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The competitiveness of Aren sugar processing business: a case study from Kolaka district of Southeast Sulawesi.

INTRODUCTION

Needs and dependence of national sugar consumption in Indonesia, especially for sugar cane or white sugar commodity is increasing from year to year. During this time, the needs of sugar cane or white sugar cannot be met by the production capacity of the national sugar mills that has been declined. Direktorat Jenderal Perkebunan (2014) said that there is 5.7 million tons of Indonesian's white sugar consumption, while the total production only 3.7 million tons. Therefore, sugar diversification program based on palm such as brown sugar very needs strategy and policy to reduce society and government dependence to sugar cane or white sugar and synthetic sugars.

There is two type of brown sugar, namely aren sugar and coconut sugar. Southeast Sulawesi had brown sugar production centers, namely District of Bombana, Kolaka, and Muna as aren sugar production area, and District of South Konawe as coconut sugar production area. It can support the diversification program of the sugar, because Southeast Sulawesi did not have sugar cane plantation as well as sugar cane factories. Therefore the development of brown sugar is the only way to reduce the import dependence (domestic and or international import) of sugar cane.

Demand for brown sugar in Southeast Sulawesi is high, actually. It was because most of snacks and desserts need brown sugar as an ingredient thereof. According to Rianse (2013) that Kolaka aren sugar is the most desirable by Kendari city consumer (capital of Southeast Sulawesi, and it is the main market place). Next, this study will focus on aren sugar because its abundant availability of raw material (aren sap) than coconut sugar (Abdullah, 2014). The abundant of aren sap was caused by abundant population in the Province of Southeast Sulawesi, Indonesia, the high productivity of sap of aren trees, length productive age of aren trees, high adaptability to various climatic and soil conditions coupled with the additional benefits of plant conservation. Resource potential is also indicated by the naturalness of aren trees that are free of artificial fertilizers and pesticides, the excellence nutrient content of aren sap and brown sugar, and the uniqueness aroma of brown also.

Competitiveness is also becoming one of the things that need to be considered in the sustainability of aren sugar agroindustry. It is suitable with result study of Fattakhova and Nureeva (2014) who said that competitiveness is the basis for the growth and prosperity of the company, and undoubtedly reflected in its financial stability.

Today, it is inevitable that businesses must be able to realize an increase in national competitiveness. It comparative and competitive advantages. Many economists and policy makers have given great attention to the concept of competitiveness and try to operationalize it in the economic development policy. The concept of competitiveness is also a keyword in agricultural development efforts in the broad sense. Competitiveness is interpreted by a variety of perspectives, including the perspective of economics, business, and politics (policy). Besides that, competitiveness drives from the micro perspective (company) to the macro perspective (national) perspective (Saptana, 2010).

According to Porter (1990), competitiveness is the ability of a commodity to enter foreign markets and to survive in the market. It means that the products that have competitiveness are the products that have high demand. Competitiveness of a commodity is classified into two types, namely natural advantages or superiority absolute and the advantage of being developed (acquired advantage).

Comparative advantages, according Simatupang (2005) is a measure of potential competitiveness (excellence) in terms of competitiveness that will be achieved in the economy will not distort at all. Comparative advantage is unstable and tends to change over the time and changes in production. According to Wilcox, Cochrane and Hardt in Dahl and Jerome (1977), there are several reasons in change of comparative advantage, namely (1) changes in natural resources such as soil erosion, (2) changes in biological factors such as an increase in pests and diseases, (3) changes in input prices, (4) an increase in mechanization of land, and (5) efficient improvement of transportation so it provide more convenience to far away areas from the market.

The competitive advantage is a measure of the competitiveness of an activity on actual economic conditions. Comparative advantage can be transformed into a competitive advantage, but requires the support of government policy. The government's policy is intended to eliminate market distortion that is mainly due to market imperfections or to protect the commodity in order to create its competitive advantage. Therefore, it is urgent to know the ability of aren sugar to enter the national or foreign markets and its ability to survive in the market through the study of its comparative and competitive advantages. Thus, this study aimed to analyze the financial and economic profitability, competitive and comparative advantage of aren sugar processing business in Kolaka District.

