Rice Sub-sector Growth Study in East Java · 2018-03-10 · 5.2.11 Rice Milling Business Policy ......
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This East Java Rice Sector Study summarizes key international, national, and local level market information about the rice sub-sector; outlines the market, core value chain, supporting functions and services, and rules and regulations; analyzes problems, underlying causes and service weaknesses; and describes a strategy for change, including market potential and sequenced interventions. Rice Sub-sector Growth Study in East Java December 2017 Promark
Transcript of Rice Sub-sector Growth Study in East Java · 2018-03-10 · 5.2.11 Rice Milling Business Policy ......
This East Java Rice Sector Study
summarizes key international, national,
and local level market information about
the rice sub-sector; outlines the market,
core value chain, supporting functions and
services, and rules and regulations;
analyzes problems, underlying causes and
service weaknesses; and describes a
strategy for change, including market
potential and sequenced interventions.
Rice Sub-sector
Growth Study in
East Java December 2017
Promark
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Table of Contents Executive Summary ............................................................................................................................. viii
1 Background ..................................................................................................................................... 1
2 Sector Description .......................................................................................................................... 2
2.1 Sector Profile........................................................................................................................... 2
2.1.1 Overall Context .................................................................. Error! Bookmark not defined.
2.1.2 National Context ............................................................................................................. 3
2.1.3 Local Context: East Java ................................................................................................ 13
2.2 Sector Dynamics ................................................................................................................... 16
2.2.1 Market Overview .......................................................................................................... 16
2.2.2 Sector Map ..................................................................................................................... 17
2.2.3 Core Value Chain .......................................................................................................... 18
2.2.4 Supporting Functions and Services................................................................................ 27
2.2.5 Rules and Regulations ................................................................................................... 36
3 Analysis ........................................................................................................................................ 43
3.1 Problems and Underlying Causes ......................................................................................... 43
3.2 Services, Enabling Environment and Weaknesses ................................................................ 44
3.3 Gender and Environmental Issues ........................................................................................ 46
4 Strategy for Change ...................................................................................................................... 48
4.1 Market Potential ................................................................................................................... 48
4.2 Vision of Change ................................................................................................................... 49
4.3 Interventions ......................................................................................................................... 50
4.4 Sequencing and Prioritization of Interventions .................................................................... 53
4.5 Sector Vision of Change Logic .............................................................................................. 55
5 Annexure ...................................................................................................................................... 57
5.1 Annex 1: Conclusion and Recommendations from Spire report entitled “Agricultural Value
Chain Financing Study Rice Farmers in East Java – Indonesia 2017” commissioned by SAFIRA. ... 57
5.1.1 Conclusion ..................................................................................................................... 57
5.1.2 Table of Recommendations ........................................................................................... 57
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5.2 Annex 2: Detailed Policy Descriptions ................................................................................. 59
5.2.1 Production Policy .......................................................................................................... 59
5.2.2 Price Policy for Paddy and Rice .................................................................................... 59
5.2.3 Paddy: Buying Price by Government for Various Qualities .......................................... 60
5.2.4 Rice: Buying Price for Various Qualities by the Government ....................................... 60
5.2.5 Rice Stock Policy ........................................................................................................... 60
5.2.6 Policy on Rice Price Stabilization ................................................................................. 60
5.2.7 Distribution Policy ........................................................................................................ 61
5.2.8 Import Policy ................................................................................................................ 61
5.2.9 Export Policy ................................................................................................................. 62
5.2.10 Policy on Quality Assurance and Food Safety ............................................................... 62
5.2.11 Rice Milling Business Policy ......................................................................................... 62
5.3 Annex 3: Sector Maps ........................................................................................................... 64
5.3.1 Core Value Chain Map .................................................................................................. 64
5.3.2 Irrigation Services Map ................................................................................................. 65
5.3.3 Financial Services Map .................................................................................................. 66
5.4 Annex 4: Intervention Logic Analysis Framework (ILAF) ................................................... 67
5.5 Annex 5: Interviewees .......................................................................................................... 71
5.6 Annex 6: Investigation Team ................................................................................................ 72
5.7 Annex 7: Relevant Input Companies .................................................................................... 73
5.8 Annex 8: Rice Millers and Traders: East Java ........................................................................ 74
5.9 Annex 9: Companies Selling Relevant Machinery: East Java and National .......................... 75
5.10 Annex 10: Major Formal Financial Service Providers in East Java ....................................... 76
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Acknowledgements
The literature review, initial analysis, field investigation, post-research analysis and follow-up research for this
study have been a collaborative effort. We would like to acknowledge and express appreciation of the following
team members: Pak Agustin Karnaen, Pak Albert Tanrian, Pak Burhanuddin, Pak Eko Prasetyo, Pak Gatot
Waluyanto, Ms. Giulia Salmaso, Pak Mangapul Sinaga and Ms. Kristia Sianipar. As a member of PRISMA staff,
Ms. Sianipar produced an excellent research paper on the rice sector in Indonesia earlier in 2017 which served as
an important foundation for the research in this study.
Our national consultant, Pak Agustin, and his two associates – Pak Burhanuddin and Pak Gatot – made vital
contributions to this study. Their experience has added depth and nuance to the data, analysis and
recommendations provided in this report.
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Table of Figures and Tables
Table 1: Dry Paddy Production of Five Largest Rice Producers Globally (2014) ................................... 2
Figure 1: Paddy Harvest Area (ha) and Production (tons) (1994-2014) ................................................. 2
Figure 2: National Production of Seven Food Crops (2015) ................................................................... 5
Figure 3: Profile of Rice Production in Indonesia (2012-2016) .............................................................. 5
Table 2: Paddy Production in Ten Main Provinces (2012-2016) ............................................................ 6
Table 3: Five Years of Paddy Harvest Area in Top-Ten Provinces (2012–2016) .................................... 7
Figure 4: Paddy Harvest Area (2014, 1 dot = 10,000 ha) ........................................................................ 7
Figure 5: Productivity of Top Five Provinces over Five Years (2012-2016) ........................................... 8
Figure 6: Paddy Harvest by Month in Indonesia (2014) ......................................................................... 9
Figure 7: Ten Years of Indonesian Rice Imports (2007-2016, in million tons) ..................................... 10
Figure 8: Paddy Harvest Area by District in East Java in ha (2015) ..................................................... 13
Figure 9: Paddy Productivity (tons/ha) by District in East Java (2015) ................................................ 14
Figure 10: Paddy Production by District in East Java (2015) ................................................................ 15
Table 4: Highest Retail Price (HET) for Subsidized Fertilizer in IDR/kg (2017) .................................. 19
Table 5: Highest Retail Price (HET) for Subsidized Fertilizer in USD/kg (2014) ................................. 19
Table 6: Estimated Market Price for Fertilizer (2014 Market Prices) ................................................... 21
Table 7: Estimated Market Price for Pest and Disease Chemicals (2014 Market Prices) ...................... 22
Table 8: Varieties of Extension Workers in East Java and Target Districts (2016) ............................... 29
Table 9: Farm Mechanization in Selected Asian Countries (2010) ....................................................... 29
Figure 11: Availability Paddy-Related Machinery, Pre-Harvest (2014) ............................................... 30
Figure 12: Availability Paddy-Related Machinery, Post-Harvest (2014) ............................................. 31
Figure 13: East Java Paddy-Related Machinery Available in East Java, Pre- and Post-Harvest (2015) 32
Table 10: Rice Related Policy Summaries ............................................................................................ 38
Table 11: Rice Market Potential in Bojenogoro, Lamongan and Tuban ............................................... 49
Table 12: Two-Phase Approach for Intervention Areas ....................................................................... 54
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Abbreviations
AIP-Rural Australia-Indonesia Partnership for Rural Economic Development
BBPP Balai Besar Penelitian Padi (Institute for Paddy Research and Development)
BI
BI-RTGS
BKPM
Bank Indonesia (Government of Indonesia’s Central Bank)
Bank Indonesia - Real Time Gross Settlement
Badan Koordinasi Penanaman Modal (Capital Investment Coordinating Board of
the Republic of Indonesia)
BLP Bantuan Langsung Pupuk (Fertilizer Direct Aid)
BLT
BMT
Bantuan Langsung Tunai (Cash Direct Aid)
Baitul Mal Wa-Tamwil (name of a sharia-compliant cooperative)
BPS Badan Pusat Statistik (Central Agency of Statistics)
BSN Badan Standardisasi Nasional (National Standardization Agency)
BULOG National Agency of Logistic Affairs
BUMDES Badan Usaha Milik Desa (Village-owned Business Entity)
FAO Food and Agriculture Organization of the United Nations
FDI Foreign Direct Investment
GAP Good agricultural practices
GHP Good handling practices
GKG Gabah kering giling (milled dry paddy)
GKP Gabah kering panen (wet paddy)
GMP
GPP
Good manufacturing practices
Government Purchasing Price
Ha Hectare
HET Highest retail price
HIPPA
HKTI
Himpunan Petani Pemakai Air Irrigasi (Association of Farmers Irrigation User)
Himpunan Kerukunan Tani Indonesia (one of Indonesian Farmer Association)
GPP Government purchasing price (Harga Pembelian Pemerintah)
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IAARD Indonesian Agency for Agricultural Research and Development
ICRR
ILAF
Indonesian Centre for Rice Research
Intervention Logic Analysis Framework
IPM Integrated pest management
IRRI International Rice Research Institute
ISP
LKP
Irrigation service provider
Layanan Konsultasi Padi Indonesia (Rice Consultant Services of Indonesia)
Ka UPTD Kepala Unit Pelaksana Teknis Daerah (Head of Sub District Agricultural Services)
KUR Kredit Usaha Rakyat (People Business Credit)
Mio Million
MoA Ministry of Agriculture
MoT
MUI
LPPOM
Ministry of Trade
Majelis Ulama Indonesia (Indonesian Ulama Council)
NAS
NTT
National Agency of Statistics
Nusa Tenggara Timur (East Nusa Tenggara)
OECD
OJK
Organization for Economic Cooperation and Development
Otoritas Jasa Keuangan (Financial Services Authority)
P3A Perkumpulan Petani Pemakai Air (Water User Farmers Group)
PNG Papua New Guinea
PRISMA Promoting Rural Income through Support for Markets in Agriculture (project)
PUAP
RASTRA
Pengembangan Usaha Agribisnis Perdesaan (Rural Agribusiness Development
program)
Beras Pra Sejatera (Rice for Poor Families)
RDKK Group Needs Definitive Plan
SAFIRA Strengthening Agricultural Finance in Rural Areas
SCB
SKNBI
Standing crop buyer (penebas)
Sistem Kliring Nasional Bank Indonesia (National Bank of Indonesia Clearing
System)
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SPI Standar Penilai Indonesia (Indonesian Valuation Standard)
SRI System of rice intensification
TIRTA Tertiary Irrigation Technical Assistance (project)
UPPO
UNCTAD
Unit pembuat pupuk organik (organic fertilizer-making unit)
United Nations Conference on Trade and Development
WUA Water User Association
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Executive Summary Rice is one of the most important staple foods in the world. Global rice production in 2017 was roughly 472 million
tons. Interestingly, the international trade market for rice is very thin, meaning there are few buyers and sellers on
the market. According to research conducted by the World Bank, only 5% of global rice production is traded on
the international market and this implies that rice prices are vulnerable to price shocks. Moreover, the
international rice supply comes from only three rice exporting countries: Thailand, India and Vietnam.
Despite being the third largest rice producer in the world (estimated 79 million tons in 2017), Indonesia is still a
net rice importer (1.3 million tons in 2016). This is partly because of the high rice consumption levels of
Indonesians – ranging from 114 kg per capita per year to 163 per capita per year – but also because rice production
is lower than the nation’s potential. This is due to a combination of factors, including the need for improved input
utilization, wider application of good agricultural practices (GAPs) and good harvesting practices, and the
reduction of post-harvest loss. The Government of Indonesia has prioritized rice self-sufficiency and has been
pursuing a two-pronged approach: reduce consumption and increase production.
East Java has the largest paddy harvest area in Indonesia (2.3 million ha in 2016) and the largest production (13.5
million tons in the same year). It ranks third in productivity at 6.01 tons per ha in 2016, behind Bali and West Java
with 6.13 and 6.05 tons per ha respectively. Rice is the main staple crop, with nearly 98% of the people of East
Java depending on it as their main source of food. Most people in this province spend more than half their income
on rice to feed their families. At the same time, rice farming is a major source of employment, especially for the
poor (four-fifths of Indonesia's rice production is grown by small-scale, low-income farmers).
This study focused on three districts in East Java – Bojenogoro, Lamongan, and Tuban – which are the second
(145,278 ha), third (145,254 ha), and seventh (87,984) largest paddy harvest areas in the province respectively. Of
the three, Lamongan has the highest annual production (935,176 tons in 2015) and the greatest productivity (6.44
tons/ha in the wetland and 6.41 tons/ha in the dryland areas). Access to water – whether via rain, swampland or
irrigation – is one of the key reasons Lamongan ranks first in productivity among the three.
There is a clear market opportunity to expand East Java’s potential to supply demand for paddy and rice both locally
and nationally. Within East Java, there is opportunity to address unmet milling demand for paddy in Banyuwangi,
Jember and Lamongan, plus the other two target districts (Bojonegoro and Tuban) during the dry seasons. For
rice consumption, demand outstrips local production in the following districts in East Java: Batu, Blitar, Kediri,
Madiun, Malang, Mojokerto, Pasuruan, Probolinggo and Surabaya. At the provincial level outside of East Java,
demand outstrips local production in Jakarta, Maluku, North Maluku, Papua and Riau provinces.
Market analysis reveals numerous problems which currently constrain the ability of rice farmers to take
advantage of this market opportunity. Farmers experience low production and productivity due to suboptimal
input utilization, subpar application of good agricultural practices, and a lack of irrigation services. Farmers also
lose product during harvest due to suboptimal application of good harvesting practices and limited access to
modern, low-loss harvesting technologies. Farmers often receive low prices when they sell to standing crop
buyers or collectors, due to low or mixed quality paddy, limited access to local drying services, and an indirect
relationship with millers.
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The vision of change at the farmer level is to (1) increase and maximize smallholder rice productivity and
production, and (2) increase farmer income through improved market access. At the service level, the vision is
for farmers to experience improved access to (1) technical information, (2) inputs, (3) irrigation, (4) finance, (5)
harvest services, (6) drying services, and (7) market information and coordination. To realize this vision, this
report includes five intervention areas:
1. Promote improved inputs, including embedded technical information and good agricultural practices.
2. Promote value chain finance options for inputs and machinery.
3. Promote expansion of ISP-provided irrigation services.
4. Promote improved harvesting and handling techniques.
5. Promote improved flow of market information and coordination of the market between farmers and
millers.
Within these intervention areas, it is possible for input companies, their retail networks and millers to be a part
of promoting improved inputs and GAPs. Formal financial institutions and input retailers can both play a role in
providing improved finance options for inputs. Improved irrigation services can involve current and new private
irrigation service providers, as well as millers. Millers can play an important role in promoting better harvesting
practices, as well as improving the flow of market information and coordination.
It is recommended that the five interventions areas in the East Java rice sector be pursued in two phases, distributed
among the projects of AIP-Rural. Broadly, the recommendation is that PRISMA focus on inputs and GAPs,
harvesting practices, and paddy/rice price policy (if pursued) through work with national input companies and
strong farmer associations; SAFIRA focus on value chain finance options for inputs; and TIRTA focus on irrigation
services, improved market information flow and coordination, and paddy/rice price policy (if pursued) through
work with millers. These focus areas generally align with each project’s mandate. For the phases, the logic is that
work on inputs, input finance and irrigation should come first in Phase I, as those areas are crucial for rice farmers.
Next, in Phase II would come harvest practices, machinery finance, and market information/coordination, as
these would build on the improvements achieved through Phase I. That is, farmers who have started to produce
more due to input utilization and irrigation will be ready for improving harvest practices and leveraging better
market information/coordination, and at the same time a combination of increased productivity and labour
scarcity will make it necessary to improve value chain financing options for agricultural machinery, such as
irrigation technologies, combine harvesters and milling equipment.
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1 Background This sector report aims to provide a logic and rationale for market-based interventions, designed to support the
rice sector for the benefit of smallholder farmers in East Java. The report is meant to guide and inform three
programs associated with the Australia-Indonesia Partnership for Rural Economic Development (AIP-Rural)
portfolio of programs, focused on market-based development aimed at improving smallholder farmer's
competitiveness and access to new markets, improve inputs, know-how and technology. AIP-Rural plans to
achieve a sustainable 30% increase in the net income of 300,000 male and female smallholder farmers in eastern
Indonesia by 2018. AIP-Rural operates in East Java, West and East Nusa Tenggara, Papua and West Papua.
The three AIP-Rural programs which will build upon the findings of this report are:
1. Promoting Rural Income through Support for Markets in Agriculture (PRISMA) which focuses on value
chains;
2. Strengthening Agricultural Finance in Rural Areas (SAFIRA) which focuses on agricultural finance; and
3. Tertiary Irrigation Technical Assistance (TIRTA) which focuses on tertiary irrigation.
The research process which produced this report took into consideration the perspectives of each of these
programs, namely, value chains, agricultural finance, and tertiary irrigation.1 Similarly, the analytical process was
designed to produce intervention concepts for each program. Although these intervention ideas are program-
specific, they are complementary and intended to create synergies between the programs within the rice sector.
1 Although all three programs were considered during the research and analysis associated with this study, the TIRTA project received greater focus as its work in tertiary irrigation in East Java is intimately connected to the rice sector.
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2 Sector Description
2.1 Sector Profile
The sector profile provides information on the status and potential of the rice sector. This has been derived mainly
from secondary data and literature relevant to the rice sector.
OVERALL CONTEXT
Rice is one of the most important staple foods in the world. This statement is particularly applicable to the Asian
continent, where rice is the staple food for most of the population (especially for the middle and lower income
members of society). Farmers of the Asian continent produce about 90% of the world's total rice production.
Table 1 below shows the five largest rice-producing countries in the world.
TABLE 1: DRY PADDY PRODUCTION OF FIVE LARGEST RICE PRODUCERS GLOBALLY (2014)2
Country Paddy Production (tons)
1. China 208,100,000
2. India 155,500,000
3. Indonesia 70,600,000
4. Bangladesh 52,400,000
5. Vietnam 44,900,000
In 2016, global rice production was 471.83 million tons. In May 2017, the United States Department of
Agriculture (USDA) estimated that world rice production in 2016/2017 would be 481.54 million tons. This
represents an increase of 9.71 million tons or 2.06% of global rice production. Globally, paddy harvest area and
rice production have increased steadily from 2002 onwards (see Figure 1).
Figure 1: Paddy Harvest Area (ha) and Production (tons) (1994-2014)3
2 FAOSTAT data (most recent data is from 2014), http://www.fao.org/faostat/en/#home. 3 Ibid.
Commented [h1]: Formatting: should all these headings be in upper case, like this?
Commented [SD2R1]: No need
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The international trade market for rice is very thin, meaning there are few buyers and sellers on the market.
