

importers are companies needing sugar for basic material. The regulation was maintained

with a new decision of the trade minister in September, 2007 that imports by sugar factories

and registered importers are allowed only when the price of sugar on the domestic market

exceeds Rp4,900 a kg.

Double refined sugar a threat to stability of consumer sugar market

Producers of cane based sugar repeated their opposition to entry of double refined sugar to

the market of sugar consumption. The protest came with the marketing problem faced by

local producers of double refined sugar because of imports of double refined sugar with low

prices.

According to Corporate Secretary of PT Perkebunan Nusantara (PTPN) XI Adig Suwandi,

the decline in the price of double refined sugar will likely result in penetration of imported

double refined sugar to the market of consumption sugar.

Local products of double refined sugar utilizing the processing facility of imported raw sugar

is fit only as basic material for food and beverage industries. However, as the price of sugar is

low in the world market, food and beverage producers tend to import refined sugar directly

from producers abroad especially as the quality of imported products is superior.

Currently domestic production of double refined sugar average 1.1 million tons a year

exceeding domestic requirement. Therefore, even without import, the local producers have to

compete tightly on the domestic market.

Sugar distribution

Sugar produced in the country is generally sent to the market via sugar distributors. Private

sugar factories use their won distributors and state sugar factories hold tender to selec

distributors.

Distribution is also made through networks of modern retail outlets such as hypermarkets,

supermarkets and minimakets. Hero supermarket for example, which has 60 outlets, buys 80

tons of sugar every month to be distributed through its chain stores. Indomaret, which has

600 minimarts outlets buys around 200 tons a month, Carrefour Hypermarket needs or sells

around 8 tons of sugar a month for each of its outlets. However, distribution via the modern

market outlets is still much smaller than distribution by traditional retailers. See the following

diagram.

[ILLUSTRATION OMITTED]

As already said that the government has issued a regulation restricting distribution of

imported sugar and bans interisland trade of sugar in a bid to prevent smuggling into the

country.

Sugar factories owned by the state such as PTP Nusantara, which is licensed to import sugar

are required to hold tender to select distributors for its imported sugar.

The state company often cooperates with whole traders in financing sugar imports. The

compensation for the trader is the right to handle the distribution of imported sugar on the

domestic market.

In 2004, PTPN IX and X cooperated with INKUD, and PT RNI cooperated with PT Citra

Gemini Mulia. Other sugar distributors such as PT Kentjana Makmur dan PT Berlian Penta,

often cooperate in importing sugar with state sugar factories.

[ILLUSTRATION OMITTED]

Sugar price developments

Sugar is an important commodity in international market. Major sugar producers in the world

include Brazil, India, the United States, West Europe, Australia, and Thailand.

Major consumers or importing countries include China, Indonesia, and svereal former Soviet

republics. The prices of sugar in the world market tend to fluctuate. The prices fell to the rock

bottom in 2002. Later with shortfall in supply the price scaled up to peak in 2005.

Deficit in production was recorded in three succeeding years until 2005 and growing demand

from ethanol industry in Brazil was said to be the cause of the surge in the price.

FAO in 2004, predicted that until 2010, the price of that commodity will remain high at

around US$ 17-21 per kg in international market.

[GRAPHIC OMITTED]

Sugar price development on the domestic market

The condition in international market has strong impact on the domestic market despite

government's attempt to control the price with a series of regulations. The policies are not

effective enough to control the prices on the domestic market after the monopoly of Bulog

was abolished in 1998.

[GRAPHIC OMITTED]

The price of sugar at the level of farmers are often controlled by the government through a

type of basic price.

Currently the basic price has been modified into a kind of minimum price guaranteed by

private investors. If the price of farmers' sugar through an auction is higher than the minimum

price, the excess is divided equally between the farmers and the investor.

In the milling season of 2005, the minimum price was set at Rp 3,800/kg. Meanwhile, the

prices on the domestic market soared to exceed the government set price. For example, the

retail price in 2005 was Rp 5,744 per kg.

Analysis of business in cane sugar industry

Construction of a sugar factory with a processing capacity of 4,000 to 10,000 tons of

sugarcane per day (TCD) will cost around Rp 900 billion to Rp1 trillion with annual

operating cost of Rp 45 billion--Rp 50 billion.

