Post on 06-May-2019
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The factors Involved in the Process Cane into Sugar in Indonesia
Dyana Sari1Wahib Muhaimin2
Wahyunindyawati31) Lecturer at Faculty of Agriculture, University of Tribhuwana Tungga Dewi, Malang, Indonesia
2)Lecturer at Faculty of Agriculture, University of Brawijaya, Malang, Indonesia3)Researcher at BPTP, Malang, Indonesia
Abstract : The Indonesian sugar economy is quite worrying due to the increasing of imported
sugar from year to year. Therefore it is necessary to study, what factors are involved in the Indonesian sugar economy and how far these factors play a role in the arena of sugar economy.
This study is based on secondary data from the years 1983-2013, from several sources such as BPS, AGI, USDA, and the World Bank. Then the data is poured into models are made in such a way that is similar to the actual conditions, according to the theory of agricultural economics. SAS version 9 is utilized to process the data, with technique of simultaneous link.
The result says, factors involved in Indonesian sugar economy has 3 sectors : cane farmers that grow sugarcane, sugar mills that process sugarcane into sugar, and sugar in the marketplace. In cane farmers, factors affecting cane field is the price of sugar (Pg), while the price of paddy (Pa), Price of corn (Pj), and lending interest rate (ir) are not significant. Whilst, factors affect cane productivity are the price of sugar (Pg), lending interest rate (ir), and price of Urea (PfUrea). Between sectors of cane farmers and sugar mills, there is analysis of the factors that influence sucrose-content rate, those are time (t) and ratooning. Increasing the frequency of ratooning, the better the results of sucrose-content. Between sectors of sugar mills and sugar marketplace, there is sugar demand, which has factors affecting domestic sugar demand are the price of sugar (Pg), population (Pop), income level (Ini), and the previous year's sugar demand (Dg1). In the marketplace, factors affecting Indonesian sugar import is the difference between sugar demand (Dg) and sugar production (Qg), time (t) and sugar imports in the previous year (Mg1). The factors that affect the price of sugar is the world sugar price (PWg), the Rupiah exchange rate against the USD(ERI), Nominal Rate of Protection (nrp), Cost of Sugar Cane Growers (HPP) and the price of sugar a year earlier(Pg1), while Indonesian sugar supply(Sg) is not significant.
Indonesian government should be aware about the increasing sugar imports to solve the problem of sugar economy in Indonesia, so that future problems do not become more complicated.
Keywords : Indonesian sugar economy, Indonesian sugar demand, Indonesian sugar supply, Indonesian sugar import, Indonesian cane farmers, sugar, sugarcane.
1. Introduction :As a sovereign country, Indonesia would like to fulfill her own need of several basic
commodities, one of them is sugar as the second most important after the staples of rice.
However, fulfillment of this need is not as simple as imagined. Past glory as the second world's
largest sugar exporter in 1930s, has vanished already. As the country's second largest sugar
exporter, Indonesia could be proud at the time, but it is not now. Since 1967, Indonesia has
never stopped importing sugar until today. The amount of imports continued to rise from year to
year, so it is not surprising if OECD FAO predicts that Indonesia will become the world's largest
sugar importer, surpassing China and the USA in 2022 (OECD-FAO, 2013). Various policies
have been launched, but it did not succeed to restore its past glory. If the desire to achieve the
glorious years, perhaps it is too much, so that the target is only to be achieved by Indonesia as
just sugar self-sufficient and it has been a target, even it has never been achieved yet. This
shows there are lots of problems in the sphere . Therefore, it is needed to take a full overview,
what are the factors involved in the sugar economy in Indonesia and what have been happened
there. A study is needed to do, starting of sugar cane planting, sending to the manufactures to
make sugar until it sells the marketplace, and if there is a shortage of supply, sugar is imported
to fulfill the demand. As a result, it can be seen which factors involved from planting sugar cane
to be sugar and it put in the marketplace.
2. The situation of Indonesian Sugar EconomyIndonesia produces sugar from sugarcane. If there are other sources of sweeteners,
they come mostly from palm sugar and industry (artificial sweeteners), but the last those
mentioned have a relatively very small amount comparing to the use of sugar for 260 millions of
Indonesia people.
