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INDONESIAN COMMERCIAL NEWSLETTER
May  2010

DEVELOPMENT OF SUGAR PLANTATIONS TOWARD SUGAR SELF SUFFICIENCY

Backgrounds

Indonesia's sugar industry and sugar plantations have supported each other in development. Sugar plantations in Indonesia have continued to expand from year to year marked with expanding areas for cultivation.  Until 2009, Indonesia's sugar plantations totaled 473,000 hectares or an increase of 2.9% from 460,000 hectares in 2008.  Sugar plantations have been expanded not only in Java, but also in other islands.  

In the past sugar plantations were concentrated in Java, but now plantations have been opened in other regions such as North Sumatra, South Sumatra, Lampung, South Sulawesi and Gorontalo. In Java plantations are found mainly in West Java, Yogyakarta and East Java.  Expansions now are planned to West Kalimantan, West Sumatra, Riau, Merauke, South Sulawesi and Southeast Sulawesi.

With the expanding sugar plantations, production grew. In 2009, production grew 2.8% to 2.85 million tons from the previous year's 2.66 million tons. The increase in the production of sugar was boosted by rising sugar prices that encouraged farmers to grow sugarcane. 
Currently a problem faced by the country's sugar industry is insufficient supply of sugarcane from plantations. The problem is feared to obstruct the government's program to create self sufficiency in sugar supply in the country in 2014.  In order to reach self sufficiency in sugar, the industry needs the support of 600,000 hectares of sugar plantations. Additional plantations of 157,000 hectares, therefore, are needed.  Currently the forestry ministry is offering 500,000 hectares of idle lands in various areas considered suitable for sugar plantations.  

Under its short term plan to meet sugar supply, the government has decided to expand sugar cultivation by as much as   150,000 hectares in 2010 with the first phase 41,705 hectares.  The plan    will need 1.25 billion seedlings valued at Rp 563 billion. The expansion of sugar cultivation will be focused in Lampung, South Sumatra, Bengkulu, Jambi, Southeast Sulawesi and Merauke. The new cultivation will be in cultivation areas and conversion forest and would not need clearing of forest trees. The project will be financed with state budget and by private investors.

The new cultivation is expected to increase production of sugarcane to feed sugar refineries to produce consumer sugar and industrial sugar. Dependence on import is also expected to be reduced. The country has continued to need import to make up for shortfall in domestic supply. An import of sugar is allowed only when domestic supply falls short of requirement.  A month ahead and after milling season normally in May-January, when harvest takes place, the government will not import sugar.

Total areas of sugar plantations

In the past 10 years, a sugar plantation in Indonesia has continued to expand growing 3.75% per year from 340,660 hectares in 2000 to 473,841 hectares in 2009.

In  2008  and  2009 the expansion was slower by only  2.9%  from  460,000  hectares  to  473,000  hectares, because of shrinking sugar prices  that discourage the farmers. In 2009, plantations reached 473,000  hectares, with cane production  at  2.85 million  tons,  and cane productivity  of  5.1 tons per hectare, sugar content 7.83%,  sugar crystal production  of  2.6 million  tons  and  sugar crystal productivity  of  5.96 tons per hectare.


500,000 hectares of lands ready for development

In 2010, the sugar plantation areas are estimated to expand to 478,206 hectares, or an expansion of 4,365 hectares. The expansion is boosted by sugar price hike both on the domestic and international markets and to increase the country's sugar production.

Starting 2010, expansion will begin of sugar cultivation by 150,000 hectares to be carried out by phases in several areas especially in Java and Lampung, which have been the center of sugar plantations. The expansion is estimated to cost Rp 4.2 trillion. The project will begin in 2010 in Riau, South Sumatra, Central Sulawesi, Lampung, and Papua.

Altogether the government will prepare 500,000 hectares of lands for additional sugar cultivation. The lands are needed to expand cultivated areas from 422,935 hectares at present to 766,613 hectares in 2014. The land will be made available from production forest lands, idle lands or by using lands of state forestry company PT Perhutani under intercropping system. The expansion of smallholder sugar plantations will need an investment of Rp5 trillion. The fund is expected to come as bank loan through the Food and Energy Resilience Credit Program with subsidized interest.

Areas considered having land suitable for sugar plantations are Lampung, South Sumatra, Riau, Southeast Sulawesi, Maluku and Papua. Sugarcane grows well are with rainfalls not too heavy. Opening new plantations, however, would not be that easy as it will need land clearing which often is obstructed by disputes or rejection by land owners.

Expansion of the cultivation will need an increase in fertilizer supply. This year, fertilizer requirement is estimated to reach 14.5 million tons or an increase of 4%-5% from 13.8 million tons in 2008. Around 1.8 million tons of the requirement are subsidized by the government, and the rest imported by the plantation companies. In order to economize on fertilizer, especially nitrogen, phosphor, and kalium, the agriculture ministry has developed the technology called hipernano.

A hectare of sugarcane plantation will cost around Rp 28 million not including the cost for the procurement of processing factory and transport infrastructure. The plantations are developed over cultivation areas and conversion forests. The fund will be provided by the government, and private investors.  Currently many investors have indicated interest in developing sugar plantations but land clearing still often becomes the bottleneck.

