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Impact of import tariff and government purchasing price to the Indonesia's sugar competitiveness
Dissertation Abstract:
Indonesia is the third most populous country in the world. Indonesia's sugar consumption in 2017/2018, both household and food industry consumption, amounted to 6378 thousand tons. Consumption continues to increase to 6670 thousand tons in 2018/2019. Indonesia's sugar consumption is estimated to continue to increase with the increase in the middle-class population. Sugar consumption is expected to reach 6800 thousand tons until the first semester of 2020. On the other hand, consumption is not satisfied by domestic production. Domestic production in the last three years only reached one third of domestic consumption, which is around 2100 thousand tons in 2017/2018. This figure is expected to continue to enhance last until mid-2020.
Since 2016, Indonesia has become the world's number one importer country compared to China. The level of Indonesian sugar consumption continues to rise. In contrast, domestic production is unable to meet demand and Indonesia need to import sugar. In 2020, Indonesia's sugar import is predicted to continue to increase to 4400 thousand MT of raw sugar. Indonesia will continue to import sugar because sugarcane output is predicted to fall in 2019/2020 due to shrinking land availability. In addition, the majority of Indonesia's sugar mills is over than a hundred year and cause the low sugar's extraction rate to only 6.9%.
Trade liberalization is the similarity of terms of trade. It is because trade distortions in the form of tariffs and non-tariffs will gradually be removed. Trade liberalization will lead to the one price policy for all markets. Trade liberalization began when 23 member states of the General Agreement on Tariffs and Trade (GATT) formulated the Havana Charter on concessions to reduce tariffs from 1946 to Uruguay Round (1986-1994) which agreed to form the World Trade Organization (WTO). Until now, trade agreements in the form of economic integration zones established Custom Union, Free Trade Areas (FTAs), and other forms.
This study aims to (1) Analyze the competitiveness of the Indonesia sugar industry using Policy Analysis Matrix method, (2) Analyze factors that affect the performance of Indonesia sugar industry, and (3) Evaluate the impact of government price policies and import tariffs on the sugar industry Indonesia in the period of 2015-2017.
In this study, Indonesian sugar industry model is a simultaneous equation system. The formulated model consists of 31 equations with 18 structural equations and 13 identity equations. Based on the order condition criteria it is concluded that each structural equation contained in the model is overidentified. Next, the model is estimated using the 2SLS method with the SYSLIN procedure. Historical simulations use the NEWTON method with the SIMNLIN procedure. Type of data used in this study is time series data with years from 1995 to 2017.
The results showed that the development of sugarcane plantation area in Java on each ownership status was influenced by the planting area of the previous year. The same variable coupled with the number of sugarcane mills established outside Java affected the area of sugar cane plantations. The demand for Indonesian household sugar is influenced by retail sugar prices, the price of complementary goods that is the price of coffee, and gross domestic income. Meanwhile, the demand for sugar by the food and beverage industry is influenced by economic growth and the amount of sugar demanded by the industry in the previous year. Sugar prices in Indonesia, namely farm-level sugar prices and retail sugar prices, are influenced by wholesale sugar prices. Whereas the price of sugar at the wholesale level is influenced by the prices of the previous year.
Examining Indonesia's sugar competitiveness, this study uses the PAM (Policy Analysis Matrix) method. The domestic price ratio (DRCR) is 2.04. This figure means that Indonesia's domestic sugar production, compared to abroad, is twice as high. Analysis of sensitivity shows that capacity improvement of a sugarcane milling and sugarcane planting area expansion outside Java Island has been able to increase farmers' financial income up to 47 884 thousand rupiah per hectare and economic income up to 38 408 thousand rupiah per hectare. The DRCR figure of 0.92 shows that with a combination of these policies, Indonesia is able to increase the competitiveness of the national sugar industry. Domestic sugar production costs are lower than the cost of importing raw sugar.