According to research conducted by the World Bank, only 5% of global rice production is traded on the
international market and this implies that rice prices are vulnerable to price shocks. Moreover, the international
rice supply comes from just three rice exporting countries: Thailand, India and Vietnam. The largest importers of
rice in 2016 on the other hand were: China (5 Mio tons), Nigeria (1.9 Mio tons), Saudi Arabia (1.5 Mio tons), the
Philippines (1.4 Mio tons) and Ivory Coast (1.35 Mio tons). A large quantity of imports (around 2.8 Mio tons) is
unaccounted for.4 At the same time, sudden changes in trade policies in exporting countries can lead to
stockpiling and speculation by rice importing countries, significantly raising the price of rice and the risk of
exacerbating poverty in many importing countries (where rice is the staple food for the poor). This occurred in
2008, when the price of rice increased significantly, along with the poverty rate in Asia. In response, several
countries on the Asian continent signed the ASEAN Plus Three Emergency Rice Reserve (APTERR) agreement5
in October 2011, which stipulates that 0.78 million tons of rice will be kept jointly by participating countries to
be used in response to the volatility of international rice prices, or when needed due to natural disasters or for
other humanitarian assistance. The most significant contributions of rice under this agreement come from China,
Japan and South Korea.
2.1.1 National Context
2.1.1.1 Production
As the world’s third largest rice producer, Indonesia’s National Agency of Statistics (NAS) – Badan Pusat Statistik
(BPS) estimates that unmilled rice (dry paddy) production in Indonesia in 2017 will reach 79.1 million tons. This
represents an increase of 4.97% from the previous year, when 75.3 million tons of paddy was produced. Rice
production in Indonesia from 2012 onwards continued to rise, except for 2014 where there was a slight decrease.
While there was still a significant increase in production in 2016, this was slightly lower compared to 2015, when
production growth stood at 6.4%.
Over 50% of farming households in Indonesia grow rice, and smallholders grow most of the rice in the country.
According to a 2013 agricultural census, 14,147,861 of Indonesia’s farming households are rice farmers, which
4 Statista, 2017. https://www.statista.com/statistics/255948/top-rice-exporting-countries-worldwide-2011/. 5 ASEAN countries plus The People's Republic of China, Japan and the Republic of South Korea.
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translates to 54% of 26 million farming households. Smallholders grow roughly 90% of Indonesia’s paddy on
farms which average less than 0.8 hectares; in East Java, smallholders grow roughly 70% of paddy on farms which
average less than 0.5 hectares.6 The OECD stated in 2012 that 70% of the rice that farmers grow Indonesia is for
their own household’s consumption, which means that less than a third of paddy is grown for commercial
purposes. Rice production outstrips other food crops in Indonesia (see Figure 2).
6 Indonesia Agriculture Census Data, 2013.
5
Figure 2: National Production of Seven Food Crops (2015)7
East Java, West Java, and Central Java are the top three rice-producing provinces of Indonesia, with a production
of 11-14 million tons per year. The second tier of provinces includes South Sulawesi, South Sumatra, North
Sumatra and Lampung, which produce 4-6 million tons of rice per year. The remaining provinces belonging to
the top ten rice-growing provinces of Indonesia are West Sumatera, West Nusa Tenggara and South Kalimantan;
each produces more than 2-3 million tons annually.
Figure 3: Rice Production in Indonesia (2012-2016)8
7 Ministry of Agriculture. Annual Report 2015. 2016. 8 National Agency of Statistics, Badan Pusat Statistik, and Directorate General of Food Crops, Ministry of Agriculture. 2016.
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The increase or decrease in rice production during the period 2012–2015 coincided with an increase or decrease in
harvested area and a simultaneous increase in productivity. However, the increase in production that occurred in
2016 as a result of an increase in harvested area is quite significant (6.51%), while productivity experienced a
decline of 1.45%.
Table 2: Paddy Production in Ten Main Provinces (2012-2016)9
2.1.1.2 Harvest Area
The total area of rice harvested in Indonesia in 2016 was just over 15 million ha, which represents a 12% increase
from 2012 (13.4 million ha). Out of the 34 provinces in Indonesia, the 10 provinces with the largest harvested
area are East Java and West Java (each over 2 million ha in 2016); Central Java, South Sulawesi and South Sumatra
(1-2 million ha); and North Sumatera, South Kalimantan, Lampung, West Sumatera and West Nusa Tenggara
(400,000-900,000 ha). Java (West, East, and South Java) as a region represents 41% of the paddy harvest area in
the country; the three provinces of Java represent more paddy harvest area than that of the next seven provinces
combined (6.2 vs. 5.3 million ha).
9 National Agency of Statistics, Badan Pusat Statistik, and Directorate General of Food Crops, Ministry of Agriculture. 2016. * The 2016 figures are projections.
2012 2013 2014 2015 2016
1 East Java 12,198,707 12,049,342 12,397,049 13,154,967 13,540,950
2 West Java 11,271,861 12,083,162 11,644,899 11,373,144 12,149,513
3 Central Java 10,232,934 10,344,816 9,648,104 11,301,422 11,242,464
4 South Sulawesi 5,003,011 5,035,830 5,426,097 5,471,806 5,890,871
5 South Sumatera 3,295,247 3,676,723 3,670,435 4,247,922 5,174,460
6 North Sumatera 3,715,514 3,727,249 3,631,039 4,044,829 4,403,157
7 Lampung 3,101,455 3,207,002 3,320,064 3,641,895 4,047,057
8 West Sumatera 2,368,390 2,430,384 2,519,020 2,550,609 2,606,640
9 Banten 1,865,893 2,083,608 2,045,883 2,188,996 2,354,400
10 Aceh 1,788,738 1,956,940 1,820,062 2,331,046 2,321,328
INDONESIA 69,056,126 71,279,709 70,846,465 75,397,841 79,141,352
Production (tons)ProvinceNo.
Commented [h6]: In the table: 1.change ‘(ton)’ to ‘(tons)’ 2.Delete the ) after the asterisk
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Table 3: Five Years of Paddy Harvest Area in Ten Main Provinces (2012–2016)10
The harvest area depends not only on the size of the province but also the climate or season, in particular the
amount of rainfall, presence of irrigation facilities and infrastructure. It is also strongly influenced by paddy seed
quality, whether balanced fertilizer is used or not, and efforts towards plant protection through adopting and
implementing integrated pest management.
Figure 4: Paddy Harvest Area (2014; 1 dot = 10,000 ha)11
2.1.1.3 Productivity
Indonesia’s rice productivity tends to fluctuate from year to year and from province to province (see Figure 3). Of
the 34 rice-producing provinces in Indonesia, the top ten provinces with the highest productivity are Bali, West
10 National Agency of Statistics, Badan Pusat Statistik, and Directorate General of Food Crops, Ministry of Agriculture. 2016. 11 Ricepedia (most recent data is from 2014), http://ricepedia.org/indonesia. * The 2016 figures are projections.
2012 2013 2014 2015 2016
1 East Java 1,975,719 2,037,021 2,072,630 2,152,070 2,253,204
2 West Java 1,918,799 2,029,891 1,979,799 1,857,612 2,006,956
3 Central Java 1,773,558 1,845,447 1,800,908 1,875,793 1,913,390
4 South Sulawesi 981,394 983,107 1,040,024 1,044,030 1,127,293
5 South Sumatera 769,725 800,036 810,900 872,737 1,028,777
6 North Sumatera 765,099 742,968 717,318 781,769 837,553
7 Lampung 641,876 638,090 648,731 707,266 810,588
8 South Kalimantan 496,082 479,721 498,133 511,213 544,737
9 West Sumatera 476,422 487,820 503,198 507,545 519,196
10 West Kalimantan 427,798 464,898 452,242 433,944 514,071
13,445,524 13,835,252 13,797,307 14,116,638 15,035,736 INDONESIA
Harvested Area (ha)ProvinceNo.
Commented [h7]: In the table: 1.Change ‘Ha’ to ‘ha’ 2.Delete the ) after the asterisk
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Java, East Java, Central Java and Yogyakarta (each have exceeded six tons/ha in at least one year between 2012
and 2016), and Banten, Jakarta, North Sumatera, Aceh and West Nusa Tenggara (which have fluctuated but
remained below 5,700 kg/ha). Although Bali does not rank among the ten main provinces in terms of hectares
harvested, it is first in productivity. West, East and Central Java are the three provinces with a combination of
the most harvested hectares and the highest productivity (East Java has more hectares, but West Java’s
productivity is higher).
Figure 5: Productivity of Five Main Provinces over Five Years (2012-2016)12
Rice productivity depends on a sufficient supply of water, either through rainfall, an efficient irrigation system
or a combination of both. It is also strongly influenced by the quality of the paddy seed, the farmer’s access to
government fertilizer subsidies, and whether or not they apply a balanced fertilizer. Better extension activities
(particularly through the establishment of demonstration plots and demonstration farms) also have a positive
impact, as well as efforts towards plant protection, integrated weed management, and addressing incidence of
pest and disease through adopting integrated pest management. Overall, good agricultural practices help increase
rice productivity.
2.1.1.4 Seasonality
Paddy harvest in Indonesia follows seasonal patterns and can be divided into three periods: the harvest season
during the rainy season (February to May), the harvest season during the dry season (June to September), and the
lean harvest season (October to January). These seasons are often referred to respectively as the wet season, dry
season 1, and dry season 2. In 2014, 47% of land allocated to rice production was harvested in the wet season,
35% in dry season 1 and 18% in dry season 2. In the same year, 33,297,838 tons were produced in the wet season,
24,796,263 tons in the first dry season, and 12,752,364 tons in the second dry season (Ministry of Agriculture
12 National Agency of Statistics, Badan Pusat Statistik, and Directorate General of Food Crops, Ministry of Agriculture. 2016. * The 2016 figures are projections.
Commented [h8]: In the table: 1.Change ‘ton’ to ‘tons’ 2.Label the y axis
9
figures, 2014). Many farmers wanting to grow rice during the second dry season are constrained by water
availability; only those with access to irrigation or marsh lands (tidal and swampy) can grow rice during this
season.
Figure 6: Paddy Harvest by Month in Indonesia (2014)13
Seasonality varies from one province to another. For example, in March all provinces are at peak harvest condition
during the wet season. However, the top ten provinces which have enough water and good irrigation
infrastructure facilities can harvest in the months of August and September during the dry season. Some provinces
(such as East Nusa Tenggara) can only harvest rice once a year because of a long rainy season (in the case of NTT
this lasts for four months). The final quality of the harvest is affected by a range of factors which vary from one
region to another, including the local climate or season, the amount of rainfall (this is particularly significant),
the presence of water sources (river and groundwater), irrigation facilities and infrastructure (for more on rice
prices, see Section 4.2.5.)
Seasonality also impacts paddy price. During the wet season, the supply of rice can exceed demand. The quality
can also suffer, in particular for smallholders who face difficulties drying waterlogged paddy. These factors can
translate into collectors paying farmers less than the government-set buying price of IDR 3,700/kg. Conversely,
during the dry season, demand can outstrip supply and the quality of the rice can be quite good. During this time,
farmers may be able to sell their crop for IDR 4,500-5,200/kg.
2.1.1.5 Rice Import and Export
Although Indonesia is the third largest producer of rice in the world (after China and India), it remains a rice-
importing country. Demand of Indonesian consumers for rice outstrips national production; as a result, the
Government of Indonesia needs to import rice to guarantee the national rice stock. The government has therefore
13 Ministry of Agriculture. Annual Report 2015. 2016.
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Commented [h9]: 1.Label the y axis consistently with Figure 2: ‘Hectares (Mios)’ 2.Labelling: the figures need tidying up in terms of where they’re positioned along the graph. This might be easier if their font size is reduced.
10
started several initiatives to promote different eating habits among Indonesian society and reduce the country's
dependence on rice imports (for more on consumption, see Section 2.1.2.6, Self-Sufficiency).
Over the last decade, rice imports have decreased from 1.4 million tons in 2007 to 1.3 Mio tons in 2016, with a
spike in 2011 of 2.8 Mio tons and dips in 2008 and 2013 of 0.3 Mio tons and 0.5 Mio tons respectively. Experts
such as Husein Sawit and Bustanul Arifin (2016) expect the level of rice imports to decrease over the next few
years because of two factors: per capita rice consumption has decreased, and paddy production has consistently
increased. The government has a strong commitment to encouraging the population to decrease rice consumption
per capita to less than 100 kg/year).
Figure 7: Ten Years of Indonesian Rice Imports (2007-2016, in million tons)14
A government agency – the National Agency for Food Procurement (BULOG) – manages rice imports into
Indonesia. BULOG aims to maintain a reserve of between 2.5 and 3 million tons of rice by buying rice from
domestic producers and foreign exporters. In 2015 - 2016, Indonesia pledged to import about 1.5 million tons of
rice, mainly from Thailand and Vietnam, to secure this reserve. BULOG has a monopoly on rice imports and
exports; it also coordinates the imported rice distribution process and is charged with maintaining stable rice
prices in Indonesia.
Led by government initiatives, Indonesia is looking to export rice in the future. In early 2017, The Jakarta Post
reported that government staff believed Indonesia would export 100,000 tons that year (out of a production target
of 40 million tons). The government is taking steps to improve its ability to export, including improved irrigation,
expansion of current rice fields, and the clearing of three million ha for new rice fields.15 Three examples from
2017 illustrate the government’s incremental moves towards export. Early in the year, the Consul General of
Papua New Guinea (PNG) welcomed exported rice from neighbouring West Papua where farmers in the sub-
district of Merauke produce a rice which is cheaper for PNG to import than its other rice trade partners, Vietnam
and Thailand.16 In August 2017, the Indonesian Agriculture Minister Amran Sulaiman announced that Indonesia
planned to export rice to Vanuatu, Fiji and Samoa, without stating how much or when these exports were to
14 UN Comtrade 2017. https://comtrade.un.org. 15 14 February 2017. The Jakarta Post. http://www.thejakartapost.com/news/2017/02/14/indonesia-set-to-export-100000-tons-of-rice-in-2017.html. 16 16 February 2017. Rice Outlook. http://riceoutlook.com/png-happy-to-import-cheap-rice-from-indonesia/.
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Commented [h10]: Label the y axis
Commented [h11]: A bit vague. Can we say when? Also, I.5 million tons per…? Year? Or over what period of time? There was a word missed out of this sentence in the original document.
11
begin.17 Finally, later in the year, Agriculture Minister Sulaiman approved the export of 25,000 tons of high-
quality rice to Malaysia as part of a 125,000-ton export trial. Malaysia needs roughly 700,000 tons of rice annually,
which it currently obtains from Vietnam and Thailand. As this rice is premium quality – targeted for use by hotels
and wealthier individuals – it garners a higher price than the bulk of rice produced in Indonesia.18
2.1.1.6 Self-Sufficiency
The Indonesian government continues to strive for self-sufficiency in rice, but consumption remains high. Rice is
the main staple crop for almost all Indonesians, with nearly 98% of people of East Java depending on it as their
main source of food. Most of the population spends more than half their income on rice to feed their families.
According to NAS, in 2010 Indonesia had a high per capita rice consumption at 139 kg/year; however, this
dropped to 114 kg/year in 2015. 19 In East Java, consumption patterns appear to be less, at 88 kg per capita per
year in 201620 (such a low consumption rate may not be accurate). Indonesia should be self-sufficient if its per
capita rate has dropped to 114 kg/year nationally. In contrast, data from the Organization for Economic Co-
operation and Development (OECD) suggests that between 2012 and 2014, average rice consumption in Indonesia
was 163 kg per capita per year, significantly higher than even the NAS data for 2010.21 Regardless of which
consumption rate is more accurate, Indonesia continues to import rice to meet national demand and rice remains
an important staple. It is particularly important for poor Indonesian households who spend more than half of
their total expenditure on food, around 35% of that on rice. This dietary dependency on rice creates risks for
Indonesia as a rice importer when rice prices rise, explaining why the government has placed a high priority on
achieving rice self-sufficiency and intends to become a rice exporter. Indonesia has however struggled over the
last four decades to achieve this vision, succeeding only once in the mid-1980s and a second time in 2008-2009.
To achieve its goal of self-sufficiency, the government uses a two-pronged strategy. On the one hand, it
encourages farmers to increase production by encouraging technological innovation and providing subsidized
fertilizers; on the other, it attempts to reduce rice consumption through campaigns such as "one day without rice"
(per week) and the promotion of alternative staples such as maize, cassava, sweet potato and sago flour. To date,
this strategy has not had a significant impact. Rice production has increased modestly; most Indonesians still
choose rice as their preferred staple food. In 2015, the Indonesian government announced the allocation of
increased state budget, resulting from the reduction of state fuel subsidies to infrastructure development in the
agricultural sector, including the improvement of three million hectares of irrigation facilities by 2018. This plan
also included interventions such as the rehabilitation of the water management infrastructure and the distribution
of subsidized seed, fertilizer and agricultural machinery.
17 10 August 2017. Loop Pacific. http://www.loopvanuatu.com/business/indonesia-export-rice-vanuatu-64578. 18 21 October 2017. TEMPO.CO. https://en.tempo.co/read/news/2017/10/21/056912517/Indonesia-Exports-25-Tons-of-Rice-to-Malaysia. 19 National Agency of Statistics. 2016. 20 28 June 2016. Retrieved from Dinas Komunikasi dan Informatika, http://kominfo.jatimprov.go.id/read/umum/konsumsi-beras-masyarakat-jatim-88-kg-per-kapita-per-tahun. 211 July 2015. OECD. Retrieved from OECD-FAO Agricultural Outlook 2015. http://dx.doi.org/10.1787/agr_outlook-2015-table125-en.
Commented [h12]: I’ve deleted the following – is it relevant?
Commented [SD13R12]: I think it is. Perhaps, it requires paraphrasing.
Commented [h14R12]: I don’t think it’s relevant.
