The bitter truth of Indonesia's sugar
smuggling By Bill
Guerin
JAKARTA - Discovery of a mere 65,000 tons
of contraband sugar has not only exposed the bitter
truth, the myriad problems in Indonesia's ailing sugar
industry, but highlighted just how rampant smuggling,
like corruption, is undermining the country's entire
economy.
In a nation that was once the world's
second-largest sugar producer, but is now the world's
second biggest importer after Russia, it is not only
farmers who depend on the sweetener for profit.
Smugglers, plantation firms and customs officials, among
others, all have something to gain from the industry.
Indonesian's eat their way through around 3.3
million tons of sugar every year. But local sugar
production is only around 1.8 million tons, and the
country has been a net importer of sugar since the
1960s. Importing the commodity to make up for the
massive shortfall has proved to be no solution, as the
wide gap between domestic and international prices has
encouraged widespread smuggling of Thai sugar into the
country.
The local market is now flooded with
cheap sugar, leaving domestic sugar producers unable to
compete, angry and bitter. Sixty percent of the
country's 350,000 hectares of sugarcane are on the main
island of Java, where farmers have already burned
sugarcane fields to protest existing policies, or lack
of them.
A series of burnings on the north coast
of Java earlier in the year were in protest of the
Indonesian government's unwillingness to subsidize its
farmers the way the government in Thailand does. Import
tariffs on sugar have not helped farmers in any way due
to the smuggling, which was also a target of the
protesters' ire.
Smuggled sugar sells for around
Rp2,100 (22 US cents) per kilogram, while the retail
price of local sugar ranges from Rp4,000 and Rp4,200 per
kilo. Production costs for local farmers are between
Rp3,200 and Rp3,300 per kilo, making the profit margins
tight at best.
To protect its own farmers, the
Thai government has begun buying up all the sugar from
its farmers and selling it on to the domestic and
international markets at a heavily subsidized price of
only Rp2,000 per kilo. Legally importing this sugar to
Indonesia incurs an import tariff of Rp900 per kilo plus
transport costs of Rp500 per kilo, giving a landed price
in Indonesia of around Rp3,400 per kilo.
Though
sugar smuggling is thought to go on all year around, the
start of the sugarcane milling season in May typically
ushers in a wave of illegal imports that peaks around
August, the end of the season.
This year has
been no exception. The current contraband drama started
in mid-May when the Indonesian Association of Sugarcane
Growers (APTRI) discovered 56,000 tons of illegally
imported sugar stored in warehouses in the main
metropolitan areas of Jakarta, Bekasi and Bogor.
Police were called in and later announced they
had confiscated the sugar, along with another 9,000 tons
found in similar circumstances far away in Makassar,
South Sulawesi. An ongoing police investigation has
named eight suspects in the case, including three senior
customs officials.
Imports are regulated by the
government. During Suharto's New Order government there
were no less than 800 authorized sugar importers. The
administration of former president Abdurrahman Wahid
later reduced this number to less than 200.
In
2002 the Minister of Industry and Trade, Rini MS
Soewandi, drastically reduced the number of authorized
importers to five, although the special sugar import and
trading licenses remain wide open to abuse by corrupt
officials.
Soewandi’s move was aimed at
protecting the interests of the domestic sugar
agribusiness conglomerates and only state-owned
plantation firms PT Perkebunan (PTPN) IX, PTPN X, PTPN
XI, and state-owned trading firms PT Rajawali Nusantara
Indonesia and PT Perusahaan Perdagangan Indonesia (PPI)
were permitted to import sugar.
Last week, the
Confederation of Primary Cooperatives Association
(Inkud) claimed it imported the 56,000 tons of sugar
under a deal with PTPN X. Inkud says it received a
license to import sugar on behalf of the latter and
formed a consortium to handle the purchases. The
consortium then made a deal with a third party, PT
Phoenix Commodities, which shipped the sugar from
Thailand.
But on Monday, police named Abdul
Waris Halid, head of general trade at Inkud, as a
suspect in the case, despite claims by Inkud that it had
received approval for the shipment from Minister
Soewandi. Inkud chairman Nurdin Halid, Abdul's brother,
told a hearing of the House of Representatives
Commission V for Industry and Trade, that in a meeting
on November 19, 2003, Soewandi said Inkud could import
the sugar through PTPN X.
Abdul's lawyer, Eggi
Sudjana, said the minister would be reported to the
police for giving false information to the public. If
found guilty, the law stipulates that she could face a
five-year sentence, Sudjana pointed out.
Soewandi, meanwhile, has denied ever meeting
with Nurdin, saying she did not know Nurdin personally
nor did she meet with him to discuss a sugar import
license.
The sugar was imported after the
government imposed a ban on imports of the commodity on
April 30, but the Ministry of Industry and Trade has
pointed out the deadline was for the arrival of the
imported sugar at Indonesian ports and not for the
shipment of the commodity from the countries of origin.
