Losing the competition, thousands of rice millers die

JAKARTA, KOMPAS — Increasingly tight competition in absorbing grain farmers' harvests has forced thousands of small-scale rice mills to go out of business. These small mills fell one by one because they lost to companies that had large capital and more sophisticated processing technology.

The existence of small-scale rice mills scattered in villages also drives the village economy. In addition to providing jobs, its presence also helps to increase the added value of agricultural production.

Kompas discovered this fact in the period March-May 2024 in a number of provinces in Sumatra and Java. Nurfuddin (43), manager of a small rice mill in Bumi Asih Village, Palas District, South Lampung Regency, for example, will only produce rice again in March 2024, and that's once a week.

The rice mill with a production capacity of 10 tons was "paralyzed" for about three months due to a lack of funds to buy rice at high prices. It also had difficulty competing in the market to sell rice. It was only able to produce medium-quality rice, which on average runs out a week after milling.

KOMPAS/AGUS SUSANTO

Worker activities at the rice milling business in Sukamaju Village, Tambelang District, Bekasi Regency, West Java, Tuesday (4/6/2024).

Actually, Nurfuddin isn't too bothered if Perum Bulog wants to buy his rice. However, Bulog's accepted quality standards for rice are becoming higher, so the quality of his rice no longer qualifies. If Nurfuddin wants to break into Bulog, he must improve his milling process to increase his product quality. "It's not like I don't want to improve. I'm facing financial issues," said Nurfuddin.

Nurfuddin believes that the government has not provided a solution so that small mills do not go bankrupt. One of the main helps that is hoped for is so that small mill entrepreneurs can access low-interest loans to modernize machines.

As for Ferry Priyatna (58), a milling businessman in Indramayu Regency, West Java, he was even forced to stop operating two years ago due to losing competitions with large-scale rice milling. "They (big producers) dare to buy rice with high prices. We clearly lost," said Ferry, who is now a mediator of rice sales between traders.

Ferry's rice milling facility located in the Widasari sub-district is usually able to employ 10-12 people for the production process to produce rice. After the milling facility stopped operating, all workers were also laid off.

KOMPAS/HARRY SUSILO

The activity of small rice milling in Ngawi, East Java, on Tuesday (14/5/2024). Ngawi is one of the rice granaries in East Java and nationally.

Ferry admitted that apart from losing capital and technology to large mills, the unstable selling price of rice also made the situation worse.

A similar situation is experienced by Dio (53), a rice mill manager in Boyolali, Central Java. For the time being, he has stopped operating his rice mill because the prices of rice and rice grains are still unstable. "We're not buying any rice grains for now," said Dio on Thursday (May 2, 2024).

He has experienced this condition since 2022. He has to spend a lot of money to grind, dry, and package the milled products. "There is no guarantee that the prices of unhusked rice and rice will remain stable in the future. It's like gambling," said Dio.

Chairman of the Indonesian Rice Milling and Business Association (Perpadi), Sutarto Alimoeso, mentioned that at least 10,000 rice mills have closed since 2012 to date. The majority of these numbers are small-scale rice mills that lost in competition to obtain farmers' rice.

"The macro economy will be strong if it is supported by a strong grassroots economy. Small-scale rice milling becomes the cornerstone of the rural economy," said Sutarto on Tuesday (June 11th, 2024).

Referring to data from the Central Statistics Agency (BPS) in 2012, the number of rice mills in Indonesia was 182,199. In 2020, it decreased to 169,789. Out of that number, 161,401 were small-scale rice mills that produce less than 1.5 tons of rice per hour. The trend of decreasing small-scale mills continues until 2024.

The main cause of the closure of small-scale rice mills is the declining productivity of rice crops every year. On the other hand, large-scale rice mills continue to emerge. With more modern technology and bigger capital, they are more aggressive in absorbing farmers' rice.

From their current number of milling, their rice needs reach 225 million tons. This means that this figure is four times larger than the total national production of dry milled rice in 2023, according to BPS data, which is 53.98 million tons.

Loss of a job

Sutarto estimates that as many as 30,000-50,000 people have lost their jobs due to the closure of small-scale milling operations. Assuming that each milling operation employs 3-5 workers, many have since switched to becoming brokers or rice traders.

"There are mill owners who say that they now only sell rice from their regular farmers to the big mills. In the end, they only take the difference from that," he said.

KOMPAS/RIAN SEPTIANDI

Landscape of newly planted rice fields with Mount Lawu in the background in Sragen, Central Java, Friday (29/3/2024).

The closure of small-scale rice mills in villages also prolongs the supply chain of paddy from farmers to producers, as farmers no longer have easy access to mills in their areas. Farmers end up depending on intermediaries to ensure their paddy can be absorbed by rice mills outside the region.

In the end, the national rice ecosystem will be dominated by corporations following the collapse of small-scale mills. In this scheme, farmers will only become laborers with low bargaining power. "Not to mention pursuing paddy productivity, in the future, no one will want to become a farm laborer," said Sutarto.

