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Sugar Price Structure in Indonesia
Thesis Abstract:
This study evaluated the sugar price structure and the extent of sugar market integration in Indonesia across regions and through time in relation to government policies and infrastructure development.
Monthly retail sugar prices from 1973 to 1992 in the country's 27 provinces revealed an increasing trend. Price variation declined over time because of the government's price stabilization policy. Surplus areas experienced lower prices and relatively lower rates of price increase over time than deficit areas.
The government policy to insulate Indonesian sugar prices from the very unstable world prices resulted to domestic prices being higher than world prices.
Sugar prices exhibited some seasonality and an inverse relationship with government allocation. However, the seasonal index range was not too wide, suggesting relatively stable prices over a 12-month period. In general, prices in surplus areas were less stable than in deficit areas which may be due to supply changes not within the Bureau of Logistic Affairs' (BULOG) control.
Surabaya, considered as a reference market in the study, was found to be integrated with other regions. However, results revealed that through time, sugar markets were getting less integrated for most of the regions.
This was the case even for regions which had more improved infrastructure. It was possible that markets other than Surabaya are becoming important reference markets, owing to improved linkage among regions resulting from infrastructure and communications development. This implied decreasing dependency on East Java (Surabaya) as a sugar trading center in Indonesia.
Considering the increasing sugar demand in Indonesia and the concentration of sugar producers in very limited areas, infrastructure development should be continued to ensure improved sugar distribution.
Furthermore, the government should give attention to improving sugar productivity particularly in off-Java areas. This would require technology improvements and favorable relative output-input prices.