Sugarcane is popular for Indonesian farmers and has grown since hundreds of years
ago, and the Dutch managed to intensify during the colonial period: planting sugarcane,
delivering to the plant, to later become a mainstay of export commodities. Bosma (2013) and
Kano (2008) described in detail, Indonesia had been as an exporter of sugar world at that time.
Although Sprague (2011) saw in a different perspective (a history of capitalist imperialist
exploitation), he said that period (from 1600 to 1945, particularly from Cultivation System /
Cultuurstelsel in 1830-1870), the Dutch has achieved success for export of sugar as the main
crop. Sprague (2011) said, for sugar cane plantations, farmers are forced to convert their paddy
rice (and irrigation channels and dykes) to the sugar cane fields. He said, the farmers were
asked to not only prepare the land, plant and farming, but also to harvest and transport it to the
factory, and be workers there; or in the other words, farmers did all by themselves, under
Dutch’s supervision. It was a sad story but on the other hand, the Dutch built a road and bridge
construction for the transportation of plants, improvement of port facilities, construction of
offices, factories and warehouses for products, construction of dams and irrigation canals.
Because of this effort, Sprague (2011) reported there was rapid development of this industry.
This experience may get a lesson, cultivating with suitable infrastructure can get best result.
After independence in 1945, there was no rules for the farmers anymore. They may
grow any plant they want. They can take their own decision whether they grow paddy, maize, or
sugarcane, even any other. Situations where farmers, mills and market place in Indonesian
sugar economy as follows:
Figure 1. Indonesian Sugar Economy
2.1. Sugarcane production of farmers’ sectionAll farmers are free to choose their preference to grow. Their decision is influenced by
their perception if the product they grow, can give the best profit. The typical behavior is referred
by the price of finished product as farmers consider at the price of product when they want to
grow. In fact, this similar behavior happened in other countries, say like in Vietnam, the
expansion in area under cane production may be partially reflect the fact that sugarcane is
becoming more competitive with other crops (FAO, 1997). It describes, for example, in the
southern province of Long An, the area under sugarcane has expanded to over 11 000 ha in
1990s, in direct competition with rice, groundnuts, and pineapples, and in the north-central
province of Thanh Hoa, increases in sugarcane areas were taken from land formerly used for
pineapples and coffee. In Thailand, the expansion reflected the relative attractiveness of sugar
prices compared with alternative crops such as cassava and watermelon in the Northeast, and
beans and corn in the North (FAOa, 1997). In the Philippines, the southernmost island of
Mindanao where is no typhoon, sugarcane competes with other tropical crops in a balanced
manner reflective of market conditions and investment priorities (FAOd, 1997)
In Indonesia, sugarcane is still dominated in Java island, and the farmers have
possibilities to grow paddy or corn instead of sugarcane. In other words, sugarcane competes
with paddy and corn. If the price of paddy or corn better than sugarcane, they will not grow
sugarcane and it refers.
Agricultural profiles on the area of farms are involved with the rent which is connected
with bank interest rate. It is because, in agricultural economics’ perspective, the farms of some
area are classified by tenure – owned and tented or leased ( Echevarria, 1998). Hubacek and
Berg (2002) gives emphasis that land is closed with perfect market. In fact, on farmers’
perspective, interest rate is praiseworthy to consider in order to accelerate their activity. Say. if
there is facility to borrow money with interesting interest rate, e.g. government gives special
interest rate to grow sugarcane, then they will take the loan and cultivate the cane. Based on
these reasons, it can be made a function of the land as follows:
Lt = A0 + A1*Pg - A2*Pa - A3*Pj - A4*ir + A5*Lt1………………(1)
Where :
Lt = Land as space to cultivate sugarcane (ha)
Pg = Price of sugar (IDR/kg)
Pa = Price of paddy (IDR/kg)
Pj = Price of corn (IDR/kg)
ir = interest rate of Indonesian banks (% per annum)
Lt1 = Land cultivated sugarcane in previous years (ha)
A0, A1, A2, A3, A4, A5 = parameters
In the same time, there is a function called Identical functions, as follows :
Qt = Lt * Yt……………………………………………………….(1a)
Where :
Qt = Sugarcane production ( ton)
Lt = Land as space to cultivate sugarcane (ha)
Yt = Sugarcane productivity or yield (ton/ha)
The land is very closely related to productivity as land is one of factor productions where
the most commonly factor productions are referred from Solow’s as a three-factor agricultural
production : land, labor and capital (Echevarria, 1998). Another factor of production that
encourages productivity is fertilizer, but it is utilized more by farmers if fertilizer’s price is
affordable. Because the land is affected by interest rates and the price of sugar, then
productivity is affected by land into a function as follows:
Yt= B0 + B1*Pg - B2*ir - B3*PfUrea + B4*Yt1………………………….(2)
Where :
Yt = Productivity of the land (kg/ha)
Pg = Price of sugar (IDR/kg)
ir = interest rate ( %/year)
PfUrea = price of Urea fertilizer (IDR/kg)
B0, B1, B2, B3, B4 = parameters
Urea fertilizer use is based on the soil that Urea is most often used than other fertilizers.
