STRATEGIES FOR DEVELOPING THE SUGAR INDUSTRY IN INDONESIA: RESOURCES UTILIZATION AND TECHNOLOGY

TRANSFER

Budiman Hutabara t , Yusuf Saefudin, Hida ja t Nataatmadja, Kusbiyanto A, Syamsir, Chairil A. Rasahan, & Faisal Kasryno

Executive Summary

The paper presents an overview of the performance of the sugar industry in Indonesia in an effort to determine additional information needed for establishing new sugar production areas in the future.

The research was based on collecting primary as well as secondary data through interviewing personnel from sugar production areas and other individuals outside the sugar industry and through miscellaneous sugar industry reports.

The paper is arranged in four chapters. Chapter I stresses the importance of development of sugar production areas to satisfy domestic demand. Chapter I1 high- lights the sugar development strategy in Indonesia. The comparison of the degree of resource utilization by Domestic Resource Cost methodology between Java and Off-Java sugar production areas is discussed in Chapter 111. Finally, the technology transfer impact of the sugar industry on local or regional development is briefly explained in Chapter IV.

Several findings of the research can be listed as follows:

1. Increased domestic sugar consumption is inevitable. To reduce import demand, domestic production has to be increased.

2. The total sugar production of plantations in Java has declined since 1975, due to a decline both in area planted and in productivity. However, the total sugar production of smallholders has increased through area expansion. In Off-Java total production ~f plantations has increased due to area expansion rather than productivity increase.

3. Production cost of sugar in Indonesia is still lower than that of Hawaii (USA). Production cost of Java's sugar industry sample is less than that of Hawaii but more than that of South Africa, Australia, and Florida (USA). Production cost of Off-Java's sugar industry sample is lower than that of Hawaii and Florida (USA), but higher than that of South Africa and Australia.

4. The major costs in Java's sample are pre-harvesting (73%), and processing (10%). In Off-Java's sample the major components are pre-harvesting (31%), depreciation (19%), and processing (17%). It appears that the difference in pre- harvesting cost is dictated by differences in the scale of operation, technology, and institutional settings. In Java, the pre-harvesting cost per ton sugar is about Rp. 323,000 and in Off-Java it is about Rp. 132,000. Average hectareage of Java's sample is 3 721 ha and Off-Java's sample is 13 000 ha. However, the productivity of Java is 7.8 ton sugar/ha and of Off-Java is 4.6 ton sugar/ha.

5. Comparative advantage analysis concludes that the values of Domestic Resource Cost of Java's sample and Off-Java sample are 2 816 and 2 132, respectively. By assuming that the exchange rate of US $1 = Rp. 1126, the comparative advantage coefficients are 2.5 and 1.9 for Java and Off-Java, respectively. This implies that under current conditions Indonesia's sugar industry is experiencing comparative disadvantage. This might be influenced by the current l ~ w world price of sugar, which also affects other sugar producing countries.

6. World Bank projections assume a world price of sugar in 1990 of US $321/ton of raw sugar (equivalent to US $422/ton of white sugar), and in 1995 of US $265/ton of raw sugar (equivalent to US $372/ton of white sugar). By adopting this projection and assuming that production cost remains at the same level, by 1990 Java's sugar industry has a neutral comparative advantage coefficient (1.0), and Off-Java's sugar industry has a comparative advantage (coefficient is 0.8). By 1995, Java's sugar industry has a comparative disadvantage (coeffi- cient is 1.3) and Off-Java's has a neutral comparative advantage.

7. In order to achieve a comparative advantage (coefficient less than or equal to 1.00), Java's sugar industry has to increase productivity to the level of 13.8 ton/ha (an increase in 77% on current productivity), and Off-Java's sugar industry has to achieve 6.6 ton/ha (an increase in 57% on current productivity).

8. The sugar industry in Java has been confronted with competition from other uses of land because farmers are more interested in growing other strategic crops such as dce, corn, soybean, and others. This might have something to do with expected income and risks associated with sugarcane as opposed to the other crops. Therefore, acreage expansion in Java is no longer possible on a large scale, and more over, any expansion there could possibly be applied only to marginally irrigated, nonirrigated, or upland areas which are generally low in productivity. Expansion to other Off-Java areas is another alternative, because the coefficients of comparative advantage are relatively lower in Off-Java.

9. In the initial stage, expansion or establishing sugar production areas in Off- Java might be a great economic burden but as time passes some improvement could be made through: (1) improving the productivity per hectare, (2) improving processing efficiency, (3) improving managerial efficiency, (4) utilization of waste product, such as bagasse for pulp and cane shoots for cattle feed.

10. The establishment of the sugar industry outside Java could generate income for local people because working opportunities become available in the industry and in other newly emerging economic activities. Other activities could also emerge through infrastructural development. Other potentially positive effects such as technology transfer from sugar production areas to local people could also be induced. However, negative impacts might also arise, namely, problems related to soil erosion, pollution of swamp by pesticides and factory waste, and labor disputes. However these can be regarded as minor problems which can be easily resolved by the two parties, the sugar industry and the local people.

1. INTRODUCTION Sugar domestic consumption increases every year due to population and income

increases as well as changes in society's food demands (taste). By assuming that

the population and GNP growth are 2.34% and 7% respectively, and income elasti- city of demand for sugar is 0.80, sugar consumption should grow about 8.00% per

I annum. This implies that in 1990, the total sugar consumption will be about 3 687 189 tons (see Table A1 Appendix). Another feature of the consumption aspect is that the concentration of consumers is located on Java because almost 70 percent of the population live on that island. Consequently, most other food product in- dustries utilizing sugar as a raw material are also situated in Java. Based on this scenario, Indonesia will still need to import sugar in the future.

On the other hand, domestic sugar production does not change much, due to a number of factors among which are milling capacity, sugarcane supply, and the condition of the factories in Java. The structure of production can be observed in Table A2 Appendix. In Java, until 1977 sugar was mostly produced by Sugar Factories from either their own fields or fields rented from the farmers. Only a small part was produced by farmers. In 1977, presumably after INPRES 9 of 1975 came into effect, the contribution of factory owned fields decreased and the role of the smallholder farmer became noticeable. Unfortunately, this trend was followed by a decline in the yield (ton sugar/ha) of cane produced both by sugar factory and farmers. In Off-Java, sugar was not produced until 1974. Production there started on areas owned by government (PTPs). Subsequently production increased very slowly, mainly from the expansion of already existing sugar production areas and the establishment of a very few new areas until late 1970s. In 1980, the govern- ment decided to establish many more sugar production areas outside Java, but they only started producing commercially in 1985. At the same time, from 1980 onwards, farmers surrounding the sugar production areas outside Java were also induced to grow cane, but the growth of the acreage and sugar production is very low.

