Adaptability is key if sugar industry is to make its own way
DOWNSTREAM DEVELOPMENT IS VITAL TO ENSURE THE SECURITY OF THE CANE PRODUCERS AND THE LIVELIHOODS OF THOSE DEPENDING ON THEM

More than two million people in Java depend on sugar plantations, so it is vital that the state-owned companies which run them continue to invest in modern processing factories and develop new products. At PT Perkebunan Nusantara XI (PTPN XI) plantation, the biggest sugar producer in East Java, the management is negotiating with foreign investors to expand production of one of the by-products, ethanol.

BASUKI ADJIBRATA President Director of Plantation XI

PTPN XI, one of the plantations taken over by the Indonesian government from the Dutch colonialists, earns around 65 percent of its revenues from sugar. The production of ethanol, which is used in the furniture, cosmetics, pharmaceutical and chemical industries, and can also be used as a bio-fuel, earns about 20 percent of revenues, while molasses earns 10 percent, with 5 percent coming from other products.
The plantation, which employs more than 20,000 people, produces 385,000 tons of sugar a year and 220,000 tons of molasses. It has two small ethanol distilleries and a factory making jute bags. PTPN XI has 16 operational sugarcane processing factories, but currently only four are profitable.
“In the past we used to export some of our molasses and ethanol, but currently everything is for domestic consumption,” says President Director Basuki Adjibrata.
“We will be looking at export opportunities in the near future, given that, at the moment, the price of molasses in the international markets is lower than the price of molasses in Indonesia.”

The plantation’s development program is to develop more downstream industries to add value. Molasses, for example, is a raw material used for the production of ethanol and Mr. Adjibrata points out that it is also a very good raw material for the production of baker’s yeast.
The company’s turnover is currently around $80 million a year – the overall figure is higher, but includes part of the income of the smallholder farmers who work for PTPN XI.
“The most important thing for us is to find a strategic partner who understands our need for funding,” continues Mr. Adjibrata. “We have the technology, but we require partners who can match our needs.”

EMPLOYING more than 20,000 people, the Plantation XI produces 385,000 tons of sugar a year, as well as 220,000 tons of molasses.

Market demand for refined sugar is growing, he says. “For example, Coca-Cola is still buying its double-refined sugar from abroad. So, if we can attract partners to help us create double refineries, we can get that market.
“Many things can be developed from sugarcane, such as organic compost, ethanol, yeast, and particleboard (made from bagasse, the plant material which remains after sugarcane has had the sugar extracted). We are also concerned about the environment and at the moment we lack organic fertilizers. But we could produce organic compost from the solid waste at our sugar mills.”

PTPN XI has made contact with a number of foreign companies which have expressed interest in downstream industries in the sugar business. Among them are Indian, Korean, Czech, Slovakian and Chinese firms. Mr. Adjibrata says one Chinese company is considering a $60 million investment to develop these industries.
The plantation owns some 20,000 acres of land suitable for downstream industries and, given the difficulties facing the sugar industry itself, downstream development could be the best option. Mr. Adjibrata says there are some fears about the health of the Indonesian sugar industry as it stands over the next few years as there is a world sugar surplus and prices have fallen dramatically.

Other factors work against the sugar plantations as farmers find it difficult to raise credit and there is no quota on imported sugar.
“Unlike other governments, the Indonesian government does not protect the sugar industry,” he says. “For example, if someone wants to export sugar to the United States, then we have to pay 250 percent import tax in the US. But within Indonesia, it’s a maximum of 25 percent. Indonesian import tariffs are the lowest in the world, except Australia.
“About two million people’s lives now depend on sugar in Java. One way to help them is fair trading in sugar.”