Study of factors affecting demand and supply of sugar in Indonesia

Abstract

This study is aimed at determining: (a) the factors influencing the demand of national sugar, and the price elasticity of demand (ep) and; (b) the factors influencing the supply of national sugar, and the price elasticity of supply (es). The data comprised a time series of 1990-2006, taken from the Central Statistics Bureau, The Indonesian Sugar Firm Research Centre, and the World Sugar Statistics and Logistic Institution (BULOG). The “Double Logarithm Multiple Regression Model” and “Two Step Least Square Method” were the analytical techniques used. Results showed that: (a) the factors that significantly affected national cane sugar demand were the price of coffee, size of population, and level of income. On the other hand, the price of sugar, tea and the price ratio did not have significant effect on the sugar demand in Indonesia. The evaluation showed that except for the population rate (3,866) all of the variables were inelastic (less than 1) with an elasticity range of –0,442 to 0,087; and (b) the factors significantly affecting the national sugar supply were the labour wage and land area, while the factors of land productivity and the price of sugar showed otherwise. The elasticity of all variables was inelastic (less than 1), with the range of elasticity being -0,2159 to 0,8959.

Keywords: Demand, supply, price elasticity of demand, price elasticity of supply