By separating two sets of milling periods in Java as Period I of 1965 to 1975 and Period I1 of 1976 to 1985, we can see that 'in Period I, total production of planta- tion sugar grew at an average rate of 3.52% due to the growth in area and productivity. On the other hand, in period 11, total production of plantations declined at an average rate of 12.47% mainly due to a decline in area planted (average 6.50%) and a decline ,in productivity (6.08%). Therefore, looking at the period 1965 to 1985 as a whole, total production of plantations declined at an average of 4.47% (Table A3 Appendix).

By the same classification of smallholder sugarcane, in Period I total production grew by 9.03% made up by a growth of area planted (average 4.89%) and a growth of productivity (average 4.79%). In Period 11, total production increased at a rate of 27.66.% which is about three times that of Period I. Furthermore, this growth rate was dominantly generated by the growth of the area under sugar2while growth in productivity contributed to only a relatively small extent. Looking at the period 1965 to 1985 overall the total production of smallholder sugar rose by an average of 18.35%.

In Off-Java, after the sugar areas started producing during 1975 to 1985 the total production of plantations increased by an average of 66.91 % thanks to area expansion rather than productivity growth (indeed productivity declined by 1.96%). The total production of smallholders in Off-Java after 1980 grew by an average of 82.79% mostly attributable to growth in the area by an average of 87.59%.

Referring back to column 5 of Table A1 Appendix and assuming that sugar production will increase by its projected average, 1980 to 1988, of 1.29070, domestic sugar production in 1990 will be 1 471 076 tons. In order to satisfy domestic demand, imports will be needed at the level of 2 216 113 tons. At this level, the import cost would be enormous. For example, to satisfy the domestic demand of 1981, Indonesia had to import nearly 788 898 tons of sugar costing US$670 563 300. Nevertheless, due to the speed up in the development program for the new sugar production areas in Off-Java, Indonesia's imports could be reduced, as shown by actual sugar imports during the period 1980 to 1984 (Table A4, Appendix).

This paper attempts to examine the establishment of new sugar production areas in Off-Java through highlighting the sugar development strategy in the next chapter, performing an economic analysis of resource utilization and comparing results of analysis of Off-Java and Java sugar production areas in Chapter 111, and pointing out the technology transfer aspect in Chapter IV.

2. SUGAR INDUSTRY DEVELOPMENT STRATEGY

2.1. Domestic Sugar Policy

Upon the completion of processing the sugar is handed over to BULOG which has been given the sole authority to buy the sugar. BULOG is also authorized to assume the responsibility of procuring, marketing, and distributing sugar across the nation. The sugar is paid for by BULOG at a special quotation price called the sugar provenue which is formulated by the government based on consideration of producer's production cost and a reasonable consumer price. The transfer payment is done by BULOG through the service of Bank Bumi Daya (BBD), a government bank. BULOG then distributes the sugar to the private wholesalers across the country according to the needs in the particular areas or retail markets. In summary, the determination of domestic sugar price per quintal (100 kg) as of March 1985 is listed as follows (SHS I sugar type):

a. Sugar and sack provenue Rp. 43 785.00

b. Other cost components Rp. 9 117:75 After Factory price (charged by BULOG) Rp. 52 902.75 = Rp. 529.00 per kg

Currently, the average local retail prices are in the range of Rp. 675.00 to Rp. 700.00 per kg. The difference between After Factory price and local retail price then presumably covers BULOG and wholesalers, transportation and storage costs and a reasonable profit margin for the wholesalers and local retailers as well. The relation of the distribution cost of sugar to the retail level is summarized in Table A5 Appendix by presenting the actual provenue and the retail prices as well as their real values deflated by ad index of nine basic food commodities. From the Table,

I we can see that both provenue and retail prices move together in the same direction. Even though the nominal provenue prices increased almost four-fold from 1975 to 1985, the real prices remain at the same level. The same is true for the retail

prices. How responsive the sugar production units are to the provenue price was investigated by Soetrisno (1984); he concluded that the area planted with sugarcane did not respond to the provenue price.

As to the relation of important wholesale prices, Figure 1 shows that they move in different directions. In the periods 1976 to 1979 and 1980 to 1985, the domestic wholesale prices were always above the CIF prices, which implies that the domestic sugar producers were protected against the decline in import prices through import bans and restrictions. The situation is reversed in the period 1973 to 1976 and in 1979.

2.2. Sugar Industry Development and Policy

From the historical perspective, sugar industry development was started in the colonial era of the 17th to 19th centuries and current available technology has been inherited from that era after going through modifications in the beginning of the 20th century in which modern technology in factory and field was developing fast. Unfortunately, most of the sugar factories were built and established in Java where the supply of sugarcane relies heavily upon the cultivation of irrigated land. Almost all the sugar traded or marketed in Indonesia in 1975 was produced in Java, and 97.7% of the sugar production (1.2 Mt) was still milled in Java in 1981 as shown in Table A6 Appendix (Hutabarat, 1986).

Before 1975, sugarcane was cultivated on farmers' fields, based on a land rent arrangement following "glebagan" framework (1) in the particular area. The cultiva- tion technique was based on the Reynoso system, a special sugarcane cultivation system on irrigated lowland, named after its founder. The industry was backed up by the research station POJ (Proefstation Oost Java), located in Pasuruan and built in 1887. It later became BP3G.

In 1975, INPRES 9 was enacted to establish a new arrangement of farmer land use, making farmers managers of their own lands. The land rent system was abolish- ed and replaced by TRI program. Under the scheme, the farmers are allowed to grow cane on their own fields and are provided with credits to buy inputs and other necessities. After harvesting, the sugarcane is delivered to nearby sugar factories and the farmers receive 60 to 65% of the total sugar produced, depending upon the rendement.

Due to the very small plots of land owned by farmers in Java, they are organized into groups, each group making up 5 to 15 hectares of land. Extension services are also provided by sugar factories and through the FMPG in which they can discuss problems and exchange ideas. However, the program has not yet achieved the objective of providing a fair share of sugar revenues. Moreover, sugarcane cultivation in Java has been facing a very tight competition for land use from other strategic crops such as rice, corn, soybean, and others as has been shown by Adisasmito et al. (1982), Mubyarto (1984), and Lumban Gaol (1985). Even though Soemodihardjo (1985) concluded that sugar production areas having a large milling capacity tend to make higher profits, area expansion is no longer possible in Java. So, the TRI program still needs to be modified.

In Off-Java, the situation is quite different. The sugar industry in the area was started in the 1960s on rainfed (unirrigated) land. The acquisition of land is arranged

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by the government under HGU, whereby a sugar factory can operate with appropriate and suitable economics of scale.

