Three New Sugar Mills Planned to Boost Output

Against the backdrop of soaring sugar prices, the government is facilitating state plantation firm PTPN to build three new sugar factories worth Rp 4.5 trillion (US$445.5 million) next year to meet rising demand.

State Minister for State Enterprises Sofyan Djalil said the government was exploring the possibility of state banks participating in the project.

“We called Bank Rakyat Indonesia [BRI] several days ago. The response was positive and I think state banks will be happy to help,” Sofyan said, adding the government would guarantee the loans.

“Just like with PT PLN, the government will guarantee the rate,” he said of the scheme, referring to the 10,000-megawatt power plant project currently arranged by the state electricity company.

Today Indonesia has 61 mills, of which 68 percent of them are between 75 years old and were built during the Dutch colonial period. It has been reported that 80 percent of the mills are in poor condition and often fail to produce good sugar.

The country’s annual national production of sugar is about 4 million tons. PTPN and state-owned PT Rajawali Nusantara Indonesia (RNI) produce 3 million tons of sugar every year.

To meet national demand, the country imports about 1.6 million tons of sugar per year, contributing to the current soaring of sugar prices in accordance with the price of the commodity on the international market.

On the domestic market, sugar prices are now far higher than the standard retail price of Rp 6,500 per kilogram. Prices have varied in several regions across the country, pushing the national average price to Rp 9,500 per kilogram.

The benchmark price of sugar futures in New York has surged by over 80 percent so far this year, reaching a 28-year high of 23.33 US cents per pound on Aug. 12, Bloomberg reported.

Sofyan said that with higher domestic production, the government expected to help avoid the current sugar price phenomenon from reoccurring.

Sofyan said the three factories were expected to start production in the beginning of 2011. Two of the new factories will be built in Java and one elsewhere.

The government expects the new factories will produce 30,000 tons of sugar every year.

Besides constructing new factories, the government also plans to change planting methods. According to Sofyan, farmers usually use one seed for more than three years, and as the result, cannot maintain the quality of sugar.

Today, the country has 400,000 hectares of sugarcane plantations, employing around 450,000 farmers.