Sugar barter: Indonesia reduces rules for Indian imports to sweeten palm oil trade

By Pearly Neo contact

- Last updated on GMT

Indonesia has relaxed the quality requirements for sugar entering the country to allow Indian supply in, as part of a barter exchange to secure palm oil export access to the latter and to deal with dwindling local supply. ©Getty Images
Indonesia has relaxed the quality requirements for sugar entering the country to allow Indian supply in, as part of a barter exchange to secure palm oil export access to the latter and to deal with dwindling local supply. ©Getty Images

Related tags: Sugar, Palm oil, Indonesia, India

Indonesia has relaxed the quality requirements for sugar entering the country to allow Indian supply in, as part of a barter exchange to secure palm oil export access to the latter and to deal with dwindling local supply.

Indonesia is known to be the biggest sugar importer in the world, but the Indonesian government tightly controls and regulates the local sugar industry, according to the United States Department of Agriculture (USDA).

However, a harsh drought season and ageing local sugar mills have seen dwindling local supplies of raw sugar, leading to a likely gap between supply and demand in the country.

“Local sugar mills are ageing, with approximately 40 mills over 100 years old. Only six sugar mills are less than 25 years old. The older machinery results in poor recovery rates and is a disincentive to farmers, who are paid based on recovery rate,”​ said the USDA report.

“In 2017/18, four out of 59 mills ceased processing [operations] due to inefficiency, and by the year 2020 an estimated additional 12 sugar mills on Java [are likely to join them].”

In line with this, the Indonesia Sugar Refiners Association has estimated that Indonesia will import 3.3 million tons of raw sugar in 2020, a significant increase from the 2.6 million tons imported in 2019.

In a bid to meet local demand and to prevent sugar price hikes in the upcoming May festive season, various state agencies have called for the importation of raw sugar for processing in the country, with India expected to lead the imports due to preferential conditions as part of a barter deal between the two countries.

“Indonesia has reduced the import duties for Indian raw sugar to 5% in accordance with the ASEAN-India Free Trade Agreement,” ​Indonesian Minister of Trade Agus Suparmanto said in a formal statement.

“This move will put India on an equal and level playing field with other countries like Australia and Thailand.”

Indonesian Food Resilience Agency (BKP) Head Agung Hendriadi added that the BKP had proposed an additional 130,000 tons of sugar imports, and indicated that India would likely be a top source.

"It's a barter. We get their palm oil [export] access,"​ he said at a press conference after a high-level meeting with the Indonesian Chamber of Commerce and Industry.

Indonesia also recently relaxed its requirements for sugar imports based on the International Commission for Uniform Methods of Sugar Analysis (ICUMSA) colour-grading standard to 600, from the previous limit of 1,200.

Raw sugar from India is generally produced at a grade of 800, hence previously were not permitted for export to Indonesia.

Palm oil rush

Indonesia is also likely to see increased palm oil exports to India as a result of the latter’s ban on palm oil from Malaysia following a spat between the two countries over Malaysia’s then-Prime Minister Tun Dr Mahathir Mohammad’s criticism of India’s actions in Kashmir and a new citizenship law.

Malaysian Palm Oil Council (MPOC) Chairman Lee Yeow Chor told Reuters ​that the situation for Malaysia is ‘not critical’​ as the country was still ‘tight on stocks’​.

“[India] may buy more from Indonesia. But that will open up a vacuum somewhere in the market elsewhere,”​ he said.

It remains to be seen whether the loosened trade regulations between India and Indonesia, or the tumultuous political situation in Malaysia, will alter this situation.

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