Report Highlights:
Indonesia
is expected to produce 33.7 million metric tons (MMT) of sugarcane in
marketing year (MY) 2013/14, resulting in production of 2.3 MMT of
plantation white sugar. Raw sugar imports are estimated to increase to 3.6 MMT in MY 2013/14 due to demand from a growing food and beverage industry.
Government
of Indonesia (GOI) sugar policy divides the domestic sugar market into
three categories: plantation white sugar for home consumption, raw sugar for domestic sugar refining, and refined sugar for the local food and beverage industry.
In
MY 2013/14, Post expects Indonesia will produce 2.3 MMT of plantation
white sugar, similar to MY 2012/13. Indonesian raw sugar imports are
expected to increase to 3.6 MMT in MY 2013/14. Higher demand from the
domestic food and beverage industry
for specialty refined sugars increased refined sugar/plantation white
sugar imports to 185,000 MT (raw sugar equivalent) in MY 2013/14.
Refined/plantation white sugar imports in MY 2014/15 are estimated to
decline to 100,000 MT of raw sugar equivalent. This estimate is based on
the assumption that the GOI will not import any plantation white sugar
as domestically produced plantation white sugar will meet domestic
demand. Refined sugar can only be imported by the food and beverage
industry. In CY 2013, the GOI authorized imports for 98,578 MT of
refined sugar. As of December 2013 a total of 89,400 MT of refined sugar
has actually landed in the country.
Despite production growth in MY 2012/13, the May 2012 plantation white sugar floor price increase
to Rp. 8,100/ kg ($716/MT) pushed up retail prices of plantation white
sugar. In CY 2013, retail prices of plantation white sugar ranged from
Rp. 13,200/kg ($1,167/MT) in January 2013 to Rp. 12,400/kg ($1,096/MT)
in October and December 2013.
Production
Indonesia
produces plantation white sugar from sugarcane, primarily produced for
direct human consumption. Indonesia also produces refined sugar from
imported raw sugar, which is generally used for processing by the food
and beverage industries.
Based on
the latest data from the GOI and industry, Post revised MY 2012/13
Indonesian sugar cane production to 28.7 MMT. Favorable weather led to a
high recovery rate of 8 percent, while high auction and retail prices
for farmers’ plantation white sugar provided incentives for farmers to
grow sugar cane. A total of 420,000 hectares were planted with sugarcane
in MY 2012/13, a 12 percent increase from the previous estimate of
375,000 hectares. The area expansion occurred in Central Java, Lampung,
and South Sulawesi. Based on a higher planted area and recovery rate,
Post revised MY 2012/13 Indonesian plantation white sugar production to
2.3 MMT compared to the previous estimate of 1.97 MMT.
Prices
remained high during CY 2013. However, Indonesia experienced a long
rainy season that lasted through July 2013. Rains resulted in flowering,
long sugarcane stalks, difficulties loading harvested sugarcane, and
lower yields. Given these factors, Post estimates that MY 2013/14 sugar
cane planted area will reach 460,000 hectares and produce approximately
33.7 MMT of sugar cane. MY 2013/14 Indonesian plantation white sugar
production is estimated to remain at 2.3 MMT due to a lower recovery
rate. The total area planted to sugarcane is forecasted to remain stable
at 460,000 hectares in MY 2014/15 when factoring land conversion to
non-agricultural uses on Java and new plantings on other islands. Sugar
cane production is also expected to remain constant at 33.7 MMT in MY
2014/15.
The Indonesian Meteorology,
Climatology, and Geophysics Agency (Badan Meteorologi, Klimatologi, dan
Geofisika, BMKG) reported in January 2014 that twin tropical storms
were developing in the eastern part of the Philippines Sea and near
Darwin, Australian. Although summer has started in the southern
hemisphere, low pressure remains in the eastern Philippines. BMKG expressed concerns
that if low pressure continues, it will reduce the prevailing wind
pattern flowing from Asia across Indonesia to Australia, leading to
another El Nino phenomenon during Indonesia’s 2014 dry season. El Nino
may reduce sugar cane production by prolonging the dry season and
reducing rainfall. Indonesia’s 2014 rainy season is still ongoing, with
sufficient rainfall. Normally, the rainy season lasts from October to
April, while the dry season takes up the remaining months.
Considering
the possibility of an El Nino phenomenon by the middle of 2014, MY
2014/15 sugar concentrations are estimated above MY 2013/14 levels. Post
expects MY 2014/15 Indonesian plantation white sugar production to
reach 2.5 MMT. High prices for plantation white sugar and an increased recovery rate will incentivize farmers to grow sugarcane.
The MY 2013/14 milling period started in North Sumatera in February 2014, followed by sugar mills
in Lampung and in Gorontalo in April. Sugar mills on Java are expected
to start milling by May. The milling period is expected to last longer,
possibly stretching into January 2015. The MY 2014/15 milling period is
estimated to be shorter than MY 2013/14. A shorter milling period will
lead to a higher recovery rate, (7.4 percent in MY 2014/15 compared to
6.8 percent in MY 2013/14). The target rate may be hampered by poor
recovery rate analysis, poor harvest management, sugarcane
transportation problems, and the limited capacity of older machines some
mills.
