Analysis of Energy Efficiency of Indonesia’s Sugar Industry

Thinzar Win, Tri Haryanto, Dyah Wulan Sari

Abstract


Sugar industry in Indonesia has been experiencing rapid growth in local consumption, a decrease in domestic production, an increasingly growing import dependency, and a rise in the cost of energy use. This study explores the efficiency of energy use in the Indonesian sugar industry from 2010 to 2014 by applying the input distance function based on the trans-log model to all sugar mills across the country. The results revealed that substantial differences in energy efficiency exist across the provinces. The average energy efficiency is nearly 0.68, with the most efficient regions reaching nearly 0.77 and the lowest ones scoring about 0.62. The sugar mills in the provinces of Gorontalo, Banten, South Sulawesi, and East Java are more efficient than those of other provinces. The energy efficiency function suggested that increasing production volume can help to achieve more efficient energy use. Additionally, as labor and capital are substitute inputs, improvements in capital investment (technological upgrade) may yield larger outputs and contribute to more energy-efficient production. Meanwhile, raw materials and capital are complementary inputs, so improvements in energy efficiency via a larger mill size, bigger capital investment, and more efficient sourcing of raw materials can support the national government's production targets sustainably.

Keywords


Energy efficiency; Input distance function; Stochastic frontier analysis; Sugar industry; Translog productionmodel

Full Text:

PDF

References


Ru L. and W. Si. 2015. Total-factor energy efficiency in China’s sugar manufacturing industry. China Agricultural Economic Review 7(3): 360–373.

Lin B. and H. Long. 2015. A stochastic frontier analysis of energy efficiency of China’s chemical industry. Journal of Cleaner Production 87: 235–244.

Shen X. and B. Lin. 2017. Total factor energy efficiency of China’s industrial sector: A stochastic frontier analysis. Ssustainability 9(4): 646.

Vivadinar Y., Purwanto W.W. and Saputra A.H., 2016. Tracing the energy footprints of Indonesian manufacturing industry. Energy Science and Engineering 4(6): 394–405.

Vivadinar Y., Purwanto W.W. and Saputra A.H., 2012. What are the key drivers of energy intensity in Indonesia manufacturing sectors ? In International Congress on Informatics, Environment, Energy and Applications. Singapore: IEEA Publishers.

Toharisman A. and Triantarti., 2016. An overview of sugar sector in Indonesia. Sugar Tech 18(6): 636–641.

Sugiharti L., Purwono R., Primanthi M.R. and Padilla M.A.E., 2017. Indonesian productivity growth: Evidence from the manufacturing sector in Indonesia. Pertanika Journal of Social Science and Humanities 25(S) : 29–44.

USDA, 2020. Annual Sugar Report. United State Department of Agriculture.

Susila W.R. and B.M. Sinaga. 2005. Analysis of policy of national Sugar Industry. Journal Agro Ekonomi 23(1): 29-53.

Tayibnapis A.Z., Wuryaningsih L.E. and Sitisundari M., 2016. Efforts to achieve beyond sugar in Indonesia. International Journal of Management and Business Studies 6(4): 14-22.

InterCAFE, 2018. Market study on food sector in Indonesia. A report by International Center for Applied Finance and Economics in Indonesia.

Bantacut T. and D. Novitasari. 2016. Energy and water self-sufficiency assessment of the white sugar production process in Indonesia using a complex mass balance model. Journal of Cleaner Production 126: 478–492.

Esquivias M.A., 2017. The change of comparative advantage of agricultural activities in East Java within the context of asean economic integration. AGRIS on-line Papers in Economics and Informatics 9(1): 33–47.

Ramstetter E.D. and D. Narjoko. 2014. Ownership and energy efficiency in Indonesian manufacturing. Bulletin of Indonesian Economic Studies 50(2): 255-276.

Setiawan M. and A.G.O. Lansink. 2018. Dynamic technical inefficiency and industrial concentration in the Indonesian food and beverages industry. British Food Journal 120(1): 108-119.

Gunawan., Bantacut T., Romli M. and Noor E., 2018. Production and productivity improvement through efficiency sugar mill. International Journal of Advanced Research 6 (2): 931–1941.