The establishment of sugar production areas in Aceh and South Sulawesi was mainly politically motivated. In the 1970s, more new sugar factories and sugarcane plantations were built by the government and by joint-venture investment of private investors. The idea of establishing more sugar producing areas outside Java is not ~ n l y to increase domestic production but also to distribute development to Off- Java Islands, to enhance regional development, and to increase people's income by providing employment in the areas. The sugarcane industries are expected to serve as growth centres in the area and not merely as profit centres. This is in line with long-term government objectives as listed below:

1. Self-sufficiency in sugar. 2. Expansion of employment opportunities and an improvement in the farmers'

standard of living. 3. Increasing the overall land area being used productively by locating important

projects in areas where the land is underutilized. 4. A more even distribution of the Indonesian population, by settling people on

the Outer Islands within the framework of the transmigration program. 5. Increasing income from sugar production in order to further sugar development. 6. Increasing state revenues through central or regional taxation schemes.

To achieye these objectives, in the Fourth Five-Year Program (REPELITA IV), the government proposed to establish 18 new sugar production areas, seven of which are to be created by the existing PTPs and the rest by private companies, if possible. Since the plantation industry has a vital role to play in Indonesia's development, the government has developed a program of incentives to attract foreign private investment namely Law Number 1/1967 called the Foreign Investment Act (Goedhart, 1985). Recently, the government has also liberated some credit policies in order to induce domestic private companies interested in agricultural industry development to invest. This is exemplified by Gunung Madu and Gula Putih Mataram Plantations in Central Lampung.

By and large, the government has followed three sets of policies related to sugar industry development, as follows:

1. Rehabilitation of sugar factories in Java 2. Intensification programs in Java 3 . Intensification and acreage expansion programs in Off-Java.

'3. ECONOMIC ANALYSIS OF THE SUGAR INDUSTRY

3.1. Theoretical Frame,work and Approach ' ,

Given a set of natural'resoyrce endowments, several agricultural production alternatives are feasible. There is'however only a limited set of land and physical resources and therefore these alternatives necessarily compete among themselves for the use of these resources. ' ; I

Accordingly, it is of considerable interest to know which regions and which

technologies have strong comparative advantage in specific crop development, and how specific government policies have influenced the pattern of crop production and trade.

When formulating crop development strategy consideration must be given to planning at two levels: nation-wide and entrepreneurial. At both levels, we have to assess the economic and financial profitabilities of these production alternatives within the strategy. At the national level, for example, economic efficiency becomes the major criterion. Price signals from international trade, sometimes referred to as "border price", provide thq: basis for the economic efficiency criterion at the national economy level. On the ;the: hand, financial profitability should be considered. Domestic prices as actually facedCby.the entrepreneurs provide signals that determine financial profitability. Any diversification strategy can only be attractive for the entrepreneurs if positive financial gains accrue to them.

The role of government could then provide the basic economic policy environ- ment within which any agricultural production alternative operates. The set of pricing policies and incentives/disincentives that the government adopts determine to a large extent the economic and financial profitabilities.pf the production alternatives in the agricultural sector.

To measure the regional comparative advantage of the sugar industry, an operational concept called Domestic Resource Cost (DRC) will be applied. Briefly, DRC is the ratio of the domestic factor cost td the border price of outputs minus the foreign factor cost. Formally, it can be stated as:

domestic cost in economic prices per unit of output DRC =

border price of output minus foreign input cost per unit in border prices.

The numerator is expressed in local currency while the denominator is measured in foreign currency so that the result is in effect the "own exchange rate" for the economic activity. The DRC will then be compared to the shadow exchange rate (SER) of the rupiah.

Export promotion or import substitution activity is economically profitable or has a comparative advantage only if the DRC is less than SER. This implies that fewer domestic resources are required to earn or to save a unit of foreign exchange than the country is willing to pay for it.

It should be emphasized, however, that the DRC concept is only one criterion for policy decision. Employment, income distribution, regional development and so on are other important criteria that should be considered for policy determination.

Since the crucial problem in the calculation of DRC is the allocation of the production costs into their foreign and domestic components, the inputs must first be classified into tradable and non-tradable inputs. In general, we shall say that if some of the demand for the input will be satisfied from imports, or some of the supply exported, the input is classified as tradable. Other inputs are referred to as non-tradable.

Tradable inputs/outputs are then valued at border prices, i.e., Free On Board (FOB) unit values for commodity exports, and Cost Insurance Freight (CIF) values

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for imported goods. These values are referred to as foreign costs. Non-tradable inputs are then broken down into tradable components and

primary domestic factors by moving backward through the input-output chain. For this purpose we use the Input-Output Tables for Indonesia, published by Central Bureau of Statistics.

Tradable components are valued and treated as for tradable inputs, while primary domestic factors are valued at their opportunity costs, and referred to as domestic costs.

In this analysis, opportunity cost of primary domestic factors (land and labor) are assumed equal to their market prices. Accounting rate of interest is estimated at 13.5% per annum. Shadow exchange rate (SER) was derived using a standard conversion factor (SCF) following the Guideline for Economic Analysis of Projects. .

When considering the price of output (sugar) which is determined exogenously in the model, the question arises as to what level of border price should be used. Recently, a substantial surplus of sugar in the world market has caused unbalance between the world supply and demand and therefore, has forced the world price to decline. Hence, the current world price level does not necessarily reflect the true marginal cost of producing sugar in other competitive producing countries, and therefore, cannot directly be used in the calculation of DRC. We propose to use the expected price of sugar during the period of normal years. The expected price of sugar is calculated on the yearly moving average of price levels during a relatively long period. Based on the available data, the educated guess of expected normal price of sugar has been c.i.f. US $250/m. ton white sugar.

3.2. Results and Discussion

The performance of the sugar industry

Before discussing the results of analysis, we briefly mention some major per- formances of the sugar industry in the two regions (Java and Off-Java), which are useful in considering the results of the study. For Java, the analysis is based on the input-output data from 12 sugar plantations/factories, while in Off-Java it is based on one sugar plantation.

Unlike most plantations in Java which were etablished long ago, the plantations in Off-Java were mostly built in the early.1980~. Our sample in Off-Java has ex- perienced only its first year of commercial sugar production.

Sugar industries in both regions also differ in terms of cultivation technologies and institutional aspects. In Java, sugarcane is planted on irrigated land, and all activities during pre-harvest and harvesting are done manually. In Off-Java, sugar- cane is planted in rainfed or upland areas. In addition, since laborers are very scarce, field activities are fully mechanized. (2) Another difference is that sugar plantations in Java involve the farmers in the area through the mass intensification program (TRI). The farmers grow sugarcane on their own land, and are given credit, but are respon- sible for input cost and crop growth until the harvesting stage. The sharing arrange- ment of the scheme determines that the farmers are entitled to 60% of sugar produced. Almost all sugarcane planted in Java comes under this system (95%). However,

sugarcane planted in Off-Java is entirely undel company's control through HGU schemes (3).