MATERIAL AND METHODS

The population of this study was the producers of aren sugar processing business in the Kolaka District, South East Sulawesi. Purposive random sampling method was used as the sampling method.

Financial profitability of aren sugar processing businesses was showed by the value of Private Profitability (PP), and its economic profitability was showed by the value of Social Profitability value (SP). Both values were obtained from the analysis of Policy Analysis Matrix (PAM).

Criteria:

PP > 1; indicated that aren sugar processing businesses has financial profitability SP > 1; indicated that aren sugar processing businesses has economic profitability

Competitiveness was measured by using the Policy Analysis Matrix (PAM). PAM analysis would produce two core indicator in measuring competitiveness, namely (1) Private Cost Ratio (PCR) which was an indicator of the competitive advantage that indicated the ability to pay the cost of domestic resources and to always competitive in private price, and (2) Domestic Resource Cost ratio (DRCR) which was an indicator of comparative advantage that indicated the amount of domestic resources that could be saved to produce foreign exchange. There were four activities in commodity system that could be affected, namely farm level, product distribution from the farm to processing, processing and marketing (Monke and Pearson, 1995)

The main purpose of the PAM method was to provide information and tool in making of agriculture policy, especially in the aren sugar processing business. PAM table could be used to calculate the level of private profit, and competitiveness of aren sugar processing business at the level of the market price or actual price. It could be seen on Table 1.

Description:

A : Private revenue

B : Private tradable input costs

C : The cost of private domestic factors

D : Private profit (A-B-C)

E : Social revenue

F : Social tradable input costs

G : Social tradable input costs

H : Social profit (E-F-G)

I : Output transfer (A-E)

J : Transfer tradable input (B-F)

K : Transfer the domestic factor (C-G)

L : Net transfer (I-J-K)

PAM table consist of three rows and four columns. The first row was a calculation based on the actual price (private price) that occurred in the market (financial). It means that a price has been influenced by government policy and paid by farmers, traders, and processors in real terms. A business could be said to be feasible if the difference between total revenues (TR) and total cost (TC) at least equal to zero.

The second row was a calculation base on social price or shadow price depicting social value or actual economic value for the elements of cost and output. A business was feasible if the difference between the social income and social costs greater than or equal to zero.

The third row was a calculation between the market price and shadow price. The difference calculation showed the impact of government policies on both input and output. The government policy in price interference (supporting or inhibiting) was indicated by the negative or positive value of difference calculation between the market price and shadow price. The zero value indicated that there was no government policy in price interference and indicated a condition of perfectly competitive market (Monke and Pearson, 1989).

The sustainable of aren sugar processing business in supporting sugar diversification program was showed by efficiency value that could be seen from two indicators: competitive and comparative advantage. The competitive advantage was showed by the Private Cost Ratio (PCR) and the Domestic Resource Cost Ratio (DRCR). Mathematically:

efficiency = [PCR/DRCR]

Criteria:

PCR < 1; indicated that aren sugar processing businesses was efficient financially and has a competitive advantage.

DRCR < 1; indicated that aren sugar processing businesses was efficient economically and has a comparative advantage.

RESULT AND DISCUSSION

Financial and Economic Profitability:

Aren sugar processing business should have ability to generate profits (profitability) both financially and economically so as to be sustainable. It would increase the chances of aren sugar as a substitute of white sugar that were environmentally friendly.

Financial profitability of aren sugar processing business was indicated by the value of Private Profitability (PP), and economic profitability was indicated by the value of Social Profitability (SP). Both values are obtained from the analysis of Policy Analysis Matrix (PAM).

Private Profitability (PP) or also called financial profit was an indicator of financial efficiency, and Social Profitability (SP) or also called social profit was an indicator of the economic efficiency of aren sugar processing business on the condition there were no policies.

The results of the PAM analysis of aren sugar processing business in the Kolaka District could be seen in Table 2. Based on Table 2, the PP value of aren sugar processing business was IDR 19,437,887.38 (PP > 0). It indicated that the aren sugar processing business has financial profitability or financially profitable.

