AbstractIndonesian sugar policy is a complex web of contradictory policies, including mandatory production, price supports, and fertilizer and credit subsidies. The policy analysis matrix (PAM) was developed by Monke and Pearson to provide a more complete perspective on social profitability and the divergence between private and social costs than other commonly used social cost‐benefit measures. The PAM is used to analyze the effects of Indonesian sugar policy on sugar production in irrigated and dryland areas on Java, the main sugar‐producing region in Indonesia, and to identify the distribution of resource transfers.