Indonesia 2009-10 White Sugar Output To Rise 6%

In marketing year 2009/10, Indonesian plantation white sugar production is forecast to reach 2.1 million metric tons, an increase of 6% compared to 1.97 MMT produced in MY 2008/09, according to a U.S. Department of Agriculture attache report posted Friday on the Foreign Agricultural Services Web site.

Imports are expected to decrease particularly since GOI indicates it will not issue any licenses to import plantation white sugar in MY 2009/10. In MY 2008/09, approximately 1.3 MMT refined sugar was produced and the amount is forecast to be stagnant through MY 2009/10.

Executive Summary: Indonesian sugar is strictly regulated by the government. Raw sugar can only be imported by the refineries to be used as the raw material for refined sugar production. Only food and beverages industry can import refined sugar with a quality that cannot be produced domestically. Unless there is a production shortage and price hike in Indonesian domestic market, no plantation white sugar can be imported. Import permits are only given to some certain registered importers. In MY 2009/10, it is forecast that Indonesia will produce 2.1 MMT of plantation white sugar, a slight increase compared to 1.97 MMT in MY 08/09. In MY 2009/10, it is expected that there will be no imports of plantation white sugar, while imports of raw sugar are estimated to increase to 1.65 MMT. The retail price of Indonesian plantation white sugar was relatively stable until February 2009, when the price increased to Rp. 7,406/kg (US$ 641/ton) following a drop in supplies because the milling season has not started. GOI further restricted imports in MY 2008/09 by limiting the amount and length of time sugar could be imported. As a result, estimated raw and refined sugar imports for MY 2008/09 are 2.1 MMT, which represents a reduction of 14 percent.

Production: Indonesia produces plantation white sugar from sugar cane aimed for retail sale as well as refined sugar from imported raw sugar used by the food and beverage industry in their formulation. A total area of 350,000 hectares was planted with sugar cane in MY 2008/09, and it is forecast to remain stagnant in MY 2009/10. The competition with other crops such as rice, corn, and soybeans, and high land conversion to non-agricultural uses makes it difficult to increase the amount of land dedicated to sugar cane, especially on the island of Java. Moreover, the effort to develop new sugar cane plantations outside of Java is hindered by the lack of supporting infrastructure and land ownership issues. Therefore, the only way to increase production is to improve yield by using higher quality varieties and by harvesting the sugar cane at optimal times rather than based on when the cane was planted. In MY 2009/10 sugarcane production is forecast to reach 26.6 MMT, an increase of 4 percent compared to sugarcane production in the previous MY 2008/09 of 25.6 MMT. Lower than previously estimated sugarcane production in MY2008/09 are mostly due to high rainfall from December 2008 through March 2009 causing sugarcane plants to bloom early. Most sugar mills are expected to start MY 2009/10 milling period in April 2009 lasting until December 2009. However, less rainfall during harvesting and milling season increases the sugar content of the sugarcane. In MY 2009/10, the average recovery rate is forecast to marginally increase to 7.8 percent, compared to 7.7 percent during MY 2008/09.
A total of 46 sugar mills are located on the island of Java and account for 65 percent of Indonesian plantation white sugar production in MY 2009/10. The balance is produced by 58 sugar mills outside of Java. In addition to the existing five sugar refineries, two new sugar refineries started operation in MY 2008/09. MY 2008/09 refined sugar production from imported raw sugar totaled 1.3 MMT refined sugar. Refineries are running at 62 percent of total installed capacity. It is forecast that the refineries will produce the same total amount of refined sugar in MY 2009/10. GOI will continue its policy of allowing sugar mills to import raw sugar to fill their idle capacity following the local harvest. This policy will continue through MY 2009/10. A total of 28 TMT of imported raw sugar is allocated for these mills in MY 2009/10. Consumption: Due to growing demand from the food and beverage industry, and in line with the population growth, Indonesian sugar consumption is forecast to increase to 4.56 MMT in MY 2009/10. The consumption of sugar sold at retail level is estimated to reach 2.7 MMT, while the balance will be used by the food and beverage industry. Indonesian per capita sugar consumption is 17 kg per year.

Trade: GOI restricts white sugar imports to four registered importers sugar companies that also purchase plantation sugar cane from farmers to produce plantation white sugar. Raw sugar and refined sugar can only be imported by producers that will use the raw sugar as a raw material in their formulations. In January 2009, GOI reduced the amount of raw sugar that could be imported by refineries and refined sugar that could be imported by the food and beverage industry over concerns that refined sugar was being sold at the retail level and to force the food and beverage industry to use domestically produced refined sugar. GOI reduced the time period on import permits issued to the food and beverage industry to once every two months from once every six months. In MY 2008/09, approximately 450,000 tons raw sugar equivalent of refined sugar was imported by food and beverage manufacturers holding import licenses. Thailand (84 percent), South Korea (5 percent), and Malaysia (5 percent) were the main suppliers of refined sugar to Indonesia while Thailand (85 percent) and India (15 percent) were the main suppliers of raw sugar in MY 2008/09. Indonesia imports most of its sugar needs from Thailand not only because of the freight advantage but also because Thailand can meet Indonesian specifications based on the color (ICUMSA) level that meets the Indonesian sugar requirements called "Indospec". Approximately 6,300 tons of raw sugar was imported in MY 2008/09 for mills idle after the Indonesian sugar harvest was completed. GOI increased the amount mills could export to 28,000 tons of raw sugar in MY 2009/10.

Stocks: In MY 2009/10, ending stocks are forecast to decline to 450,000 MT of raw sugar equivalent due to stagnant refined sugar production and with limited imports along with an increase in refined sugar needs from the food and beverage industry.

Policy:
In May 2008, the Minister of Trade amended sugar import regulations, stating that white sugar with an ICUMSA ranging from 70-200 International Units may be imported when the price of white sugar is above Rp. 5,000/kg (US$ 432/ton) at the farmer level and if the domestic production of white sugar is not sufficient to 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 buy domestic sugar cane production if the price fall below Rp. 5,000/kg (US$ 432/ton) at the farmer level.

source: marketwatch