Construction of an ethanol factory with a production capacity of 60 kiloliters per day will

cost Rp 133 billion to Rp 200 billion. Building a particle board factory with machines from

Europe or China with a capacity of 72 square meters per hour will cost around Rp 95 billion

to Rp 157 billion with operaitng cost of Rp 25 billion to Rp 34 billion a year.

Industry that also follows the growing trend is cogeneration (electricity) industry.

Construciton of cogeneration plant with a capacity of 6,000 kwh, will cost Rp 45 billion with

annual operating cost of Rp 9 billion.

Program to increase sugar production 1 million tons a year

In a bid to meet the target fo self sufficient in sugar supply in 2009, the government and sugar

producers and consumers have drafted a plan to increase the country's sugar production by

1.3 million tons.

The additional production of 1.3 million tons is estimated based on the production capacity of

the existing sugar factories, sugar plantations and sugar content.

The existing factories are expected to be able to increase production by 705,000 tons and new

factories to be built will produce around 600,000 tons. In order to increase production, sugar

plantations will be expanded from 409,000 hectares to 463,000 hectares or an addition of

54,000 hectares.

The expansion of plantations will include 33,000 hectares in Java and 21,000 hectares outside

Java.

Investment requirement to increase productivity

Investment will be needed in the smallholder plantation, sugar factories and factories

producing sugar derivatives and investment by the government.

Investment in the primary business sector is made by smallhodlers and companies.

Investment by smallholders are expected in Java.

Based on a survey, Java has the potential to open 41,000 hectares of new sugar plantations

mainly by smallholders with a total investment of Rp 599.4 billion.

Companies are expected to open plantations outside Java. The Sampoerna Group plans to

build 40,000 hectares of sugar plantations in Merauke, Papua with an investment of around

Rp 426 billion bringing the total investment in the primary business sector to more than Rp 1

trillion.

Total investment needed in sugar sector is estimated to reach Rp 6.817 trillion and the bulk or

Rp 6.278 trillion of which are expected to be made by the corporate sector. The largest

component of the investment is for two factories outside Java (likely in Merauke) to process

cane produced from 40,000 hectares of plantation to be built by the Sampoerna Group with

an investment of Rp 2 trillion.

Meanwhile, investment needed for the revitalization of 52 sugar factories in Java is estimated

to reach Rp 2.163 trillion. Construciton of two ethanol plants, particle board plant and electric

energy plant will need additional investment of more than Rp 1 trillion.

The investment needed by smallholders mainly for pumps and tractors, transport facility and

procurement of seedlings will cost around Rp 538 billion.

Investment for infrastructure in roads and irrigation systems will be made by the government

and companies totaling around Rp 208 billion and Rp 200 billion respectively or a total of Rp

408 billion.

Altogether, total investment needed will reach Rp 8.25 trillion. The largest part or Rp 6.9

trillion will be contributed by companies with smallholders contirbuting Rp 1.13 trillion and

the government Rp 208 billion.

Largest investment potential in Papua

The largest investment of Rp3.437 trillion is more likely in Merauke, Papua to build 40,000

hectares of sugar plantation and two new sugar plants.

Considerable amount of investment is also needed in East Java for expansion of plantations

by 29,235 hectares and construction of an ethanol plant, electric energy plant and particle

board plant.

Investment for ethanol plant, energy plant and particle board plant is also potential in

Lampung.

In West Java and Central Java investment will likely needed more for plantation expansion

respectively 6,801 hectares and 3,964 hectares.

New Investment

PTPN IX to restructure 4 factories

PT Perkebunan Nusantara IX(PTPN IX) plans to restructure four of its eight sugar factories

in 2008. The restructuring is expected to increase the selling value of the shares of the state

company when it launches initial public offering (IPO) planned in 2010, its president said.

The processing capacity of the Mojor sugar factory in Sragen and the Rendeng factory

Kudus, Central Java, will be expanded to 4,000 tons of cane and 2,600 tons of cane per day

respectively.

The two other factories will have their old equipment replaced to be more efficient.

Investment for the capacity expansion of the two factories will be around Rp 190 billion and

investment for the modernization of the equipment of the two other factories is around Rp

410 billion.

