World’s Top Sugar Buyer Losing its Sweet Tooth During Pandemic

(Bloomberg) -- Indonesia, the world’s biggest importer of raw sugar, is seeing demand tumble as a surge in coronavirus cases hampers out-of-home dining and roils nationwide delivery of the sweetener.

Sugar demand is set to be about 225,000 tons this month, after dropping as much as 25% between March and June, according to the Indonesia Sugar Association. In a normal year, the country consumes between 250,000 to 260,000 tons a month.

“In normal times, our consumption never falls,” said Yadi Yusriyadi, senior adviser at the association. “This is quiet significant.”

Rising outbreaks of Covid-19 have limited the country from reopening fully since going into lockdown in March, meaning sweet-toothed patrons are still avoiding hotels, restaurants and small food stalls. Prices also remain high in large swathes of the country as domestic logistics disruptions mean sugar isn’t reaching large consuming areas.

The decline in the Southeast Asian country’s appetite will add pressure to already gloomy demand projections from the International Sugar Organization. About 2.1 million tons of global sugar consumption has been lost or deferred due to the pandemic, with potentially greater losses to follow, the ISO said in June report.

Despite the lower demand, domestic prices have failed to fall to the Indonesian government’s target level of 12,500 rupiah (86 cents) per kilogram. The national average retail price for the sweetener remained above 15,000 rupiah per kilogram in July, according to data from central bank-run Center for Information of Strategic Food Price.

Prices have remained high because of ineffective distribution networks, hampering deliveries to regions that don’t have sugar mills, said Yusriadi. Prices in sugar-producing regions like east and central Java are around the government’s target, he said.

“We have enough supplies, but if they are only sitting in warehouses it will never be enough,” Yusriadi said. Prices won’t fall unless the traders distribute the sugar they buy, he said.

The government issued permits for local mills and several state-owned companies to import almost 700,000 tons of raw sugar, and 150,000 tons of white sugar, in a bid to cool domestic prices.

For local mills, they’re expected to produce as much as 2 million tons of white sugar from local cane this year if there’s no more heavy rain during the milling season. That’s at the lower end of the association’s February estimate. About 30% of that has been produced so far, Yusriadi said.

The nation will need to decide in August or September if it needs additional imports to fulfill demand in early 2021 before the next milling season starts, Yusriyadi said.

©2020 Bloomberg L.P.