2.2. Sugar production of the mills’ sectionAfter sugarcane is harvested, and it delivers to the mills, and the sugar content has
priority to be mentioned as it has high value as well as crop productivity of bulk of cane. The
ratoon or seed of cane has been quality diminishing as time goes by and ratooning as the
changing of ratoon every year is the way to improve sugar content. Therefore, the function of
sugar content is :
rt = C0 + C1*t + C2*Drtun………………………………………………..(3)
where :
rt = sucrose content of cane (%)
t = time of years (1,2,3,….)
Drtun = dummy ratooning, as ratooning started at 2003, thus dummy is 1 when
ratooning is held and 0 when there is no ratooning
In the same time, there is an identical function as follows :
Qg = Qt * rt ………………………………………………………………….(3a)
Where :
Qg = Sugar production (ton)
Qt = Sugarcane production (ton)
rt = sucrose content (%)
2.3. Sugar Situation on the MarketplaceAfter sugar has been produced by the mills, it is marketed on the marketplace and the
production of sugar depends on the demand. However, the demand has been growing as well
as population growth and it is volatile from the price. If the sugar price is lessening, the demand
grows. According to Rumankova dan Smutka (2013), GDP as the main determinant of the sugar
demand as well as sugar prices. Therefore, as GDP is affecting to the demand of sugar.
Completely, the function of sugar demand is :
Dg = D0 - D1*Pg + D2*Pop + D3*Ini + D4*Dgl…………………………(4)
Where :
Pg = Price of sugar (Rp/kg)
Pop = Population (people)
Ini = GDP per capita represents Income per capita with conversion in
Rupiah/year
Dgl = Demand of sugar in previous years ( ton/year)
D1, D2, D3, D4 = Parameters
During this time, Indonesian sugar production is unable to meet the needs of domestic
sugar demand which continues to increase from year to year. The Government of Indonesia has
to import sugar from 1967 to today. Total import of sugar depends on the amount of production
if it is able to meet the needs of sugar for all Indonesians. The shortage of sugar production
capability is implemented through importing sugar. In accordance with this situation, the function
of Indonesian sugar import is :
Mg = E0 + E1*(Dg – Qg) + E2*t + E3*Mg1…………………………………(5)
Where :
Dg – Qg = The difference between Indonesian demand for sugar and sugar production
(ton)
t = time of years (1,2,3,….)