In terms of size, the average sugarcane area in Off-Java (13 250 ha) is much larger than the area in Java which is, on average, 3 706 ha per plantation or processing unit. Productivity figures show that cane per hectare and sugar content in Off-Java which are about 61 ton cane/ha and 7.5% sugar content are lower than the corres- ponding figures in Java which are about 85 tc/ha and 9.2% sugar content. These figures result in 4.6 ton white sugar/ha in Off-Java and 7.8 t/ha in Java. (4) So, yield in Off-Java is 41% lower than that in Java. This high yield difference seems mainly due to the differences in the quality of land and climatic conditions.

Production cost and revenue

Table A7 Appendix shows the cost structure, revenue, and profitability of the sugar industry in both regions, valued at financial and economic prices.

Production costs at economic prices are slightly higher than those at financial prices, which indicates the presence of subsidies especially for fertilizers and pesticides. Production cost at economic price in Off-Java is Rp. 429 000 or US $381/ton white sugar, while in Java it is Rp. 527 000 or US $468/ton white sugar. So production cost in Off-Java is about 19% lower than in Java, although yield in Java is much higher than in Off-Java. From this point of view, the government policy to expand the sugar industry in Off-Java could be justified on the ground of regional cost efficiency.

Compared with the production cost in other sugar producing countries, pro- duction cost in Off-Java is lower than that in Hawaii (US $610/m.ton white sugar) and Florida (US $ 450/m. ton). It is, however, still higher than that in Australia and South Africa (each US $ 370/m.ton). (5) For Java, the production cost is just lower than in Hawaii.

The separation of cost components into foreign and domestic costs shows that domestic cost takes a much higher proportion than foreign cost (65-73% Vs 27-35%). Since domestic costs are relatively under domestic control, there is still strong ground for reducing costs in order to make unit cost more efficient.

On cost structure, the major items contributing to total production cost in Off- Java are pre-harvest costs (31 %) depreciation (19%) and processing cost (17%). In Java, pre-harvest cost alone cover 73.percent of total cost (Table A8 Appendix). (6) Higher pre-harvest costs in Java indicate that the size of plant together with technology (Reynoso vs minimum tillage) and institutional setting significantly affect the cost per unit. As mentioned above, size of plantation is relatively much larger in Off-Java. In addition, high competition in utilizing land in Java creates very high land values. On the other hand, high depreciation and interest costs in Off-Java represent high initial investment costs in opening new fully mechanized sugar pro- duction areas there.

On the revenue side, the value of sugar at financial price is much higher than at economic price. Hence, there is a positive net protection rate (NPR) for the

I commodity, indicating the presence of an economic incentive to the domestic pro- ducers. This incentive is very attractive, considering that financial price (at factory

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level) is 54% above the border price. The incentive is even higher (113%) if we use the wholesale market price as a reference (7).

Given differing production costs, and the difference between financial and economic benefits mentioned above, the benefits over costs (profit) will be very different depending on the price level we use in the analysis. The sugar industry in both regions is financially profitable. The financial gain of producing one ton of white sugar ranges between Rp.47 000 (US $ 42) in Java and Rp. 49 000 (US $43) in Off-Java. On the other hand, evaluated at economic price, the sugar industry is not economically profitable. The economic loss ranges between Rp. 131 OOO/m.ton (US $ 116) in Off-Java and Rp. 230 000/m. ton (US $ 204) in Java.

Economic loss is reflected in the high DRC values which are estimated at 2 132 in Off-Java and 2 816 in Java, respectively. Using the exchange rate of US $ 1 = Rp. 1 126, coefficients of comparative advantage are equal to 1.9 in Off-Java and 2.5 in Java, respectively. This indicates that the economy has a comparative disadvantage in sugar production, implying that higher domestic resources are given up to save a unit of foreign exchange than the society is, on average, willing to

Clearly, part of the explanation for economic loss in the sugar industry is the low price of sugar in the world market. So, this comparative disadvantage condition is not only an Indonesian phenomenon. The situation is also being faced by most other sugar producing countries.

The World Bank (Duncan, 1986) has made projections of sugar prices in the future. The international price of raw sugar is estimated to be US $321/ton in 1990 (equivalent to CIF US $442/ton white sugar), and US $265/m. ton in 1995 (equi- valent to CIF US $ 372/ton white sugar). Assuming production costs remain unchanged, at the price of raw sugar of US $ 265/ton, the industry in Off-Java has neither advantage or disadvantage (with the coefficient = 1.0), while in Java it still has a comparative disadvantage (coefficient = 1.3.)

At the price of US $ 321/ton. the sugar industry in Off-Java has a strong comparative advantage (coefficient = 0.8), while in Java it has a neutral characteris- tic (Table A9 Appendix).

Sensitivity Analysis

In order to get some idea of how some important parameters, such as production cost (especially domestic cost), yield and border price affect DRC value, we simulate a mathematical relationship by partially changing the value of those parameters and allowing the model to determine the equilibrium of DRC. However, since part of the model is non-linear and asymptotic in nature, the equations have to be interpreted carefully, and the variation of the parameters has to be limited within the ranges that are economically meaningful.

Mathematical relationships between DRC and domestic cost (DC), yield (Q in ton/ha), and in border price of sugar (BP) are as follows:

In Off-Java:

(1) DRC = 0.0077 DC

(2) DRC = 1 272498 /(250 Q - 553.11) (3) DRC = 276 630 /(BP - 120.24)

In Java:

(1) DRC = 0.0074 DC (2) DRC = 2 981 144 /(250 Q - 891.21) (3) DRC = 382 198 /(BP - 114.25)

As presented in Figure 2, the relationship between DRC and domestic cost is straight forward and unitary elastic. It means that every change in domestic cost, the DRC value will change proportiondly.

There are inverse relationships between yield and border price and the value of DRC (Figures 3 and 4). Assuming other factors are constant, the value of DRC will decline if yield (or border price) rises. In order to make the DRC value equal to the value of the exchange rate (Rp. 1126/US $ I), or the coefficient comparative advantage equal to 1 .O, the sugar industry is economically profitable or has com- parative advantage if yield level reaches at least 6.6 ton/ha in Off-Java,and 13.8 ton/ha in Java, respectively. Or, put another way, given the existing yield level the industry would have comparative advantage if the border price of sugar rose to US $ 366 (for Off-Java) and US $ 454 (for Java).

We should note that sugar development in Off-Java has several objectives (some of them non-economic in nature). Some of these objectives are: (1) The sugar industry is expected to be the "agent of development" to accelerate agricultural development in the broader sense, (2) multiplier effects of the industry are expected to create other economic activities, especially in non-agricultural sectors, in order to speed up regional development. Since those external benefits are difficult to measure, the benefits included in the analysis tend to be undervalued. It is, therefore, irrelevant to justify policy implications from only this economic analysis. Policy decision is finally dependent on what government objectives are, and which goals among many are going to be pursued by the government.