Table 2 also showed that SP value greater than zero (SP > 0) in the amount of IDR 147,618,446.24. It means that the aren sugar processing business has economic profitability or profitable economically. SP value of IDR 147,618,446.24 was obtained if all aren sugar were assumed to be exported. So, the aren sugar processing business will get greater profit if it sells aren sugar in global markets than in the domestic market.

Based on the analysis of the financial and social profit above, it was known that the value of the social profit was greater than the value of the financial profit (SP > PP). The phenomenon was due to the difference in output prices received by producers of 4.826.39 per kilogram that was lower than the social price of 16,887.02 per kilogram. It means aren sugar producers in Kolaka District experiencing disincentives in the aren sugar processing business.

Competitive and Comparative Advantage:

Aren sugar processing business that has financial and economic profitability, it has to have efficiency to be sustainable in supporting sugar diversification. Efficiency could be seen from the two indicators namely competitive and comparative advantage. The competitive advantage could be seen from the value of Private Cost Ratio (PCR) and the Domestic Resource Cost Ratio (DRCR). More information about the value of PCR and DRCR could be seen in Table 3.

Table 3 showed the PCR value of 0.59. It could be explained that additional domestic factor costs of IDR 5,900.00 on financial prices was needed to increase the revenue of IDR 10.000,00. PCR values smaller one (PCR < 1) indicated that the aren sugar processing business in the Kolaka District have financially efficient, so that it have a competitive advantage. In addition, it could also mean that the production system of aren sugar could pay its domestic factors.

Table 3 also showed DRCR 0.12. It means that aren sugar processing business have to sacrificed the opportunity costs of domestic resources amounted to IDR 120,000 to get profit IDR 1,000,000. DRCR smaller than one (DRCR < 1) indicated that the aren sugar processing business were economically efficient and have a comparative advantage. It indicated that it would be more advantageous to increase domestic production of aren sugar than to import from overseas.

The value of PCR and DRCR (contained in Table 3) were smaller than one. Thus, aren sugar processing business in Kolaka District have competitiveness in financial and economic value (international) or have competitive and comparative advantage. It was also known that the PCR value of aren sugar processing businesses have a higher value than DRCR (PCR > DRCR). It means aren sugar processing businesses have competitiveness but they have not been supported by government policies that could improve production efficiency. While Kormishkina, et al. (2014) said that to increase the competitiveness of agro-industrial complex, it must available programs for the support of farmers and smaller forms of business. Therefore, a supported government policy was important thing. Some types of government policies could be known through the PAM analysis, as follows:

1. Output Policy:

The output government's policy could be seen from two indicators: Output Transfer (OT) and Nominal Protection Coefficient Outputs (NPCO). More information about the value of OT and NPCO could be seen in Table 4.

Output transfer (OT) value was the difference between revenue that was calculated based on private prices and revenue that was calculated based on a social price. OT value of aren sugar processing business in Kolaka District was negative, namely IDR (119,782,182.47). It means the consumers bought aren sugar at a lower price than the price to be paid. Thus, producers have disadvantaged. In other words, the aren sugar producer's revenue smaller of IDR 119,728,182.47 than the actual revenue without government policy.

Nominal output protection coefficient (NPCO) value was the ratio between revenue based on private price and revenue based on social price. Private revenue for Kolaka aren sugar commodities was amount of IDR 47,934,085.65 (saw Table 2), while the social revenue of IDR 167,716,268.12 (saw Table 2). It generated NPCO value was 0.29 (saw Table 4). NPCO value was less than one (NPCO < 1). It indicated that there were government policies that inhibited the export of output. The inhibit government was negative subsidy (tax) in the form of duties for the export of aren sugar. It caused a reduction in revenues of aren sugar processing business. Other side, it was a way to get raw materials from domestic easily and affordable prices, in order to encourage downstream industries. It was suitable with the result study of Fattakhova and Nureeva (2014) who said that developing of economic relations with consumer goods suppliers was important for creating a competitive and stable range.