Mg1 = Indonesian sugar import in previous years (ton)
E0, E1, E2, E3 = parameters
In the current situation of trade liberalization, with a system of openness of the
Indonesian economy, the transmission between world sugar prices and domestic sugar prices
are thought to have formed. Therefore, it takes an effort to see the distortion, how far world
sugar price gives impact on transmission to domestic prices, especially if it is not known the
tariff of a country enacted, then the measurement Nominal Rate of Protection (NRP) became
effective enough to see the trade distortions that happened. NRP is generally used in the
context of the imported product, to see the difference in proportion between domestic prices and
international prices facing a trade policy in the form of import tariff, tariff export, quantitative
restrictions such as the need for a license, the banning of certain rules of the country of origin
(rules of origin), the terms the purchase of local products and others as well as other forms of
incentives such as subsidies and tax rebates (Flatters, 2014). He continued, if the only relevant
trade policy import tariff of 20%, then the NRP also worth 20% - which is the proportional
difference between the import price and domestic prices. Therefore, according to Flatters
(2014), NRP is a measure of the total amount which has the effect of a rise or fall in the trade
under conditions of trade policy, or it has the formula as :
NRP = (Pd - Pw) / Pw x 100 %
Where:
Pd = domestic price
Pw = international prices
For a country that takes the distortion arising from the policy, then the form of protection
is taken as a response to face distorting policies (Thoma, 2006). Stated further, conditions of
high production output and export subsidies in developed countries with high protection in both
the developed and developing countries has given distortion of world trade, which consequently
affect the production distorting policies in developing countries Svatos, Maitah and Belova
(2013) asserted in research on the world sugar market, that in agricultural products trading,
especially sugar, is the most distorted product. Therefore, NRP is a way to see the extent of the
distortion that occurs in Indonesian sugar and how far it affects into sugar price.
Next, the exchange rate also plays an important role in relation to the world sugar price
which is marketed in USD. If the conversion is higher, then it allows the increase in sugar prices
in the domestic market. Another factor is the amount of sugar supply. If the supply of sugar
decreases, the price of sugar will rise. The same thing will happen to farmers’ cost of
production which is set by government. If it is enhanced by the government, then automatically
the price of sugar will rise. Finally, the function becomes:
Pg = F0 + F1*PWg + F2*eri + F3*nrp - F4*Sg + F5*HPP + F6*Pg1….(6)
Where :
Pg = Price of sugar (Rp/kg)
PWg = Price of world sugar (Rp/kg)
eri = exchange rate USD to Rupiah (Rupiah/unit)
nrp = nominal rate of protection (%)
Sg = Indonesian totally supply of sugar (ton/year)
HPP = Farmer’s Cost of Production, set by Government (Rp/kg)
Pg1 = Price of sugar in previous years
F0, F1, F2, F3, F4, F5, F6 = parameters
Whist, the identical function of Sg is :
Sg = Qg + Mg…………………………………………………………..(6a)
Where :
Sg = Indonesian Supply of sugar (ton)
Qg = Totally sugar production of Indonesian mills (ton)
Mg = Indonesian sugar import (ton)
3. Methodology of ResearchBased on the situation of Indonesian sugar economy, the research has been conducted
through time series data from 1983 – 2013, from BPS (Indonesian Central Bureau of Statistics),
AGI (Association of Indonesian Sugar Mills), World Bank, and USDA . Equations as functions
are structured as models have been built through econometrics procedure and agricultural
economics theory and it constructs as close as its reality. All the functions included has
connected one and another and these parts link makes a system of interrelated parts
functioning as a whole, as a simultaneous link. To see how far the correlations among
exogenous towards endogenous variables, there was data analysing technique through SAS
version 9 which has been utilzed.
4. Result of Research and Discussion
4.1. Response of Cane Field Function :
Variable DescriptionParameter Estimation t Value Pr > |t|
Pg Price of Sugar (Rp/kg) 18.67359 2.72 0.012
Pa Price of paddy (Rp/kg) 20.73875 0.71 0.482
Pj Price of corn (Rp/kg) -23.264 -0.73 0.4748
Ir Lending interest rate (%/year) -734.872 -0.75 0.4588
Lt1 Cane field in previous years (ha) 0.685545 8.93 <0.0001
F Value = 40.9; Pr > F = <0,0001 R-Square = 0.89496
The prediction of response obtained about cane field is quiet well with value of
calculated F is 40.9 which is significant with failure level is less than 1 percent. Determination
coefficient obtained is 0.89, indicates that exogenous variables in the model can be explained
89 %.
In table above shows that factors affecting the sugarcane area is Price of sugar (Pg),
while Price of paddy (Pa), Price of corn (Pj), and lending interest rate (ir) are not significant.
The positive sign of Price of sugar (Pg) with failure level of 1,2 % gives acknowledgment that
increasing the price of sugar will provide in response to increased acreage of cane with a
regression coefficient of 18.67. It means, every change of 1 unit Price of sugar (Pg) will give
respond 18.67 times of cane field. Parameters of the price of rice (Pa) and maize (Pj) are not
significant, indicating that the sugarcane grown by farmers is free and does not depend on the
ups and downs of the price of both commodities. Similarly, the lending interest rate is not
significant, means that farmers cultivate sugarcane don’t depend on the interest rate.
