April 7, 2015 / 7:41 AM / 5 years ago

UPDATE 1-Indofood Agri plans new Indonesian sugar mill to feed local demand

* New mill may cost at least $150 mln -Indofood Agri CEO

* Indonesia is short of around 3 mln tonnes of sugar

* Tunas Baru to invest $100 mln in new sugar factory (Adds comment from CEO, government data, background)

By Eveline Danubrata and Cindy Silviana

JAKARTA, April 7 (Reuters) - Singapore-listed plantation firm Indofood Agri Resources Ltd could invest at least $150 million to build a new sugar mill in Indonesia to meet rising demand there, its chief executive said on Tuesday.

Indofood Agri and other companies such as PT Tunas Baru Lampung Tbk are seeking to expand their sugar processing capacity in Southeast Asia’s largest economy as its middle class develops a sweeter tooth.

Indonesia produces 2.5 million to 2.6 million tonnes of sugar a year but consumes up to 5.5 million, Mark Wakeford, CEO of Indofood Agri, told Reuters in an interview in Jakarta. “If you look at the Indonesian domestic sugar market, it’s significantly short of sugar.”

Indofood Agri, which already has two sugar mills in Indonesia as well as businesses in palm oil and rubber, would prefer to build a new mill as there are very few opportunities for acquisitions and a lot of the existing mills need to be upgraded, Wakeford said.

“If you look at the structure of the Indonesian sugar industry, it’s dominated by government-run entities as opposed to private plantation groups,” Wakeford said. “There is really no M&A opportunity in the domestic Indonesian sugar sector.”

State enterprises operate 52 sugar factories in the country, contributing around 60 percent of national output, according to government data, although many of these facilities have been criticised for being inefficient.

Finding suitable land in Indonesia is also a major obstacle as growing sugar cane requires a certain climate, Wakeford said.

The government is considering offering tax allowances or tax holidays to develop the sector, the industry ministry said in a presentation on Monday, without giving details.

Indofood Agri is developing its sugar interests elsewhere in the region, too.

In February, it partnered Hong Kong-based investment company First Pacific Co Ltd to buy an additional 16.9 percent in Filipino sugar producer Roxas Holdings Inc, raising their stake to 50.9 percent.

In Indonesia, Tunas Baru is investing around $100 million to build a sugar factory and construction is expected to finish in early 2017, corporate secretary Hardy Phan told Reuters in an email.

“Indonesia has a deficit of around 3 million tonnes of sugar so the opportunity is still wide open for businesses to meet that need,” Phan said. (Reporting by Eveline Danubrata and Cindy Silviana; Additional reporting by Rosemarie Francisco in Manila; Editing by Jacqueline Wong and Alan Raybould)

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