The state company also plans to build four units of bioethanol processing plants with a

capacity of 18,000 liters per day and facility to process raw sugar into white sugar with a

capacity of 400 tons per day.

PT Gunung Madu Plantations (GMP) to expand production capacity

PT Gunung Madu Plantation plans to invest Rp 200 billion this year to increase its sugar

production capacity. Expansion of its factory in Gunung Batin, Central Lampung, is to be

completed in 2008.

The processing capacity of the factory will be expanded to 2.2 million tons of cane a year in

2008 or equivalent to 205,500 tons of white sugar. The expansion will contribute

significantly to the government's program to reach sugar self sufficiency in 2009. In 2010, the

company's sugar production capacity is projected to reach 224,250 tons per year, with annual

cane production of 2.4 million tons.

PT Sumatera Tonggi to build sugar plant in North Sumatra.

PT Sumatera Tonggi has been licensed by the Capital Investment Coordinating Board

(BKPM) to build a sugar plant in North Sumatra with an investment of Rp 1.2 trillion.

Construction is already in progress and it is expected to be completed and operaitonal in

2008. The factory will have an annual production capacity of 500,000 tons. The company

also plans to build its own power plant to guarantee power supply for the factory. North

Sumatra is known to have serious shortage of power supply.

The company plans to import raw sugar as basic material from Australia and Thailand, to

produce white sugar. It production is expected to be enough to supply sugar for the nothern

part of Sumatra.

Meanwhile a number of other companies such as the Astra Group, and the Sinar Mas Group,

also plan to build new sugar factories. Astra Group and Sinar Mas group plan to build

integrated sugar industry to be operational in 2009. See the following table.

Prospects and Conclusion

An increase in the productivity of sugarcane could sitll be made through improvement of

cultivation system and expantion of plantation. The country still has ample lands suitable for

sugar plantations. The country has even the potential to become a major supplier of sugar to

the world market. A number of foreign sugar experts have said Indonesia has that potential.

Indonesia is one of 33 countries lying in the IOR (Indian Ocean Rim), which accounts for

34% of the world's sugar production, 29% of the world's sugar consumption and 33% of the

world's sugar exports.

Among the 33 countries 14 are sugar exporting countries. They are India, Pakistan,

Madagascar, South Africa, Malawi, Zimbabwe, Zambia, Sudan, Switzerland, Vietnam,

Thailand, Mauritius, Australia, and Indonesia.

Indonesia, however, has become a major net importer of sugar. The climate in Indonesia is

suitable for sugar plantation and the country is one of the richest in sugar genetic resources

(germ plasm). The country, besides India, is believed to be the origin of the world's

sugarcane.

According to the Indoensian Sugar Association (AGI), an initial study shows that the country

has 2 million hectares of lands suitable for sugar plantations in its eastern regions. The lands

include 800,000 hectares in Papua, 816,000 hectare sin Maluku and 198,000 hectares in

Central Kalimantan.

Indonesia was once the world's second largest sugar suppliers to the world second only to

Cuba.

The country also has a sugar factory in Lampung ranked among the most efficient sugar

factiories in the world. The fact should encourage development of sugar industry in the

country. Table - 1

Sugar plantation areas by owners,

1999-2006

Year Plantation areas Ha

Smallholders Government Private Total

1999 176,733 82,106 83,372 342,211

2000 171,279 64,133 105,248 340,660

2001 178,887 87,687 77,867 344,441

2002 196,509 79,975 74,238 350,722

2003 172,015 87,251 76,459 335,725

2004 184,283 78,205 82,305 344,793

2005 252,427 80,383 89,924 422,734

2006 262,093 80,593 90,636 433,322

Source: Agriculture Ministry

Table - 2

Sugar content of cane in Indonesia,

2000 - 2006

Year Content

(%)

2000 7.04

2001 5.85

2002 6.88

2003 7.21

2004 7.57

2005 7.65

2006 17.60

Source: Agriculture Ministry

Table - 3

Sugar factories, milling capacity, processing system

and operating start up

No. Companies / Sugar Milling Start Processing Milling

factories capacity -up systems start

(Tons/

day)