Beattie B.R., Talyor C.R. and Watts M.J., 1985. The Economics of Production. First edition. New York: Wiley.

Pindyck R.S. and D.L. Rubinfeld. 2013. Microeconomics. Eight Edition. USA: Prentice Hall.

Christensen L.R., Jorgenson D.W. and Lau L.J., 1973. Transcendental logarithmic production frontiers. The review of economics and statistics 55(1): 28–45.

Klacek J., 2008. Total factor productivity in Czech manufacturing industry – KLEM framework. Statistika 5: 414–428.

Tran K.C. and E.G. Tsionas. 2009. Estimation of nonparametric inefficiency effects stochastic frontier models with an application to British manufacturing. Economic Modelling 26(5): 904–909.

Shephard R.W., 1970. Theory of Cost and Production Functions. Second edition. New Jersey: Princeton University Press.

Hsiao W.L., Hu J.L., Hsiao C. and Chang M.C., 2019. Energy efficiency of the Baltic sea countries: An application of stochastic frontier analysis. Energies 12(1): 104.

Islam M.Z., Ahmed Z., Saifullah M.K., Huda S.N. and Al-Islam S.M., 2017. CO2 emission, energy consumption and economic development: A case of Bangladesh. Journal of Asian Finance, Economics and Business 4(4): 61–66.

Chang T.P. and J.L. Hu. 2010. Total-factor energy productivity growth, technical progress, and efficiency change: An empirical study of China. Applied Energy 87(10): 3262–3270.

Herring H., 2006. Energy efficiency - A critical view. Energy 31(1): 10–20.

WEC, 2006. Energy efficiencies : Pipe-dream or reality ?. World Energy Council Statement: London: World Energy Council.

Patterson M.G., 1996. What is energy efficiency? Concepts, indicators and methodological issues. Energy Policy 24(5): 377–390.

Wilson B., Trieu L.H. and Bowen B., 1994. Energy efficiency trends in Australia. Energy Policy 22(4): 287–295.

Lin B. and K. Du. 2013. Technology gap and China’s regional energy efficiency: A parametric metafrontier approach. Energy Economics 40: 529–536.

Honma S. and J.L. Hu. 2014. Industry-level total-factor energy efficiency in developed countries: A Japan-centered analysis. Applied Energy 119: 67–78.

Hu J.L. and S. Honma. 2014. A comparative study of energy efficiency of OECD countries: An application of the stochastic frontier analysis. Energy Procedia 61:2280–2283.

Esquivias M.A and S.K. Harianto. 2020. Does competition and foreign investment spur industrial efficiency?: Firm-level evidence from Indonesia. Heliyon 6(8): 04494.

Zhou P., Ang B.W. and Zhou D.Q., 2012. Measuring economy-wide energy efficiency performance: A parametric frontier approach. Applied Energy 90 (1): 196–200.

Hu J.L and S. Honma. 2019. A Meta stochastic frontier analysis of industry - level energy efficiency in OECD Countries. Journal of Economics and Management 15(2): 171–220.

Fare R., Shawna G. and Lovell C.K., 1994. Production Frontiers. First edition. Austrila: Cambridge University Press.

Coelli T., 1996. A guide to frontier version 4.1: A computer program for stochastic frontier production and cost function estimation. CEPA Working Paper: University of New England: Armidale, Austrila.

Coelli T., Estache A., Perelman S. and Trujillo L., 2003. A Primer on efficiency measurement for utilities and transport regulators. Washington, D.C: World Bank.

Honma S. and J.L. Hu. 2018. A meta-stochastic frontier analysis for energy efficiency of regions in Japan. Journal of Economic Structures 7(21): 1-16.

Sulaiman A.A., Sulaeman Y., Mustikasari N., Nursyamsi D. and Syakir A.M., 2019. Increasing sugar production in Indonesia through land suitability analysis and sugar mill restructuring. Land 8(4): 61.

Suwandari A., Hariyati Y., Agustina T., Kusmiati A., Hapsari T.D., Khasan A.F. and Rondhi M., 2020. The impact of certified seed plant adoption on the productivity and efficiency of smaller sugarcane farmers in Indonesia. Sugar Tech 22(4): 574-582.