In connection with these results, it is recommended that the government gives attention
to domestic sugar price and prevents domestic sugar prices for not to fall. If it happens, sugar
cane farmers are reluctant to expand sugarcane planting areas.
Price of paddy and corn which were been supposed affecting cane field, are not proven.
This result is quite interesting, as it was thought that farmers would change into paddy or corn if
those prices are better than sugar’s, but they didn’t. In other words, paddy and corn prices do
not affect the cane field, which implies that the farmers who have been planting sugar cane, are
less interested in changing their commodities to other products even if the price of rice and corn
are more attractive. In some areas, even if price of paddy is more interesting, the farmers would
not change as cane doesn’t require water as much as paddy and it is more practical to take care
of.
Lending interest rate also didn’t give effect to cane farmers. Result of this study should
be addressed with a more thoughtful, and requires a more detailed assessment if it is true.
During this time, attractive lending money with low interest rate is not really done, and even then
it is conducted at mills as the representative of the bank-borrowers, only addressed to farmers
who submit harvest sugar cane to the mills, and not to all sugarcane farmers.
4.2. Response of Cane Yield Function
Variable DescriptionParameter Estimation t Value Pr > |t|
Pg Price of sugar 0.002881 1,93 0.0646
ir Lending interest rate -0.35958 -1.48 0.1521
Pfurea Price of Urea -0,0000027 -1.83 0.0794
Yt1 Productivity in previous years 0,101959 0.58 0.5676
F Value : 2.65 ; Pr > F : 0,0570 R-Square = 0.29769
Estimation of function sugarcane productivity gained is accepted with the calculated F
value of 2.65 and significant with an error rate of less than 10 percent. The coefficient of
determination obtained at 0.3 means the exogenous variables in the model explained 30
percent, while 70% is explained by other variables that are not included in the model.
Factors that affect the productivity of sugarcane : price of sugar (Pg), loan interest rate
(ir), and price of Urea (PfUrea). Parameter sign of price of sugar (Pg) is positive with a 6.4
percent error rate gives the understanding that increasing the price of sugar will take in
response to increased productivity of sugarcane with the regression coefficient of 0.003. In this
case, the price of sugar should be prevented for not to fall, for the increase in the productivity of
sugarcane.
In contrast to the impact of the expansion of sugar cane that is not affected by interest
rates, the increase in productivity of sugarcane depends on the decrease in interest rates and
falling prices of Urea fertilizer. Declining bank interest rate may be expected to be used to buy
Urea as if Urea is cheap, then the sugar cane farmers will be keen to improve the productivity of
sugarcane through bank loan. This is connected with the condition of cane farmers, that after
harvesting, the ratoons are needed to be grown so that the use of fertilizer is a vital part to raise
the productivity of sugarcane.
The productivity of sugarcane does not depend on the previous year with a value of t-
test is not significant, giving affirmation that the situation of last year productivity doesn’t affect
to this year productivity.
Overall from sugarcane productivity function with the parameters of sugar prices, interest
rates, and the price of urea can be interpreted that the productivity of sugar cane can still be
improved if the Government providing credit subsidies and facility of Urea fertilizer price
declines.
4.3. Response of Sucrose-Content Function
Variable DescriptionParameter Estimation t Value Pr > |t|
t Time - 0,03632 -1.81 0.0822
Drtun Dummy of Ratooning 0,7002 1,94 0.0632
F Value = 1.93; Pr > F =0,1640 R-Square = 0.12535
Estimation of yield response function assessed is quite well with the calculated F value
of 1.93 which is significant with an error rate of less than 20 percent. The coefficient of
determination obtained is 0.13 means that the exogenous variables in the model explained only
13 percent, while 87% is explained by other variables which do not participate in the estimation
of this equation. However, the factors that influence sucrose-content rate are time (t) and
dummy of ratooning as an option in the analysis to provide the number 1 when ratooning is
implemented, while 0 if it has not been done. Sign of parameter of time (t) is negative and
significant with an error rate of less than 10 percent gives the understanding that in the earlier
time, the sucrose-content obtained is better. The positive sign of the dummy of ratooning with
an error rate of less than 10 percent indicates that the sucrose-content increase is influenced by
the presence of ratooning with a regression coefficient of 0.07. Parameters of time and
ratooning dummy mean that sucrose-content produced depends on the frequency of ratooning.