I. PTP NUSANTARA II

1. 1. PG Kuala Madu 4,000 1982 Treatment Jan/Feb

with sulfite

2. 2. PG Sei 4,000 1983 Treatment Jan/Feb

Semayang with sulfite

Subtotal 18,000

II. PTP NUSANTARA VII

3. 1. PG Bunga 6,000 1984 Treatment Apr/May

Mayang with sulfite

4. 2. PG Cinta Manis 5,000 1984 Treatment Apr/May

with sulfite

Subtotal 11,000

III. PTP NUSANTARA IX

5. 1. PG Jatibarang 2,050 1842 Treatment May/June

with sulfite

6. 2. PG Pangka 1,830 1836 Treatment May/June

with sulfite

7. 3. PG Sourceharjo 2,050 1861 Treatment May/June

with sulfite

8. 4. PG Sragi 3,700 1836 Treatment May/June

with sulfite

9. 5. PG Rendeng 2,850 1840 Treatment May/June

with sulfite

10. 6. PG Gondang 1,620 1860 Carboni- May/June

Baru zation

11. 7. PG Tasikmadu 3,650 1874 Carboni- Ma /June

zation

12. 8. PG Mojosragen 2,950 1883 Treatment May/June

with sulfite

Subtotal 20,700

IV. PTP NUSANTARA X

13. 1. PG Lestari 3,750 1909 Treatment June

with sulfite

14. 2. PG Mrican 2,750 1939 Treatment June

with sulfite

15. 3. PG Pesantren 5,250 1976 Treatment June

Baru with sulfite

16. 4. PG Ngadirejo 5,250 1912 Treatment June

with sulfite

17. 5. PG Mojo 2,250 1882 Treatment June

panggung with sulfite

18. 6. PG Watutulis 2,000 1839 Treatment June

with sulfite

19. 7. PG Tulagan 1,250 1848 Treatment June

with sulfite

20. 8. PG Kremboong 1,350 1847 Treatment June

with sulfite

21. 9. PG Gempolkrep 5,250 1912 Treatment June

with sulfite

22. 10. PG Jombang 2,000 1895 Treatment June

Baru with sulfite

23. 11. PG Cukir 2,750 1884 Treatment June

Subtotal 33,850 with sulfite

V. PTP NUSANTARA XI

24. 1. PG Sudhono 2,200 1888 Treatment May/June

with sulfite

25. 2. PG Purwodadi 2,000 1832 Carboni- Ma /June

zation

26. 3. PG Rejosari 2,000 1890 Treatment May/June

with sulfite

27. 4. PG Pagottan 2,300 - Treatment May/June

with sulfite

28. 5. PG Kanigoro 1,650 1894 Treatment June

with sulfite

29. 6. PG Kedawung 3,000 1898 Treatment June

with sulfite

30. 7. PG Wonolangan 1,250 1832 Treatment June

with sulfite

31. 8. PG Gending 1,300 1830 Treatment June

with sulfite

32. 9. PG Pajarakan 1,200 1885 Treatment June

with sulfite

33. 10. PG Jatiroto 7,000 1905 Treatment June

with sulfite

34. 11. PG Semboro 4,800 1938 DNKS June

35. 12. PG Wringin 1,100 1881 Treatment June

Anom with sulfite

36. 13. PG Olean 1,000 1846 SISJ June

37. 14. PG Panji 1,800 1886 Treatment June

with sulfite

38. 15. PG Asembagus 2,400 1891 Treatment June

with sulfite

39. 16. PG Prajekan 2,450 1883 Treatment June

with sulfite

Subtotal 37,450

VI. PTP NUSANTARA XIV

40. 1. PG Takalar 3,000 1987 Treatment Jul/Aug.

with sulfite

41. 2. PG Bone 2,000 1975 Treatment Jul/Aug.

with sulfite

42. 3. PG Caming 3,000 1986 Treatment Jul/Aug.

