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Policy Reform to Lower Sugar Prices in Indonesia

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Novani Karina Saputri

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Hizkia Respatiadi

In the first half of 2018, sugarcane productivity in Indonesia decreased by 2.56 tonnes/ha while the extraction rate fell by 0.36 percentage point compared to 2017. Meanwhile, the demand for sugar is growing steadily, as indicated by an increase in per capita consumption of more than 22% from 2009 to 2017. The combination of lower productivity and higher demand contributes to high prices for white crystal sugar—the domestic price was nearly three times the international market price in August 2018.

The implementation of import quotas and limiting licenses to state-owned enterprises (SOEs), as stipulated in the regulation of the Minister of Trade (MOT) 117/2015, aggravates the situation. Restricting entry to the market through a non-transparent import licensing process contributes to Indonesia’s uncompetitive sugar market. As a result, imports cannot lower sugar prices to help the consumers in Indonesia. This policy paper propose a two-step policy reform to lower sugar prices that provides sufficient time for relevant stakeholders to adjust to the new policies.

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