Indonesian sugar sector “at critical point” due to scarce raw imports

(Reuters) – Indonesia’s government must issue 2015 raw sugar import permits this month or face further closures of refineries and shutdowns at food and drinks businesses, an industry group in the world’s top importer said, warning the situation was at crisis point.

Last week, Indonesia’s sugar-refining association said it expected a third of the country’s plants to shut temporarily by the end of the month after the government cut import quotas for the sweetener this year despite rising demand.

A prolonged shortage of raw sugar may dent revenue at refinery owners such as Olam International and Wilmar International, lead to smuggling and push up domestic white sugar prices.

“The government must decide as soon as possible – within this month,” Adhi Lukman, chairman of the Indonesian Food and Beverage Industries Association (GAPMMI), told Reuters. “This is a critical point. If there is no decision by December, there will be a critical situation from January onwards.”

Raw import quotas for 2014 were cut after lobbying by sugarcane farmers and millers, who say white sugar stocks are high and that sugar refined from foreign raws had fed illegally into the household market.

Indonesia’s sugar industry is split in two and is tightly regulated. Households, retail and small-to-medium firms rely on domestic white sugar supplied by a network of older mills, while modern refineries import raws for large-scale food and beverage industries, mostly from Brazil, Thailand and Australia.

Government officials put white sugar stocks at 900,000 tonnes, said Lukman, adding that domestic whites were expensive due to a government floor price of 8,500 rupiah ($0.70) per kg and were not of the quality demanded by industry.

The trade ministry cut the quota for raw sugar imports this year by 7 percent to 2.8 million tonnes, Lukman said, forecasting that refined sugar demand from industry would climb 7 percent to 2.9 million tonnes this year, then to 3.1 million in 2015.

Despite rising demand, four of Indonesia’s refineries had already temporarily closed due to the lack of raws, with the other seven using up dwindling stocks that should be enough to meet 2014 demand, he said. He had no estimate for inventories.

“The important thing is that we plan for next year,” he said, adding delays in issuing import permits were due in part to a change of government in October. The administration of President Joko Widodo wants the country to be self-sufficient in sugar within five years.

Indonesia’s trade ministry had not yet issued import permits for 2015, spokeswoman Ani Mulyanti said by text, giving no explanation.