Premature Death of Small Mills

Kompas/Totok Wijayanto

A worker mills unhusked rice on Friday (17/11) in Prambanan, Klaten, Central Java. The scarcity of unhusked rice and other issues have negatively impacted small-scale rice mills, leading to a sharp decline in production and profits.

Periods of food shortage are always an uneasy time for rice milling businesses. The availability of raw materials falls and production is down. The challenge is doubly difficult today with the restricted retail price for rice. If the price cannot be accommodated, the rice mills must stop running.

Not a few rice mills have prematurely stopped their operations. Unusually, the Karangsinom center of rice milling, in Indramayu regency, West Java, was dark and quiet at the end of November. The sun shone brightly, but many of the rice mills were closed. The gates to the mills were locked shut. Rice trucks drove past occasionally. Not much rice was out drying in the sun. If rice was being sun-dried, the commodity generally belonged to a big-scale mill or state-owned Perum Bulog.

“It has been three months. Many workers like me cannot work,” said Randim, 30, a worker at a rice mill in Karangsinom.

For Randim, being employed did not make him happy because his pay had dropped sharply. He was earning only Rp 20,000-Rp 40,000 a week, a cut of 75-80 percent compared to previous weeks triggered by the declining volume of rice that was harvested, dried and milled.

That day, 10 workers including Randim placed only 10 tons of rice out in the sun to dry. They were paid Rp 200,000 together for the 10 tons of rice, so each worker took home Rp 20,000 that day.

“I’m relying on the money from my wife, who works as a migrant worker in Taiwan. This situation made her go there. My income is meager, but my debts are high,” he said.

The owners of the rice mill are in no less pain. They must think hard on finding a solution just to survive.

Dasmul, 57, owner of the AL rice mill, said the factory-level price of dried milled rice was Rp 6,800 per kilogram. He chose to close down his business because it was too costly to maintain.

“It’s a dilemma. The purchasing price for unhusked rice is high, but the selling price for dried rice is low. Rice is a bargain at Rp 10,200 per kilogram at Jakarta’s Cipinang Rice Market [PIBC], when in fact, the production cost is Rp 11,500 per kilogram,” Dasmul said.

The low price has caused his business to slow. Dasmul typically supplied 10-35 tons of rice per day to the Jakarta PBIC. Now, he can only supply a maximum 8 tons per day. He had no choice but to dismiss his 35 employees.

“My company is called AL, which stands for ‘Asal Luwih’ [for profit]. It should bring profits, not losses,” he said.

According to the Karangsinom Rice Sellers Union (Pagarbesi), only a third of the 53 mills in Karangsinom were still operating. The others were dying. With 15-50 workers per mill, hundreds of workers in Karangsinom are experiencing a loss in their earnings because of the current condition.

Irrelevant pricing

The Malai Padi Cooperative is facing the same fate. The entity, which comprises farmers and rice mills in nine Indramayu districts, usually supplied 35 tons of rice a week to PBIC Jakarta. In the past two months, however, Malai Padi only supplied 2-3 tons per week that did not go to Jakarta, but only Indramayu, Bandung and nearby cities.

The ceiling price (HET) of Rp 9,450 per kg for medium-quality rice does not meet the current situation. Dried unhusked rice has cost over Rp 5,000 per kg in Karawang and Indramayu (West Java) and Pekalongan and Kudus (Central Java) since the second week of November.

At such a price and production at 50-52 percent, it costs mills Rp 9,600-Rp 10,000 per kg to process rice.

Malai Padi Cooperative chairman Nandang Nurdin said it was hard to meet the Jakarta sellers’ demands for medium-quality rice at Rp 9,200 per kg or less.

Pagerbesi chairman Firman Lubis argued that the HET as set by the government had caused the collapse of the small and medium-scale rice milling businesses. Not long after Trade Ministry Regulation No 47/M-DAG/PER/7/2017 was issued on July 18, Karangsinom’s rice milling businessmen held a strike and stopped supplying rice to PBIC Jakarta for a week.

The strike was their response not only to the price restriction, but also to a series of raids and rice warehouse closures that were carried out in several regions by the Satgas Pangan food taskforce. Fearing sellers that were being accused of violating regulations, their warehouses were closed and they were prosecuted for selling rice at more than Rp 9,000 per kg. The controversial regulation was revised in the Trade Ministry Regulation No 57/M-DAG/PER/8/2017 on the rice HET, which stipulated a retail price of Rp 9,450 per kg for medium-quality rice at the factory level, and Rp 12,800 per kg for premium rice.

Trade Minister Enggartiasto Lukita believed the HET regulation was effective in controlling the rice price. The price of rice does not rise over Rp 12,800 per kg; nor does it surge wildly, as is typical ahead of Christmas and New Year’s.

Separately, Agriculture Minister Amran Sulaiman said the rice production was more than adequate. He is optimistic that the production target can be met.

Amran assured that no rice was being imported to maintain the domestic price of rice. This was because more than 1 million hectares of rice was being planted and 6 million tons of unhusked rice was being produced per month. This equaled a monthly production of 3 million tons of rice, higher than the national demand of 2.6 million per month.

Small scale

The impact of the HET is mostly felt among small-scale rice mills. With their limited capital, inefficient machines and higher production costs, the rice produced by small mills cannot compete with that of bigger rice mills, either in price or quality. They are also unable to compete in obtaining the raw materials.

Mohamad Husein Sawit of the Indonesia Agricultural Economy Advisors Council (Perhepi) said the HET closed the possibility of incentives between seasons, between regions and between islands, as the price was set for the entire year. The interregional difference in the HET only accommodated differences in transportation costs.

Under normal conditions before the HET regulation had been applied, the competition between rice mills was tough because there were many mills. According to the Central Statistics Agency’s records, 169,044 small-scale rice mills were operating in 2012, or 92 percent of the total number of rice mills nationwide. Their maximum milling capacity exceeded the availablility of unhusked rice, and thus gave rise to tough competition for raw materials.

Today, aside from competing for supplies of unhusked rice, small-scale millers must think even harder to ensure that their businesses generate profits. They must also find a way for their businesses to survive, and not die prematurely.