Prospect of Indonesian Sugar Trade in the Implementation of ASEAN-China Free Trade Agreement Framework

Abstract

Sugar is an important and strategic commodity because it is one of the main foodstuff and sugar cane as a raw material of sugar produced by a large part of farmers in Indonesia. Globalization and unfair trade, including sugar trade, will affect the development of the sugar industry in Indonesia. Implementation of Asean-China Free Trade Agreement will reduce and eliminate tariff and non-tariff barriers. Domestic production of sugar has not been able to fulfill the high demand for sugar in Indonesia. The objectives of study are to analyze the factors which influence demand for and supply of sugar in domestic and world markets, to evaluate the impact of economic policy in agricultural sector on the performance of Indonesian sugar trade for the period 2004-2010, and to forecast the impact of economic policy in agricultural sector and external factor on the performance of Indonesian sugar trade for the period 2011-2014 and 2015-2020. Indonesian Sugar Trade Model was constructed as a simultaneous equations system and estimated by 2SLS method with SYSLIN procedure. Historical and forecasting were simulated using NEWTON method with SIMNLIN procedure. Indonesian sugar import from China is more responsive than Indonesian sugar import from Thailand to changes in sugar import tariff, but the share of Indonesian sugar import from Thailand larger than Indonesian sugar import from China so that reducing import tariff policy will increase sugar import from Thailand larger than China. Elimination of import tariff will increase consumer’s surplus higher than decreasing of producer’s surplus but net surplus decrease because government’s tariff revenue also decrease. This study suggest that to increase sugar consumer’s and producer’s welfare (net surplus) the combinations of reducing sugar import tariff, increasing price of sugar, expansion of sugar cane plantations and strengthening the role of State Logistics Agency could be an appropriate policy instruments.