Page 26 - ar2012

Plantation Review
Sugar
Overview
The Division diversifed into sugar cane cultivation and production in
2008 as a key strategy for business expansion, driven by signifcant
shortfalls in domestic sugar production. In Indonesia, our investment
prospects are strengthened by positive drivers such as population
growth, the rapid development of processed food and beverage
industries, and the expansion of sugar-based industries such as
ethanol processing which utilises molasses as a basic raw material.
As at end-2012, Indonesia remains a net sugar importer, a situation
expected to continue in the foreseeable future. Dry weather conditions
during the growing season have led to lower cane yields and a slow
down in new plantings. According to the Dewan Gula Indonesia, total
domestic sugar production from home-grown sugar cane in 2012
was 2.59 million tonnes compared to 2.23 million tonnes in 2011.
Nonetheless, the shortfall in domestic sugar production amounted
to approximately 2.64 million tonnes, representing about 50% of
Indonesia’s total domestic sugar demand.
In 2012, international sugar prices sustained pressure from a
sizeable global sugar production surplus in 2011/12 and the
deteriorating outlook of the global economy. Sugar prices on the
London International Financial Futures and Options Exchange (LIFFE)
showed a downward trend in 2012 to an average of US$588 per
tonne compared to US$706 per tonne in 2011. Moving forward, the
direction for the global sugar prices will be strongly infuenced by
production levels in Brazil, together with the Brazilian government
policies on ethanol.
Sugar prices in Indonesia are relatively shielded fromglobal fuctuations,
with government policies aimed at protecting the domestic industry
and particularly the smallholder farmers. The government strictly
regulates sugar production and trade. Raw sugar import quotas
are permitted only to licensed refneries producing exclusively
for the food and beverage industry. Sugar from local plantations
caters primary to the retail consumer market. When necessary,
the government permits sugar mills to import and process raw
sugar provided outputs are used to address domestic production
shortfalls. The government-mandated foor price per kilogram for
sugar increased by 8% to Rp8,100 in 2012 from Rp7,500 in 2011.
2012 REVIEW
During the year in review, the Division achieved revenue of Rp625
billion in sugar and molasses sales, a 125% increase compared
to Rp277 billion in 2011. We expect the contribution to improve
further when estate expansions and new plantings are ready to
supplement output levels.
The Division owns and operates two sugar mills and refneries located
in South Sumatra and Central Java, processing cane harvested
from our own estates and cane supplies from third-party farmers,
respectively.
• In South Sumatra, our 8,000 TCD sugar mill and refnery in
Komering with an annual sugar cane processing capacity of
1.44 million tonnes was fully operational during the harvesting
season in 2012. We harvested 588,000 tonnes of sugar cane
in 2012 compared to 420,000 tonnes in 2011, producing
49,300 tonnes of sugar primarily in the form of 50-kilogram
packs, which were sold to the domestic market. Although
our sugar extraction rates were lower than normal due to
the extended commissioning process of the new factory, we
expect this to increase in 2013.
The acreage for planted sugar cane in South Sumatra was
expanded to 12,333 hectares in 2012 from 12,255 hectares
in 2011.
• In Central Java, our 3,000 TCD sugar mill and refnery was
expanded to 4,000 TCD in mid-2012 to meet increased cane
supplies from around 7,000 hectares (versus 6,000 hectares
in 2011) belonging to over 700 local farmers. As a result,
annual sugar cane processing capacity was increased from
540,000 tonnes in 2011 to 720,000 tonnes in 2012.
During the year in review, the Division
achieved revenue of Rp625 billion in
sugar and molasses sales, a 125% increase
compared to Rp277 billion in 2011.
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