Time to fix the rice trade

Leaders Community IBM Class – Professional Class & Magister Management Program STIE IBMT Surabaya, The controversy over the police’s raid on a major rice-milling company in Bekasi, West Java, last week further illustrates the uncertainties in doing business on the one hand and the lack of consumer protection on the other. It was alleged that PT Indo Beras Unggul (IBU), a subsidiary of publicly listed PT Tiga Pilar Sejahatera Food, engaged in monopoly practices involving both downstream and upstream rice-trading activities. The company has also been accused of buying rice from farmers at prices higher than the lower price band set by the government, violating the retail price cap for premium-quality rice and of manipulating the carbohydrate and nutrition content of its premium rice brand.

As the police seem to have dropped their plan to charge PT IBU with engaging in monopoly practices following the company’s explanation, the investigation now focuses on alleged violations in the sale of premium-quality rice and the carbohydrate and nutrition content of the company’s premium rice brand.

The police accuse the company of deceiving consumers by passing off medium-quality rice as the more expensive premium quality and of manipulating the carbohydrate and nutrient content. The company has denied the allegations.

The controversy has arisen because the government has no parameters for determining standards of premium-quality rice. According to the State Logistics Agency (Bulog), premium-quality rice comprises rice produced from prime rice varieties, mostly imported from Thailand.

However, in the absence of standards, many local rice millers have their own criteria. They can describe their medium-quality products as top quality simply by means of attractive packaging.

The impact of the case is overarching. The raid on PT IBU’s warehouse and the allegations of unfair business practices have severely hurt Tiga Pilar. Its share price on the Indonesian Stock Exchange (IDX) fell by 25 percent following the raid, as the widespread media reports on the case spooked investors.

The case should, however, serve as an opportunity to better manage the trade in food commodities, particularly rice, which has long been typified by a long distribution chain, blamed by many for the wide disparity between the prices paid to farmers and those paid by consumers.

Long supply chains also exist in the trade of other food commodities, such as garlic, onions and chilies, and they are a cause for national concern because of the substantial impact on millions of consumers. Every time there is a sharp increase in food commodity prices, the government promises to address the matter, but there has never been any significant shortening of the supply chain.

We understand the difficulties in doing so, as it requires the operation of the government’s trading arm to procure agriculture products from farmers in the place of middlemen. But reviving the role of rural cooperatives (KUDs) as the purchasers of food products could be an effective solution. For too long we have forgotten, if not looked down upon, these cooperatives.

News source : The Jakarta Post – Wed, July 26, 2017