2. Input Policy:

The government's policy was not only related to the output but also to the input. Implementation of this policy could not be separated from the government's efforts to protect aren sugar producers. The government's policy on production inputs could be seen from the value of Input Transfer (IT), Factor Transfer (TF) and Nominal Protection Coefficient on Inputs (NPCI). More information about IT, TF and NPCI could be seen in Table 5.

Input transfer (IT) was the difference between social and private prices that was received by producers of aren sugar to pay tradable inputs. The value of Input Transfer (IT) in this study was negative, namely IDR (58,052.29). It showed tradable inputs cost that was expensed in private prices was lower than the tradable inputs cost that was expensed in social prices. In this condition, government policy caused smaller revenue of aren sugar processing business than revenue in the absence of policy.

Supported by the condition that aren sugars were not directly purchased by end consumers but by traders who also wanted the margin from the sale of aren sugars. It was suitable with the result study of Hastang et al. (2015) who said that supply chain actors in supply chain downstream got bigger value added and profit than actor in internal supply chain and upstream supply chain.

Net Transfer (NT) described the overall impact of government policy on the revenue of aren sugar producers, whether it was profitable or not. The value of NT was the difference between value of private and social profit. NT value was amount of IDR (128,180,558.86). It indicated that there were not economic incentives to increase the production of aren sugar in the Kolaka District.

Profit Coefficient (PC) was the ratio between net private profit and net social profit. PC was an indicator that showed the impact of incentives on all output policy, tradable input policy and non-tradable input policy (net policy transfers). PC value in this study was 0.13 (PC < 1). It means that the aren sugar producer got smaller profit than profit without policy. Other words, net private profit of aren sugar producer smaller than net social profit.

Value of subsidies ratio was an indicator the level of increasing and decreasing revenue of producer in aren sugar processing business because of government policy. The value of Subsidy Ratio to Producers (SRP) was negative which equal to (0.76). It showed the government's policy in force. It caused aren sugar producer expensed production costs where 76 percent greater than the opportunity cost of aren sugar production. A negative value indicated that government policy gave negative affect to the structure of production costs. It could be explained that aren sugar processing business invested cost that greater than value added of its profit.

Assessment Matrix of Aren Sugar Processing Business:

Based on the analysis and interpretation above, then every indicator of competitive and comparative advantage, namely Private Profitability (PP), Social Profitability (SP), Private Cost Ratio (PCR) and Domestic Resources Cost Ratio (DRCR) were rated positive and negative. The assessment criteria of four indicators of competitiveness were shown in Table 7.

Based on the Table 7 aren sugar processing businesses have very high competitiveness, because of the positive value of PP, SP, PCR and DRC. It means aren sugar processing business have very high competitiveness to have competition with white sugar or sugar cane in the national market and so in the international market. The most important that aren sugar processing business could be one of solution to reduce the dependence of national sugar consumption in Indonesia. Thus, aren sugar processing business in the Kolaka District highly prioritized to be developed.

Conclusions:

Aren sugar processing business in the Kolaka District could be sustainable in supporting the program of sugar diversification, because:

1. Aren sugar processing businesses have financial and economic profitability.

2. Aren sugar processing businesses have competitive and comparative advantage with very high competitiveness that was shown by financial and economic profitability, and the positive value of PP, SP, PCR and DRCR.

The implication of this study that high price of aren sugar in the international market is not felt by the aren sugar processing business. Thus, governments need to support and protect the aren sugar processing business in increasing the value added of aren sugar.

Contribution of this study to the knowledge is a belief and certainty about sugar diversification through the existence and sustainability of aren sugar processing business with its high competitiveness.

REFERENCES

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[3] Direktorat Jenderal Perkebunan, 2014. Kebutuhan Gula Nasional Mencapai 5700 ton per tahun. http:/www. ditj enbun.pertanian. go.id/setditj enbun/berita- 172-dirj enbun-kebutuhan-gula-nasional- mencapai5700-juta- ton-tahun-2014. (in Indonesian). Access: October 2015.