12
2.1.1.7 Niche Rice Varieties and SRI
In addition to the large-scale production of staple rice, Indonesia farmers produce niche rice varieties – including
organic and fragrant – which are marketed by Indonesian companies inside and outside of the country. Javara, for
example, is an Indonesia company which works with 50,000 farmers and 2,000 food artisans to brand and market
over 500 artisanal food products, sold at premium prices. Founded in 2008, Javara is a social enterprise which
promotes values such as fair value distribution across the supply chain and food biodiversity. Javara rice varieties
range from Saudah Polished to Rojolele Super to Cempo Merah Unpolished. PT Profil Mitra Abadi (PMA) is
another Indonesian company which focuses on organic food products including rice, with a mission “[t]o develop
local Indonesian farmers so that they can cultivate organic produce which meets international standards,” and
“[t]o improve the well-being of local Indonesian farmers through organic farming and fair trade.”22 PMA partners
with the Minstry of Agriculture (MoA) and international NGO Rikolto Indonesia to support farmers in Java to
produce rice that meets national and international organic standards. It markets itself as a partner to international
importers who want to bring Indonesian organic rice into other markets.23
The Government of Indonesia started promoting the development of organic agriculture in 2001 with its “Go
Organic 2010” initiative, in response to the rising global and local demand for organic products. The process is
environmentally friendly and the prices are higher, resulting in good potential business opportunities for
farmers.24
Indonesia’s national standards agency, Badan Standardisasi Nasional (BSN), established the National Standard of
Indonesia on Organic Food Systems (SNI 6729-2010) in 2002. This complies with the international food standard
established by the Food and Agriculture Organization (FAO) and World Health Organization (WHO) in 1962:
Guidelines for the Production, Processing, Labelling and Marketing of Organically Produced Foods (CAC/GL 32-
1999) issued by the Codex Alimentarius Commission.25
Organic farming can be practiced in tandem with the system of rice intensification (SRI) to maximize benefits for
the farmer, the soil and the environment.26 According to the SRI International Network and Resources Center:
SRI is a climate-smart, agroecological methodology for increasing the productivity of rice and more
recently other crops by changing the management of plants, soil, water and nutrients. SRI methodology
is based on four main principles that interact with each other: [1] Early, quick and healthy plant
22 Lewi's Organics, http://www.lewiorganics.com/. 23 Ibid. 24 “Organic” as a concept generally requires independent certification and typically means: (1) not using synthetic or chemicals pesticides and fertilizers, (2) maintaining soil fertility through natural processes such as planting vegetation cover and/or the use of composted manure and waste plants, (3) avoiding planting the same crops from year to year in the same fields, (4) not using chemical forms of weed and pest control, (5) using insects to prey on pests and half-rotten straw leaf to suppress weeds, as well as other organisms to suppress disease. 26 Hiayat, Agus Syarip and Teddy Lesmana. RIEB, June 2011, Vol. 2 No. 1. The Development of Organic Rice Farming in Indonesia. Economic Research Center Indonesian Institute of Sciences. 25 Shiotsu, Fumitaka, Sakagami, et al. 28 April 2015. Initiation and Dissemination of Organic Rice Cultivation in Bali, Indonesia. doi:10.3390/su7055171. 26 French agronomist Henri de Laulanié developed SRI in the 1980s while working in Madagascar to help farmers there improve their rice production systems.
Commented [h15]: Again, I’ve deleted the following as it seems to be not relevant here. Please revert if you disagree!
Commented [SD16R15]: Can this be inserted as footnote?
Commented [h17R15]: Is it really relevant? If you think so, add it to footnote 25.
13
establishment; [2] Reduced plant density; [3] Improved soil conditions through enrichment with organic
matter; [and 4] Reduced and controlled water application. Based on these principles, farmers can adapt
recommended SRI practices to respond to their agroecological and socioeconomic conditions.
Adaptations are often undertaken to accommodate changing weather patterns, soil conditions, labor
availability, water control, access to organic inputs, and the decision whether to practice fully organic
agriculture or not.27
SRI could be important for rice farmers in East Java who struggle with limited access to water and low organic
content in the soil. SRI advocates also argue that its methodologies can reduce input costs – while still increasing
productivity – as the need for expensive chemical inputs is reduced.28
Organic rice does not fall under the regulations which set the price for paddy and rice; as a result, it sells at a
premium based on market forces. The 2013 Agricultural Census indicated that 0.06% of rice production in Indonesia
was organic.29
2.1.2 Local Context: East Java
Java Island represents 45.9% of the rice planting area in Indonesia, yet it produces 54.1% of the rice in Indonesia.
Rice productivity on Java island is thus higher than rice productivity outside of Java island.
Within Java Island, the harvested area of East Java Province accounts for almost one-sixth of the national harvested
area. According to data from the National Agency for Statistic (NAS) in 2016, the harvested area in East Java is
2.2 million ha and has increased consistently by about 2.3% per year. The possibility of further harvest area
increases in Bojonegoro and Lamongan districts is likely to continue due to i) ongoing improvements in irrigation
facilities and other infrastructure such as on-farm roads, and ii) an increase in cropping intensity.
In East Java the largest harvest area for rice is in Jember District (164,656 hectares) and the smallest harvest area is
in Batu City (707 hectares). This study focused on three districts – Lamongaon, Bojonegoro and Tuban – which
are the second (145,278 ha), third (145,254 ha), and seventh (87,984) largest rice harvest areas in the province
respectively. This high production is due to the overall size of the districts and the high popularity of rice in the
area. These three districts represent 17.6% of East Java’s harvested area. In the three target districts, 96% of rice
harvest area is wetland; in the entire province, 94% of all rice is grown on wetlands.30
Figure 8: Paddy Harvest Area by District in East Java in ha (2015)31
27 Cornell University, SRI-Rice International Network and Resources Center. http://sri.ciifad.cornell.edu/aboutsri/methods/index.html. 28 For more on SRI in Indonesia, see the SRI International Network and Resource Center’s Indonesia page: http://sri.cals.cornell.edu/countries/indonesia/index.html. 29 Badan Pusat Statistik. 2013. http://st2013.bps.go.id/dev2/index.php#. 30 Wetland is defined as that which is almost always flooded by water, either through irrigation, surface water,
groundwater or other water sources. Rain-fed paddy fields rely on the presence of rainfall. 31 National Agency of Statistics, Badan Pusat Statistik, and Directorate General of Food Crops, Ministry of Agriculture. 2016.
Commented [h18]: Over what time period?
14
East Java’s rice productivity is lower than both Bali and West Java provinces. According to NSA data (2016), rice
productivity was 6,010 kg/ha in East Java, 6,133 kg/ha in Bali and 6,054 kg/ha in West Java. The area of Bali
province is much smaller (6.1%) than East Java. However, it has an excellent, unique irrigation system (subak, a
water management system developed in the ninth century). Another factor in Bali's high productivity is the
activity of its extension workers. Part of Bali’s high income generated from the tourism industry is used to support
the agriculture sector, and is guaranteed by local government for facilities and infrastructure for rice cultivation
(quality seed, fertilizer, pesticide and irrigation facilities). The availability, adequacy and coverage of agricultural
extension workers visiting farmers in the field is one of the decisive factors in Bali having the highest rice
productivity in Indonesia.
According to MoA data on rice cultivation (2016), Bali’s harvest area was 140,000 ha and productivity 6,133 kg/ha;
overall production amounted to 859,775 tons of dry, unhusked rice (or GKG). The difference in productivity
between Bali and East Java of 123 kg per ha means that if East Java was able to match Bali’s rice productivity, it
would have an increase in production of 277,144 tons. West Java has a harvest area of about 90% of that of East
Java, with good irrigation facilities (supported by three big dams) and the activities of extension workers
implementing GAP. In East Java, Sidoarjo district has the highest wetland productivity (7,900 kg/ha); Lamongan
district has the highest dryland productivity (6,401 kg/ha). Wetland (and dryland) productivity in the three
districts targeted by this study is i) 5,783 (4,771) kg/ha in Bojonegoro, ii) 6,439 (6,408) kg/ha in Lamongon, and
iii) 6,240 (4,566) kg/ha in Tuban. Of these three, both wetland and dryland productivity is highest in Lamongon;
this is due to the accessibility of water from sources such as rainfall, irrigation and swampy areas.
Figure 9: Paddy Productivity (tons/ha) by District in East Java (2015)32
32 National Agency of Statistics, Badan Pusat Statistik, and Directorate General of Food Crops, Ministry of Agriculture. 2016.
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20,000
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Commented [h19]: In Figure 9: 1.Change ‘t/ha’ to ‘tons/ha’ 2.Change ‘Wet Land’ to ‘Wetland’ 3.Change ‘Dry Land’ to ‘Dryland’ 4.Change ‘Paddy’ to ‘paddy’
15
The highest overall paddy production is recorded in Jember District, while the lowest is in Batu Municipality.
Jember District produces more than one million tons, or 7.6% of the entire East Java province. At the other end
of the scale, Batu Municipality produces only 4,514 tons and cannot fulfill its rice needs. The target districts of
Bojonegoro, Lamongan, and Tuban produce 831,791 tons, 935,176 tons, and 546,310 tons respectively.
Together, these three districts contribute almost 16.8% of the paddy production of East Java province. At least
seven factors contribute to these differences in production: size of area, agro climate, fertilizer distribution, pest
and disease management, paddy varieties, technological innovation or plant treatment, and harvest and post-
harvest handling.
Figure 10: Paddy Production by District in East Java (2015)33
33 National Agency of Statistics, Badan Pusat Statistik, and Directorate General of Food Crops, Ministry of Agriculture. 2016.
0
1
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Commented [h20]: Formatting: ensure this heading is on the next page
Commented [h21]: In Figure 10, change ‘malang’ to ‘Malang’
16
In East Java farmers plant and harvest in all three seasons – the rainy season, dry season 1 and dry season 2 –
depending upon their access to water and irrigation services. The majority of farmers plant during the rainy season,
from the first week of October to the second week of November, and harvest from the fourth week of January to
the fourth week of February. They generally wait for three consecutive days of moderate-to-high rainfall before
beginning land preparation, to ensure the soil is sufficiently moist. Dry season 1 is the second most popular for
rice farmers; planting can range from the first week in March to the first week in April, and harvesting from the
fourth week of June to the second week of July. Finally, a minority of farmers grow rice during dry season 2,
planting from the fourth week of June to the second week of July, and harvesting from the fourth week of
September to the first week of October.
East Java is self-sufficient in rice production and therefore is able to export rice to other provinces. In fact, in 2012,
2013 and 2014 the governor of East Java won the Adhikarya Pangan Nusantara award from the MoA in
recognition of East Java’s self-sufficiency and ability to support other provinces with rice exports. In 2015, East
Java exported nearly 500,000 tons of rice (predominantly to six provinces: Papua, East Nusa Tenggara, Riau, Jambi,
Yogyakarta and West Java) and exceeded this in 2016.
In East Java, the area of rice fields planted with organic rice is estimated at about only 1,000 ha. Lumajang District
is the largest centre of organic rice cultivation in East Java. Although productivity is lower in these organic rice
fields – roughly five tons per ha as compared to the conventional average in East Java of about six tons per ha –
the selling price is higher.
2.2 Sector Dynamics
2.2.1 Market Overview
Rice farming in in East Java produces for four main markets: (1) the processing of paddy into rice for human
consumption at the local, regional, and/or national level; (2) the further processing of rice into other consumables
(e.g., broken rice, rice flour, rice noodles); (3) the use of rice processing byproducts for livestock consumption
(e.g., rice straw, rice bran and rice polishings; and (4) the paddy seed market (for private seed growers). The core
value chain for rice is long with many intermediaries: input sellers, farmers, standing crop buyers (penebas),
collectors/traders, rice millers (small, medium and large; mobile and stationary), wholesalers and inter-island
traders, retail rice sellers, and the regional division of BULOG. In some instances, rice is grown, traded, milled
and sold within the same district or province. The rice market in the three target provinces is marked by a great
deal of competition and a dearth of coordination.
17
2.2.2 Sector Map
This study examined the East Java rice sector, with additional focus on the service areas of irrigation and finance. The diagrams below visualize the
relationship between the core sector, irrigation services and financial services. A full-page image of each diagram can be found in Annex 3.
Legend
Core Sector Map
Irrigation Services Map Financial Services Map
18
2.2.3 Core Value Chain
2.2.3.1 Inputs Sales and Distribution
Four key inputs impact rice production: seed (variety and quality), fertilizer (type and amount), pest and disease
management, and water (naturally occurring or via irrigation). Seed, fertilizer and pest/disease inputs are covered
in this section; water and irrigation are covered in a separate section as part of Supporting Functions and Services.
That same section covers the finance needs that farmers face when seeking to purchase quality inputs. See Table
5 in Annex 5.7 for an overview of companies working in input sales and distribution in Indonesia.
2.2.3.1.1 Seed
The Indica variety of rice seed constitutes more than 98% of rice grown in Indonesia. Ciherang is the seed variety
predominantly used by farmers, although some farmers use other varieties such as IR-64, IR-66, Mamberamo,
Way Apoburu and Sertani.34 Rice farmers have been growing Ciherang for over a decade. It is a high-yield variety
(HYV) of seed that farmers trust. Rice millers also say they prefer Ciherang due to the ease of milling and high
quality finished product. When a farmer grows Ciherang seed using proper fertilizer application and irrigation,
yield should be between seven and eight tons per hectare. Ciherang has the additional qualities of being drought
resistant, pest resistant and flood tolerant; it costs USD 0.7 per kilogram on average. In comparison, newer HYV
seed Sertani (13a and 13b) can produce between 12 and 14 tons per hectare, has the qualities of being drought
resistant, pest resistant, and flood tolerant, and costs USD 1.1 to USD 1.5 per kilogram. In East Java, roughly 90%
of farmers use HYV Ciherang seed and around 10% use higher quality HYV Sertani and Emespe seeds. Only 20%
of farmers retain their own seed to use from one season to the next.
Currently farmers can easily find Ciherang and other HYV seed varieties for sale in nearby retail outlets. Farmers
can buy seed directly, but some who are organized into associations buy inputs in bulk at a reduced price through
the farmer association leadership. Rice seed suppliers in East Java consist of individual seed growers and state-
owned enterprises such as PT. Sang Hyang Seri, PT. Pertani and PT. Petro Seed. Multi-national seed companies
such as DuPont, Monsanto, Bayer, Mitsui and Syngenta do not have a footprint in East Java, as the seed (usually
hybrid) these companies offer is too expensive and unaffordable for farmers (hybrid corn seed is an exception).
At the same time, Indonesian laws and regulations discourage these multi-nationals to be directly active in
Indonesia. For local seed growers, the common practice is to distribute free seed to farmers with whom they
contract for seed production, then buy back the harvest at a price that is at least 10% higher than market value.
There are about 400 seed growers providing rice seed services in East Java.
2.2.3.1.2 Fertilizer
Several factors determine whether fertilizer application will aid farmers in maximizing paddy productivity
(quantity and quality of rice), including the type of fertilizer (the nutrients included), the amount, quality, and the
timely and appropriate application. The average productivity resulting from fertilizer application in Indonesia is
7-8 tons/ha, and production can decrease 30-50% without its use. The Government of Indonesia provides a great
deal of subsidized fertilizer to farmers (see Supporting Rules and Regulations, below, for more on this).
34 Director General, Food Drops, Ministry of Agriculture. 2016.
19
In East Java, roughly 90% farmers use subsidized fertilizer. Table 4 and Table 5 present the costs of non-subsidized
fertilizer and a comparison of subsidized and non-subsidized fertilizer prices in 2014. The MoA allocates the
subsidy and sets the highest retail price (HET). Procurement and distribution of subsidized fertilizer is regulated
by the Ministry of Trade (MoT). Other government fertilizer support initiatives include Direct Fertilizer Aid
(Bantuan Langsung Pupuk, or BLP) which provides free organic and NPK fertilizers to farmers participating in
field schools, and the Organic Fertilizer Making Unit (Unit Pembuat Pupuk Organik, or UPPO) which supplies
farmer groups with the livestock and other items required to produce organic fertilizer consistently.
In East Java farmers often neglect to include fertilizers that enhance the presence of organic matter in the soil.35
This is problematic, as in Java the organic content of the soil averages less than 2%, while 4% is recommended
(low organic content can result from regular farming combined with overuse of chemical fertilizers over time).
Long-term soil fertility is an important consideration for East Java. However, some farmers overuse fertilizers –
such as nitrogen – to obtain the bright green colour of their paddy, which they believe is a good sign. Other
landless farmers rent land for rice production and as they do not own the land, focus only on short-term,
productivity-enhancing fertilizers, disregarding long-term soil health.
Table 4: Highest Retail Price (HET) for Subsidized Fertilizer in IDR/kg (2017)36
Table 5: Highest Retail Price (HET) for Subsidized Fertilizer in USD/kg (2014)37
35 Government extension workers suggest the following nutrient mix for growing paddy: nitrogen (N),
phosphorus (P), potassium (K) and magnesium (Mg). In addition, fertilizer companies suggest zinc (Z), boron (B)
and iron (Fe). 36 These prices were set by the Government in 2016. Ministry of Agriculture. 2017. 37 17 December 2014. Sudaryanto, T. Fertilizer Subsidy Policy in Indonesia: Impacts and Future Perspectives. Retrieved from FFTC Agricultural Policy Platform. http://ap.fftc.agnet.org/ap_db.php?id=365.
Fertilizer Type Non-subsidized
(IDR/kg)
Package Size
(kg)
Urea 1,800 50
SP-36 2,000 50
ZA 1,400 50
NPK 2,300 50
Organic 500 40
Fertilizer Type Market Price
(USD/kg)
Subsidized Price
(USD/kg)
Percentage of
Subsidy (%)
Urea 0.30 0.15 50
SP36 0.45 0.17 62
ZA 0.26 0.12 54
NPK 0.48 0.19 60
Commented [h22]: This section is a bit confusing. It compares figures from 2014 and 2017, and also presents figures in IDR and USD. I’ve deleted the list of prices from the start of the section, partly because it just repeats the information on the table, and partly because it the figures aren’t contextualised and so the reader isn’t sure what point is being made. Also, the MoA announced the figures in 2016 but Table 4 mentions ‘2017’ – is this just a typo?
Commented [SD23R22]: agree
Commented [h24R22]: Please check the three points I’ve made
20
Indonesia began subsidizing fertilizer in 1971 and as of 2016 fertilizer subsidies comprised the largest portion of
the government’s agricultural budget.38 The government manages its own supply chain and distribution channels
for subsidized fertilizer, which reaches the farmers through dedicated local kiosks. However, this subsidized
fertilizer does not contain the full spectrum of nutrients to support the maximum quantity and quality of the
crop, and for best results the farmers need to supplement it with a non-subsidized product, although financial
constraints mean that this usually does not happen.
At the same time, subsidized fertilizer does not always reach farmers in a timely manner or in the right quantity.
Administrative processes can prevent the fertilizer from shipping to local kiosks on time. When it does arrive at
the appropriate kiosks, the fertilizer should be distributed fairly to farmers according to the government’s
Definitive Plan for Group Needs (RDKK). However, some kiosks sell to farmers outside of the RDKK, or sell more
than their allotted share to certain farmers within the RDKK. Farmers pay more to buy non-subsidized fertilizer
products from kiosks which sell seed but that do not get their proper allocation of subsidized fertilizer to
distribute. In general, kiosks obtain higher profits if they focus on selling non-subsidized fertilizer instead of
subsidized fertilizer.
East Java receives Indonesia’s largest portion of subsidized fertilizer. In 2017, the province received 3.45 million
tons of the 8.55 million tons of subsidized fertilizer in the country, roughly 40% (36% when the national fertilizer
reserve of 9.55 million tons is taken into consideration).39 Given the quantity of rice grown in East Java and the
wide-spread use of fertilizer, the potential fertilizer market is sizeable: an estimated USD 479 million (see Table
6) for urea, SP-36 and NPK, for current hectarage in East Java, if only one rice crop is harvested per year (one to
three cycles per year are possible).
38 16 June 2016. Agricultural Policy Monitoring and Evaluation 2016. Retrieved from OECD iLibrary. http://dx.doi.org/10.1787/agr_pol-2016-en. 39 Pemprov Jatim. 2017. Mekanisme Penyaluran Pupuk Bersubsidi. Surabaya, East Java: Dinas Pertanian Pemerintah Provinsi Jawa Timur (unpublished).
Organic 0.16 0.04 75
Commented [h25]: I think the point being made here could be clearer – can someone rewrite slightly.
Commented [SD26R25]: What do you think with my revision
Commented [h27R25]: Your revision is fine as far as it goes, but I need to understand the point being made here. Are we implying that some kiosks don’t make an effort to obtain subsidized fertilizer to sell?