with sulfite

Subtotal 8,000

VII. PT RAJAWLI NUSANTARA INDONESIA (PT RNI) GROUP

A. PT PG RAJAWALI I

43. 1. PG Krebet 3,000 1906 Treatment June

Baru I with sulfite

44. 2. PG Krebet 4,000 1976 Treatment June

Baru II with sulfite

45. 3. PG Rejo Agung 4,500 1894 Carboni- June

Baru zation

46. 4. PG Candi 2,000 1832 Treatment June

with sulfite

Subtotal 13,500

B. PT PG MADU BARU

47. 1. PG Madukismo 3,500 1955 Treatment May/June

with sulfite

C. PT PGRAJAWALI II

48. 1. PG Sindanglaut 2,000 1896 Treatment May/June

with sulfite

49. 2. PG Karang 1,400 1859 Treatment May/June

suwung with sulfite

50. 3. PG Tersana 3,500 1896 Treatment May

Baru with sulfite

51. 4. PG Jatitujuh 4,000 1975 Treatment May

with sulfite

52. 5. PG Sindanglaut 3,500 1981 Treatment May

with sulfite

Subtotal 14,400

D. PT PG RAJAWALI III

53. 1. PG Tolangohulo 8,000 1988 Treatment August

with sulfite

VII. PT RNI GROUP 39,400

VIII. PT KEBON AGUNG

54. 1. PG Kebon Agung 5,000 1905 Treatment May/June

with sulfite

55. 2. PG Trangkil 3,000 1835 Treatment May/June

with sulfite

Subtotal 8,000

IX. PT GUNUNG MADU PLANTATION

56. 1. PG Gunung Madu 12,000 1975 Treatment Apr/Car

with sulfite boni

zation

X. PT GARUDA PANCA ARTA

57. 1. PG Gula Putih 10,000 1983 Treatment Apr/May

Mataram with sulfite

58. 2. PG Sweet Indo 9,000 1995 Treatment Apr/May

Lam un with sulfite

59. 3. PG Indo Lam- 8,000 1996 Treatment Apr/May

pung Perkasa with sulfite

Subtotal 127,000

Source: AGI

Table - 4

Indonesia's sugar production, 1994 - 2006

Year Production Growth

(tons) (%)

1994 2,453,881 -

1995 2,059,576 -16.06

1996 2,094,195 1.68

1997 2,191,986 4.66

1998 1,488,269 -32.10

1999 1,493,933 0.38

2000 1,690,004 13.12

2001 1,725,467 2.09

2002 1,755,433 1.73

2003 1,631,615 -7.05

2004 2,051,643 25.74

2005 2,241,742 9.26

2006 2,314,712 3.25

Source: Indonesian Sugar Council

Table - 5

Sugar production by companies,

2002 - 2006

(Tons)

Year 2002 2003

Java

PG Rajawali II PT, 96,500 84,626

Jawa Barat

PTPN IX, 89,606 121,953

Jawa Tengah

PTPN X, Jawa 340,156 287,088

Timur

PTPN XI, Jawa 358,562 320,599

Timur

Kebon Agung, PT, 73,413 79,835

Surabaya

Madu Baru, PT 35,706 24,681

Rajawali I, PT 99,087 106,698

Surabaya

Subtotal 1,093,030 1,024,481

Outside Java

PTPN II, 52,226 26,786

North Sumatra

PTPN VII, Lampung 84,080 100,532

PTPN XIV, 34,646 29,161

South Sulawesi

PG Rajawali III, 27,263 34,937

Gorontalo

Gunung Madu 147,287 151,737

Plantation, PT

Gula Putih 108,872 93,230

Mataram, PT

Sweet Indo 100,360 71,015

Lampung, PT

Indo Lampung 107,669 99,736

Perkasa, PT

Subtotal 662,403 607,134

Total 1,755,433 1,631,615

Year 2004 2005 2006

Java

PG Rajawali II PT, 114,222 130.000 140,922

Jawa Barat

PTPN IX, 135,602 148.000 170,869

Jawa Tengah

PTPN X, Jawa 350,358 387.000 410,905

Timur

PTPN XI, Jawa 363,760 390.000 415,292

Timur

Kebon Agung, PT, 91,847 110.000 122,066

Surabaya

Madu Baru, PT 23,690 27.000 31,500

Rajawali I, PT 126,694 137.917 145,655

Surabaya

Subtotal 1,206,173 1,456,554

Outside Java

PTPN II, 13,456 42.000 70,465

North Sumatra

PTPN VII, Lampung 134,933 165.000 174,487

PTPN XIV, 27,614 32.000 36,292

South Sulawesi

PG Rajawali III, 185,644 30.000 47,085

Gorontalo

Gunung Madu 151,294 185.000 197,000

Plantation, PT

Gula Putih 37,970 60.000 91,886

Mataram, PT

Sweet Indo 148,652 120,470

Lampung, PT

Indo Lampung 145,908 120,472

Perkasa, PT

Subtotal 845,470 975,329

Total 2,051,643 2,241,742 2,314,712

Source: AGI

Table - 6

Imports of refined sugar,

2002-2006

Year Sugar

Volume Tons Value (US$ 000)