3.3. Some Efforts to Reduce Unit Cost I Considering there are still some inefficiencies which contribute to high pro-

duction costs, some improvements are possible in order to make the industry show comparative advantage.

The following proposals are suggested with a view to reducing production cost per unit:

1. Increase yield by reducing cane loss. During harvesting and transportation, cane loss is estimated at 15 to 20% and is due to low skill and discipline of harvester operators and losses during tran- sportation. Reducing these losses clearly would contribute to higher yield or lower unit cost.

2. Increase harvester capacity. The actual capacity of harvesters is very poor due to low operator skill, field lay-out and weather problems. Actual capacity is only 40 percent of potential

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capacity (12.8 tc/h against 40 tc/h potential capacity). Low operator skill also causes frequent breakdown of harvesters with consequent high replacement and maintenance costs.

3. Reduce down time in processing operations during the milling period. Observation on two sample plantations indicates that down time during processing is still very high (around 50%). This is due to internal factors (machine break down) and external factors (deficiency in cane supply).

4. Improve methods of harvesting/loading. The presumption that the development of the sugar industry in Off-Java requires intensive capital is not fully supported by the real potential of resources available in the area. We found that laborers willing to support the industry are available. One sugar industry in the area can employ 8,000 - 10,000 workers a day during the milling period and around 4,000 workers a day during other activities. Regard- ing the harvesting/loading method, some experiments show that manual harvest- ing can reduce costs by 50% compared with mechanical harvesting. Furthermore, the cost can be reduced by another 50% when cane is burnt prior to harvesting. In addition, manual loading is generally less expensive than mechanical loading, particularly if loading can be done directly, without carrying, from the heaprow (Burleigh, 1985).

5. Redesign field lay-out. Efficiency in the farm machinery operation system requires appropriate size and layout of field. The appropriate scale is not necessarily uniform, and to some extent, we found, size militates against the effort to improve the quality of planta- tion maintenance and protection by using man-power. Therefore, the optimum field size and layout are required to take into account the need to supervise planta- tion maintenance effectively.

, 6. Increase milling capacity. The efforts mentioned above, together with planning to increase the sugarcane area, would increase sugarcane production. It is therefore necessary to increase milling capacity to reduce the delay between cutting and grinding, thereby improving sugar content.

4. TECHNOLOGY TRANSFER

4.1. Technology as a Multi-head Projectile

Technology represents human capability to design, direct and control natural processes to perform something useful to assist man in achieving his goals and objectives. Yet very few of us recognize that technology is a multi headed projectile which can trigger unexpected as well as expected chains of processes:

1. It is an end product of a long dialectic process between man and his environment, and after mastering a technology man is not the same as his forefathers.

2. It is a new stage in the never ending interaction between man and his environment, inviting thereby a new spectum of reactions from the environment.

3. It is also an action exerted by man upon his social surroundings, inviting another chain of reactions from within the sphere of his psychosocial environment.

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4.2. Technology Transfer

Technology transfer deals usually with the following issues: 1 1. The process of how technology as knowledge and skill is transferred from the

'owner' to the "recipient". a. Usually it means cost in terms of expert time and the "price" of the techno-

logy. b. Invariably, it is associated with the transfer of value, as value is inseparable

from knowledge and skill.

2. Adjustment process: a. To make some changes in the technology to make it adaptive to local environ-

ment. b. To make changes in local environment to make it adaptive to the new techno-

logy introduced. I 3. The nature of the ensuing dialectic process:

a. Action-reaction with the physical surrounding. b. Action-reaction with the social surrounding. I

It is difficult to deal comprehensively and systematically with all aspects of technology transfer, particularly because science refuses to talk about value, the "value free of science". What we will do in this paper is only to present some of the problems encountered in the field, and try to see whether the observed processes are in line with the underlying policy guidelines.

4.3. Policy Guidelines

To meet the increasing domestic demand for sugar in PELITA 111 and IV, 18 new sugar mills are planned, each having a capacity of 4,000 tc/d. Most of these new factories will be located outside Java. At the same time most of the 47 factories in Java have been rehabilitated, increasing thereby the milling capacity from 87 713 tc/d in 1980 to 113 055 tc/d and improving the rate of sugar recovery.

It has been pointed out in Chapter I1 that sugarcane in Java is undergoing in- creasing competition with rice and other crops, as it is grown mostly in irrigated areas. Rice production technology is developing fast, making lower and lower comparative advantage for sugar cane in good irrigated areas. Besides, it is also realized that irrigation investment should be reserved fpr rice production, as the extension of irrigated areas is expensive and almost impossible in Java. This situation shifts sugarcane cultivation to the marginally irrigated areas, and finally to non- irrigated or upland areas.

Yet to move the sugar production areas from Java to other islands is a great economic burden, and for the time being it is considered wise to let sugar production in Java proceed at its present leve1,while expansion will be made outside Java. In spite of the increasing cost of cane production in Java it is still economical when compared with the option to move to other islands. To reduce the cost some improve- ments can be made, such as: (1) improving productivity per hectare; (2) improving processing efficiency; (3) improving managerial efficiency, such as by merging some of the smaller sugar production areas into one; (4) utilization of waste products,

such as bagasse for pulp and cane shoots for cattle feed. It is the government policy in Java to eliminate the renting system and replace

it with the so-called TRI system, or smallholder's sugarcane intensification program. In this system farmers receive credit from the bank, while the sugar factories act as cane buyer and supervisor to ensure that proper technology is applied by farmers. ~t can be shown that, in aggregate, farmers do receive a competitive earning from the system, especially when they are allowed to grow ratoon cane. Yet this makes crop rotation exceedingly difficult, as many farmers prefer to grow ratoon cane

In the new sugar production areas outside Java the government gives long lease land tenure (HGU) to the production unit, with the following rationale:

1. Sugarcane is grown in upland (unirrigated) areas, the technology of which is not well understood, so that it would be risky to let local farmers join the

2. Land preparation is fully mechanized and so is part of harvesting, and it is difficult when the estate has to deal with farmers and farmers land.

3. Labor is scarce, and many farmers outside Java have many opportunities to work on their own land, such as cultivating rice in the lowlands and estate crops in the uplands, and may even be active in logging.

4. Farmers outside Java are not used to intensive farming, and it is difficult to organize their participation in the TRI system.

Special efforts are being made to introduce the TRI system in transmigration areas, yet the program is in a very preliminary stage. Similar attempts have been made in South Sulawesi with local farmers, yet the result makes everyone unhappy.

The development of the sugar industry outside Java is also rooted in the policy to spread development evenly throughout the country, with the special mission of making the sugar production units agents of development in the areas where they are located. By improving economic opportunity outside Java a condition may be achieved whereby the population of Java will move voluntarily out, without the expensive transmigration program supported by the government.

