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How price of sugar could swing the election (and it's bittersweet for Widodo)

South China Morning Post - December 19, 2018

Meaghan Tobin – Last week, a delegation from India arrived in Jakarta to discuss the sale of raw sugar to Indonesia. The negotiation followed President Joko Widodo's announcement last month that he would raise Indonesia's sugar import quotas to stabilise prices.

Keeping food prices low is critical for voter support ahead of April's presidential election, where Jokowi, as the incumbent is popularly known, hopes to win a second term.

But the country is also home to a vocal contingent of sugar farmers who want to sell to the domestic market for higher prices.

Upsetting them could prove a sticky fault line on the campaign trail, likely to be exploited by Widodo's challenger, Prabowo Subianto. The former general has announced big ideas to make Indonesia more prosperous, including achieving self-sufficiency in food and energy.

"It's a balancing game," said Siwage Dharma Negara, senior fellow at Singapore's Institute of Southeast Asian Studies. "The government wants to accommodate the interests of both consumer and producer. The complexity is when politics come into play. Price inflation for staple foods is a key consideration in Widodo's bid for re-election."

Indonesia is already the world's second-largest sugar importer behind China though by some accounts, it is actually first. Raising its import quota would feed growing demand from hungry consumers. Under Widodo, Indonesia's economy has continued expanding by about 5 per cent annually, along with appetites for processed foods.

To keep up, sugar imports have doubled in the past 10 years. Last year, less than half the sugar consumed in Indonesia was grown domestically, and Thailand supplied 94 per cent of imported raw sugar.

Data from state logistics agency Bulog indicates the decision to allow more imported sugar has stabilised the price at about US$1 per kg. This, however, has been seized upon by Widodo's political rivals as evidence his administration will prioritise consumers at the expense of farmers.

More significantly, it highlights Indonesia's failure to achieve its goal of food self-sufficiency. Since independence, the aim of self-sufficiency – and failure to achieve it – has been an enduring political issue, particularly in election years.

The nearly 5 million metric tonnes of sugar imported in 2017 are testament to how far that ambition remains from being realised.

"Of course it is impossible to be self-sufficient in all food commodities, so Indonesia needs to choose," Siwage said. "Most of the time it's just following the demand from constituents. If farmers start protesting, the government will say: 'This is a key commodity'."

Hizkia Respatiadi, senior researcher at Jakarta's Centre for Indonesian Policy Studies, said the goal of self-sufficiency remains critical. "Even though the data shows productivity is fluctuating and not showing meaningful improvement, I don't think the government will concede it's not working," Respatiadi said. "It's not a good political message."

Once a cornerstone of the nation's agriculture system, Indonesia's domestic sugar production has languished for decades. There are currently 63 sugar mills operating, all managed by state-owned enterprises, 11 of which have been modernised to process high volumes of imported raw sugar. There are 40 mills more than 100 years old – relics of the Dutch colonial administration predating Indonesia's independence.

The mills are largely concentrated on Java, the nation's most populous island, and are a constant reminder of the failure to achieve self-sufficiency as the ranks of sugar farmers dwindle.

"The problems of the industry have nothing to do with the imports," said Stefan Uhlenbrock, commodities analyst at FO Licht. "All the mills are operating below capacity. When the government sets a target to reach self-sufficiency, nobody in the sugar industry takes it seriously."

In 2012, the Ministry of Industry sought to revitalise the industry by offering financial incentives for factories to upgrade machinery but few have been willing to suspend production to make the improvements.

The government has also set a minimum price for sugar to ensure a measure of security for domestic producers but farmers demand that minimum price be increased. According to Bloomberg, domestic producers have incurred an estimated US$137 million in losses as sugar prices declined over the past year.

As Widodo seeks re-election, he is in the awkward position of needing to demonstrate his willingness to prop up and protect the inefficient domestic sugar industry while simultaneously taking steps to compensate for its shortcomings.

Widodo said at a food security summit in 2015 he was convinced Indonesia could achieve food self-sufficiency within the next five years, and to that end, has made investments in irrigation projects and agricultural developments throughout his term in office, but the goal has not been achieved.

Respatiadi said both candidates – Widodo and Prabowo – will be obliged to at least pay lip service to the farmers during the election campaign. "It's always good to support domestic farmers but it needs to be done strategically," Respatiadi said. "It's especially important in this kind of political year."

Source: https://www.scmp.com/week-asia/politics/article/2178680/how-price-sugar-could-swing-indonesian-election-and-its