2002 970,926 198,638

2003 997,204 215,777

2004 1,119,790 262,813

2005 1,980,487 585,263

2006 1,543,284 589,876

Source: BPS, Plantation Directorate General of Agriculture Ministry

Table - 7

Imports of sugar, 2007

Type Import quota Realization (%)

White sugar 450,000 448,681 99.71

Double refined sugar 552,650 269,222 48

Raw sugar for

* White sugar 292,563 97,441 33.31

* Double refined sugar 1,419,700 510,113 35

* MSG industry 194,500 56,900 29

Subtotal 1,906,763 664,454 34.5

Total 2,909,413 1,382,357 47.5

Source: Various official sources

Table - 7

Exports of sugar,

2002 - 2006

Year Sugar

Volume Value

(tons) (US$ 000)

2002 816 503

2003 695 561

2004 9,933 1,922

2005 1,173 602

2006 1,480 982

Source: BPS, Plantation Directorate General

Table - 8

Government's policies on sugar industry

SK/Keppres/Kepmen on Goals

Presidential decree Sugar procurement, To keep price

No, 43/1971, 14 July distribution, and stability of the

1971 marketing essential product

Letter of minister/ Controlling, Details about

state secretary No, supervision and Oresidential decree

B, 136/ABN distribution of No, 43/1971 covering

SEKNEG/3/74, 27 refined sugar state company sugar

March 1974 produced by non state

companies

Presidential Sugar intensification To increase in sugar

Instruction No, (TRI) production and income

9/1975, 22 April 1975 of farmers

Decision of trade and Sugar domestic trade To guarantee

cooperative minister procurement and

No, 122/Kp/III/81, 12 distribution of sugar

March 1981 and increase in

income of farmers

Decision of finance Determination of To guarantee price

minister No. 342/KMK, price of domestic and stability, foreign

011/1987 imported products of exchange and

refined sugar adjustment of

farmers' and factory

income

Law No, 12/1992 Plant cultivation To give freedom for

farmers to grow crops

with good market

prospects.

Presidential Program to develop Providing role for

Instruction No. smallholders sugar business players in

5/1997, 29 December plantations free trade

1997

Presidential Termination of Freedom for farmers

Instruction No. implementation of to select crop in

5/1998, 21 January Pres. Instruction No, line with the law No,

1998 5/1997 12/1992

Decision of trade Commodities of Improving efficiency

min. No, which imports are and distribution of

25/MPP/Kep/1/1998 regulated goods

Decision of forestry Determination of To prevent losses to

and plantation min. price of farmers' farmers and boost

No. 282/Kpts-IX/1999, share of sugar production

7 May 1999 production

Decision of trade Import regulation Reducing government's

minister No, budget through

363/MPP/Kep/8/1999, imports by sugar

'5 August 1999 producers

Decision of the trade Revoking decision of Abolition of import

min. No. 230/MPP/ the trade min. No. duty on sugar to

Kep/6/1999, 5 June 363/MPP/Kep/8/1999 protect domestic

1999 industry

Decision of finance Change in import Improvement of

minister No, duty effectiveness of

324/KMK,01/2002 import duties

Decision of trade Sugar import Import restriction by

minister No. Regulation allowing only

643/MPP/Kep/9/2002, producers and

'23 September 2002 registered importers

to import that

commodity

Decision of the trade Improvement of Registered importers

min. No. sugar import required to forer-

527/MPP/Kep/9/2004 regulation stall the market and

imports allowed only

when the price is no

less than Rp 3,410/kg

Source: Agriculture ministry, industry ministry

Table - 9

Production, share and production growth recorded

by main producers, 2004-2006

Production (000 tons)