Commented [SD28R25]: Yes
21
Table 6: Estimated Market Price for Fertilizer (2014 market prices)
Fertilizer
Type
Kg/ha/cycle40 Ha in
East Java
Kg
Needed
Unsubsidized
Market Price
(USD/kg)
Total Value
(USD)
Urea 200 2,365,864 473,172,800 0.30 141,951,840
SP-36 50 2,365,864 118,293,200 0.45 53,231,940
NPK 250 2,365,864 591,466,000 0.48 283,903,680
TOTAL 500 2,365,864 1,182,932,000 n/a 479,087,460
For further analysis of fertilizer, see the detailed research of PRISMA team member Kristia Sianipar, Rice Sector
in Indonesia, 10 April 2017.
2.2.3.1.3 Pest and Disease Management
Most rice farmers in East Java grow the same, older variety of rice seed at the same time of year, year after year,
over larger swathes of land, which creates an environment in which pest and disease can evolve and thrive. The
following is a summary of relevant pests and diseases:
Brown and white-backed planthoppers have been observed in East Java. These are insects which can
attack irrigated and rainfed paddy, particularly areas which are continuously submerged, shaded and/or
humid.41 According to estimates of local MoA officers, brown planthopper attacks can cause a 20%
reduction in rice yield.
Golden snails primarily damage young plants up to 30 days old; after that period, plant stems are thick
enough to resist the snails. These snails travel via water (e.g., flood irrigation and rainfall) and can cause
50% loss – even up to 100% loss if no measures are taken against them.42
There are six types of stem borers whose larvae can destroy paddy, from seedling stage to maturity. Fields
with high nitrogen content are attractive to stem borers and their larvae can live within the rice stubble
left after a field is harvested.43
Rice blast is caused by a fungus named Pyricularia oryzae. It can occur where blast spores are present
and these spores can travel through the air throughout the year. Crop damage can amount to 50% from
rice blast.44
Rice farmer focus groups suggest that rats are another problem in East Java. According to IRRI,
in Indonesia rats damage an average of 17% of all cultivated rice, making rat management
critical to improve harvest quality and quantity.45
40 Arifin, Zainal. Rice Researcher. Balai Pengkajian Teknologi Pertanian (BPTP) Jawa Timur. (2017, February 20). Kristia Sianipar, interviewer. 41 Hakim, Arief Lukman. 2016. “Agronomic Study on Current Rice Production in Bojonegoro.” Commissioned by TIRTA. 42 Ibid. 43 Ibid. 44 Ibid. 45 http://www.knowledgebank.irri.org/training/fact-sheets/pest-management/rats/item/rats-fact-sheet. Methods to combat rats include flooding, digging and/or fumigating rat burrows. Dogs – and other human interventions – can scare rats out of areas with high vegetation cover or around villages.
22
Integrated pest management (IPM) is a method farmers can use to manage pests and diseases in which chemicals
are a last and limited resort. IPM is:
a broad ecological approach for pest management which employs all available skills, techniques and
practices such as cultural, genetic, mechanical and biological methods including application of chemical
pesticides as a last resort in a harmonious and compatible manner with a view to suppress pest population
below economic injury level, based on regular crop pest surveillance and monitoring. IPM is a dynamic
approach and process which varies from area to area, time to time, crop to crop and pest to pest etc., and
aims at minimizing crop losses with due consideration to human and animal health besides safety to
environment.46
Examples of IPM include good seed selection, planting and weeding (cultural practices); physical removal of
infested plant parts or egg/larvae (mechanical practices); utilization of spiders, damsel flies and/or dragonflies
(biological control); and pheromone traps (behavioural control).47 From 1989-1999, the Indonesian government
supported a National Integrated Pest Management Program, which widely supported the use of IPM through
Farmer Field Schools; however, as this initiative has not sustained and private chemical companies have increased
marketing efforts, IPM is no longer as popular as other, branded chemical solutions.48
In East Java, there are many branded chemical solutions addressing pest and disease. Companies such as Dow and
Syngenta (see Annex 7) sell their products through local retailers. Some companies also sponsor demonstration
plots to educate farmers about their products’ effectiveness and encourage them to adopt new practices. If all rice
grown in East Java relied on a basic package of herbicide, fungicide and pesticide (minimum costs with low
intensity pest threat), the market for these chemicals would be sizeable, amounting to an estimated USD 200
million (see Table 7) for current hectarage in East Java if only one rice crop is harvested per year (one to three
cycles per year are possible). Compared to the fertilizer estimates above, this market is relatively small; however,
a Syngenta brochure reviewed during field research suggests that a company such as itself would recommend a
wider portfolio of products to rice farmers.
Table 7: Estimated Market Price for Pest and Disease Chemicals (2014 Market Prices)49
Chemical
Type Brand USD/HA
HA in East
Java
Total
Market Price
(USD)
Herbicide Clipper Clincher - Dow 38 2,365,864 90,994,769
Fungicide Fujiwan 10 2,365,864 22,748,692
46 Agropedia, Integrated Pest Management (IPM) in rice. http://agropedia.iitk.ac.in/content/integrated-pest-management-rice. 47 Ibid. 48 Thorburn C. 2015. The rise and demise of integrated pest management in rice in Indonesia. US National Library of
Medicine. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4553486/.
49 These chemical selections and USD values per ha are taken from a PRISMA presentation entitled “Paddy Sector Merauke” by Dwi Uli.
Commented [h29]: Can this footnote number be amended?
Commented [SD30R29]: Yes please
Commented [h31R29]: I mean I haven’t been able to do it Can someone at your end do it please?
23
Pesticide 1 Virtaco - Syngenta 18 2,365,864 42,767,542
Pesticide 2 Virtaco - Syngenta 18 2,365,864 42,767,542
TOTAL 84 2,365,864 199,278,545
2.2.3.2 Farmer Production
There are 2,898,234 farmer households growing rice in East Java, only about 4.6 % of which grow it commercially
(NAS, 2013).50 Rice farming is a major source of employment, especially for the poor. Four-fifths of Indonesia's
rice production is grown by small-scale, low-income farmers. Most farmers (95.4%) who grow rice grow some
part of it for their own consumption. Among this group of farmers, about 12.3% are considered poor smallholders.
The wealthier farmers with large plots of land (more than 1.0 ha) constitute 58.5 % of the total number of East
Java farmers; an estimated 22.8% of farmers are landless. For manual planting, rice farmers need 10-12
labourers/ha; manual harvesting is handled by two groups totalling 10-15 labourers. When a combine harvester
is used, only two to three people are needed to work in the field. Agricultural machinery and equipment used by
farmers in East Java are hand tractors, transplanters (very few), manual paddy cutters (for harvesting),
pedal/power threshers and combine harvesters.
Poverty and East Java Rice Farmers
Economists and agricultural experts are currently pointing to a steady, three-year drop in the average real incomes
of Indonesia’s roughly 40 million farmers, who account for a third of the labour force. In an interview with
Reuters in November 2017, Indonesian Finance Minister Sri Mulyani Indrawati said the government needed to
take a closer look at farmers’ incomes, which are three percent lower in real terms than they were three years
ago.51
In March 2017 in East Java, out of a total about 39 million people, around three million (7.8%) were living in
rural poverty (defined by the government as living below the poverty line of USD 0.8 per day, given current costs
of living).52 The MoA estimates that in East Java, 53-55% of rice farmers – or between 1.5 and 1.6 million rice
farmers – live below the poverty line.53
Standing crop buyers (penebas) typically manage rice harvesting for farmers in East Java. Penebas survey paddy
farmland one week before harvest and quote a buying price to the farmers based on the their estimate of quantity
and quality. If the farmer agrees, the penebas makes a down payment of around 5% to 10% of the total estimated
value of the harvest, committing to paying the remainder after s/he has sold it on to another collector/trader or
to a miller. The penebas supplies a harvest service team, which usually consists of 10-15 people and a mobile
50 Number of farmers growing rice in three districts: Bojenogro District – 239,734; Tuban District – 200,099; Lamongan District – 189,343. 51 1 December 2017. Reuters. Farmer wages may offer clues as weak demand baffles Indonesian officials.https://www.reuters.com/article/us-indonesia-economy-consumption/farmer-wages-may-offer-clues-as-weak-demand-baffles-indonesian-officials-idUSKBN1DU370. 52 2017. BPS. https://www.bps.go.id/. 53 Center for Agricultural Data and Information System, Ministry of Agriculture, and National Agency of Statistics, 2013.
Commented [h32]: Check this
Commented [SD33R32]: What do you think?
Commented [h34R32]: I’ve deleted the last 2 sentences. If you think that they should be included, I suggest we re-insert them in the footnotes. If we do that, pls check that my amendments are correct. But I don’t think they’re relevant.
Commented [h35]: Check this
Commented [SD36R35]: Why?
24
power thresher. This team is generally dominated by male labourers, while women support men with certain
specific tasks such as threshing and hanging on the drying floor. Farmers who wish to maximize the selling price
of their rice may take responsibility for harvesting without a penebas and selling directly to a larger
collector/trader or miller. In these instances, farmers may seek help from labourers or from family and other local
farmers.
The process of paddy harvesting and threshing in East Java is still conducted using simple tools such as the sickle
and the mobile thresher, which can be powered either by manual pedal or small engine. The use of a combine
harvester remains very limited due to the high price of purchasing the new unit, the skill of operators, a lack of
mechanics and workshops, the lack of guaranteed availability of spare parts, and challenging field conditions such
as waterlogging and difficult terrain.
Reliance on manual labour will become a greater challenge for rice farmers as outmigration trends continue
(especially among Indonesian youth) and the rural on-farm workforce ages; labour is likely to become scarcer
and more expensive. Post-harvest loss is another challenge. With a combine harvester, 98% of paddy makes it
from the field to the mill; this is reduced to 92% when a thresher is used, representing lost profit for farmers and
less product for the mills. Moreover, the foreign matter content (dirt and other debris) is higher with threshers,
rendering the paddy quality lower. Again, this reduces potential profit for farmers and creates more work for
millers who have to remove this foreign matter during processing. The dominant paddy drying process also relies
on simple tools: open concrete floors where the sunlight dries the paddy. This takes two days; use of a drier
reduces the process to 10-16 hours. However, due to costs, most small- and medium-sized mills cannot afford
more high-tech dryer options, a fact that slows down the milling process. Some rice mill owners have introduced
and use bed dryers, but it appears that the human resources needed for the operation, maintenance and repair of
these dryers are not fully up to speed, and in many cases, use of the dryer tends not to last long. Furthermore,
financial constraints constitute an inhibiting factor in the development of dryers in this area.
2.2.3.3 Millers and Marketing Channels
Rice marketing in East Java usually starts with the standing crop buyer (penebas) who buys wet harvested paddy
(GKP) from the farmers, then sells to collectors/traders and/or rice mills. Some farmers sell to the same penebas
every harvest while others wait to see which penebas offers the best price. Similarly, some penebas sell to the
same collectors/traders and/or mills each season while others contact different buyers to secure the best price.
Farmers rarely have the option to research the penebas offering the best price, perhaps because they have
borrowed informally from a local lender who is demanding a quick repayment (thus leaving little time to explore
alternatives) or they may have borrowed money from a specific penebas to purchase inputs and are therefore
beholden to sell their harvest back to them.
In rare instances, the supply chain is short: from farmer to mill or from farmer to panebas to mill. More frequently,
additional intermediaries get involved as paddy flows from one province to another through a series of
collectors/traders. On the panebas side, this happens due to the search for the highest buying price. On the mill
side, this happens when the miller needs product but cannot find it locally (perhaps due to insufficient quantity,
or during a month when there is low or no local supply).
Some small mills process the product from paddy to low-quality rice, then sell to larger mills who process from
low- to high-quality rice (see rice-to-rice milling, described in greater detail below); other mills perform the
25
entire processing function from paddy to high-quality rice. Mills dry the rice, remove foreign matter, de-husk
and polish. They then package the rice in 5, 10 and/or 25 kg bags, brand it, then sell it on the open market to
traders between provinces or islands, wholesalers and/or retailers. Most large-scale rice mills sell directly to
wholesalers/inter-islanders; wholesalers then sell it on to retailers who sell to the final customer. Small-scale rice
mills tend to sell to larger-scale rice mills and some to wholesalers and/or inter-district traders (see Annex 8 for a
list of medium- and large-sized millers and traders in East Java).
Inter-province trade creates a cluster of business relationships with high transaction costs which do not coincide
with the government’s administrative division of land. For example, when paddy in the three targeted districts –
Bojonegoro, Tuban and Lamongan – is in oversupply or when paddy buying prices are higher in neighbouring
districts in Central Java, penebas/collectors in the target districts sell to collectors or millers in the Central Java
districts of Demak, Kudus, Purwodadi, Sragen and Karanganyar. Conversely, when collectors and rice millers in
the target districts cannot source enough paddy locally, they will look first to these same neighbouring districts
in Central Java. The transaction costs (time, money, and energy) of this inter-province trade are high. For
example, as more traders and collectors get involved, they each add a business margin to the cost of the paddy,
squeezing the miller, whose selling price will be similar regardless of where the paddy was sourced.
Millers interviewed in the target provinces voiced a strong preference for shortening the supply chain and
coordinating it better; that is, they would prefer to buy local rice directly from farmers or penebas they know or
buy semi-processed rice from small, local mills. These millers recognize, however, that this inter-province
dynamic is about more than competition and coordination forces; it also connects to production constraints for
local farmers such as water availability and seasonality.
Running parallel to this system is the small, mobile rice mill, which mills for smallholder farmers who mainly
want to keep their rice for consumption. This mobile miller will keep a portion of the rice from the farmer as
payment, then sell that rice to collectors/traders, to larger millers or to local retailers.
Rice mills are an important, central node in the rice market system. Medium- and large-sized mills act as powerful
gatekeepers in the flow of rice from farms to customers.54 Demands by millers – in particular, moisture content
and preferred variety of rice – influence the planting decisions made by farmers. These two main specifications
reflect a combination of i) consumer preference, and ii) varieties which are more easily milled and produce a
better final product. As described above, miller demand catalyzes the movement of paddy from one province to
the next. After processing, millers move rice either directly or through traders within and between regions. Some
East Java millers sell some of the rice to other islands (such as Sulawesi, Bali, East Nusa Tenggara, Maluku and
Papua) and to the central Cipinang Rice Wholesale Market in Jakarta. When local supply is short, East Java millers
can source low quality rice from outside of Java – from South Sulawesi and West Nusa Tenggara – buying it
relatively cheaply and refining it through rice-to-rice processing. In East Java, millers work with four small rice
wholesale markets in Lamongan, Bendul Merisi, Pasar Tembok and Pasar Nyamplungan in Surabaya. These
markets fulfill the local demand for rice, particularly for the Surabaya market.
54 Mill size is defined by capacity: small-scale rice mill is less than 1.5 tons per hour, medium-scale rice mill is 1.5 – 3.0 tons per hour, and large-scale rice mill is more than 3.0 tons per hour (NAS, 2012).
Commented [h37]: This sentence needs a little work – tidying up/rewriting
Commented [SD38R37]:
Commented [SD39R37]: What do you think?
Commented [h40R37]: Check it now.
26
Rice-to-rice processing converts low-quality rice into high-quality rice. It can be done as the product moves from
one size of mill to the next, allowing mills to specialize. It brings the benefit of sellable byproducts. For example, a
small mill located near the rice farms might focus on drying and hulling the rice. The rice hull can then be
processed to produce fuel (e.g., briquettes, and pellets) and the brown rice can then be sold to a medium-size mill.
The medium-sized mill, sourcing from many smaller mills, can further reduce the moisture content and remove
the bran from the rice through whitening and polishing. The bran can then be processed to become livestock
feed, and the rice polish byproducts can be processed to become rice flour or rice pasta. Large mills – sourcing
from many medium-sized mills – can further polish the rice, separate the rice into grades, mix together varieties
of rice (such as tricolor) and so on before selling to wholesalers. Such coordination between mills of different
sizes allows for specialization, reduced capital investments, and value addition throughout the chain.
The tight competition for raw material in East Java stems from the fact that the number of rice mills (and the
capacity of those mills) outstrips the current production capabilities of East Java rice farmers. A NAS survey
conducted in 2012 indicated that the number of rice mills in East Java was 27,607 units: 417 large-scale rice mills,
1,665 medium-scale rice mills, and 25,525 small-scale rice mills. The total milling capacity of these mills is 27-30
million tons per year. Currently however, mills in East Java run at about 60% of their capacity. When contrasted
with average rice production of 12 million tons per year in East Java, there is clearly an imbalance between the
miller demand and the farmer supply in the province. To optimize miller performances, the Rice Millers
Association in East Java estimates that a reduction of approximately 7,500-8,000 milling units is needed.
Large rice mills have greater influence in the market. Their bulk purchases and sales, and their ability to hold rice
in storage to sell for more favorable prices, influence the paddy buying price, rice selling price, demand for paddy
(and therefore inter-region trade) and supply of rice. Large mills in East Java include UD. Krekep Jaya/Kediri (300-
400 tons/day), UD. Sriayu/Banyuangi (200-250 tons/day), UD. Sumber Makmur/Banyuangi (150-200 tons/day),
UD. Subur Abadi/Banyuangi (100-200 tons/day), PT. Padi Unggul Indonesia/Ngawi (± 100 tons/day) and PB
Gunung Mas/Lumajang (100 tons/day).
Rice milling recovery in East Java is lower than in other Asian countries. The rice milling recovery rate is the
percentage of weight of rice produced after grinding or milling dry paddy. Unmilled dried paddy must meet certain
requirements. Usually the milling recovery of rice ranges from 60 to 65% depending on natural conditions,
treatments and rice varieties grown. Rice milling recovery in East Java is 62.5% (almost equal to Indonesia’s
average yield of 62.3%). In contrast, the milling recovery of dry paddy in China is 70.0%, in Thailand is 69.1%,
and in Vietnam is 66.6%. The rate achieved by Indonesian millers is closer to that of millers in India, where
recovery is 62.7%. The use of combine harvesters could increase Indonesia’s recovery rate (field research suggests
by up to 2% above current thresher practices) and improved processing technology (both in terms of the quality
of technology and the correct calibration of current machinery) used by mills. Field research also suggests that
improved milling practices in drying, de-husking and polishing could increase recovery by 65%. However, the
investment needed for this is beyond the reach of most millers. Their current collateral levels typically allow
them to secure essential working capital from the bank to buy paddy, but is insufficient to make capital
27
investments in modern rice milling equipment, which is quite expensive55. For now, only larger rice millers will
be able to increase efficiencies by purchasing better and newer technologies. However, through the government’s
revitalization program for small-scale rice mills, it is hoped that these mills too can increase efficiencies.56
2.2.4 Supporting Functions and Services
2.2.4.1 Research and Development (R&D) Institutions
In Indonesia, rice-related research and development (R&D) is conducted in various institutions, including
government agencies, universities and international organizations. At the Indonesian Agency for Agricultural
Research and Development (IAARD) under the Ministry of Agriculture (MoA), the Indonesian Centre for Rice
Research (ICRR) focused on program formulation and the evaluation of rice research. ICRR implements research
on genetic, breeding, seeding, exploration, conservation, characterization and germplasm. It also provides
research in agronomy, physiology, ecology, technology and agribusiness.57 The Institute for Paddy Research and
Development (Balai Besar Penelitian Padi, BBPP) is another government-funded institute conducting research
into rice cultivation.
