Solution to Indonesia's High Sugar Prices Proves Sticky

Indonesia's government has thus far been unable to agree on how to respond to high sugar prices, which have soared at home and abroad, particularly during Ramadan when consumption of the commodity peaks. As a stop-gap measure, the government will allocate funds to increase domestic sugar production and revamp the nation’s sugar refineries, Bayu Krisnamurthi, deputy minister for agriculture, fisheries and forestry at the Coordinating Ministry for the Economy, said on Tuesday. “We’re planning to build two to three new state-run sugar factories, using funds from the 2010 state budget,” Bayu said. A single sugar factory typically costs between Rp 1.1 trillion ($109 million) and Rp 1.5 trillion and takes up to 18 months to build. “This year and next year we’re also going to focus on how to revamp old sugar factories,” Bayu said. “I don’t know what kind of support we are going to give. It could be in the form of stimulus funds, credit support or other options.” In response to the high price of sugar, the government will sell its excess supplies at lower prices, Bayu said, without elaborating. Little was said about the possibility of importing more sugar, as analysts had expected. Bayu said the government would only allow an increase in sugar imports if total annual domestic output fell to about 2.89 million tons. On Monday, Bayu said domestic output would reach between 2.6 million and 2.89 million tons this year. The Agriculture Ministry has estimated that consumption of white sugar could hit 2.7 million tons this year. On Friday, the government said it had started working with state-run and private companies to sell cheap sugar as part of a “market operation” to push down prices during Ramadan in 18 of the country’s 33 provinces. Trade officials said that sugar was sold for between Rp 7,000 and Rp 7,500 per kilogram, versus a market price of about Rp 10,700.

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