4.4. Income Generation and Infrastructural Investment

The most obvious and direct effect o/n the immediate social surrounding is income stream and infrastructural investment as reflected in the following facts:

1. On the average, for every ton capacity of the mill (tc/h), the expenses paid in , the form of salaries and wages, local purchase of input materials, and local

government tax range from Rp. 600 000 to Rp. 1 300 000 per year, depending on the associated area and productivity.

2. According to the degree of mechanization, every ton capacity of the mill generates employment opportunity for 1 to 3 laborers.

3. For every ton capacity, 0.004 to 0.009 km of public road is constructed by the mill, over and above any infrastructural investment that may be provided by the center or provincial government.

4. Investment is also made in other social services, such as schools, mosques and churches, markets, health and other public services.

All these first generation investments will generate further economic activities, multiplying the effect over time. This can be seen from the appearance of more and more urbanized features in the villages surrounding the sugar production areas.

Most of the employment opportunity is open to local people, and only the staff personnel include a high proportion of skilled operatives, who are usually transferred from the sugar factories in Java and are needed in the process of technology transfer.

In South Sumatra and Lampung most of the manual and seasonal labor comes from the nearby transmigration settlements. It appears that in Lampung, harvesting can be done by manual%labor, while full mechanical harvesting was carried out only in the initial years. Some experience indicates that the cost of manual harvesting is

0 much lower than that of mechanical harvesting, while manual harvesting is also more in line with our attempt to increase employment opportunity.

4.5 Adjustment Process and Manpower Development

Inefficient use of machinery is particularly obvious in harvesting, contributing the largest share, about 5 1 %, of downtime in the new sugar production areas observ- ed in South Sumatra. It is one of the reasons why manual harvesting is preferred. According to the manufacturing specification the capacity of the harvester is 40 tc/h, yet in reality 12.8 tc/h is accepted. The low performance of mechanical harve- sters is governed by the suitability of the.harvesters to the local field conditions.

Asked about the appropriateness of manpower training for mechanics, tractor and factory operators, one expert said in a philosophical tone: "Very good . . . . ., yet to have a very good mechanic a whole life training program is needed". He added that: "It would be better if a candidate has to choose his career as a mechanic after junior high school, by entering a kind of apprentice-training program. He has to work in a factory as an apprentice, while periodically he will enter college training sponsored by the factory where he is working. After four years of this apprentice- training program he would become a good mechanic for the whole of his career". He further commented that "it would be too expensive and ineffective to train a university graduate as a mechanic". He also said that professional expertise is an art, and "don't expect that any country can help in designing the most appropriate technology for you, as it is you and you alone who can tell you what kind of techno- logy you need".

This is a problem of technology transfer across nations. Technology transfer is often regarded as a "commodity" of its own, which is "sold" to reap the highest benefit. A kind of "monopoly power" is apparent, preventing technology transfer from proceeding more or less as "free goods" across nations. Before Indonesia has a strong industrial capability it is difficult for her to make the best choice.

In terms of sugar factory operation, Indonesia has enough expertise to transfer from the existing factories in Java. But when machine design and manufacturing are concerned, the situation is different.

The following is a good example. A sugar factory was built using technicians and technology from a certain developed country, and due to some political problems

1107

it became difficult to obtain spare parts, or to renew the construction using new parts from other countries.

4.6. Farm Technology

In the past, research on breeding, land preparation, pest control, and fertiliza- tion was focussed on cane cultivation under lowland conditions, using the so called Reynoso system. Soil conditions where sugarcane is grown in Java are, in general, very good. The shift of cane cultivation to upland areas means also a shift to marginal land. In the new areas the soil type is usually Podsolic, which is low in nutrients and pH. In Cinta Manis sugar producing areas, South Sumatera, the pH ranges from 4.0 to 4.3.

Attempts to improve capability to support cane cultivation under upland con- dition were initiated early in PELITA 11, yet it is difficult to say when the degree of "self sufficiency" in cane technology can be reached. Some high yielding varieties suitable for upland conditions have been released by BP3G.

Attempts have also been made to introduce high yielding varieties from abroad and this was successfully carried out on a large scale by the private Gunung Madu plantation. Yet now, in the second year, the cane is badly infested by a leaf disease and total eradication is required.

In Cinta Manis sugar production areas liming has been tried to increase the pH of the soil in an attempt to improve production. Yet the result of this experiment is not conclusive. More trials need to be conducted.

1 4.7. Interaction With Soeial Surrounding

Market access and the urban influence inherent in sugar factory construction are good for the villagers in the neighbourhood, yet that is not the end of the story. One official has told us about the effects observed in the villages. He said that local people have a bad consumption habit, using money they received as land compensa- tion to buy motor cycles, expensive clothing, and even motor cars. Similarly, local workers seem to spend more money than the workers from Java. On the other hand their work discipline is weak. There is a tradition in South Sumatera to have "an auction bid" at a traditional feast. Various souveniis are offered at auction to invite the highest bidder. For a Javanese this kind of tradition seems absurd, and suggests a strongly frivolous expenditure pattern among the local people.

Urban influence and market access tend to encourage the growth of this kind of "frivolous" consumption behaviour. It means that the level of income of the villagers may increasq say by lo%, yet their consumption need may increase, say by 20%. This is the nature of negative urban effect, where the growth of income is lower than the growth of consumption need. This is also the underlying feature in the North-South polarization in international relations. It may appear impossible that consumption can grow beyond income. Yet this is very, very possible at least for a time being by the sale of valuable assets, particularly land. Credit support is another means of creating the impossible.

In South Sulawesi land right is regarded as a serious problem, where many farmers claim ownership of a tract of land. The local people are also known for

their ho t temperament and high mobility. Many of them leave their homeland t o settle somewhere i n Kalimantan and Sumatera, opening new land t o grow rice a n d coconuts. I n spite of years of absence f r o m their homeland, sometimes they come back t o reestablish the old social relation i n t h e village. They may claim ownership of a tract of land which is then already used by other farmers o r by sugar production units. This kind of dispute is hard t o settle.

I n South Sumatra a quite different problem is observed. In the process of acquiring land for sugar production units there was n o special rule t o ensure that enough land was left fo r the villagers, so tha t in one village many farmers became virtually landless.

Other problems, related t o soil erosion, pollution of swamp by pesticides a n d factory waste, and labor disputes a re many, yet these can be regaded as minor problems that can be easily resolved. T h e most serious problem we face is whether the increase of income of the villagers induces a much higher increase in their consumption need. If this happens the future of the villagers will, i n general, be worse than their present state.

Special effort is needed for the sugar production areas t o help prevent this negative effect, by actively encouraging t h e growth of rural entrepreneurs and productive oriented values against the natural trend t o change in less beneficial ways.