Several agriculture universities in Indonesia also conduct R&D, the most internationally connected and very
highly regarded being Bogor Agricultural University. It has a Department of Agronomy and Horticulture which
includes crop production studies. The University studies new, improved varieties of rice for better adaption to
the Indonesian environment, management of marginal lands for planting crops, integrated regional agriculture
planning, disease and pest management of various crops including rice, and the development of microbial-
enhanced organic fertilizer.58
The International Rice Research Institute (IRRI) is the primary international research organization in the country
conducting research on varietal improvement, rodent management, grain quality and post-harvest processing,
increasing rice productivity, crop establishment and management, technology adoption, nutrient management,
growing rice in unfavourable environments, adapting to climate change, high nutrient rice, mapping rice and
closing rice yield gaps in Asia overall.59 IRRI is a member of the global CGIAR consortium (formerly the
Consultative Group for International Agricultural Research, a partnership which focuses on various subject areas
which contribute to the realization of future food security.
2.2.4.2 Extension Services
Extension services are provided by the Indonesian government, especially through the Ministry of Agriculture.
However, these services are insufficient. In East Java, there are 8,046 extension workers spread across all the
districts and municipalities within the province. Some are government officials, others are out-sourced but paid
for by the Government, and some are unpaid volunteers, coming from farm groups who are government-trained
(see Table 8). Field research suggests that pockets of high-functioning government extension services exist.
However, most government extension in the region focuses on providing technical assistance to farmers through
55 A five-ton capacity bed dryer costs USD 7,000; a 10- to 30-ton capacity husk furnish vertical dryer costs USD 23,000-50,000. 56 A balanced ecosystem of rice mills would have a mixture of small-, medium- and large-scale mills with specialization and rice-to-rice processing to increase efficiency and value addition. When the mix is skewed towards small-scale mills, it is more difficult to reduce loss, increase efficiency, increase yield and increase value addition. 57 Indonesian Center for Rice Research (ICRR). http://en.litbang.pertanian.go.id/unker/one/261/. 58 Department of Agronomy and Horticulture. Agriculture Institute Bogor. http://agrohort.ipb.ac.id/index.php/en/. 59 IRRI. Locations in Indonesia. http://irri.org/our-work/locations/indonesia.
28
word-of-mouth knowledge transfer; it does not include the level of physical demonstration (through
demonstration plots and demonstration farms) which would provide rice farmers with the “seeing is believing”
experience of new seed varieties, improved fertilizer utilization, crop protection, modern technologies and GAP.
Private input companies also send staff into the field to educate farmers through channels such as demonstration
plots and one-on-one conversations. For these companies however, rice farming does not represent as
immediately lucrative a market segment as other high-value horticulture farming, and therefore receives less
attention from some companies.
29
Table 8: Varieties of Extension Workers in East Java and Target Districts (2016)60
Type East Java Bojenogoro Lamongan Tuban
Government 1,944 59 46 56
Outsourced 2,433 112 131 78
Voluntary 3,669 415 132 276
Total 8,046 586 309 410
2.2.4.3 Agricultural Machinery
The agricultural machinery and equipment currently used in rice farming are rice transplanters, combine
harvesters, dryers, power threshers, rice milling units (RMUs), hand tractors, four-wheeled tractors and water
pumps. The use of mechanization in rice farming brings numerous benefits, including quicker processes, more
uniform production and harvest, increased productivity and quality of the crop, reduced losses, reduced fatigue
for labourers, lower operating costs, and economies of scale. Agricultural machinery is sold by private companies
to individuals, farmer groups and the MoA (which then distributes it to farmers through various channels). See
Annex 9 for a list of companies selling relevant agricultural machinery.
The level of agricultural mechanization in Indonesia is low compared to other neighbouring, rice-growing
countries in Asia. See Table 9 for a comparison from 2010.
Table 9: Farm Mechanization in Selected Asian Countries (2010)61
Country Land
Preparation Planting Threshing Harvesting
Overall Level of
Mechanization
China 60% 35% * 30% high
India 30% 10% 60% 20% high
Indonesia low low low low low
Philippines 13.2% 0.2% 69% low middle
Thailand high medium * * middle
Vietnam 72% (rice) 20% 100% * middle
*Information unavailable.
Although government programs have tried to popularize agricultural machinery through the provision of free
machines to farmer groups, this practice faces several post-provision challenges. Some farmer groups acquire
machinery, without the group members having sufficient capacity to effectively run and maintain the machine.
At the district level, the government does not employ sufficient numbers of agricultural engineers to support
these farmers with capacity building and troubleshooting. Moreover, where machinery is provided by the
government, relevant private sector companies may not have developed supply chains in the same geographical
60 The Center of Extension, Human Resources Development Agency, Ministry of Agriculture, 2016. 61 Agricultural Mechanization at Glance in Selected Country Studies in Asia from UN-Asian Pacific Center For Agricultural Engineering and Machinery: http://www.un-csam.org/publication/AM_2010_6C.PDF
30
areas. This means that spare parts, repairs and other after-sales services may not be available to farmer groups
receiving the machines. Where such a scenario exists, it is common to find agricultural machinery underutilized,
broken, or sitting idle.
According to 2014 data, the two-wheeled tractor is the most common pre-harvest machine used in the rice sector
in Indonesia, followed by the water pump; in terms of post-harvest, rice milling units are most common, followed
by threshers (see Figure 11 and 12). Two-wheeled tractors are more affordable to purchase and repair than the
four-wheeled tractor; they are also easier to use, maintain and repair (farmers can often repair the tractor
themselves) and are better suited for small farm sizes. As very few farmers use rice transplanters, manual labour
is still extremely important for transplanting seedlings. Water pumps are also fairly common, as many farmers
pump water to their fields themselves from rivers or secondary irrigation sources such as canals. In terms of post-
harvest, milling units are quite common, as the number of millers – ranging from small to medium and large – is
also sizable (for more on this, see Millers and Marketing Channels, above). Power threshers are far more affordable
than combine harvesters and many penebas use them with a post-harvest labour crew to roughly process paddy
at the side of the field.
Interestingly, in East Java (unlike in the rest of Indonesia) the number of combine harvesters is quite high (see
Table 16). Here, it is common for a miller to own a combine harvester, using it to harvest their own fields and
then renting it to penebas as part of a joint paddy harvesting business venture (the standard price is IDR450/kg
for harvested unmilled rice). Millers are increasingly investing in combine harvesters, as the availability of labour
decreases due to, among other factors, a combination of outmigration and an aging rural workforce. However,
this is only possible in areas where the terrain is flat and land is of a sufficient size for the combine harvester to
work effectively. In addition, the combine harvester works more quickly (making it possible for paddy to travel
more quickly from field to mill), reduces loss (increasing the quantity of product that a farmer can sell and a
miller can mill), and improves the quality of the product that reaches the mill. On flat terrain, the Kubota DC-35
combine harvester (the preferred model in East Java) can harvest six tons of paddy per day.
Farmers who wish to purchase agricultural machinery individually or in groups have several finance options: pay
in cash, borrow cash informally, borrow from a bank, or seek help from a financing company. Payment in cash
is possible for some millers but is quite difficult for individual farmers. Informal money lenders are a fast, no-
paperwork way to secure finance, but the interest rates can be quite high and the repayment terms fairly short.
Banks are difficult to reach for remote, rural residents; even when it is within reach, the borrower must be
bankable (e.g. meet collateral requirements, be able to open a savings account). A bankable customer can secure
an agri-machinery loan for an average of 13%. Finally, finance companies provide a source of money for
customers who are able to make a significant down-payment towards a purchase in cash. For example, through
the Indonesian finance company BAF, borrowers need to make a 20-50% advance payment to secure a loan
ranging from 25-36 months with an interest rate of 23% per monthly repayment period (with flexible options).62
Figure 11: Availability Paddy-Related Machinery, Pre-Harvest (2014)63
62 BAF. https://www.baf.id/. 63 Data Alat Dan Sarana Pertanian Bagian I Tingkat Nasional. 2017. http://katam.litbang.pertanian.go.id/main.aspx.
Commented [h41]: Either delete this or make a point with this information.
Commented [SD42R41]: Is there any section where we can put this information?
Commented [h43R41]: I don’t think it’s relevant here – can you think of a place where it would be relevant to quote this information? If not, but you really want to include it, consider adding a page to the annexes, and put it there, along with other basic information. But you still need to think what it’s relevance is.
Commented [SD44R41]: I think it’s ok, just leave it there.
Commented [h45]: Do we have a figure we can compare this to, of how many tons can be harvested in one day without the combine?
Commented [SD46R45]: Nope. Just leave it there
Commented [h47]: Does this refer to an interest rate? Then: ‘… for an average interest rate of 13%.’
Commented [SD48R47]: I suppose this is the interest
Commented [h49R47]: Can you check?
Commented [h50]: Rewrite the labels and key in Figure 11:
1.Lower case letters at the start of 2nd words, thus: - Rice transplanter x 2 - Water pump x 2 2.Also: - Two-wheeled… x 2 - Four-wheeled… x 2
31
Figure 12: Availability Paddy-related Machinery, Post-Harvest (2014)64
64 Ibid.
2 Wheels Tractor58%
4 Wheels Tractor1%
Water Pump40%
Cultivator0%
Rice Transplanter1%
2 Wheels Tractor 4 Wheels Tractor Water Pump Cultivator Rice Transplanter
Threser36%
Dryer2%
Combine Harvester1%
Rice Milling Unit61%
Threser Dryer Combine Harvester Rice Milling Unit
Commented [h51]: Rewrite the label and key in Figure 12:
1.Thresher x 2 2.Rice milling unit x 2 3.Combine harvester x 2
32
Figure 13: East Java Paddy-Related Machinery Available in East Java, Pre- and Post-Harvest (2015)65
2.2.4.4 Irrigation Services
In the three target provinces in East Java, the primary source of water for irrigation is the Bengawan Solo river,
with small ponds and swampy lands playing a smaller role. In 1993/4, through Loan No 3588 INO, the Word Bank
financed a groundwater development project covering a number of districts in East Java. However, the cost of
pumping water from intermediate and deep groundwater aquifers proved too expensive for the initiative to be
sustainably implemented. East Java has the largest area of irrigated wetlands in Indonesia, yet also has the largest
area of dry fields, and ranks fifth in the country for its non-irrigated wetlands. Farmers who live close to the river
can irrigate their own lands with smaller pumps and pipes; those who live further from it tend to procure tertiary
irrigation services from either public or private sources.
There are two public sector irrigation service providers in East Java: BUMDES (Badan Usaha Milik Desa, or
Village-Owned Business Entity, a company belonging to the village board) and HIPPAs (Himpunan Petani
Pemakai Air). Elsewhere in Indonesia, HIPPAs are more commonly known as water users associations (WUAs)
while officially they are known as Perkumpulan Petani Pemakai Air (P3As). These public sector organizations
usually receive highly subsidized or free irrigation equipment from the government, such as pumps and pipes.
Private irrigation service providers (ISPs) in Indonesia are individual entrepreneurs who invest directly in
irrigation equipment without government support and provide irrigation services to local farmer for a fee. Usually
this fee is roughly one-fifth of the value of the paddy produced on the irrigated land. ISP start-up investment is
needed to buy pumps, engines, housing pumps, pipes, diversion boxes, lining channels and other equipment. The
amount of investment capital required to cover these start-up costs varies based on, among others, the size of land
to be irrigated, the terrain (including elevation) to cover, and the quality of the equipment. One ISP interviewed
said his start-up costs were IDR 1 billion (which he financed himself) to cover an irrigation area of 100 ha; another
ISP said his costs were IDR 3 billion (comprising IDR 1 billion of his own funds plus IDR 2 billion borrowed from
65 Data Alat Dan Sarana Pertanian Bagian I Tingkat Nasional. 2017. http://katam.litbang.pertanian.go.id/main.aspx.
44,370
1,909
70,141
48
526
833
438
708
37,208
0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000
2W-Tractor
4W-Tractor
Water Pump
Cultivator
Rice Transplanter
Thresher
Dryer
Combine Harvester
Rice Milling Unit
Commented [h52]: What’s the English translation?
Commented [SD53R52]: village
Commented [h54]: This is a little unclear – pls rewrite and let me check.
Commented [SD55R54]: What do you think?
Commented [h56R54]: It’s still not clear why HIPPAs have two names. If ‘P3A’ is their official name, what is 'HIPPA' - is HIPPA not official?
Commented [SD57R54]: HIPPA is in East Java. Nationally the association is known as P3As.
Commented [h58]: ‘pump housing’?
Commented [SD59R58]: I think you are right
Commented [h60R58]: Are you sure? Can you check
33
the bank) to cover an irrigation area of 330 ha. ISP operational costs include operator labour costs, mechanic fees,
spare parts, power consumption and fuel (gas, diesel or electricity). Interviewed ISPs reported their annual net
income to be IDR 400-900 million, a figure influenced by revenue and operational costs. Revenue is dependent
upon size of the land to be irrigated, the percentage share of the crop which the ISP takes as part payment,
farmers’ productivity, and the number of planting seasons per year. Operational costs are dependent upon factors
such as irrigation efficiency, power source (diesel or PLN), repair and maintenance costs, and labour costs.
ISPs often run multiple businesses, cross-subsidizing between businesses. Some ISPs are also rice millers. This
vertical integration creates synergies as the ISP/miller develops direct sourcing relationships with the farmers and
ensures that proper irrigation generates higher yield and quality.
ISPs typically function more efficiently and effectively than HIPPAs. Usually this type of private company is
owned and managed by professional entrepreneurs with a specific strategic goal, and their businesses needs to be
profitable. However, despite their profitability it is not easy for ISPs to expand into those areas of the target
provinces which are currently not irrigated. Areas that are easier to irrigate – closer to the river and/or with less
challenging topography – are predominantly already covered by a combination of HIPPAs and ISPs. This leaves
areas further from the river with more challenging topography. Given current irrigation technologies, start-up
costs in these areas would be much higher and the business risks greater.
2.2.4.5 Financial Services
Accessibility to formal capital resources for farming is lacking; generally farmers use their own capital or borrow
from lenders. Farmers who use their own capital tend to be farmers who have sufficiently large landholdings and
are relatively well off. Smallholders who own relatively little land often need to borrow capital either from banks
or non-formal financial institutions (that is, money lenders).
The Indonesian financial market comprises several major actors. The Indonesian Central Bank (Bank Sentral
Republik Indonesia, or BI), established in 1953, provides liquidity for retail banks and has a crucial role as a lender
of last resort and ensuring stability for the overall Indonesian financial system, which is also supported by
international investors. According to data from UNCTAD, in 2015 Indonesia received USD 15.5 billion in foreign
direct investment. Some of that investment also flows into the rice production value chain.
There are many banks, both state- and privately-owned, in Indonesia,66 operating on a national level and offering
a variety of services. Local rural banks – in East Java, these are Bank Jatim and BPR – are smaller and provide a
more limited range of services (see Annex 10 for a list of major formal financial service providers in East Java).
Farmer and sharia-compliant cooperatives (such as Koperasi Warga Semen Gresik (KSWG), Koperasi Setia Bakti
Wanita (KSBW) and Puskopdit Jatim), as well as leasing companies, are another form of finance provision. These
institutions provide small-to-moderate, four-to-twelve month loans with low interest rates. Installments are paid
in accordance with farmers’ harvest cycles. Farmers usually seek cooperative loans to meet daily needs. Many
also use informal financing methods for short-term needs, including loans from neighbours or other local farmers
and is quite a common method for farmers. While requirements for obtaining such loans are much lower those
66 These include BRI, Bank Mandiri, BNI, BCA, Bank Bukopin, Bank Danamon, Bank Sinarmas, Bank CIMB Niaga, Bank Mega and Bank Panin.Bank Negara Indonesia, Bank Rakyat Indonesia, Bank ANZ Indonesia and Bank Maybank Indonesia.
Commented [h61]: This sounds a little like PR for BI! Is it objective enough?
Commented [SD62R61]: Do you think we delete this? It’s a bit irrelevant
Commented [h63R61]: Let’s keep it if it’s objective. I’m just worried that it’s a biased description of the bank, written by the bank itself to make itself sound good!
Commented [SD64R61]: It is their main role.
34
required by rural banks or cooperatives, interest rates are usually higher and the amount of money which can be
obtained is lower. Supporting these core actors in Indonesia’s financial market are rice collectors. These act as
intermediaries, buying and selling rice, and provide financial institutions with up-to-date price information.
The Sistem Kliring Nasional Bank Indonesia (SKNBI) is the national clearing system of Indonesia. It processes
credit and debit transactions, efecting the smooth transfer of credits and other payments between account holders
of all Indonesian banks. Credit transfers may be processed in clearing only in amounts below IDR 100 million
(approximately USD 7,200). Any larger transaction must proceed through the Bank Indonesia Real Time Gross
Settlement (BI-RTGS) system. Another supporting function of the financial system is that provided by assessors
and valuators. These professionals, the Indonesian valuation standard (2015),67 contribute to the work of banks
by valuing and assessing land and property prices. Technical assistants and consultants provided by the bank
complement the capacities and skill gaps of cooperatives and rural banks to improve the overall services they
offer their customers.
A number of rules and regulations guide the Indonesia financial sector in terms of its provision to the agriculture
sector. Some government regulations are meant to support agriculture financing and the actors in the agricultural
value chain. Among these are subsidies supporting agriculture loans which cap interest rates at 9% per year, and
a regulation which stipulates that all formal financial intermediaries providing the Credit for Businesses program
(Kredit Usaha Rakyat, or KUR), which provides credit for micro and small enterprises, must allocate 40% of their
portfolio to agriculture-related loans. The KUR scheme shares the risk between the guarantor and the banking
sector. In theory, this works well if an enterprise is creditworthy and has adequate business potential. However,
it is plagued by collateral issues and has acquired a negative image as a result of business actors who no longer
feel obliged to settle their financial obligations which are guaranteed by the government. As a result, the banking
industry tends to avoid lending to the agricultural sector, as it still sees the issue of loan repayment by its actors
as risky. Another constraint impacting on the KUR scheme is the desire of banking institutions to distribute credit
to the agriculture sector which already has a connected business system (in banking terms, known as a “closed
loop”). This system, where the producers are connected to the buyers in the business system, has not generally
occurred in existing business systems in Indonesia’s agriculture sector.
In addition to the formal regulations described above, informal rules and norms shape the financial decisions of
actors within the rice value chain. For example, some Muslims prefer not to approach banks for financial support
but rather to work with a sharia-compliant cooperative (Baitul Mal Wa-Tamwil, or BMT) which operates
according to Islamic law and deduct zakat mal and infaq (forms of charitable giving) from their members
accounts.68 Key informants and interviewed farmers talked about the stigma associated with taking out a loan:
many view debt as a negative reflection on themselves and avoid formal finance options for investment in their
farm (such as for technology and inputs). Some farmers interviewed expressed disinterest in committing their
profit to a saving scheme as they need easy access to their money. A number of poorer rice farmers use livestock
67 The Indonesian Valuation Standard (Standar Penilai Indonesia, or SPI) is issued by the Indonesian Standard Assessment Standard Committee (Komite Penyusun Standar Penilaian Indonesia, or KPSPI) and is mandatory study material for every valuator in Indonesia. 68 Spire Research and Consulting. 2017. Agricultural Value Chain Financing Study Rice Farmers in East Java – Indonesia 2017. Commissioned by SAFIRA.
