* Indonesian refineries call for one sugar market
* White sugar traders and farmers resist sharing
* Indonesian refinery capacity to jump nearly 30 percent by
By Michael Taylor and Yayat Supriatna
JAKARTA, April 11 When Indonesian white sugar
prices surged to record peaks last year, profits slumped at the
small fruit and syrup drinks stall run by Lie Lie in Medan, the
archipelago's fourth-largest city.
Lie Lie is part of the household industry that Indonesia's
sugar refineries - dubbed 'sugar dragons' because of their
growing size and clout in the sector - want to supply with
cheaper and better quality sweetener.
Those opposed to granting refineries access to retail and
household industry demand, a move that could increase raw sugar
imports, include a group of white sugar traders nicknamed 'sugar
samurai' for their control of the local market, and sugarcane
"The white sugar price hikes hit my business so hard," Lie
Lie said. "I tried to increase prices a little bit, but it did
little to help stop our profits shrinking."
Indonesia, set to become the top raw sugar importer this
year, splits its sugar industry into two. Household, retail and
small-medium firms rely mostly on domestic white sugar, while
refineries import raw sugar for the large-scale food and
Indonesia's sugar refineries now want access to all the
country's sugar demand, officials at refineries and sugar
traders, as well as sugarcane farmers, told Reuters.
"Splitting demand between industry and domestic and retail,
I think only happens over here," said one senior official at an
Indonesian refinery. "Opening up the market is best."
Although barred from supplying household and retail demand,
the small-medium industry segment is a grey area though it is
difficult for refineries to access because smaller industries
often lack capital and only buy small amounts at a time.
Among the current crop of eight refineries are those owned
by Olam International and Wilmar International
. Both declined to comment.
Data indicates refineries are positioning themselves for a
larger piece of the sugar market. Indonesian refinery capacity
is 3.5 million tonnes but will jump to 4.5 million with three
additional refineries due to be completed by year-end, the
Indonesian Sugar Refineries Association said.
Indonesian sugar consumption will be 5.7 million tonnes in
2012/2013, according to the International Sugar Organization,
with domestic output at 2.6 million tonnes. The additional
refinery capacity could create 1.4 million tonnes of
DRAGONS VERSUS SAMURAI
The sugar dragons are dependent on government-controlled
import permits for raw sugar, and any additional refinery demand
may benefit Australian, Brazilian or Thai exporters.
White sugar traders and sugarcane farmers say that when
domestic white sugar prices spike, refined sugar finds its way
into the retail and household supply-chain via fresh food
markets, used by many Indonesian shoppers.
"The fact is, refined sugar leaks are happening everywhere
and it keeps occurring and getting worse by the day," said
Soemitro Samadikoen, chairman of Indonesian Sugarcane Farmers
Association, which represents many of Indonesia's 500,000
sugarcane farmers. "This proves that refiners are over producing
and have over capacity."
In late 2011, Samadikoen helped organise a demonstration of
more than 5,000 sugarcane farmers in Jakarta, to demand that the
government stop refined sugar penetrating the household market.
Refineries should be allowed easier access to small-medium
sized industry, Samadikoen said, if monitored by the government
to protect home and retail demand.
"If the law does not work properly, we may take necessary
action in the field one day," he said, referring to possible
Ahead of presidential elections in 2014, there is little
sign of a consensus in government on how to appease sugarcane
farmers, refineries and consumers.
The agriculture ministry wants self-sufficiency in white
sugar and is therefore against the creation of one open-to-all
sugar market, while the industry ministry favours helping
small-medium businesses to buy refined sugar.
"It is stuck in a time warp since the Dutch left and the
government took over," said another senior sugar official at a
major commodity firm.