Deregulation and Development in Indonesia

By Farrukh Iqbal; William E. James | Go to book overview

CHAPTER 11

Distributional Impact of Government Policies in the Sugar Sector

Martin P.H. Panggabean1


INTRODUCTION

In the interest of attaining self-reliance in sugar production, Indonesia, like many other countries, intervenes heavily in the sugar sector. In the regulatory environment prevailing in the 1990s, three interventions were of particular interest. One was an “area quota” policy under which farmers residing in certain areas (e.g., West Java) were required to plant a specified quota of sugarcane. Another was a trade restriction policy under which sugar could only be imported by a government agency, BULOG, and private importers were not allowed to engage in this business. A third was a marketing restriction under which BULOG was the sole designated buyer of sugar from processing mills and, in turn, appointed a small number of licensed agents to distribute the sugar to wholesale outlets. Not all policies affecting the production, marketing and consumption of sugar were in the nature of implicit taxes or restrictions, however. Sugar farmers, for example, were provided input subsidies (on fertilizer, pesticides, and credit) to offset some of the potential profit lost by having the “area quota” imposed on them. Similarly, sugar millers (many of which are state-owned enterprises to begin with) were given a price for their output by BULOG which was sufficient to cover their costs and provide a reasonable profit as well.

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