Commented [h65]: We seem to use mostly USD equivalence throughout this document – shall we convert this AUD figure?
Commented [SD66R65]: USD is fine
Commented [h67R65]: Then can someone convert this figure to USD, please.
Commented [h68]: Does the banking industry hesitate to lend to the agricultural sector just because of the KUR? That’s how this section now reads – perhaps because of my amendments. Pls check them (and perhaps pass back to me to look at again )
Commented [SD69R68]: No, it is because the non-performing loan issue.
35
as a form of savings, buying animals with profits from rice sales, fattening them, and then selling them when they
need cash, for example to buy inputs for the next season’s rice planting.
Local government supports rural farmers through Pengembangan Usaha Agribisnis Perdesaan (Rural Agribusiness
Development Program, or PUAP), providing workshops and small loans. The loans have a low interest rate
(1.5%), no collateral requirements, a three-month tenure, and an IDR 1 million limit.69 This program faces many
challenges. Firstly, lack of transparency renders how decisions are made about the disbursement of loan funds
unclear. Secondly, at the district level, inefficiencies in the process make it difficult for the quick disbursement
of funds, and there are suspicions that some village-level leaders unduly influence fund disbursement decisions.
Thirdly, interviews with farmers appear to indicate that most see PUAP funds as a gift from the government
which does not need to be repaid. This could be in part due to a convergence in their minds between PUAP and
another direct cash assistance program, Bantuan Langsung Tunai (BLT).
For more on value chain financing in rice farming in East Java, see the Spire report commissioned by SAFIRA which
includes information on the financial profile of rice farmers in Gresik, Tuban, Bojonegoro and Lamongan; the
financial profile of millers, collectors and input traders; gap analysis of cooperatives, rural banks, sharia cooperatives
and government funds; and recommendation for intervention areas in East Java. Conclusions and
recommendations from this report have been included in Annex 1.
2.2.4.6 Crop Insurance
As smallholder rice farmers’ livelihoods are tied to the success of their harvest, crop insurance is an important
service to protect farmers from natural risks such as flood, drought, and pest and disease, all variables exacerbated
by a changing climate. In 2011, the MoA set up a task force to investigate the feasibility of introducing indemnity-
based rice crop insurance and the options available. This conducted various case studies in early 2012, which in
2013 gave rise to the law 19/2013 on Farmer’s Protection and Empowerment and Protection, paving the way for
rice crop insurance in Indonesia. Indemnity-based rice crop insurance covers the insured value of the crop against
natural disasters such as flood, drought, and infestations when the claim is approved by a loss adjuster (insurance
company staff) and an extension agent (government staff). The burgeoning rice crop insurance market in
Indonesia faces several challenges, including a lack of information and data available to estimate insurance
premiums/pricing structures, an overall low risk awareness amongst farmers leading to limited interest in
insurance or ability to see benefit in the scheme, and low farmer purchasing power to be able to afford rice
insurance.70
The Indonesian government introduced a farmer crop insurance scheme in 2016 and planned to introduce
subsidies for insurance schemes working with AXA as a private insurance provider. The subsidy currently has a
budget of USD 11.25 million and amounts to IDR 144,000 (around USD 10) per hectare on the insurance premium,
with farmers only having to pay IDR 36,000 (around USD 2.50) per hectare against an actual premium of IDR
180,000 Rupiah (around USD12.50).71 AXA says the model is promising and farmers have shown great interest in
participating. However, challenges for private insurers remain: the large number of farmers, lack of efficient
69 Ibid. 70 FFTC Agricultural Policy Platform (FFTC-AP). http://ap.fftc.agnet.org/ap_db.php?id=650. 71 The Indonesia has planned for Rice Insurance Subsidy for 2015-16 Rice Growing Season. (2015). http://riceoutlook.com/the-indonesia-has-planned-for-rice-insurance-subsidy-for-2015-16-rice-growing-season/
36
distribution channels, designing a product that covers key risks and can be easily understood by farmers, and
ensuring premium prices are affordable, all contribute to a difficult market environment.72
PT. Jasindo, a state-owned insurer, launched its rice insurance product in 2015 and is planning to expand to other
crops and livestock. It has an annual goal of reaching one million new ha of rice farmers, and has partnered not
only with the district agriculture department, but also with PT. Petrokimia Gresik, with which it works to bundle
rice insurance with fertilizer. Currently, the insurance plan they jointly offer is 80% subsidized by the
government. Insurance claims have been rather high, with 50%+ in the first two years since implementation in
Bojonegoro, mostly because of flood, crop disease and pest infestation. The company now plans to increase and
disseminate information on GAP to reduce crop losses and improve the profitability of its business. To achieve
this, it is considering partnerships with companies selling products to combat pest and crop disease, which will
educate farmers through GAP information as an embedded service.73
2.2.4.7 Information Services
Finally, in terms of systems for sharing market information among rice stakeholders, field research uncovered no
existing formal systems; however, informal systems between market actors based on phone calls and smartphone
apps such as WhatsApp are common. More organized farmer associations share information with members about
paddy prices and local demand. Collectors have lists of millers who they ring round to find out who will pay the
best price for paddy. The miller associations use WhatsApp to share price and supply and demand information
among members.
There are at least two web-based applications able to support farmers and extension workers in making decisions
regarding rice farming; however, field research did not uncover any users of these applications in East Java. The
first application is Layanan Konsultasi Padi Indonesia (LKP) (or Rice Consultant Services of Indonesia) and can
be found at http://webapps.irri.org/id/lkp/. The Research and Development Institute for Agriculture
(Balitbangtan) and the International Rice Research Institute (IRRI) developed this application which allows users
to i) analyze farming conditions and practices, and ii) receive comprehensive recommendations on topics such as
fertilizer and pesticide application.74 The second application, KaTam Terpadu Modern (or Integrated Planting
Calendar) which provides online rice planting calendar information for all sub-districts in the country. This
application was developed by Balitbangtan and can be found at http://katam.litbang.pertanian.go.id/. The
application also supplies information including recommendations on seed varieties, fertilizers and use of
agricultural machinery.75
2.2.5 Rules and Regulations
72 Insurance Business Asia (2016). Axa expands insurance for rice in Indonesia. http://www.insurancebusinessmag.com/asia/news/breaking-news/axa-expands-insurance-for-rice-farmers-in-indonesia-49398.aspx. 73 AIP-Rural Team meeting with PT Jasindo Insurance, October 2017. 74 17 February 2015. Ministry of Agriculture. Layanan Konsultasi Padi dirilis Balitbangtan dan IRRI. Retrieved from Badan Litbang Pertanian. http://www.litbang.pertanian.go.id/berita/one/2097/. 75 Balitbangtan. 2016. Sistem Informasi Kalender Tanam Terpadu Modern. Retrieved from Badan Litbang Pertanian: http://www.litbang.pertanian.go.id/produk/one/56/.
37
2.2.5.1 Ministries
In support of farmers, the MoA is responsible for formulating and determining policies regarding provision of
agricultural infrastructure and facilities, increasing rice production, adding value, competitiveness, quality, and
marketing of agricultural products.
In terms of irrigation issues, two governmental institutions oversee such matters: the Ministry of Public Works
and Public Housing SIDCOM (responsible for main systems such as dams, primary and secondary canals and their
supporting structures) and the MoA (responsible for tertiary canal (that is, at the on-farm level) development,
operation and maintenance).
2.2.5.2 Associations
The legal basis of farmer groups and farmer groups association is established by the Regulation of The Minister
of Agriculture Number 82/Permentan/ OT.140/8/2013 Concerning Guidelines for Farmers Group and Group of
Farmer Groups.
The legal basis of HIPPA (Association of Water User Farmers) and ISP is Presidential Decree (Inpres) no. 3 of
1999 on Renewal of Irrigation Management Policy. This decree stipulates that the empowerment of the water
user farmers’ community should focus on the development of institutions and organizations of Water User
Farmers (P3A). Empowerment should be autonomous, independent, rooted in the community in accordance with
social situations, culture and environmentally friendly.
Four government regulations relate to miller associations:
1. Government Regulation (PP) No. 65, 1971 on Rice Milling Company, Huller, and Rice Polishing;
2. Minister of Agriculture Decree No. 859/Kpts/TP.250/11/98 on Guidelines for Development of Rice
Milling Company, Huller and Rice Polishing;
3. Director General of Food Crops and Horticulture, Ministry of Agriculture Number: I. HK.050.99.75 on
the Implementation Guidelines for Development of Rice Milling Company, Huller and Rice Polishing;
4. An additional regulation relates to the performance of the rice mill in improving the quality and milling
recovery, namely Indonesia Presidential Decree Number 47, 1986 on Post-Harvest Handling
Improvement of Agricultural Products.
2.2.5.3 Subsidies
Related to fertilizer subsidies, in 2016 the Government of Indonesia determined the need and the Highest Retail
Price of subsidized fertilizer for the agricultural sector through the Minister of Agriculture Regulation no.
60/Permentan/SR.130/12/2015. The Regulation includes the procedures for the distribution and use of targeted
subsidized fertilizers that require commitment and supervision from all competent parties, including the regional
and local governments.
On seed subsidies, in 2016 the MoA enacted the Regulation of The Minister of Agriculture of The Republic of
Indonesia Number 04/Permentan/Hk.140/2/2016 Concerning Guidelines of Budget Subsidy. This regulation
consists of:
(1) Technical Assistance Seed Subsidy is carried out by the Director General of Food Crops.
38
(2) The Director General of Food Crops in conducting technical guidance as referred to in point (1) shall stipulate
the Seed Subsidy Technical Guidelines for Fiscal Year 2016. The Highest Retail Price (HET) of Subsidized Seeds
purchased by farmers is as follows: a. Inbred rice Rp.2.500, - / kg; B. Hybrid rice of Rp.4.100, - / kg; to farmer
group locations.
Based on the Decree of the Minister of Agriculture of the Republic of Indonesia Number: 02 / Kpts / SR.220 / B /
01/2016 regarding Guidelines for Supply Insurance Premium Healthy Padi Guidance on Premium Insurance for
Rice Farming Insurance Called the AUTP Premium Assistance Guidance as specified in the annexes an integral
part of the Ministerial Decree. The AUTP Premium Assistance Guide as referred to in Diktum First as a reference
in the implementation of insurance Rice farming whose budgets are sourced from the Budget State Revenues and
Expenditures (APBN).
In this insurance, the Ministry of Agriculture through the provincial Department of Agriculture and counties
shall replace losses experienced by farmers with IDR 6 million/ha.
2.2.5.4 Policies
Table 10 summarizes relevant Government of Indonesia policies, combining information about the policies with
matters of relevance for farmers and other market actors in the rice sector. There can often be a significant
distance between the spirit or objective of a policy and its implementation or effect. Further research is needed
to fully understand the dynamics of each of these policies in the rice sector in East Java.
See Annex 2 for additional information about these policies.
Table 10: Rice-Related Policy Summaries
Summary Impact
Production policy
This policy aims to increase rice production mainly
using approaches: i) to achieve self-sufficiency in rice
by encouraging farmers to increase paddy production
by applying technological innovation and providing
subsidized fertilizer and crop insurance, and ii) by
intensification of land use, quality improvement using
improved varieties accompanied by integrated plant
and resource management. This also includes the
expansion of irrigation and the repurposing of land for
rice cultivation.
The policy encourages technological innovation and
the provision of subsidized fertilizer and crop
insurance, thus directly benefiting farmers and their
source of income. While subsidy may not be
distributed fairly and availability may be limited, it
nevertheless contributes to food security in Indonesia
and should be regarded as having a positive impact on
farmers’ wellbeing.
Price policy (paddy and rice)
There are two levels of price policy concerning rice in
Indonesia: farmers’ price level and consumers’ price
level. The price policy for farmers was established
through the Governmental Purchasing Price (GPP) to
Price policy has a positive impact on farmers,
shielding them from sudden price slumps which
usually occur during the harvest season or after
especially good harvests. Farmers know what price to
Commented [SD70]: unclear for me too
Commented [h71R70]: So what are we going to do with all these regulations? They seem to have been lifted from a government website and included with no consideration of their usefulness. Someone at your end needs to look at this and make a decision. My feeling is that the entire ‘Rules and Regulations’ section needs to be moved to the annexes.
Commented [SD72R70]: Let me figure it out later.
Commented [SD73R70]: Delete this one
Commented [h74]: This is unclear and needs rewriting
Commented [SD75R74]: Done
Commented [SD76R74]: Delete this one too
39
Summary Impact
protect farmers from a sudden drop in the price of
paddy. The GPP policy is partly designed as an
incentive for farmers to continue paddy production to
support the achievement of food security.
expect, which allows them to make long-term
investment plans.
Rice stock policy
BULOG is required to hold buffer stocks of rice in
warehouses throughout the country, created through
either procurement in-country or internationally via
imports. It serves as inventory stored . This stock can
be used by government as a source of social support,
market operations and emergencies. To procure
paddy/rice in-country, BULOG cooperates with
private rice mills.
Indonesia's rice stock policy affects farmers indirectly
by contributing to government price policy and
allowing Indonesia to have fixed prices for both
consumers and producers. Overall, this policy targets
net consumers (not producers) by providing
additional rice during times when demand outstrips
supply. Without rice stocking, prices would fluctuate
more, also creating more uncertainty for rice farmers.
Rice price stabilization policy
Rice price stabilization policy is an attempt by
government to protect consumers from rising prices
which exceed purchasing power of poorer families;
perhaps when harvests are sub-optimal or Indonesia
has to rely on imports to cover domestic rice
shortages. Domestic prices for rice are supported by
trade policy measures: a tariff on rice imports was
introduced in 2000 and an effective ban on imports
has been in place since 2004. These measures have
contributed to a widening gap between domestic and
international rice prices throughout the 2000s, with
notable exceptions in 2008 and 2009. Policies
currently in effect are Pure Market Operations (PMO)
and Special Market Operation (SMO).
While the policy aims to protect net rice consumers
and keep prices of rice affordable, it may appear
negative for farmers standing to benefit from a higher
paddy price. However, due to the importance of rice
as a basic staple food source in Indonesia, social
tension resulting from widely fluctuating consumer
food prices would most likely also affect farmers
negatively. In addition, higher food consumer prices
often do not directly result in higher wages for
farmers, as additional profit is retained by middlemen.
This policy thus can be seen to indirectly benefit
farmers.
Distribution policy
Government distribution policy aims to ensure food
security throughout the year, affordable for all levels
of society. Rice is sold to consumers through two
channels: i) BULOG, and ii) market mechanisms.
BULOG only controls about 10% of the Indonesian
market share of rice; about 90% is controlled by actors
in the private sector using free market mechanisms.
This policy impacts farmers in that it dictates the
share of BULOG-controlled rice available on the
overall domestic rice market and how much
purchasing power private traders have vs BULOG. It
is difficult to ascertain which amount would be
optimal for farmers.
Import policy
40
Summary Impact
BULOG retains a rice import monopoly to strictly
control domestic rice prices. The policy aims to
control the amount of rice imported and allows
government to have better control over rice stocks.
Both tariff and non-tariff restrictions apply, the latter
addressing quality and other specifications that
imports need to fulfill.
BULOG tends to rely on imports to replenish its rice
stocks rather than securing rice from local farmers.
This is particularly true when the private sector offers
better rates than BULOG. However, the policy also
shields domestic farmers from lower world market
prices.
Export policy
Rice export policy is stipulated by the Minister of
Trade Regulation regarding the import and export of
rice. This essentially regulates exports of fragrant rice,
organic rice and black glutinous rice.
The policy aims to increase income of rice producers
by creating new sales channels. For example, Papua
Province recently exported 100,000 tons of rice to
Papua New Guinea. Overall, the success of export
policies rests on the ability of Indonesia to produce
enough rice to fulfil its own demand and become rice
self-sufficient. Until then, exports will remain limited
to niche and small-scale markets.
Quality assurance and food safety policy
To realize a quality assurance system in Indonesia, the
government has issued a policy of standardization and
the Implementation of the National Standardization
(SNI) in the agriculture sector. This decision also
includes quality assurance system policies in the
agricultural sector. Quality assurance and food safety,
is characterized by quality and food safety certificates,
issued by the Product Certification Institutions for
SNI rice and organic rice.
This policy has led to an increasing responsibility and
awareness of farmers and market participants for food
safety. This is evident from the application of GAP
and environmentally sound production technologies,
which are practiced by certain primary rice farmers.
However, it is difficult to ascertain to what degree
these policies have contributed to an overall
application of GAP.
Rice milling business policy
The availability of adequate and high-quality rice as
part of a national food security policy can be pursued
by creating a conducive business climate/atmosphere
and fair competitiveness among rice millers facing
free trade through improving the quality and yield of
rice and suppress rice losses.
There are 182,191 rice mills in Indonesia: 94% are
small-scale, 5% are medium-scale, and only 1% are
considered large-scale. Nevertheless, these large-scale
mills process most of the rice in Indonesia.76 While
the effect of this policy on rice mills is clear it is not
as easy to know how it impacts farmers. More
competition usually leads to more negotiating power
for farmers, but at the same time a more efficient,
76 Indonesian Rice Millers and Trade Association (IRMTA), also known as PERPADI. 2016.
41
Summary Impact
large rice mill may be able to offer better prices due to
applying economies of scale.
Agricultural environmental policies
Indonesia currently lacks a coherent, nationwide
agricultural environmental policy.
Future policy could have the following impacts: 1)
manage land and natural resources in an integrated
manner, 2) increase farmers' access to
environmentally friendly agricultural knowledge,
products, and services, and 3) promote land
intensification compared to expansion.
Inward foreign direct investment (FDI)
Government has used policy packages to introduce tax
holiday facilities, tax incentives and simplification of
permits. It has also implemented an import duty
exemption facility for machine imports. Furthermore,
there is a tax allowance facility, which is the
reduction of taxable net income of a company
amounting to 30% of the invested value. This
reduction is given for six years at an average rate of
5% per year. Government has deregulated and cut
many permits previously required by investors
wanting to invest. Now, through one-stop services at
the Investment Coordinating Board of the Republic of
Indonesia (Badan Koordinasi Penanaman Modal, or
BKPM), various licenses and non-licenses previously
administered by various government agencies have
been delegated to BKPM to speed up processing time.
In 2013, Indonesia had the fourth most restrictive FDI
regime out of 58 countries according to the OECD FDI
regulatory restrictiveness index.77 However, this
situation is changing since the implementation in
2016 of new policies designed to attract more FDI.78
In 2015, Indonesia attracted around four billion USD
FDI into the agriculture sector overall, around 25% of
Indonesia's total FDI in that year.79 A study examining
the effects of FDI in Indonesia found that foreign
firms bring a high value addition to Indonesia, helping
to increase tax income and create positive spill-over
effects for local businesses.80 For example, PT
Lumbung Padi Indonesia is a rice milling and
processing company in East Java that has benefited
from Singaporean investors and a partnership with a
Japanese company, Satake Corporation, which
supplies machinery and equipment. Lumbung Padi’s
ambitions include doubling production and forging
contract farming arrangements with local farmers and
farmer groups to boost high quality, consistent
77 OECD Economic Survey 2015, https://www.oecd.org/eco/surveys/Overview-Indonesia-2015.pdf. 78 Indonesia eases foreign ownership in 'Big-Bang' liberalization https://www.reuters.com/article/us-indonesia-investment-regulations-deta/indonesia-eases-foreign-ownership-in-big-bang-liberalization-idUSKCN0YF0QT. 79 Bank of Indonesia, investment statistics, http://www.bi.go.id/en/statistik/seki/terkini/eksternal/Contents/Default.aspx. 80 Sjöholm (2016), http://www.ifn.se/wfiles/wp/wp1141.pdf.