There are 48 sugar mills located on Java, accounting for
63 percent of Indonesian white sugar production in MY 2012/13. The
balance is produced by 14 sugar mills outside of Java, primarily in
Sumatra. Indonesian sugar mills may increase sugarcane production
capacity by adopting new planting patterns, using higher quality
varieties, and by better timing harvests to increase recovery rates.
Indonesian
sugar refineries are growing. Three new players have entered the
market, bringing the total to eleven sugar refineries producing from
imported raw sugar. The 2013 combined output of these facilities was
approximately 5 MMT, while operating at 70 to 75 percent of total
capacity. Robust growth of the Indonesian food and beverage industry
will incentivize refineries to expand sugar production, although
Presidential Regulation No. 36/2010 (Negative Investment List)
requires new and expanding sugar refineries to create new sugarcane
plantations in order to supply the new capacity. It also stated that any
new sugar mill with an installed capacity of more than 8,000 MT of Cane
per Day must also produce raw sugar. This regulation may curb the
expansion of Indonesia’s sugar industry.
Consumption
MY 2013/14 sugar consumption is estimated to increase to 5.7 MMT based on 1.4 percent population growth
and growing demand from the food and beverage industry, (the consumer
of 3.036 MMT of refined sugar in CY 2013). Post expects consumption will
continue increasing to 5.9 MMT in MY 2014/2015. Direct human
consumption is estimated at 2.8 MMT, while the food and beverage
industry uses the balance. Indonesian per capita sugar consumption in CY
2013 is estimated at 22 kg. Post revised MY 2012/13 Indonesian sugar
consumption up to 5.4 MMT based on GOI and Industry data.
Prices
On
June 14, 2013, the Indonesian Minister of Trade announced that the
floor price for plantation white sugar would remain unchanged at Rp.
8,100/kg ($716/MT), based on a recommendation from DGI. The GOI has
expressed its intentions to change the plantation white sugar floor
price for MY 2014/15 and is currently calculating plantation white sugar
production costs. Despite production growth in MY 2012/13, the May 2012
plantation white sugar floor price increase from Rp. 7000/kg ($619/MT)
to Rp. 8,100/ kg ($716/MT) pushed up retail prices of plantation white
sugar.
Stocks
Due
to the increase of plantation white sugar production, and an increase
of both refined and raw sugar imports, MY 2013/14 ending stocks are
expected to grow to 1.3 MMT compared to 879,000 MT in the previous MY
2012/13. Post estimates these levels will increase to 1.6 MMT in MY
2014/15 due to an estimated increase of raw sugar imports.
Trade
As
a regulated commodity, white sugar can only be imported by registered
importers. Registered importers must also be sugar producers and are
required to produce at least 75 percent of their white sugar from
Indonesian-grown sugarcane. Raw sugar can only be imported by processors
that will use it for their own refining, while refined sugar may be
imported by food processors for their own production. Also, whenever it
deems necessary, the GOI can grant sugar mills permission to import raw
sugar for white sugar production, provided that it is used to meet any
idle capacity due to domestic cane production shortfalls.
The
GOI expects the food and beverage industry to consume domestically
produced refined sugar, although it also permits some imports, normally
issuing import allocations at the beginning of the year.
These
allocations are subject to change when certain sugar products cannot be
sourced domestically. The GOI limits the validity of refined sugar
import permits to six months for the food and beverage industry.
In
CY 2013, Indonesian sugar refineries imported a total of 2.882 MMT of
raw sugar that must be refined and distributed to the domestic food and
beverage industry. In CY 2014, the GOI authorized 1.8 MMT of raw sugar
imports for sugar refineries, monosodium glutamate producers, and sugar
mills to meet idle capacity. In addition, the GOI also authorized 19,000
MT of refined sugar imports for the food and beverage industry. Due to
higher production of plantation white sugar, the GOI did not import any
plantation white sugar in CY 2013. Imports of plantation white sugar are
prohibited one month prior to, during, and two months after the milling
period.
The GOI authorized the
Indonesian National Logistics Agency (Badan Urusan Logistik, BULOG) to
procure 350,000 MT of domestic or imported sugar in December 2013. This
action was taken to maintain stable prices. The Chairman of BULOG has
stated that the agency will prioritize domestic procurement.
Indonesia
imported approximately 174,000 MT of refined sugar and 3,122,000 MT of
raw sugar in MY 2012/13. The primary refined sugar suppliers were
Thailand (40 percent), Malaysia (20 percent), and an additional 33
percent transshipped through Singapore. Raw sugar was supplied by Brazil
(53 percent) and Thailand (45 percent). Indonesia imports most of its
sugar from Thailand due to freight advantage, and because Thailand can
meet Indonesia’s unique specifications “Indospec.”
Policy
The
Minister of Trade issued a regulation stating that white “Indospec”
sugar may be imported if domestic white sugar production cannot meet
demand. Sugar imports are prohibited one month prior to the milling
season, during the milling season, and two months after the milling
season. Registered sugar importers are required to support sugar prices
should mill prices fall below Rp. 8,100/kg ($841/MT). Importers support
prices through sugarcane purchases in cooperation with a third party
that has secured a permit from the local Association of Sugarcane
Farmers
source : agrochart.com
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