5. REFERENCES,, i

1. Adisasmito, K. Nahdodin, and Susmiadi, A. 1982. "Evaluasi Pelaksanaan INPRES No. 9 Th. 1975 Sampai dengan Tahun Giling 1980 (Evaluation of INPRES No. 9 of 1975 through 1980 Milling Year)," Majalah Perusahaan Gula 18 (1 to 3): 12-23.

2. Blume, H. 1985. Geography of Sugar Cane: Environmental, Structural and Economical Aspects of Cane Sugar 'production. Verlag Dr. Albert Bartens. Berlin.

3. Burleigh, C.H. 1985. "Comparative Cost Estimates for Alternative Harvesting and Tran- sport Methods and Systems," in Provision of Indonesian Sugar Project Advisory Services. Appendix 2 of Annex F (Cane Harvesting and Transportation). Departemen Pertanian RI, Dewan Gula Indonesia, and ABA International, Honolulu, Hawaii.

4. Business News. 1986. "Konsumsi Gula Indonesia Menurun (Indonesian Sugar Consump- tion is Decreasing)," Business News No. 4304 (30):14.

5. Duncan, R.C. 1986. World Bank Forecasts for Commodities. Paper Presented at Inter- national Seminar on Commodities, July 21-25, 1986. Kuala Lumpur, Malaysia.

6. Goedhart, A. 1985. "The Indonesian Sugar Industry: Profit center or Agent for Develop- ment?," Sugar v Azucar, pp. 16-24.

7. Hutabarat, Budiman. 1986. "Gula dan Indonesia (Sugar and Indonesia)," in Kasryno, F. (editor), Prospek dan Kndala Pengembangan Kompleks Industri Gula di Luar Jawa (Prospects and Constraints of Sugar Industry Development in Off-Java). CAER Research Report (forthcoming). Bogor.

8. Lumban Gaol, H. 1985. "Sugar Cane Economy in Indonesia," in Proceedings Simposium Peningkatan Peranan Tebu di Indonesia, October 14-16, 1985. Ikatan Ahli Gula Indonesia. Jakarta.

9. Mubyarto. 1984. Masalah Industri Gula di Indonesia (Constraints on Sugar Industry in Indonesia). BPFE. Yogyakarta.

10. Rasahan, C.A., Erwidodo, and D.H. Darmawan. 1985. "High Cost Economics of the Indonesian Sugar Cane Industry: Problems and Consequences" in Proceedings Simposium

Peningkatan Peranan Tebu di Indonesia, October 14-16, 1985. Ikatan Ahli Gula Indonesia. Jakarta.

11. Soemodihardjo, I.H. 1985. Optimum Penggunaan Lahan di Daerah Penghasil Padi dan Tebu di Jawa Timur dan Pengaruhnya Terhadap Pendapatan Petani dan Kesempatan Kerja (Optimal Allocation of Land and Its Impact on Farmers' Income and Employment Opportunities in Rice and Sugarcane Areas of East Java). Ph.D. Thesis. Institut Pertanian Bogor. Bogor.

12. Soeparto, P . 1981. "Peranan Industri Gula Dalam Pembangunan Nasional : Suatu Pen- dekatan Berdasarkan TRI MATRA (The Role of Sugar Industry in National Development : TRI MATRA Philosophy)", in Proceedings Temu Karya Pembangunan Industri Gula. BP3G. Pasuruan.

13. Soetrisno, N. 1984. Farmers, Millers, and Sugar Production. Ph.D. Thesis. University of the Philippines, Diliman, Philippines.

FOOTNOTES

(1) Glebagan is multiple use of land through acreage and crop rotation based on the drainage of the area.

(2) One more established sugar plantation in Off-Java shifted from fully mechanized to manual harvesting when laborers became available in the area.

(3) In the future, the sugar industry in Off-Java is also planned to follow the system as in Java, with some policy modifications.

(4) The actual yield in Off-Java was only 3.6 ton/ha in 1985 during the first commercial milling year. Since the rate is not yet stable, we use the projected yield of 4.6 ton white sugar/ha, which had been achieved by other plantations in the same area in 1985 after experiencing 10 years of commercial milling.

(5) Personal communication with Mr Pete Luke of Sugar y Azucar (1986). (6) Pre-harvest costs in Java are derived from the value of credit given to the farmers (including

interest charge) plus estimated land cost. (7) Sugar is very important in the Indonesian economy - indeed it is included among "the

nine basic commodities". In consequence, the sugar marketing system in Indonesia, from

GLOSSARY I I

HGU (Hak Guna Usaha)

BP3G (Balai Penelitian Perusahaan = Indonesia Sugar Research Perkebunan Gula) Institute

BULOG (Badan Urusan Logistik) = Logistic Bureau

FMPG (Forum Musyawarah Pabrik Gula) = Sugar Factories and Farmers Forum ,

= Long Lease Land Tenure I I I

1 INPRES (Instruksi Presiden) = Presidential Decree 1 1 PELITA (Pembangunan Lima Tahun) = Five-Year Development

PTP (Perseroqn iTerbatas Perkebunan) = Government Owned Plantation

REPELITA(Rencana gembangunan Lima Tahun) 'i, = Five-Year ~ e v e l o ~ m e n t Plan

TRI (Tebu Rakyat Intensifikasi) = Smallholder's Sugarcane Intensification

CAER (Central for Agro Economics Research)

TABLE Al . Projection of Indonesia's Sugar Consumption and Production. I Growth of Total Total Production

Year Population consumption consumption production growth rate per capita

(kg) (ton) (ton) (%I

1980 147,383,075 11.42 1,683,115 1,294,519

1981 150,831,839 12.06 1,819,032 1,030,134 0.67

* Average production growth rate of 1980-1988. Source: Soeparto (1981).

TABLE A2. Area, Productivity, and Total Sugar Production in Indonesia, 1965 to 1985.

J a v a O f f - J a v a

Plantation Sugarcane Smallholder Sugarcane Plantation Sugarcane Smallholder Sugarcane

Milling Area Prod. Tot.Prod. Area Prod. Tot.Prod Area Prod. Tot.Prod Area Prod. Tot.Prod. year (ha) (ton sugar) (ha) (ton sugar) (ha) (ton sugar) (ha) (ton sugar)

1965 71030 9.66 686266 16378 5.49 89684 - - I - - - - 1966 68318 8.22 561827 12001 3.63 43573 - - - - - - 1967 69347 8.91 617816 9685 4.37" 42352 - - - - - -

1968 65495 8.51 557145 11465 3.79 43487 - - - - - -

1969 66356 10.09 669766 12456 4.95 61712 - - - - - - 1970 69172 9.29 644263 12505 3.87 71049 - - - - - - 1971 70596 10.66 752710 1261 5 5.80 77281 - - - - - - 1972 71479 10.95 782399 15819 6.41 107026 - - - - - - 1973 77637 8.90 690885 22391 5.46 125507 - - - - - -

