When Indonesian white sugar prices surged to record peaks last year, profits slumped at the small fruit and syrup drinks stall run by Lie Lie in Medan, the archipelago's fourth-largest city.
Lie Lie is part of the household industry that Indonesia's sugar refineries - dubbed 'sugar dragons' because of their growing size and clout in the sector - want to supply with cheaper and better quality sweetener.
Those opposed to granting refineries access to retail and household industry demand, a move that could increase raw sugar imports, include a group of white sugar traders nicknamed 'sugar samurai' for their control of the local market, and sugarcane farmers.
"The white sugar price hikes hit my business so hard," Lie Lie said. "I tried to increase prices a little bit, but it did little to help stop our profits shrinking."
Indonesia, set to become the top raw sugar importer this year, splits its sugar industry into two. Household, retail and small-medium firms rely mostly on domestic white sugar, while refineries import raw sugar for the large-scale food and beverage industries.
Indonesia's sugar refineries now want access to all the country's sugar demand, officials at refineries and sugar traders, as well as sugarcane farmers, told Reuters.
"Splitting demand between industry and domestic and retail, I think only happens over here," said one senior official at an Indonesian refinery. "Opening up the market is best."
Although barred from supplying household and retail demand, the small-medium industry segment is a grey area though it is difficult for refineries to access because smaller industries often lack capital and only buy small amounts at a time.
Among the current crop of eight refineries are those owned by Olam International and Wilmar International . Both declined to comment.
Data indicates refineries are positioning themselves for a larger piece of the sugar market. Indonesian refinery capacity is 3.5 million tonnes but will jump to 4.5 million with three additional refineries due to be completed by year-end, the Indonesian Sugar Refineries Association said.
Indonesian sugar consumption will be 5.7 million tonnes in 2012/2013, according to the International Sugar Organization, with domestic output at 2.6 million tonnes. The additional refinery capacity could create 1.4 million tonnes of over-capacity.
DRAGONS VERSUS SAMURAI
The sugar dragons are dependent on government-controlled import permits for raw sugar, and any additional refinery demand may benefit Australian, Brazilian or Thai exporters.
White sugar traders and sugarcane farmers say that when domestic white sugar prices spike, refined sugar finds its way into the retail and household supply-chain via fresh food markets, used by many Indonesian shoppers.
"The fact is, refined sugar leaks are happening everywhere and it keeps occurring and getting worse by the day," said Soemitro Samadikoen, chairman of Indonesian Sugarcane Farmers Association, which represents many of Indonesia's 500,000 sugarcane farmers. "This proves that refiners are over producing and have over capacity."
In late 2011, Samadikoen helped organise a demonstration of more than 5,000 sugarcane farmers in Jakarta, to demand that the government stop refined sugar penetrating the household market.
Refineries should be allowed easier access to small-medium sized industry, Samadikoen said, if monitored by the government to protect home and retail demand.
"If the law does not work properly, we may take necessary action in the field one day," he said, referring to possible protests.
Ahead of presidential elections in 2014, there is little sign of a consensus in government on how to appease sugarcane farmers, refineries and consumers.
The agriculture ministry wants self-sufficiency in white sugar and is therefore against the creation of one open-to-all sugar market, while the industry ministry favours helping small-medium businesses to buy refined sugar.
"It is stuck in a time warp since the Dutch left and the government took over," said another senior sugar official at a major commodity firm.
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