The increased of ratooning will do, the better the results of sucrose-content will be. The real
condition is, ratooning has been conducted since 2003 through government project, and the
accomplishment of the project needs almost 3 years as the cane field is huge to be carried out
in short time. Government should find the better way so that ratooning is continuously
conducted as it is certainly effective to increase the sucrose-content.
4.4. Response of Domestic Sugar Demand Function
Variable DescriptionParameter Estimation t Value Pr > |t|
Pg Price of Sugar (Rp/kg) -199.762 -2.06 0.0495
Pop Population (number of people) 0.010763 2.47 0.0208
Ini Income per capita (Rupiah/year) -0.01704 -2.17 0.0401
Dg1Domestic sugar demand in previous years 0.662398 5.88 <.0001
F Value =16.91 ; Pr >F = <0,0001 R-Square = 0.73019
Estimation of domestic sugar demand response functions obtained is fairly well with the
calculated F value of 16.9 which has good significant number, with an error rate of less than 1
percent. The coefficient of determination obtained by 0.73 means that the exogenous variables
in the model is explainable 73 percent.
Factors affecting domestic sugar demand are the price of sugar (Pg), population (Pop),
income level (Ini), and the previous year's sugar demand (Dg1) and all is significant. The
negative sign of sugar price and significantly with an error rate of < 5 per cent gives the
understanding that declining sugar prices will take in response to increased demand for
domestic sugar with a regression coefficient of 199.8. This figure signifies the existence of a
highly elastic demand for sugar, that one unit change of sugar price, will give a response at
199.8 times the demand for sugar. This information seems to be very useful for the
Government, that the positive change in the price of sugar, not only gives the impact on
productivity of sugarcane, but also the demand for sugar is increasing. Morever, the parameter
of population (Pop) indicates that domestic sugar demand depends on the increase in the
population with a regression coefficient of 0.66, or one unit change of population, will give
response of 66 % sugar demand.
The interesting thing is about the decline in Income (Ini), will bring a response to
increased demand for domestic sugar with a regression coefficient of 0.017. This number is not
large, but it still needs serious more studies about this. Also, this result seems to be quite
different from the results obtained Rumankova and Smutka (2013), which states that GDP is the
main determinant of the demand of sugar as well as sugar prices, and the results of this study
are not consistent with the results of their research. Then, this raises a further question: are
Indonesians aware of the excess of sugar consumption? It seems that further study is needed
on this matter and a prudence is required in the conclusion.
4.5. Response of Sugar Import Function
Variable DescriptionParameter Estimation t Value Pr > |t|
(Dg-Qg) The difference between sugar demand (Dg) and sugar production (Qg) 0,003244 2,49 0.0191
t time 102630,1 3,65 0.0011
Mg1 Sugar import in previous years 0.242573 1,16 0.2543
F Value = 103,31 ; Pr > F= 0,0001 R-Square = 0.95551
Estimation of Indonesian sugar imports response function is quite well with the
calculated F of 103.31 with a failure level of less than 1 percent. The coefficient of determination
obtained amounted to 0.96 means that the exogenous variables in the model explained 96
percent.
Factors affecting Indonesian sugar import is (Dg-Qg), time (t) and sugar imports in the
previous year (Mg1). Parameters’ sign of variables (Dg-Qg), time, and imports of sugar
previously were positively and significantly with an error rate of less than 30 percent indicates
that the increasing difference between demand and production of sugar, the timing and amount
of import of sugar a year earlier, would bring a response to the increase in imports with
coefficient regression 0,003 to variable (Dg-Qg), 102 630 to variable time, and 0.243 against
imports of sugar a year earlier. Therefore the parameters of (Dg-Qg), timing and amount of
import of the previous year can be interpreted that the Indonesian sugar imports will tend to
increase from year to year and the amount of imports will depend on increasing the difference
between demand and production of sugar and the amount of imports a year earlier. This finding
is corresponding to OECD-FAO (2013), that in 2022 Indonesia will be the leading of world sugar
importer, over China and USA. The government should be aware about this serious matter to
solve the problem of sugar economy in Indonesia, so in the future, problems do not become
more complicated.