Plantations by ownership

Plantations are owned by smallholders and large plantation companies. In the beginning smallholders plantations were developed under nucleus plasma farm cooperation scheme with large plantation companies either private or government companies as the nucleus. Later plasma farms expanded outside the scheme.

Currently smallholder sugar plantations have dominated sugar plantations in Indonesia. In  2009, smallholder plantations (PR) made up 57.6% or 255,513 hectares of the country's total plantations of 443,832 hectares with private plantation companies (PBS) making up 24.4% or 108,450 hectares  and state plantations (PBN) 80,069 hectares  or 18% of the total .

In the period of 2000 - 2009, PBS expanded only slightly - by 0.9% annually on the average as against an expansion of 4.5% for PR and 3.3% for PBN.

Large Sugar Plantations

Before 2000, large plantations were dominated by state companies (PBN) under PT Perkebunan Nusantara (PTPN) X and PTPN XI in East Java. Another state plantation company having large sugar plantations is PT Rajawali Nusantara Indonesia (RNI). RNI was formerly owned by the first conglomerate in Indonesia Oei Tiong Ham Concern, which was taken over by the government in 1964. 

Later large private plantation companies grew faster ending the domination of state companies. Currently PT Sugar Group Companies emerged as the largest sugar plantations company in Indonesia with plantations totaling 94,000 hectares.

Other large private companies having large sugar plantations include PT. Kebon Agung and PT. Gunung Madu Plantation with plantations in Java and Lampung.  


Profiles of Main Players

PT Sugar Group Companies (SGC)
SGC has three sugar production-based companies PT Gula Putih Mataram, PT Sweet Indo Lampung, and PT Indo Lampung Perkasa. SGC operates in sugar processing industry. This group produces the first branded sugar in Indonesia. The brand is Gulaku, entirely from sugarcane.  Its sugar factories are integrated with sugar plantations totaling 94,000 hectares in Lampung.

PT Perkebunan Nusantara XI (PTPN XI)
PTPN XI   was established in 1996 through a merger of PT Perkebunan XX (Persero) and PT Perkebunan XXIV-XXV (Persero). PTPN XI operates sugar plantations and factory in East Java. Sugar cultivations are in areas including rice field area and dry lands    totaling 69,516 hectares made up of 27,946 hectares of own plantation and 41,570 hectares of plasma farms. Its end products include granulated/refined sugar, molasses, alcohol and spirit.

PT Rajawali Nusantara Indonesia (RNI)
RNI, which   was established in   1964 was formerly Oei Tiong Ham Concern taken over by the government.

RNI operates in agro industry, pharmaceutical & medical instruments and trade. It is a holding company (Investment Holding), having 15 subsidiaries.  RNI has 35 branch offices, 10 sugar factories, 2 alcohol plants, 1 pharmaceutical factory, 2 health equipment factories, an oil palm plantation and a tea plantation.

RNI has real sugar plantation 52,461 hectares in West Java, Yogyakarta and East Java.

Locations of sugarcane plantations

Based on data from the plantation directorate general, sugar plantations are located only in nine provinces in Sumatra, Java and   Sulawesi.  In 2008, Java has the largest plantations totaling 301,343 hectares or 65.5% of the total areas of the country's sugar plantation of 460,406 hectares. In Java, East Java has the largest plantations totaling 213,914 hectares and followed by Central Java with 60,616 hectares of plantations.

Sumatra has 141,228 hectares (30.7%). Most or 116,360 hectares of the sugar plantations are located in Lampung, followed by South Sumatra's 12,502 hectares.

Sulawesi's sugar plantations total only 17,835 hectares or 3.8% of the total. The locations of the plantations are in South Sulawesi 12,760 hectares and Gorontalo 5,075 hectares.

Kalimantan has no sugar plantation. The soil in this region is more suitable for oil palm plantations.  Papua is a potential area for investment in the plantation sector in the future. There are already plans to build sugar plantations and factories in Papua.
Bi company groups like Bakrie Group, Medco Group and Wilmar Group have indicated strong interest in building sugar plantations and factories in Papua.  They plan to open food estates in that region.  Companies having a sugar factory in Kendal, Central Java, Sugar industry Nusantara (IGN) also have indicated interest in expanding operation to Papua. In general the lands in Papua are good for sugar plantations, oil palm plantations to be built integration with sugar or palm oil processing factories. The difficulty is lack of infrastructure.

South Papua is especially good for sugar plantations. There is a plan to build two sugar factories and a bio ethanol plant in Papua with production partly to be exported to the United States, Japan, Europe and South Korea.


Harvest areas grow 4.9% per year
In the period of 2000 - 2009 harvest areas grew 4.9% per year. Harvest areas in 2000 reached only 340,660 hectares, up to 443,832 hectares in 2009 or 93.6% of the cultivated areas.

In 2010, the whether is not as favorable as in 2009 causing a delay in harvest in some areas such as Cirebon, West Java? Heavy rains forced a delay in harvest from May to June. Transport would be a problem if harvest was to be made in rainy days of May, and the result would a decline in sugar content. Transport of sugarcane to factories must not be delayed longer than 36 hours otherwise the sugar content would decline.

Normally 61,700 kg of sugar could be produced from a hectare of sugarcane with a content of 8.04%. ......


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ICN - May 2010


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INDUSTRY PROFILE: DEVELOPMENT OF SUGAR PLANTATIONS TOWARD SUGAR SELF SUFFICIENCY

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