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[5] Hastang, S.N., Sirajuddin, A.R. Mappangaja, R. Darma, I. Sudirman, 2015. Value Added Analysis of Beef Cattle Supply Chain Actors Micro-Scale Community Farm Based. American-Eurasian Journal of Sustainable Agriculture (AEJSA), 9(7): 7-12. http://www.aensiweb.com/AEJSA/.

[6] Kormishkina, L.A., E.D. Kormishkin, N.N. Samenova, 2014. The Competitiveness of Russia's Agro-Industrial Complex: an Assessment and Ways to Boost it. American-Eurasian Journal of Sustainable Agriculture (AEJSA), 8(9): 90-95. http://www.aensiweb.com/AEJSA/.

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[19] Sunandar, N., 2005. Insentif Ekonomi, Keunggulan Komparatif, Keunggulan Kompetitif pada Usaha Ternak Sapi Potong di Kabupaten Gunung Kidul. Disertasi. Universtitas Gadjah Mada. Unpublished. (in Indonesian).

(1,2) Ilma Sarimustaqiyma Rianse, (3) Slamet Hartono, (3) Any Suryantini and (3) Jamhari

(1) Ph.D Student of Agriculture Science, Faculty of Agriculture, Universitas Gadjah Mada, Yogyakarta, Indonesia

(2) Lecturer of Department of Agribusiness, Faculty of Agriculture, Universitas Halu Oleo

(3) Lecturer of Department of Agribusiness, Faculty of Agriculture, Universitas Gadjah Mada, Yogyakarta, Indonesia

Received 12 January 2016; Accepted 18 February 2016

Address For Correspondence:

Ilma Sarimustaqiyma Rianse, Ph.D Student of Agriculture Science, Faculty of Agriculture, Universitas Gadjah Mada, Yogyakarta, Indonesia
Table 1: Policy Analysis Matrix (PAM).

Component              Revenue           Cost            Profit

                                 Tradable Non-tradable

Private price             A               B C              D
Social price              E               F G              H
Effect of divergence      I               J K              L

Table 2: PAM of Aren Sugar Processing Business in the Kolaka District,
2014.

                    Revenue                     Cost ()

                       ()          Tradable Input   Non Tradable Input

Private Price    47,934,085.65       78,163.39        28,418,034.87

Social Price     167,716,268.12      136,215.68       19,961,606.20

Policy impact   (119,782,182.47)    (58,052.29)        8,456,428.67

                         Profit

                           ()

Private Price    19,437,887.38 Private
                   Profitability (PP)

Social Price         147,618,446.24
                Social Profitability (SP)

Policy impact       (128,180,558.86)

Table 3: Parameter Value of Competitive and Comparative Advantage of
Aren Sugar Processing Business in the Kolaka District, 2014.

Parameter                              Value

Private Cost Ratio (PCR)               0.59
Domestic Resources Cost Ratio (DRCR)   0.12

Table 4: Parameter Value of the Output Policy Impact on the Aren Sugar
Processing Business in the Kolaka District, 2014.

Parameter                                            Value

Output Transfer (OT)                            (119,782,182.47)
Nominal Production Coefficient Outputs (NPCO)         0.29

Table 5: Parameter Value of the Input Policy Impact on the Aren Sugar
Processing Business in the Kolaka District, 2014.

Parameter                                         Value

Input Transfer (IT)                            (58,052.29)
Transfer Factor (TF)                           8,456,428.67
Nominal Protection Coefficient Inputs (NPCI)       0.57

Table 6: Parameter Value of the Input Policy Impact on the Aren Sugar
Processing Business in the Kolaka District, 2014.

Parameter                                      Value

Effective Protection Coefficient (EPC)          0.29
Net Transfer (NT)                        (128, 180, 558, 86)
Profitability Coefficient (PC)                  0.13
Subsidy Ratio to Producers (SRP)               (0.76)
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Author:Rianse, Ilma Sarimustaqiyma; Hartono, Slamet; Suryantini, Any; Jamhari
Publication:American-Eurasian Journal of Sustainable Agriculture
Article Type:Report
Geographic Code:9INDO
Date:Jan 1, 2016
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