How Strict Regulation Fuels Indonesia’s Sugar Dilemma
Figure 2. Sugar Price Data (January 2025 - March 2026)
(Guidance: Point to the cursor and click on the graph to see price details)
Indonesia’s sugar market in the second quarter of 2026 (April–June) faced ongoing upward pressure, with domestic prices rising despite a substantial, long-term decline in the international market. Domestic producer and consumer prices rose moderately between June 2024 and June 2026, by 7.1% and 4.1%, respectively. In stark contrast, international raw sugar prices dropped sharply, falling by as much as 18.7% by June 2026 over the same two-year span. This domestic price divergence accelerated during the second quarter of 2026. On average, international raw sugar prices increased modestly by 7.3% from the first quarter of 2026 to the second. However, domestic sugar tracking lines surged: domestic producer, wholesale, and consumer prices increased by 2.15%, 4.08%, and 4.09%, respectively.
This clear market decoupling raises a central policy question: why are domestic sugar prices escalating while global raw materials have grown significantly cheaper over the long term?
The widening mismatch between domestic and international sugar prices stems from issues concerning domestic production capacity and government market intervention. Many Indonesian sugar producers still rely on centuries-old machinery, leading to declining production efficiency over time. Beyond significantly driving up production costs and consequently surging market prices, this low efficiency also results in losses for farmers, as harvested sugarcane piles up while waiting too long to be milled, leading to a loss of sugar content.
This production issue is paired with raw material procurement costs, as the government has imposed an import quota on raw sugar under the Commodity Balance (NK) regulation since 2022. Furthermore, since the beginning of 2026, the government has fully restricted imports of raw sugar for consumption, leaving the quota solely for industrial sugar. This exacerbates the challenges facing our domestic sugar industry, as production becomes even more costly. As it shows, consumers are also affected because they cannot benefit from low global prices, which are not reflected in the domestic market.
CIPS Policy Recommendation
When international prices drop sharply, as they did by 18.7% leading into June 2026, rigid import restrictions actively hinder the transmission of lower prices to domestic consumers, and low domestic production efficiency puts more pressure on prices.
The Center for Indonesian Policy Studies recommends a long-term transition towards market liberalization and improved production capacity:
Remove Import Restrictions when it Increases Domestic Prices: Indonesia must transition to transparent, market-driven trade mechanisms that allow global price movements to be transmitted naturally to local consumers and manufacturers. Furthermore, opening import channels can remove the artificial price premium that makes corruption lucrative in the first place.
Improve The Business Environment that allows for Investments to Modernize the Sugar Industry: old machinery and equipment must be replaced to reduce production costs, thereby lowering market prices. This also entails modernizing the value chain, especially the storage system, to prevent massive losses for farmers during each harvest season. This will require quality investment that can only be attracted by a healthy and competitive business environment.
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