FAVOURABLE TREATMENT AT AUCTIONS
The samurai began to dominate the white sugar market after the 1998 Asian financial crisis, as autocratic leader Suharto stepped down and the International Monetary Fund forced a range of agricultural reforms in return for loans.
When state logistics agency Bulog, as a result of those reforms, began to release its sugar stocks, the samurai bought it all, said two traders who were in the business at the time. Soon after, the samurai helped set up the auction system for harvested sugar.
Regular auctions are held during the May-December harvest season when sugar imports are banned. The sugar is processed at 62 mainly state-run mills as it comes in.
Most is then drip-fed to auctions run by the mills in small quantities. That works for the samurai but not big firms which prefer to buy large amounts for economies of scale and to keep transactions costs down, other traders said.
The samurai get another edge through a decade-old arrangement in which they have lent money to farmers for re-planting. Some farmers pay interest on the loans while others share profits. But under both schemes, the samurai get preferential auction rights.
For example, the samurai have the right to buy up to 50 percent of any winning bids, at the same price, on crops they financed, said Soemitro Samadikoen, chairman at the Indonesia Sugarcane Farmers Association.
The Trade Ministry condones the practice because it ensures domestic cane keeps flowing to state-owned, inefficient mills and thus protects jobs, say critics.
Deputy Trade Minister Bayu Krisnamurthi, a key figure in devising sugar policy, declined to respond to questions on the issue. The trade minister, Gita Wirjawan, recently said in a brief comment to Reuters that a group of companies appeared to control white sugar supply, adding he would look into the matter to bring about stable prices. He did not name any companies.
There is no centrally collated data on how much sugar is purchased at each auction. But other traders say the samurai account for the vast majority of winning bids.
On top of that, the samurai have tightened control of retail and delivery channels through their transportation services, warehousing and agents over the years, industry sources said.
A non-samurai trader would struggle to get an auction lot to the market, said the business competition commission's Messi.
"Even if you are an international trader, you cannot deal with this system. Before you start, you have died," Messi said.
INDUSTRY ROADMAP SOUGHT
Private U.S. trader Cargill, global commodity trader Louis Dreyfus and Singapore-based traders Olam International and Wilmar International operate in Indonesia.
Cargill and Louis Dreyfus trade raw sugar. Wilmar runs two sugar refineries in Indonesia, while Olam has one.
A Cargill spokesman said: "There are no current plans to trade white sugar, though we will evaluate opportunities as they come along. We are not familiar with the sugar samurai."
A Wilmar spokesperson said they were not aware of any plans to trade white sugar either. Louis Dreyfus and Olam did not give any on-the-record comments.
The competition commission investigated domestic sugar trading in 2005/2006. It recommended the government lend money to farmers instead of traders, noting a potential conflict of interest. It also said more traders should be able to enter the market.
A 2010 analysis by the commission concluded that a small number of enterprises controlled the white sugar market. It recommended the government develop a roadmap for the industry to support the creation of a competitive industry.
Indeed, high sugar prices have stoked food inflation and is another example of the commodity sectors that some analysts and industry players say President Yudhoyono has failed to fix. The president recently lambasted his ministers for not working hard enough to curb soaring staple food prices.
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