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INDONESIAN COMMERCIAL NEWSLETTER
MARKET INTELLIGENCE REPORT ON

SUGAR INDUSTRY IN INDONESIA

September 2007

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.

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.

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..........................

MONTHLY REPORT

INDONESIAN  COMMERCIAL NEWSLETTER
       
September 2007

       

List of Contents

FOCUS: TIME TO REVITALIZE SUGAR PLANTATION        1


INDUSTRY PROFILE: SUGAR INDUSTRY IN INDONESIA        6
  • Current issue        8
  • Structure of sugar industry        9
  • PTPN X and PTPN XI, largest producers        13
  • Import of sugar, 2002-2006        15
  • Imports 2007 only 47% of plan        15
  • Sugar exports        16
  • Government's policy        16
  • World's sugar industry and trade        18
  • Sugar consumption in developing nations tends to rise        19
  • World sugar policy protective        20
  • Marketing aspects        21
  • Sugar price developments        26
  • Analysis of business in cane sugar industry        28
  • Program to increase sugar production 1 million tons a year        28
  • Investment requirement to increase productivity        29
  • Largest investment potential in Papua        31
  • New investment        32
  • Prospects and conclusion        34

COMPANY PROFILE:  SGC (Sugar Group Company) GROUP        35

INDUSTRY:

MSG INDUSTRY FACING DIFFICULTY RAW MATERIAL        39
  • Current issue        39
  • Indonesia's production capacity up        39
  • Investment        44
  • Supply of basic materials        45
  • Molasses exported        46
  • Distribution and marketing systems        47
  • Exports of MSG up        48
  • Imports        49
  • Consumption        49
  • Marketing        50
  • Conclusion and prospects        51

PROSPECTS OF BIOFUEL ENCOURAGES CONSTRUCTIONS OF NEW ETHANOL FACTORIES        53
  • Development of Biofuel        53
  • Development of Ethanol industry        50
  • Ethanol production capacity expanding        54
  • Producers Ethanol in Indonesia        55
  • Exports        56
  • Consumption of ethanol incresing        57
  • Investment in Bioethanol industry        57
  • Conclusion        60

CANDY INDUSTRY        61
  • Business model        62
  • East Java main production center        63
  • PT Anggel Langgeng (Relaxa) the largest        63
  • Producers Ethanol in Indonesia        55
  • Industry facing slump        65

DOUBLE REFINED SUGAR        67
  • Producers          68
  • Interest in investment strong        71

CORPORATE NEWS IN BRIEF:
  • Lippo property firms book solid Q3 profits        73
  • Six firms may bid for Medco's stake in unit        73
  • StarOne users slow to seek replacements        73
  • Wika Delays offering to Oct. 22        74
  • Aneka Tambang to Acquire 10% share of Newmont gold mine        74
  • Indah Kiat to import pulp from Finland        74

ECONOMIC NEWS IN BRIEF:
  • FDI doubled to US$ 8.54 billion        75
  • The ADB revised upwards its 2007 growth forecast for Indonesia        75
  • Wi-Max to be launched may 2008        75
  • RI intends to attract seven million tourist in 2008        76

APPENDICES:
  • Directory of sugar company in Indonesia        77

ECONOMIC INDICATOR:
  • Consumer Price Index in Indonesia        81
  • Oil Prices        82
  • Foreign Exchange and Gold Price in Indonesia        83
  • The Indonesian Economic Trends        84

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