Sunday, 12 October 2014


The construction of large-scale modern rice mills by PT Lumbang Padi Indonesia (PT LPI) in Mojokerto should not to create unfair competition in the search for raw materials in the form of paddy/rice among large and small rice mills. At the time of harvest, it is predicted that there will not be scramble to obtain raw materials, because rice production is abundant. But, at the time of non-harvest season, scramble to obtain raw materials may occur, because the volume of rice production is low so that the volume of raw material supply to the rice mills is limited. Though, to achieve economic scale, rice mills should operate throughout the year.

Ir. Burhanuddin, Secretary General of the Central Executive Council of the Indonesia Rice Mills and Entrepreneurs Association (DPP Perpadi) when contacted on Tuesday (September 16) said that prevent unfair competition in obtaining raw materials of paddy/rice between large and small rice mills, large rice mills were requested to corporate with small rice mills. The forms of corporation are, among others, small rice mills are given the opportunity to supply brown rice mills. Brown rice is produced by small rice mills, then brown rice is processed into a variety of good quality rice in large rice mills.

The advantage of this corporation is that small rice mills will gain assurance and certainty of new markets. On the other hand, large rice mills will get a guaranteed supply of raw materials, so they can operate throughout the year. In addition, it is expected that large rice mills can produce fine quality rice in accordance with SNI (Indonesian National Standard). The government has set SNI for rice, but the implementation is not running, because the machine tools and working system applied by rice mills vary. Coupled by human resources who are not qualified in managing rice milling business. Generally, small rice mill entrepreneurs were satisfied with the quality of the rice produced, so they are reluctant to add investment to buy machine tools that can improve the quality of the rice produced.
When large rice mills can produce good quality rice in accordance with SNI for rice, then the benefit is enjoyed by consumers. If the government sets SNI for rice to become mandatory, it can be used to face global competition when the ASEAN Economic Community is implemented at the end of 2015.

The emergence of large rice mills is expected to help farmers market their products. At the time of main harvest, which is usually coupled with rainy season, farmers often have difficulties in post-harvest handling, because they do not have grain at the farm level to drop below the Government Purchase Price (HPP). When large rice mills are willing to buy wet grain from farmers in accordance with HPP, farmers who may suffer from potential losses can be helped. Thus, at any given moment, large rice mills can help farmers increase market access.

To ensure the supply of raw materials, large rice mills can do grow rice of their own or plant rice in cooperation with local farmers. Planting rice in Java is not possible, because the rice fields in Java were owned by small farmers and the agricultural land in the island of Java is decreasing due to uncontrollable land conversion. Therefore, it is possible for large rice mills to corporate with local farmers in growing rice. The forms of cooperation vary, and can be adjusted based on agreement with farmers.

Chairman of the Indonesian Rice Mills and Entrepreneurs Association (Perpadi) of DKI Jakarta, Nellys Sukidi, said that PT LPI has built a large-scale rice mill, which in the first year can absorb 150,000 tons of harvested dry grains (Gabah Kering Panen), and to be increased to 250,000 tons/year. As long as rice production in East Java is a lot and is capable of supplying to PT LPI, it seems that there will be no problem. But, the concern is when rice production in East Java is low, there will be a scramble to buy paddy/rice among rice mills or with the National Logistics Agency (Bulog). If the supply of grain/rice to PT LPI is not sufficient to operate rice milling machine in one full year, the next concern is that PT LPI may ask for permission to import rice to fill the idle capacity of its factory. This was made possible after the implementation of ASEAN Economic Community. According to information, Thai rice prices are cheaper than the price of domestic rice. But if the government wants to grant the request, the impact on national rice mills and entrepreneurs should be considered. (E)

Business News - September 19, 2014

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