Sudjana claimed that the sugar was legitimate because it
was shipped before April 30, when PTPN X's import
license expired.
The licenses of all five
importers effectively expired when the government banned
further imports in April. A presidential decree is
expected shortly to confirm what was previously only a
ministerial decree. Soewandi's Decree No
643/MPP/Kep/9/2002 states specifically that imported
sugar must have a specific destination and may not be
transferred to another area after being checked through
customs.
Most of the sugar smuggled into
Indonesia is shipped in from neighboring Malaysia. A
free-trade zone built by the Malaysian government at
Port Klang, 30 miles south of Kuala Lumpur, to attract
entrepot trade and compete with Singapore has
metamorphosed into one of the most favored transit ports
for smuggling goods into Indonesia. From this port,
sugar, rice and flour are smuggled to the coast of North
Sumatra. Another favored smuggling route from Malaysia
is through Kuching in Sarawak to Pontianak in West
Kalimantan.
On Tuesday APTRI recommended that
the latest haul of contraband sugar be destroyed to help
stabilize depressed domestic sugar prices and support
local sugarcane farmers. APTRI chairman Arum Sabil told
the House of Representatives Commission III for
Agriculture that uncertainty in the market had pushed
local sugar prices well below the production costs for
local farmers.
"The move is also to teach a
lesson to anyone involved in the smuggling," Legislator
I Made Urip said of the plan to destroy the sugar.
However, ceremoniously burning contraband sugar has been
tried before but achieved little.
In April the
government destroyed 162 containers, part of a larger
haul of smuggled sugar. Another of the privileged five
importers, PPI, had imported the sugar into Medan in
North Sumatra, from Malaysia. From there it was shipped
to Jakarta but was confiscated by customs at the
country's main port in Tanjung Priok.
Amid the
latest scandal, the House of Representatives' Commission
V will set up a working committee (Panja) to tackle the
illegal importation of sugar, though other problems
still face the industry.
The disparity in
prices, frequent droughts, an inefficient labor force
and aging and decrepit machinery in sugar mills have all
combined to make the outlook for Indonesia's sugar
industry bitter indeed.
Jakarta's dilemma is
clearly acute. The disparity between local and import
prices has provided great profits for smugglers, but
lowering import tariffs in a bid to discourage smuggling
would still leave local sugar uncompetitive because of
the low yield of domestic sugarcane farms.
In an
effort to boost sugarcane production toward
self-sufficiency by 2007 and improve yields, the
Ministry of Agriculture last year launched a
government-funded rehabilitation program to provide
sugarcane farmers with high-yield seeds.
The
program will give growers around Rp68 billion ($8
million) in grants and Rp1 trillion in soft loans this
year and in 2005 to help them replant their fields using
new seeds.
However, according to APTRI, much of
the money from the scheme has ended up not in the hands
of local farmers but in the hands of those connected to
state-owned plantation firms.
Critics say
state-owned plantation firms, while backing illegal
sugar imports, mainly for profit, are aiming at forced
closures of domestic sugarcane plantations so that the
valuable acreage can be used for commercial timber
plantations instead.
Minister of Agriculture
Bungaran Saragih, who is also head of the Indonesian
Sugar Council established by Wahid in 2000, is not too
keen on the scheme himself. Saragih has said that the
government does not have enough money to spend on both
seeds and sugar mills, and rather than spending large
amounts of money on new seeds, it should replace the
old, outmoded sugar mills.
There are more than
56 sugar factories in Indonesia. "We would need a large
amount of money to revitalize them. We can't do it now,
but maybe in the next two or three years we can. So we
have to prioritize sugarcane seeds," Saragih said.
Analysts say the government should liberalize
sugar imports and provide direct subsidies to farmers.
But in order to compete with Thai sugar, which costs
around half the price of local sugar, the government
would need to provide a subsidy equivalent to around
$220 per ton of sugar.
The stark reality is that
the state budget could not possibly sustain this. And if
the government begins subsidizing sugarcane farmers,
producers of other commodities such rice, corn and
soybean would, of course, demand the same favorable
treatment.
Moreover, it's not just Indonesia's
sugar industry that is being affected by smuggling.
Black market goods of whatever nature come in not only
through Malaysia, but also Singapore. A business
intelligence report leaked in Kuala Lumpur suggests that
Indonesia has been losing between $560 million and $660
million annually in customs and excise duties due to
smuggling between Indonesia and Singapore alone.
Officials turn a blind eye at both ends of the Singapore
and major Indonesian ports of entry, and smugglers use
very sophisticated methods of falsifying documents.
Weak government control and law enforcement are
also taking a heavy toll. Nothing less than a
full-blooded war on smugglers will make even a dent in
the massive losses in terms of revenue, jobs, and the
environment caused by smuggling.
(Copyright 2004
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