Commented [h77]: Would it be appropriate here to discuss the effect of not having a national environmental policy?
Commented [SD78R77]: Let it be
Commented [h79]: Confusing, because the ‘Big Bang’ article talks about changes which occurred in May 2016.
Commented [h80R79]: This needs checking and the dates correcting
Commented [SD81R79]: Deleting this sentence does not harm the whole para, so I think we can delete this one.
42
Summary Impact
production through demo plot-based knowledge
transfer.81
Irrigation
In 1999, Presidential Instruction No. 9 on Irrigation
Management Policy Reform (PKPI) contained
instructions to the Minister of Public Works: (1)
prepare the regulatory framework and the necessary
steps to reform the irrigation management policy; (2)
empower water user farmer associations (P3As); (3)
arrange irrigation management financing; and (4)
promote sustainability of irrigation system
management. Based on this, government issued
Regulation No.77 of 2001 on irrigation. Progress in
these areas slowed in 2003 for political reasons, but
the enactment of Law No. 7 of 2004 on Water
Resources started irrigation policy in Indonesia
moving again. Management and maintenance of
primary and secondary irrigation networks is in the
hands of the government; the tertiary network is the
responsibility of farmers and other entrepreneurs
(although government supports such tertiary
networks through various programs and initiatives,
including subsidized irrigation equipment provided to
WUAs).
Between 1974 and 2010, irrigated area in Indonesia
increased from 1.2 to 7.2 million hectares (ha). The
speed of development in recent years has slowed due
to several factors, including the increased costs of
infrastructure building and the fact that an increasing
amount of arable land is used for non-farming
purposes.82 Nevertheless, investment in irrigation
infrastructure has continued through the National
Medium Term Development Plan (RPJMN, 2010‐
2014). As infrastructure investments continue, rice
farmers benefit. Productivity has risen from 2-4
tons/ha to 6+ tons/ha, and cropping intensity has risen
from 1 to 2 times a year for farmers who can access
this irrigation infrastructure, both leading to
significant income increases for smallholders.
However, challenges persist, including poorly
maintained or malfunctioning infrastructure, low-
capacity WUAs, and lack of access for remote farmers.
81 PT Lumbung Padi Indonesia Company Profile. http://lumbungpadi.co.id/docs/comproeng.pdf?iframe=true&width=800&height=450. 82 Sumaryanto, Oleh Song. 2014. Agricultural Water Management Systems in Indonesia: Current Status And Policy Direction. http://www.fftc.agnet.org/files/lib_articles/20140304101739/eb%20650.pdf.
43
3 Analysis This section reviews problems in the rice farming sector in East Java and their underlying causes; the services,
enabling environment and weaknesses and their impact; and gender and environmental issues.
3.1 Problems and Underlying Causes These problems and their underlying causes are specific to the poor target groups that AIP-Rural seeks to support
through interventions in the rice market system in East Java. They have been identified through the sector
dynamics section above, and the use of analytical tools such as the Intervention Logic Analysis Framework (see
Annex 5). The three key problems and their basic underlying causes can be summarized as follows:
1. Farmers experience low production and productivity due to suboptimal input utilization, subpar
application of good agricultural practices, and a lack of irrigation services.
2. Farmers lose product during harvest due to suboptimal application of good harvesting practices and
limited access to modern, low-loss harvesting technologies.
3. Farmers often receive low prices when they sell to standing crop buyers or collectors due to low or mixed
quality paddy, limited access to local drying services, and an indirect relationship with millers.
Farmers experience low production and productivity due to suboptimal input utilization, subpar application of good
agricultural practices (GAP), and a lack of irrigation services. To maximize productivity, farmers need to use a
combination of inputs (such as seed, fertilizer, pesticide, herbicide water) and GAP (including appropriate
planting methods, soil health maintenance, proper fertilization, and integrated pest and disease management).
Most farmers in East Java use Ciherang, an older HYV seed which does not maximize productivity. Some use
government-subsidized fertilizer; others buy additional fertilizer from private retailers. However, fertilizer
application is often based on word of mouth advice, so the quantity, variety and timing is frequently suboptimal.
This is not due to a lack of government provision: the RDKK (Definitive Plan for Group Needs) supplies more
than 100% of fertilizer needs. Other obstacles also include distribution and transportation of subsidized fertilizer.
Without correct use of pesticide and herbicide or integrated pest management techniques, crop loss can dampen
productivity, regardless of investment in high quality seed and fertilizer. Farmers who do not consider GAP and
its effect on, among others, soil health maintenance, may experience short-term spikes in productivity and long-
term decline as soil health degrades. Even when farmers know about best practices in input utilization, the
acquisition of those inputs and other helpful technologies can be cost-prohibitive. For example, the total price
tag for the full suite of Syngenta yield-maximizing products (or those provided by other companies, for that
matter) puts them beyond the means of most smallholder farmers, making some form of financing necessary.
Finally, irrigation services make it possible for farmers to grow two harvests of rice, doubling production, where
natural water availability makes only one harvest possible.83 However, these irrigation services need to be reliable,
as inconsistent access to water can harm yields.
Farmers lose product during harvest due to suboptimal application of good harvesting practices and limited access
to modern, low-loss harvesting technologies. Good harvesting practices include consideration of when to harvest
83 Although irrigation makes it possible to harvest rice three times a year, this is not advisable due to the impact on soil health and the increased likelihood of pest problems (associated with mono-cropping).
Commented [h82]: Shouldn’t integrated PM always be used, as preferable to pesticide/herbicide?
44
paddy, when to thresh it, dry it, and so on. Harvesting too early can result in unfilled or immature grains;
harvesting too late can increase loss and breakage. It is also important to thresh paddy as soon as possible after
harvesting and dry it as soon as possible after threshing. Lack of knowledge about good harvesting practices not
only increases loss, but also decreases value (see below). Currently, labourers in Indonesia tend to carry out
harvesting by hand, then thresh it with small foot- or motor-powered threshers. With the use of threshers, 92%
of paddy makes it from field to mill; with a more modern technology – the combine harvester – this increases to
98% (although combines are not a perfect fit for all land sizes and all types of terrain). However, purchasing large
agricultural machinery is beyond the financial capacity of nearly all smallholders, necessitating farmers to invest
collectively or other actors, such as penebas or millers, to make the investment. However, penebas and millers
face large working capital requirements, making it challenging for them to make large capital investments.
Farmers often receive low prices when they sell to standing crop buyers or collectors due to low or mixed quality
paddy, limited access to local drying services, indirect relationships with millers, and a capped selling price. As
described above, a lack of knowledge about good harvesting practices can lower the quality of the paddy that
farmers produce. When selling to penebas, farmers sell wet paddy straight from the field (the penebas includes
harvesting labour in his/her fee) which has a lower value than dry paddy. In East Java, neither the farmer nor the
penebas typically utilize drying services to increase the value of the paddy before selling to larger
traders/collectors or mills. Farmers typically sell to penebas who might sell directly to mills or through other
traders/collectors. There can be many traders/collectors between the farmer and the miller, with trading
sometimes crossing provinces. This creates a long supply chain in which each intermediary tries to reduce the
buying price and adds a margin to the selling price. At each stage, it is unlikely that the intermediary is dealing
consistently with one particular set of sellers and buyers, but instead contact others in the supply chain to find
the best deal. The market is competitive, but lack of coordination limits the possibility of reducing transaction
costs. The length of the supply chain moves value capture further away from the farmer. In addition, the
Indonesian government’s rice price policies impact the prices that mills can earn by selling rice. Given the ceiling
these policies establish, the greater the number of supply chain intermediaries, the lesser the value farmers are
able to capture for their harvest.
3.2 Services, Enabling Environment and Weaknesses There are several services and enabling environment factors which can either exacerbate or mitigate against the
underlying causes of the problems highlighted above. To strengthen the rice market system, it is crucial that
interventions target the weaknesses identified in these services and the enabling environment (see ILAF, Annex
5), which include extension services, input services, financial services, harvest services, drying services, market
information and coordination services, and rice price regulations.
Agricultural extension services are weak due to public sector limitations and a lack of knowledge transfer during
input sales. Government extension services exist in East Java but do not reach farmers as widely as necessary, are
not as active as required, and do not consistently include the variety of methods (particularly demonstration
plots/farms) needed to convince farmers. This means that information about new inputs and GAP is not flowing
from government extension programs to farmers sufficiently. Instead, word of mouth from one farmer to the next
is the predominant method of knowledge transfer. Farmers who are members of associations such as the
Himpunan Kerukunan Tani Indonesia (HKTI) or Indonesia’s Farmer Union (IFU) often look to their leadership
for guidance on such matters. Input companies typically have field agents that support field demonstrations or
45
other farmer education; however, the supply of these agents does not meet the demand of farmers. Agents often
cover such large geographical areas that they have limited time to spend with farmers. Moreover, if company
representatives are also tasked with sales (as opposed to extension only), the pressure to hit targets and/or the
financial incentives associated with increased sales motivate these staff to focus more on sales than education (and
in some cases, encourage sales pushes for the wrong product or too much of the right product, just to increase
sales). Generally, private input kiosks sell farmers the products they request without transferring significant
product knowledge as an embedded service.
Although input retailers are easy for farmers to access, much of input marketing is not targeted to rice farmers as
they are producers of lower-value crops. In East Java, when farmers go to an input retailer, they already know
what they want to buy, usually informed by word-of-mouth guidance from other, trusted farmers. Some
companies who supply these retailers with inputs do not aggressively market to rice farmers, as their crop is of
low value and they earn less profit form their farming activities to reinvest; other input companies such as
Syngenta, BASF and Rainbow prioritize rice marketing due to a combination of the size of the market and the
importance of the crop to the country. It is easier to sell expensive combinations of fertilizer products to high-
value fruit and vegetable farmers, for example, then it is to rice farmers. Additionally, fertilizer companies must
compete with government-subsidized fertilizer products. These government products do not always arrive to
farmers on time and in the right quantity, but their presence distorts the market for private companies.
A combination of financial institutions collateral requirements, cultural norms around debt, and missing value
chain finance from input retailers limit farmer borrowing for investments in rice production. Financial institutions
typically require collateral for agricultural loans, which many smallholder rice farmers cannot meet to take loans
for input purchases. Culturally, farmers prefer to buy what they can with their own resources instead of taking
loans as there is a stigma associated with indebtedness. This stigma, however, does not extend to financial
arrangement between actors in the value chain. Farmers are willing to take irrigation services and pay back these
services post-harvest with a portion of the paddy. Similarly, farmers are willing to buy inputs on credit from
retailers, the make repayment post-harvest. Although input companies often sell to input retailers on credit,
credit retailers do not usually extend this service to farmers. Such an arrangement would create risk for the
retailer. Farmer insurance programs are not widespread, so do not currently help mitigate this risk.
Irrigation services are hampered by a combination of poorly managed HIPPAs and a challenging investment
environment for private ISPs. Although HIPPAs receive public sector support to set-up irrigation systems, they
often suffer from operational challenges such as suboptimal equipment, inefficient system designs, long-standing
repair needs, and cash-flow mismanagement. HIPPAs are run by groups of rice farmers that often lack the skills
required for a successful HIPPA management. Moreover, the management of HIPPAs changes constantly as the
leadership is often connected to the village chief, which is a regularly changing position. Private ISPs in East Java
primarily set up their services in areas that are close to rivers and/or low heights. The fact that areas that still
need irrigation are found in a more challenging environment (further from the river, greater heights) is a strong
disincentive to both current ISPs and potential new ISPs for further investment. Although the ISP business model
is a lucrative one, the financial investments required in a challenging environment are significant and the risks
associated with it are perceived as high.
Harvest services are provided by penebas who use mostly manual and low-tech methods. The penebas often
borrows money to make down payments to farmers to secure the right to harvest their paddy and to pay laborers.
46
Depending on how much paddy is harvested (as opposed to the amount s/he predicted), the penebas may find it
easy or difficult to pay back the lender. Within this business model – and with little to no collateral – it would be
difficult for the penebas to upgrade to more expensive modern technology such as the combine harvester. In
addition to these capital investment challenges, there is a history in East Java of combine harvesters (and other
larger, agricultural machinery) being transferred by the government without concern as to whether the model is
the right fit for the terrain and/or whether maintenance, repair, and spare parts are locally available. This history
has resulted in many machines sitting idle and under-utilized, which has not sparked adoption by harvest service
providers.
Paddy drying is typically done by millers, not by farmers or local service providers, which limits farmer’s ability to
capture more value. Farmers sell wet paddy to penebas and do not typically use local drying services to increase
the value of their rice. Such services could be provided by the penebas, farmer associations or small-size millers;
they could aggregate the product, dry it, then sell for a higher price directly to medium- and large-sized mills.
However, drying services require either a large concrete floor for drying in the sand (slower method) or expensive
drying equipment (faster method) and space to store and run such equipment. Paddy with lower moisture content
would be cheaper to transport (weigh less) and would fetch a higher price from millers (time and energy savings).
Taking time to dry paddy is often not an option for poor farmers who must sell their product immediately due to
constrained cash flow, including debt they may owe to the penebas or other informal lender which was necessary
to purchase rice inputs at the beginning of the season.
Limited market information flow and coordination services contribute to a long supply chain with a great deal of
competition and a lack of coordination. In East Java, farmers typically know several penebas who work in their
area and chose the penebas on a combination of price, service (e.g., provision of finance for inputs or provision
of manual labor for harvest), and trust. Penebas might sell directly to mills but are more likely to sell to other
traders/collectors. Price and demand information flows from the penebas. To secure more information that might
lead to different choices, farmers need to call an array of other traders and millers. Millers communicate price
and demand information among themselves using smartphone applications such as WhatsApp. But no such
coordination service or activity exists between the millers and farmers. This contributes to an inefficient pattern
in which rice from the target districts leaves the region, while millers in the target districts import paddy from
other regions to meet their demand.
The Indonesian Government’s paddy and rice price policies impact the prices mills that can earn when they sell
rice. Field research suggests that the deal making between farmers and penebas is not greatly impacted by the
Government’s paddy price policy. Instead, the penebas offers prices to the farmers based on what he thinks he
can secure from other buyers (collectors, traders, and/or millers). However, the Government rice price policy
does impact what the miller can secure for her or his product. With this ceiling, a greater number of supply chain
intermediaries (multiple levels of penebas, collectors, and traders) means farmers capture less value for their
paddy.
3.3 Gender and Environmental Issues Women play limited roles in the rice value chain. Although differences exist across locations, field research
suggests that women tend to dominate planting, weeding, maintaining the paddy and, to a lesser extent, seeds
preparation. Conversely, land preparation, especially if it involves agricultural machinery, is predominantly done
47
by men, together with the application of fertilizer and crop protection. Extensive focus group discussions in
Bojonegoro, facilitated by the TIRTA project team, suggest that men dominate paddy harvest work, while women
prepare and deliver the meals to the labor throughout the harvest period. These focus groups align with insights
from intervention baseline research. However, for this study, field research in Tuban and Lamongan suggests that
at least some penebas hire women as laborers to harvest paddy. This could be a relatively new phenomenon
sparked by labor shortages; further research on this topic is required. In contrast to these penebas, farmers who
harvest their own fields seem to rely on male labor. Bird scaring and drying the harvest are instead activities
where men and women share similar level of effort. Finally, decision making over all aspects of agricultural
production is a joint effort within the household. Nevertheless, as women typically manage the household
finances, they have a strong control over how much needs to be saved for and can be spent on inputs and
production. Rice seed grower businesses are predominantly run by men; most ISPs, HIPPA leaders, farmer
association leaders, and mill owners are also men, although instances of female leadership exist. In the case of
rice mills, female family members often perform financial, administrative, and/or marketing work of the mill.
Both women and men were found to be input retailers.
Environmental concerns arise when rice farmers take steps to increase production and productivity. When rice
farmers move to increase productivity, they frequently turn to a variety of chemical inputs – from fertilizer to
pesticide to herbicide. The companies who sell these chemicals typically argue that there is a negligible
environmental impact if used correctly. However, farmers frequently use inputs incorrectly. The logic “if a little
fertilizer has positive benefits, a lot of fertilizer must have amazing benefits” can lead to excess, which results in
chemical run-off or seepage into underground water sources. Currently more environmentally friendly
agricultural practices such as SRI and conservation agriculture (CA) are not widely practiced among rice farmers
(which seems to be a result of extension limitations as opposed to farmers actively ignoring such options). Farmers
prefer fully flooded fields, for example, over more efficient water resource management. Farmers also prefer to
cut the rice straw close to the ground and resell the straw (e.g., livestock feed) as opposed to leaving more organic
material to decompose (farmers often burn all the organic residue off the field). Some farmers with easy irrigation
access grow three seasons of rice which harms soil health and increases the likelihood of pest and disease
problems. Although much of rice farming is currently done manually, as more agricultural machinery is
introduced, this will increase fuel consumption and emissions.84 Finally, landless farmers are less likely to invest
in long-run soil health as they only rent the land and prioritize short-run productivity.
84 Given trends in agricultural mechanization, the choice is most likely not one of yes-mechanization versus no-mechanization, but rather less environmentally friendly mechanization and more environmentally friendly mechanization.
48
4 Strategy for Change The strategy is designed to strengthen the weaknesses in the current service provision and enabling environment
in the market system. This takes the form of (1) identifying the market potential, through calculations to show
the potential of the sector; (2) a vision of change, to envisage how the value chain or market system would operate
if identified problems were resolved; and (3) a set of interventions which can be targeted at specific market actors
or groups of market actors which can be engaged to drive change in the system.
4.1 Market Potential There is a clear market opportunity to expand East Java’s ability to supply rice to meet demand at the provincial
and national level. As the population of Indonesia continues to grow, so too will demand for rice, the staple food
of the local diet. The Government’s push towards rice self-sufficiency and export generates political support for
improvements in rice production. This translates into market opportunities for rice in East Java. Within East Java,
there is opportunity to address unmet milling demand for paddy in Banyuwangiin, Jember, and Lamongan, plus
the other two target districts (Bojenogoro and Tuban) during the dry seasons. For rice consumption, estimated
demand outstrips local production in the following districts in East Java: Batu, Blitar, Kediri, Madiun, Malang,
Mojokerto, Pasuruan, Probolinggo, and Surabaya. At a provincial level outside of East Java, estimated demand
outstrips local production in Jakarta, Maluku, North Maluku, Papua, and Riau provinces.