Price determinant

Kompas' investigation in Ngawi, East Java, showed that large-scale rice milling companies, such as PT Wilmar Padi Indonesia (WPI) and PT Surya Pangan Semesta (SPS), determine the price of unhusked rice, causing farmers and middlemen to choose to sell their harvest to these companies instead of smaller-scale rice milling businesses.

In Ngawi, Kompas visited RN's small rice mill, at the end of March 2024. RN has been routinely supplying harvested dry grain (GKP) from farmers to PT WPI. Through the Wilmar Farmer Operations Management System application on his device, RN shows the GKP price for the next three days. On March 31 and April 1 2024, the price is IDR 5,800 per kilogram. Meanwhile, on April 2 2024 the price will drop to IDR 5,700.

KOMPAS/RIAN SEPTIANDI

PT Wilmar Padi Indonesia rice processing factory in Ngawi, East Java, Friday (31/3/2024).

The price mentioned is the maximum limit of GKP per kilogram (kg) set by WPI for all its partners. This ceiling serves as a foundation for partners when purchasing rice from farmers. For example, when the ceiling is Rp 5,800, RN purchases GKP from farmers at a price of Rp 5,300-Rp 5,400 per kg.

On March 4, 2024, the Farmer System application on the RN device showed that the rice sent to WPI was valued at around Rp 7,400. WPI then gradually reduced the price of GKP. On March 22, 2024, the GKP price dropped to around Rp 6,800. As for March 28, 2024, the price further decreased to about Rp 6,300.

According to RN, the GKP price by PT WPI is relatively almost the same every day as the price set by other companies, such as PT SPS. Even if there is a difference, it's only around Rp 100. "(The price) fluctuates. Sometimes high on one side, sometimes high on the other," added RN.

KOMPAS/RIAN SEPTIANDI

PT Surya Pangan Semesta rice processing factory in Ngawi, East Java, Monday (1/4/2024).

The same thing is acknowledged by SR, the owner of a small milling business in Ngawi, who is also partnered with PT WPI and PT SPS. SR admits that the price of rice grains at the farmer level is very much determined by the price ceiling of the two giant companies.

Followed by others

The ceiling of this company is not only a reference for suppliers of rice to PT WPI and PT SPS, but also serves as an intermediary for rice that is not at all related to large producers. This recognition is affirmed by DM, a cutter from Sragen Regency, Central Java.

On Saturday (30/3/2024), DM came to Ngawi to buy rice from local farmers. DM is a harvester and a partner of a large rice milling company from Sragen. While waiting for the rice cutting process, DM mentioned that the selling price of rice to the mill that day was IDR 5,800 per kg. This price is similar to the one set by WPI on the same day.

KOMPAS/FAJAR RAMADHAN

The penebas with the initials SM is holding a sample of grain from a farmer's rice field in Ngawi Regency, East Java, on Saturday (30/3/2024).

The price of GKP at around Rp 5,000 at the farmer level from the end of March to early April 2024 is complained about by TR, a farmer from Geneng Village, Ngawi. With such a price, the profits for farmers are very small.

When met, President Director of PT Wilmar Padi Indonesia (WPI) Saronto Soebagio said that WPI has always set the GKP base price. The price can rise and fall according to the situation, adjusting to supply and demand. Price changes do not occur daily, but weekly. “Usually because of the harvest. "If there is a lot of harvest, prices will fall," said Saronto in Jakarta.

Saronto disagrees if PT WPI is considered to control the price of rice. WPI has only been buying rice at a reasonable price. The price set by WPI is naturally followed by competitors because they are afraid of not getting rice if they buy it below WPI's price. "People always look at Wilmar, because we do absorb a lot of rice. That's all," said Saronto.

KOMPAS/FAJAR RAMADHAN

Director of PT Wilmar Padi Indonesia Saronto Soebagio when met in Jakarta on Monday (27/5/2024).

Professor at IPB University's Faculty of Agriculture, Dwi Andreas Santosa, assesses that farmers are currently benefiting from the bold moves of large producers who are willing to buy rice grains at higher prices than usual. However, the government needs to anticipate the increasing number of small-scale milling businesses that are failing, as they could make large-scale mills the determinants of future prices.

"Later, when the small ones start to die, only the big ones are left, (they) could put pressure on the farmers," said Andreas.

In response to this fact, the Head of the National Food Agency, Arief Prasetyo Adi, encourages everyone to mutually benefit each other. "Large rice mills can actually partner with small rice mills," said Arief. He gives an example where big factories can buy products from small rice mills in the form of low-quality rice, which can later be processed into premium rice.

Through the Minister of Cooperatives and Small and Medium Enterprises, Teten Masduki, the government is making efforts to strengthen farmer cooperatives in the food sector through farmer cooperatives. Teten conveyed this when inaugurating a modern rice mill belonging to the Indonesian Seed Bank and Agricultural Technology Association in Indramayu, West Java.

Source: https://www.kompas.id/baca/english/2024/06/09/en-ribuan-penggilingan-padi-skala-kecil-gulung-tikar