4.6. Response of Sugar Price Function
Variable Description Parameter Estimation t Value Pr > |t|
PWg World sugar price (Rupiah/kg) 4,089,951 4.43 0.0002
ERIExchange Rate Rupiah toward USD (Rupiah) 0.216758 4.45 0.0002
nrp Nominal rate of protection (%) 3,076,045 6.06 <.0001
Sg Indonesian sugar supply (ton) -0,0000027 -0,13 0,9009
HPPCane Farmer’s cost of production (Rupiah/kg) 0.642186 3.59 0.0015
Pg1 Price of sugar in previous years (Rupiah/kg) 0.213105 1.61 0.1216
F Value =19.02 ; Pr > F = <0,0001 R-Square =0.83225
Prediction of the response function of the domestic sugar prices gained quite well with
the calculated F value of 19.02 which is significant with an error rate of less than 1 percent. The
coefficient of determination obtained is equal to 0.83, meaning that the exogenous variables in
the model explained by 83 percent.
It shows, the factors that affect the price of sugar is the world sugar price (PWg), the
Rupiah exchange rate against the USD, Nominal Rate of Protection (nrp), Cost of Sugar Cane
Growers (HPP) and the price of sugar a year earlier, while Indonesian sugar supply is not
significant. The signs of parameters of the world sugar price (PWg), exchange rate(ERI),
Nominal Rate of Protection(nrp), HPP, and sugar prices the previous year(Pg1) are positive and
significant with an error rate of less than 1 percent gives the meaning that increased world sugar
price will take in response to increased domestic sugar price with regression coefficient of
44,089,951 for world sugar price (PWg), 0.216758 for the exchange rate, 3,076,045 for NRP,
0.642186 for HPP and 0.213105 for sugar prices in previous year gives the sense that the sugar
price formation depends on the exchange rate, NRP and the HPP and the price of the previous
year. Parameter of the supply of sugar that is not sugnificant can be interpreted that the price
formation does not depend on the supply of sugar. In the context of the discussion of global
trade, the domestic sugar price response to world prices indicates that price changes in the
world easily transmit to the domestic sugar prices.
5. ConclusionFactors involved at Indonesian sugar economy are 3 sectors included : cane farmers
that grow sugarcane, sugar mills that process sugarcane into sugar, and sugar marketplace that
market sugar in domestic marketplace. In cane farmers, factors affecting cane field is price of
sugar (Pg), while price of paddy (Pa), Price of corn (Pj), and lending interest rate (ir) are not
significant. Whilst, factors affect cane productivity are price of sugar (Pg), lending interest rate
(ir), and price of Urea (PfUrea). Between sectors of cane farmers and sugar mills, there is
analysis of the factors that influence sucrose-content rate, those are time (t) and ratooning.
Increasing the frequency of ratooning, the better the results of sucrose-content, and vice versa,
if the ratooning is not implemented, the sucrose-content will decrease.
Between sector of sugar mills and marketplace, there is sugar demand, which has factors
affecting domestic sugar demand are the price of sugar (Pg), population (Pop), income level
(Ini), and the previous year's sugar demand (Dg1) and all is significant.
In the marketplace, factors affecting Indonesian sugar import is the difference between
sugar demand (Dg) and sugar production (Qg), time (t) and sugar imports in the previous year
(Mg1). Factors that affect the price of sugar is the world sugar price (PWg), the Rupiah
exchange rate against the USD, Nominal Rate of Protection (nrp), Cost of Sugar Cane Growers
(HPP) and the price of sugar a year earlier, while Indonesian sugar supply is not significant.
Indonesian government should be aware about the increasing sugar import to solve the
problem of sugar economy in Indonesia, so that future problems do not become more
complicated.
AcknowledgementThe authors express appreciation to Dikti ( Indonesian High Education Ministry) for the
sponsorship of this research.
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