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Global Business Guide Indonesia

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Technology Transfer | Joint Ventures | Investment
PG Blora | Mr Kamadjaya
Mr Kamadjaya

The lack of investment in sugar cane processing can be attributed to a shortage of locally sourced raw materials, but we have first-hand experience in being able to work with local farmers to increase the amount of sugar cane available to us in the regency from 150 hectares in 2011 to 6,000 hectares in 2014

Mr Kamadjaya, President Director

PG Blora was founded in 2011 to address Indonesia’s need to achieve self-sufficiency in sugar. What more can you tell us about your company’s background and its main strategies going forward?

PG Blora was established by PT Gendhis Multi Manis with the vision of becoming a prominent sugar producer that will lead the development of Indonesia’s sugar industry. Our factory is located in the Blora regency of Central Java and carried out its first milling on 4th July 2014. We decided to enter this industry in response to the many opportunities in Indonesia, and on the island of Java in particular which accounts for about 65% of the country’s market for sugar. Our strategy in making the most of these opportunities is to implement the latest sugar milling technology so as to differentiate ourselves from the many existing factories that continue to rely on out-dated machinery and production processes.

When speaking about the sugar industry in this country, it is important to note that sugar businesses in Java and outside Java face considerably different working environments, particularly in regards to the maturity of the industry. In Java there is already existing sugar cane land as well as hundreds of years’ worth of tradition in sugar cane farming – the island’s first sugar factory was established in 1796. Areas outside of Java offer an abundance of land but lack the heritage and history when it comes to cultivation and milling. As such, sugar businesses in Java such as our company must prioritise the development of strong relationships with local farmers whose expertise in growing sugar cane suited to the area must not be overlooked. Land acquisition is another problem impeding the development of the sugar industry outside of Java.

Given the context of Indonesia’s sugar consumption that has risen by 50% over the past decade, what is your outlook for the continued development of your industry?

It can be said that Indonesia’s sugar industry was at its strongest during the Dutch colonial era, as we have since gone from being a net exporter to a net importer. One of the reasons for this lack of progress is the aforementioned prevalence of old companies that continue to use old equipment and inefficient milling techniques. Also slowing our industry’s development is government policy that does not adequately support agricultural businesses aside from those involved in crude palm oil. While the CPO industry is primarily driven by the private sector, Indonesia’s sugar industry is characterised by pronounced government involvement without the implementation of policies to stimulate and motivate investment in sugar cane factories.

Much is expected of the new government to improve upon the business climate in Indonesia. What should the new administration prioritize in carrying out reforms in the sugar industry?

After visiting several sugar factories, Indonesia’s Vice President Jusuf Kalla announced that the government planned to build 10 new sugar factories over the course of the next five years. With the current policies in place, however, we have serious doubts as to whether this goal is achievable. Besides PG Blora, there have been no new sugar cane factories established in Java since 1984.

In our view, overcoming challenges related to government regulations remains the biggest hurdle to businesses in our industry. With regards to investment policy, the government is currently giving tax exemptions to refineries and traders that import sugar. This can make it cheaper to obtain sugar from overseas at 6,000 IDR per kg compared to from factories in Java at 7,000 IDR per kg.

It is thus not surprising to see that the country plans to import 1.8 million tonnes of sugar during the upcoming cane milling season.

In addition to issues related to government policies, one of the often-cited factors behind the current state of Indonesia’s sugar mill industry is an inadequate supply of local sugar cane. What can you tell us about your efforts to face this challenge?

It is often asserted that the lack of investment in sugar cane processing can be attributed to a shortage of locally sourced raw materials, but we have first-hand experience in being able to work with local farmers to increase the amount of sugar cane available to us in the regency from 150 hectares in 2011 to 6,000 hectares in 2014. This suggests that when the factories perform well, the farmers will grow sugar cane to meet demand for raw materials. Our duty is thus to provide them with new seeds and better infrastructure.

What can you tell us about PG Blora’s plans to expand as well as move into the downstream sugar industry?

Insofar as Indonesia continues to import such a large amount of sugar, we intend to focus only on sugar production. At present, we do not plan to explore downstream industries related to ethanol and instead intend to diversify by finding new ways to make use of the excess bagasse produced as a byproduct of the milling process. For example, we are now exploring the opportunity to convert bagasse into pallets to be exported to South Korea and Germany by the end of 2015 or in 2016. If this concept proves to be successful at our Blora factory, we intend to apply a similar strategy at our soon-to-be constructed factory in Madura, East Java. We expect this new production facility to be in operation by 2018.

How is your company positioned towards working with international investors and foreign partners?

We are definitely open to this type of opportunity. The involvement of a foreign partner should give us a boost in accelerating our development and will also prove to be very useful when lobbying the government to introduce policies that are more conducive to attracting investment in sugar factories. Our company is currently in talks with a French company well known for its strengths in high-tech sugar production processes and heavy equipment. Through these discussions we intend to explore the possibility of establishing an engineering company able to offer advanced expertise in designing and installing the latest in milling technology.

In keeping with this plan for the future, prospective partners should know that we are most interested in working with companies able to provide access to new technology.

As a final message, what would you like our readers to remember about Indonesia?

As a tropical country offering fertile soil and almost unmatched levels of biodiversity, Indonesia’s biggest opportunities are in its land. I therefore encourage foreign investors to look into entering Indonesia’s agriculture sector, but to do so with the patience and long-term mindset needed to overcome bureaucracy. Let us complement each other and feed the world through our expertise in sugar. Indonesia has the land but needs the technology.

Global Business Guide Indonesia - 2015