Analysis of Energy Efficiency of Indonesia's Sugar Industry

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.