1974 79792 10.63 848123 26714 6.30 176335 - - - - - -

1975 82555 10.78 890368 21 482 5.98 140645 740 5.46 4039 - - -

1976 81494 10.29 839065 31319 6.38 204664 3298 5.26 17356 - - -

1977 68779 10.22 703020 50066 7.44 392500 5596 4.49 28883 - - - 1978 64287 8.68 559750 78361 6.95 552824 5540 4.49 24780 - - -

-?&I979 61833 7.91 490747 104430 7.20 754993 11833 3.62 42817 - - - <,

1980 40134 7.05 283376 131936 6.75 902982 16494 3.82 62981 208 2.91 606 1981 32909 6.39 210619 142646 6.70 970387 17339 3.92 68012 254 4.32 1098 1982 37532 4.39 167498 200946 6.82 1386953 18663 3.87 72182 41 4 2.20 912 1983 33528 4.96 167220 234177 5.83 1375541 25947 4.01 104101 66 3.14 209 1984 36550 4.95 180972 206341 6.50 1351114 42372 4.12 174384 300 2.82 846 1985 37634 5.30 199642 182694 6.93 1277028 56740 4.33 246631 547 3.25 1878

r L F

Prod. = Productivity (per hectare); Tot.Prod. = Total Production. r

Source: BP3G.

TABLE A4. Total Sugar Imported by Indonesia during 1980 to 1984

- Import (in thousand tons) in year

Country Source 1980 1981 1982 1983 1984 Average

Philippines 123.3 202.3 90.0 4.0 83.9

south Korea 94.6 236.8 78.7 50.3 92.1

Mainland China 50.2 35.6 0.2 0.1 0.1 17.2

Japan 13.1 12.9 1.3 0.5 0.5 5.7

India 8.1 45.9 374.8 42.4 94.2

Thailand 0.1 18.8 55.4 50.8 0.1 25.0

Australia 0.3 0.3 0.2 0.4 0.2 0.3

Netherland 0.8 1.2 1.3 2.3 1.4 1.4

West Germany 0.6 0.4 0.5 0.8 0.5 0.6

U S A 0.2 1.5 0.3 0.2 0.2 0.5

Others 109.7 168.4 87.1 17.6 0.9 76.7

T o t a l 401.0 724.1 689.8 169.4 3.9 397.6

Percentage Change 80.57 -4.73 -75.44 -97.32 -24.32

Source: Business News (1986).

TABLE A5. Provenue and Retail Prices of Sugar in Indonesia, 1975 to 1985.

Nominal Prices Deflated Prices*) Year

Provenue Retail Provenue Retail

Rupiah per kilogram

1975 109.08 164.95 48.48 73.31

1976 109.08 178.29 38.54 63.00

1977 137.84 188.57 45.79 62.65

1978 155.58 210.81 48.17 65.27

*) Deflated by index prices of nine basic food commodities in Java rural areas.

YEAR

CIF Price + Wholesale Price

FIGURE 1. Import (Border) and wholesale prices.

TABLE A6. Total Sugar Production and Numbers of SFs* by Region in 1981.

Region Cane sugar production Numbers of SF (ton) (percentage)

Eastern Java 736,555 61.9 34

East central Java 223,713 18.5 1 1

West central Java 220,738 18.3 I I

: Sulawesi 20,143 1.7 1

I

i Sumatra 6,906 0.6 2 I

1 T o t a l 1,208,055 100.0 59

I E Source: Blume (1985).

1 *SF = Sugar Factory.

TABLE A8. Economic Cost Components of Sugarcane Industries, Java and OffmJava, 1985.

Off-Java Java

1. Preharvest Cost 132,287 30.8 382,525 72.6

2. Harvesting 13,919 3.2 13,449 2.6

3. Processing 71,030 16.6 53,741 10.2

4. Packaging 8,923 2.1 14,587 2.8

5. Management 24,271 5.7 11,800 2.2,

6. Others 29,544 6.9 9,740 1.8

7. Depreciation 83,437 19.4 31,002 5.9

8. Interest Charge ' 60,648 14.1 5,178 1 .O

9. Distribution Cost 4,989 1.2 4,989 0.9

Total Cost: (RP) 429,047 100.0 527,011 100.0

TABLE A9. Changes in The Value of DRC and Coefficients of Comparative Advantage With Respect to Change in World Price of White Sugar.

O f f - J a v a J a v a

1035849 Financial Price Economlc Prlce Financial Price Economic Price

Total Total Foreign Domestic Total Total Forelgn Domest~c (Rp'000) (Rplton) - (Rplton) --- (Rp'000) (Rplton) - (Rplton) --.

Assumption FOB price of sugar = US $265 Olm ton *)

Total Cost ( Rp ) 24534756 403251 429047 152416 276630 140670765 405053 527011 144812 382198 (US $ 1 21789 358 381 135 246 124930 360 488 129 339 ( % ) 1000 355 645 1000 275 725

Revenue Sugar 26344759 433000 418557 152061058 437850 418557 Others 1035849 17025 17025 5611555 16158 16158 Total (Rp) 27380608 450025 435582 157672613 454008 434715

(US $) 24317 400 387 140029 403 386

Profit A L L (Rp) 2845853 46774 6535 17001848 48955 -92296

(US $) 2527 42 6 15099 43 -82

D R C 11000 1484 5 Coef Comparative Advantage 1 0 1 3 (US $1 = Rp 1,126)

Assumption: FOB price of sugar = US $3211m.ton * * I

Total Cost ( Rp) 24534756 403251 429047 152418 276830 140670765 405053 527011 144812 382198 (US $ ) 21789 358 381 135 246 124930 360 486 129 339 ( % 1 1000 355 645 1000 275 725

Revenue Sugar 26344759 433000 497813 152061058 437850 497813 Others 1035849 17025 17025 5611555 16158 16158 Total (Rp) 2738M08 4500025 514838 157672613 454008 513771

(US $1 24317 400 457 140029 403 456

Profit A L L (Rp) 2845853 48774 85591 17001848 48955 -13240

(US $) 2527 42 76 15099 43 -12

D R C 859 9 11684 Coef Comparative Advantage 0 8 1 0 (US $1 = Rp 1,126)

Note: *) World Bank 1995' raw sugar price projection *) World Bank 1990' raw sugar price projection

11 19

DOMESTIC COST (RP'OOOITON) OFF JAVA + JAVA

FIGURE 2. Domestic cost and DRC value.

YIELD (TON WHITE SUGARIHA) OFF JAVA + JAVA

FIGURE 3. Yield and DRC value.

'anleh 3ua put? a q ~ d JapJoa 'p 3un91 j

V A V ~ + V A V ~ 330 (NOI'WI$ sn 313) m l t l d t r Iatroa

099 9Z9 009 9LP OSP 9ZP OOP 9LE OPE 9ZE OOE 9LZ O9Z

Z'Z

P'Z

OZI I