Countries 2003/04 2004/05 2005/06

Brazil 26,400 28,175 28,700

European

Union (EU) 17,132 21,825 21,233

India 15,150 14,210 18,430

China 10,734 9,826 10,500

USA 7,847 7,146 6,824

Thailand 7,010 5,187 4,330

Mexico 5,330 6,149 6,000

Australia 5,178 5,388 5,200

Pakistan 4,047 2,937 2,890

Cuba 2,300 2,100 2,300

World 14,100 142,500 147,800

Share Growth (%)

2003/04- 2004/05-

Countries (%) 2004/05 2005/06

Brazil 19.42 6.7 1.9

European

Union (EU) 14.37 27.4 -2.7

India 12.47 -6.2 29.7

China 7.10 -8.5 6.9

USA 4.62 -8.9 -4.5

Thailand 2.93 -26.0 -16.5

Mexico 4.06 15.4 -2.4

Australia 3.52 4.1 -3.5

Pakistan 1.96 -27.4 -1.6

Cuba 1.56 -8.7 9.5

World 100.00 1.0 3.7

Source: USDA

Table - 10

Sugar consumption, share and growth in

major consuming countries, 2004 - 2006

Countries Production (000 tons)

2003/04 2004/05 2005/06

India 18,810 19,500 19,800

EU 14,358 17,626 17,525

China 11,600 11,600 11,700

Brazil 10,400 10,600 10,800

USA 8,971 9,269 9,267

Russia 6,100 6,300 6,450

Mexico 5,600 5,424 5,482

Pakistan 3,600 3,750 3,850

Indonesia 3,400 3,550 3,800

Japan 2,247 2,263 2,250

World 143,300 145,100 148,000

Countries Share Growth (%)

2003/04- 2004/05-

(%) 2004/05 2005/06

India 13.38 3.7 1.5

EU 11.84 22.8 -0.6

China 7.91 0.0 0.9

Brazil 7.30 1.9 1.9

USA 6.26 3.3 0.0

Russia 4.36 3.3 2.4

Mexico 3.70 -0.3 1.1

Pakistan 2.60 4.2 2.7

Indonesia 2.57 4.4 7.0

Japan 1.52 0.7 -0.6

World 100 1.3 2.0

Source: USDA

Table - 11

Policy in sugar industry in several countries

Countries Basic policies Policy essence

Brazil Domestic/price Support Price support (1998)

(US$ 743 million/year)

India Essential Commodities

ACT 1,955

Production Allocation and produciton

control i (levy sugar)

Distribution Priceds within reach of

consumers (ration card)

Partial Price Control Cane and sugar price

guarantee (levy price and

market price)

Thailand Price support Price support

Production management Production control/quota

Japan Price guarantee (Y 71

billion)

High import duty Restricting imports

West Europe CAP

Price support Price guarantee

Production Production control/quota

TRQ Import control

Safe guards Mechanism Import control

Export Subsidy Reducing offer on

domestic market

United States 2002 Farm Act and FAIR

ACT of 1996 (US$ 1.9

billion)

Price Support Price guarantee & credit

Tariff-Rate Quota Import control

Export Subsidy

Re-export program Compensation for industry

using sugar basic

material

Payment-in-Kind Reducing distortion in

policy

Source: Agriculture Ministry, Industry Ministry

Table - 12

Market size of sugar, 2002 - 2006

Year Production Imports Exports

(Tons) (Tons) (Tons)

2002 1,755,433 970,926 816

2003 1,631,615 997,204 695

2004 2,051,643 1,119,790 9,933

2005 2,241,742 1,980,487 1,173

2006 2,314,712 1,543,284 1,480

(Tons)

Year Market size

(Tons) * (US$ 000)

2002 2,725,543 1,678,934

2003 2,628,124 2,120,896

2004 3,161,500 2,213,050

2005 4,221,056 2,165,402

2006 3,856,516 2,556,870

Source: Industry ministry

* equivalent to export price

Table - 13

Estimate of consumption by sectors, 2006

(000 tons)

Description 2006

Direct consumption by household/ people 2,695,705

Consumption by industry

--Food and beverage industry 898,568

--Other industry 262,243

Consumption by industrial sector 1,160,811

Total consumption of sugar 3,856,516

Source: Data Consult

Table - 14

Average retail prices of sugar in Indonesia

(Rp/kg)

Year Sugar prices on the average

2000 3,027

2001 3,822

2002 3,636

2003 4,319

2004 4,243

2005 5,744

2006 5,975

Source: Agriculture Ministry

Table - 15

Analysis of several cane-based industries

Industries Capacity Cost (Rp billion)

Investment Operating cost

Sugar plant 4,000-10,000 TCD 900 - 1000 45 - 50

Ethanol 60 kl/day 133 - 200 39

Particle Board (Ex 72 m3 per hour 95 - 157 25 - 34

Europe or China)

Cogeneration 6,000 kWh 45 9

(electricity)

Source: Agriculture ministry

Table - 16

Targets for expansion of plantation, increase in production

and productivity, 2007-2009

Description Java Outside Indonesia

Java

Harvest area (Ha)

Year2007 264,532 144,353 408,885

Year2009 297,754 165,097 462,851

Cane milled (Tons)

Year2007 20,250,182 10,060,359 30,310,541

Year2009 25,103,950 12,072,886 37,176,836

Addition 4,853,768 2,012,527 6,866,295

Plantation productivity

(Tons of cane /Ha)

Year2007 76.6 69.7 74.1

Year2009 84.4 73.1 80.3

Addition 7.8 3.4 6.2

Sugar content (%)

Year2007 7.53 8.25 7.77

Year2009 8.31 8.44 8.23

Addition 0.60 0.19 0.46

Crystal production (Tons)

Year2007 1,524,479 830,375 2,354,854

Year2009 2,040,849 1,019,281 3,060,130

Addition 516,370 188,906 705,276

Crystal productivity (Tons/Ha)

Year2007 5.76 5.75 5.76

Year2009 6.85 6.17 0.85

Addition 1.09 0.42 0.85

Source: Agriculture Ministry

Table - 17

Estimate of investment needed in Java and Papua,

2005 - 2010

Sectors Small-

holders Companies Government Total

1) 2) 2)

(Rp billion)

1. Business investment

a. Land 205.0 200.0 0.0

b. Farm equipment 6.6 6.4 0.0

c. Buildings 0.0 100.0 0.0

d. Working capital 387.9 120.0 0.0

Total 599.4 426.4 0.0 1,026

2. Investment in

business areas

2.1 Business in

farm equipment

a. Pumps 41.5 40,5 0,0 82

b. Tractors 150.3 146,7 0,0 297

2.2 Breeding of 61.5 60,0 0,0 121,5

seedlings

2.3 Post harvest 284.7 277,8 0,0 562,5

business--trucks

2.4 Processing

business

a. New sugar 0.0 2,000,0 0,0 2,000

factories

(2 units)

b. Rehabiliation 0.0 2,163,7 0,0 2,163,7

of factories

(52 units)

c. Ethanol plant 0.0 500,0 0,0 500

d. Electric Energy 0.0 500,0 0,0 500

e. Particle Board 0.0 200,0 0,0 200

2.5. Marketing and

distribution

Source: Agriculture ministry

Table - 18

Investment needed in sugar industry, 2005-2010

Province By By companies By Total

smallholders government

(Rp billion)

East Java 831,4 2,259,4 0,0 3,090,8

Central Java 193,4 445,8 0,0 639,2

West Java 112,7 292,4 0,0 405,2

Papua 0,0 3,229,4 208,0 3,437,4

Lampung 0,0 678,0 0,0 678,0

TOTAL 1,137.5 6,905 208 8,250.6

Table - 19

Expansion and new investment in sugar industry

Companies Planned Cane

investment processing

(RP billion) capacity

PTP IX 410 2,800 tons

cane/day

PT Gunung 200 2.2 million tons

Madu cane/year

Plantation

PT Sumatera 1,200 500,000 tons

Tonsggi sugar/year

(prod. cap.)

Group Sinar 700 7,000 tons/day

Mas

Astra Agro 1,000 10,000 tons/day

Lestari

Locations Construction/

completion

PTP IX Sragen & Construction to

Kudus, Central start in 2008

Java

PT Gunung Central Lampung Operational in

Madu 2008

Plantation

PT Sumatera North Sumatra Operational in

Tonsggi 2008

Group Sinar Sinjai, South Operational

Mas Sulawesi in 2009

Astra Agro Goa and Operational

Lestari Takalar, South in 2009

Sulawesi

Source: Investment Coordinating Board

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