Based on the research of this study, there is the potential to unlock an additional AUD 86 to 138 million worth of
rice in the 3 proposed intervention districts for the rice sector in East Java. The calculations in Table 11 are scenario-
based. Scenario 1 represents a productivity increase based on farmers beginning to increase utilization of inputs
and application of GAPs (from an average of 6 tons/ha to 6.5). Scenario 2 represents a production increase based
on adding irrigation services for just 5% of the rice farmland (from one harvest per year to two); Scenario 2 does
not include any productivity gains.85 Scenario 3 represents both an increase in productivity and production by
combining the benefits on inputs/GAPs and irrigation services (i.e., Scenario 1 plus Scenario 2).
These scenarios calculate the value of rice production based on the current, average market price of rice. Further
research and calculations could produce other value figures associated with these scenarios such as the net profit
for farmers, the sales of associated inputs, the value of the irrigation or harvesting services, and so on. These
scenarios are based on preliminary assumptions derived from conversations with a handful of key informants.
But these assumptions can shift and improve as additional insights are gained through further research.
85 This irrigation applies to hectares that could go from one rice harvest per year to two, once irrigation services are available. The scenario of two rice seasons to three is not considered as agricultural best practices do not recommend three consecutive seasons of the same crop.
49
Table 11: Rice Market Potential in Bojenogoro, Lamongan and Tuban
Scenario 1
(inputs and GAPs)
86
Scenario 2
(irrigation) 87
Scenario 3
(inputs and GAPs
plus irrigation)88
Existing production (tons) 2,313,277 2,313,277 2,313,277
Potential new production in existing areas
(tons) 189,258 113,744 303,002
Total current and potential production (tons) 2,502,535 2,427,021 2,616,279
Average selling price per kg (dry paddy)
(IDR)8990 4,600 4,600 4,600
Value of current production (IDR in millions) 10,811,863 10,811,863 10,811,863 Value of current production (AUD)* 1,053,499,285 1,053,499,285 1,053,499,285
Value of potential production (IDR in
millions) 884,560 531,620 1,416,180
Value of potential production (AUD)* 86,190,819 51,800,628 137,991,447
Total value of current and potential
production (IDR in millions) 11,696,423 11,343,483 12,228,043
Total value of current and potential
production (AUD)* 1,139,690,104 1,105,299,913 1,191,490,732
*Using conversion rate: IDR 10,263 to AUD 1
4.2 Vision of Change Focusing on achieving the potential outline above for the rice sector in East Java, a vision of change can be
outlined for both the sector and service levels. The vision of change at the farmer level is to (1) increase and
maximize smallholder rice productivity and production and (2) increase farmer income through improved market
access. At the service level, the vision is for farmers to experience improved access to (1) technical information,
(2) inputs, (3) irrigation, (4) finance, (5) harvest services, (6) drying services, and (7) market information and
coordination.
The vision of change includes technical information flowing through input retailers and marketers to farmers.
Input companies will sell inputs through a local network of retailers to farmers, competing with local
entrepreneurs such seed growers who also compete for farmers’ business. Private ISPs will provide reliable
irrigation services to farmers who do not already receive water services from a high functioning HIPPA. Retailers
will offer farmers a range of products – from seeds to fertilizer to machinery – on credit that can be repaid post-
harvest; additional financial services will also be available through banks and cooperatives. Harvest service
86 In Scenario 1, the average productivity of rice farmers rises from 6 to 6.5 tons per hectare due to more widespread adoption of improved inputs and GAP. 87 In Scenario 2, 5% of total current paddy harvest land increases from one harvest per year to two harvests per year with current productivity (no increased application of inputs and GAP). 88 Scenario 3 is a combination of Scenarios 1 and 2; that is productivity increases and irrigation unlocks paddy harvest area. 89 Average price of dry paddy was IDR 4,600 per kg at the time of calculating these scenarios. 90 For calculating value, 1 ton equals 1016.05 kg.
Commented [h83]: Check this
50
providers will use techniques to reduce loss and maintain quality; value addition services such as drying will also
be available to farmers. Market information will flow to farmers through millers who will also use their buying
power to increase coordination in the market, including the coordination of irrigation services, input availability,
and technical information application.
4.3 Interventions It is crucial that interventions are designed to be system changing so that the sustainability and scalability of the
outcomes are not dependent upon a development project or partner. This means that AIP-Rural will not provide
services directly (although at times this may be necessary temporarily), but rather enter the market in a catalytic
manner as a facilitator who works in partnership with market actors to tackle service weaknesses. Based on this
research, five key intervention areas will be necessary to transform the rice sector in East Java:
1. Promote improved inputs, including embedded technical information and GAPs.
2. Promote value chain finance options for inputs.
3. Promote expansion of ISP-provided irrigation services.
4. Promote improved harvesting techniques.
5. Promote improved flow of market information and coordination of the market between farmers and
millers.
Intervention Area 1: Promote improved inputs, including embedded technical information and GAPs. The goal is
to increase rice farmer productivity and production through the promotion of improved inputs, including the
technical and GAP knowledge farmers need to maximize the benefits of these inputs. These inputs should include
a combination of seed, fertilizer, pesticide, herbicide, and water.
There is potential to partner with three types of actors in this intervention area. First, there are input companies
such as Syngenta, Bayer, and Hextar who operate in Indonesia, have not yet prioritized the rice market in the
target districts, and have expressed interest to put more energy behind rice. Per one Hextar sales representative,
interviewed for this study, his company wants to move into rice even if it takes years to break even as Hextar
leadership understand that massive potential of the market. Working with these companies, it would be
important to ensure that technical knowledge flows from the parent companies through the various local retailers
as the government extension programs do not currently have the capacity and incentives to successfully
disseminate the knowledge associated with these new inputs. Companies may lean towards more traditional input
marketing methods such as demonstration plots which are necessary but not sufficient to catalyze widespread
adoption more quickly. A more comprehensive marketing strategy should be considered. Second, millers need
greater quantities of high quality rice. They have a strong incentive to promote input utilization among farmers
in their localities. Millers could be linked to input companies as part of the marketing campaign to rice farmers.
Third, regarding water, the promotion of intermittent watering (as part of SRI) could reduce operating costs for
ISPs, reduce service fees for farmers, conserve water, and help farmers to avoid some of the paddy quality
problems associated with excess watering. There is potential to partner with several ISPs to pilot this approach
(which farmers may initially resist due to current attitudes about the benefits of fully flooded fields).
Intervention Area 2: Promote value chain finance options for inputs (including credit through input/machinery
retailers). Creating new input finance options for rice farmers will reduce one of the barriers to adopting new,
51
more expensive inputs. When farmers can invest more in a portfolio of rice-supporting inputs, they can increase
productivity and production (the key, however, is to ensure that the income increases exceed the input
expenditures).
There are two major types of partners in this intervention area. First, there are formal financial institutions. Some
of them carry loan products with six-month repayment cycles, however the collateral requirements prohibit some
rice farmers from applying. Additionally, the nature of the paperwork required to secure these loans – plus the
high interest rates – act as deterrents. Given the onerous application process and the stigma around debt, this may
not be the best approach. In contrast, farmers are accustomed to taking services on credits (e.g., paying back
irrigation services after harvest) and prefer it. They are open to paying back inputs after the harvest as well. This
suggests opportunity with the second type of partner: input companies. Input companies currently offer credit to
their independent retailer networks, but they do not facilitate an extension of that credit to the farmers. SAFIRA
has recently brokered an MOU with Syngenta, which could be the gateway for such a partnership. Given TIRTA’s
work with Hextar, it could be another potential partner.
Regarding more expensive agricultural machinery and irrigation equipment, rice farmers would be unlikely
candidates for direct purchase. However, it is common for farmers to pay for harvest and irrigation services. To
support better harvest and irrigation services for rice farmers, there is potential to work either with a financial
institution on a leasing product for the necessary equipment or to work with the companies who sell these
machines to offer and promote an installment plan which makes improved technologies more accessible and
appealing to service providers. This same approach could be extended to small dryers to support better local
drying service provision to farmers. However, commercializing agricultural machinery brings a host of other
challenges, including retail network, repair and maintenance services, spare parts, and so on. It would be
necessary, but not sufficient to intervene only in finance.
Intervention Area 3: Promote expansion of ISP-provided irrigation services. Irrigation services enable farmers to
shift from growing rice just one season per year to growing it twice per year. As this second season is a dry season,
the price farmers can earn for their paddy is higher than wet season rice. Moreover, the application of consistent
irrigation services can boost productivity. For example, farmers who currently grow rice during the dry season
but receive poorly managed irrigation services may receive inconsistent water supply and therefore suboptimal
paddy growth.
Rice farmers are quite familiar with the benefits of irrigation. There is an eager market for irrigation services,
including farmers who receive suboptimal services from an underperforming HIPPA and farmers who live in
more challenging topographies (higher elevation and/or further from river). The goal of this intervention area
would be to motivate existing and potential private ISPs to a) move into more challenging areas and b) identify
areas of HIPPA underperformance where the community wishes to switch from HIPPA-managed irrigation
services to services managed by an ISP (in this second option, it will be important to work with village heads to
reduce transition barriers). Although the goal is to expand ISP service provision, an important partner for this
intervention area may be rice millers. In some cases, mill owners are also ISPs. Regardless, millers have a strong
incentive to increase local irrigation service provision as it will increase the quantity and quality of the local
product available. Medium- and large-scale millers are well connected in their communities, have collateral, and
52
often own multiple businesses, which can create greater financial flexibility. Whether millers act as ISPs or
partner with ISPs, their involvement can help de-risk the expansion of irrigation services.
In addition to irrigation service provision, there is also potential for ISPs to offer other products and services. For
example, ISPs are typically paid in a portion of the paddy harvested (~1/5), which can be risky if the farmer
earmarks a fifth of her/his land for payment and then invests less in that fifth (less fertilizer, less pest management,
etc.). But if an ISP offered harvesting services, s/he could take payment from the entire harvest (mitigating the
above risk), sell directly to millers (i.e., capture more value), and enjoy greater selling power (due to larger
quantity). Furthermore, ISPs could partner directly with input companies to either a) sell products to rice farmers
on commission or b) apply inputs as an embedded service provided to the farmers (which would also increase the
service charge). This would make ISPs a very convenient “one stop shop” for rice farmers, especially as payment
could be taken out of the harvest. However, this puts ISPs in the position of displacing two other sets of market
actors – input retailers and penebas – which are social/political costs that must be considered.
Intervention Area 4: Promote improved harvesting techniques. The promotion of improved harvesting techniques
is meant to decrease the loss of paddy that farmers experience and increase the quality of the paddy to be sold.
This represents an increase in quality, which will increase the paddy selling price, and an increase in quantity,
which will increase paddy-derived income.
As with inputs, government extension does not currently have the capacity to deliver harvest-related knowledge
to all rice farmers. Although penebas are the current harvest service provider, it is more likely that millers are
the better partners to promote improved harvesting techniques. Penebas have a mixed reputation regarding their
application of harvest and post-harvest techniques. For example, if the volume of harvest comes up short of their
buyers’ expectations, some penebas allegedly add foreign matter and water to increase the weight of the paddy
they sell. Millers have a strong incentive to increase both quantity and quality of harvested paddy. The Miller
Association could be the vehicle for the most current harvest-related technical information to flow through the
millers and the millers’ buyers to the farmers. But this will require that millers work with trusted buyers or
directly with farmers. This aligns with the vision that millers expressed during the research for this study as the
direction for better coordinating the rice market.
Intervention Area 5: Promote improved flow of market information and coordination of the market between
farmers and millers. The introduction of improved market information flow and coordination is expected to help
rice market actors, especially farmers, make better informed decisions, to increase efficiency in the market, to
decrease transaction costs, and to create an environment in which farmers can secure a better price for their
paddy.
Although farmer associations such as HKTI and IFU provide the closest link with farmers, Millers’ Association
has greater potential to impact both market information flow and market coordination, including farmers.
Farmer associations do not include every farmer; moreover, these associations will find it difficult to influence
the behaviour of the layers of intermediaries to whom they sell. Conversely, the Millers’ Association has
widespread access to market information such as price and consumer demand, as their members currently
communicate this through smartphone applications. In addition, their buying power creates an opportunity to
change the behaviour of the intermediaries situated between themselves and the farmers, including the potential
Commented [h84]: Or ‘rice farmers’?
Commented [h85]: Of the millers or the Millers Association?
Commented [SD86R85]: Farmer association
53
for them to buy more directly from farmers. It is likely that more dramatic change in market information flow is
possible in a shorter amount of time, as there will be less resistance to such a change in the market. However,
greater coordination could face tougher opposition, as numerous intermediaries have invested in the status quo.
It is particularly important, therefore, that market actors (such as millers) are leading this change – not project
staff.
4.4 Sequencing and Prioritization of Interventions It is recommended that AIP-Rural’s three relevant projects – PRISMA, SAFIRTA, and TIRTA – pursue
intervention areas in the East Java rice sector in a two-phased approach (see Table 12). Broadly, the
recommendation is that i) PRISMA focus on inputs and GAP, harvesting practices, and paddy/rice price policy
(if pursued) through work with national input companies and well-established farmer associations; ii) SAFIRA
focus on value chain finance options for inputs; and iii) TIRTA focus on irrigation services, improved market
information flow and coordination, and paddy/rice price policy (if pursued) through work with millers. These
focus areas generally align with each project’s mandate. However, which project should work with millers is
debatable; it could be a focus area for either PRISMA or TIRTA. Given TIRTA’s work with millers on irrigation
service provision, it may be more efficient for TIRTA to continue working with millers on marketing information
and coordination. In terms of allocation of activities to each project phase, the logic is that work on inputs, input
finance and irrigation should come first in Phase I, as those areas are crucial for rice farmers. Next would come
harvest practices, machinery finance and market information/coordination in Phase II, as these would build on
the improvements achieved through Phase I, that is, farmers who have started to produce more due to better
input utilization and irrigation will be ready for improved harvest practices and leveraging better market
information/coordination. The policy work of Phase III can be considered optional, based on further political
economy and stakeholder analysis. The miller machinery finance will be much more important once farmers
have increased production and the mill capacity utilization increases.
54
Table 12: Two-Phase Approach for Intervention Areas
PRISMA SAFIRA TIRTA
Phase I Promote improved inputs,
including embedded
technical information and
GAP. [IA1]
Promote value chain
finance options for inputs.
[IA2a]
Promote expansion of ISP-
provided irrigation
services. [IA3]
Phase II Promote improved
harvesting techniques
[IA4].
Promote value chain
finance options for
agricultural machinery
(irrigation, harvest) [IA2b]
and milling equipment.
[IA2c].
Promote improved flow of
market information and
coordination of the market
between farmers and
millers. [IA5]
55
4.5 Sector Vision of Change Logic
56
57
5 Annexures
Annex 1: Conclusion and Recommendations from
Spire report, Agricultural Value Chain Financing Study
Rice Farmers in East Java Indonesia 2017,
commissioned by SAFIRA
1. Conclusion
Financial issues pose several challenges to the agricultural industry in Indonesia. Financial institutions have not
been able to offer services which serve farming business needs, while most farmers lack awareness and skill of
financial planning. Cultural barriers also render some farmers reluctant to take out bank loans. Although local
and central government have launched several initiatives to develop farming business, these interventions lack
sufficient funding to make significant results. Effective cross-institutional coordination and wider farmers’
socialization are needed to support government objectives and are still to be achieved. Based on these challenges,
we propose several recommendations to SAFIRA and Syngenta to improve farming business in Gresik and
Bojonegoro, and then extend the work to Tuban and Lamongan.
2. Table of Recommendations
Recommendation Strategy
Promote farmers’ financial management capacity and
literacy
Foster partnerships with farmer forums and
cooperatives to conduct financial management
workshops.
Develop financing product which corresponds with
farmers planting cycle
Offer credit with low interest rate and six-monthly
(rather than monthly) installments.
For agro-inputs companies such as Syngenta:
Establish partnership between Syngenta and
other financial institutions (e.g. conventional
or well-known bank) to provide farmer-
friendly financing products.
Tap in local government program (e.g. the
initiative between OJK & BI with members
of Himbara, association of state-owned
banks) which aims for expanding the agent-
network model.
Tap in local tap in to local government program
Launch agriculture product credit promotion
with installment periods which correspond
with farming cycle. The promotion might
include bundling of several products to
increase sales.
Syngenta and/or fintech providers can
examine ways the agent-network model can
be leveraged in farming areas to increase
access to finance for farmers. Technical
assistance in the form of how to roll out
58
agent-network model along with mobile
banking, should be explored with area
experts.
There is clearly a scope to organize farmers, especially
women, in groups to facilitate group saving and
lending. As farmers tend to appreciate the work of
informal cooperatives, these have higher potential to
meet local credit requirements. Farmers are also well-
versed with the nuances and thus adapting to it might
be easy.
Give technical support to female Cooperative
members about financial and technology literacy,
enabling them to upgrade their soft skills in financial
management.
A strategic role could be developed for Syngenta at
this stage in providing capacity training in
sustainability farming
Commented [h87]: 1.Please rewrite 2.Always avoid ‘people’
59
Annex 2: Detailed Policy Descriptions This annex describes key policies related to rice.
1. Production Policy
To fulfill the demand for rice, the government has made efforts to increase rice production in the country. The
Indonesian government uses two ways to achieve self-sufficiency in rice. On the one hand, it supports farmers to
increase production by encouraging technological innovation and providing subsidized fertilizer (although
subsidies may be reduced in the near future due to budget constraints); on the other, it seeks to reduce household
rice consumption, for example through the "One day [per week] without rice" campaign, while promoting the
consumption of other staple foods. So far this strategy has not been successful; rice production has increased only
slightly and most Indonesians refuse to replace rice with other staples. In 2015-16 the Indonesian government
allocated more state budget to this initiative than in any previous year, for the construction of infrastructure in
agriculture and to aid inputs to farmers by reducing fuel subsidies. This initiative also serves as a support tool to
acquire agricultural machinery, among others, tractors, water pumps, transplanter, combine harvester, seed and
fertilizer aid assistance. Further planned interventions including the renovation of infrastructure and water
management such as dam construction, renovation of irrigation systems, and opening of new paddy fields.
Comprehensive and continuous land conversion has not been stopped by the extensification program through
the addition of new rice fields. From 2012 onwards, at least 110,000 hectares of wetland have been lost each year
due to urbanization. This amount of land conversion is considered a severe threat to the sustainability of national
rice production. To combat this, the government has constructed new paddy fields: 23,795 ha in 2014, but only
18,789 ha in 2015. For the fiscal year 2016 the government allocated a budget to construct new fields covering an
area of 130,955 ha. These measures are part of the government's efforts to achieve paddy self-sufficiency in 2017.
2. Price Policy for Paddy and Rice
Price policy instruments can be classified into two levels, namely farmers’ price level and consumers’ price level.
The price policy for farmers was established through the Governmental Purchasing Price (GPP) to protect farmers
from falls in the price of paddy. Furthermore, GPP policy is expected to provide an incentive for farmers to
continue paddy production to support the achievement of food security. The GPP is determined by the
government and set as a minimum price to serve as a reference price for farmers and traders in paddy and rice
selling and buying transactions.
Governmental regulations through Presidential Decree No. 20/2017 mandated BULOG as the operator for
purchasing wet paddy harvest at the farmers’ gate with flexible price. The MoA also issued Ministerial Decree No.
21/ PERMENTAN/PP.200/4/2015 establishing price guidelines for the purchase of paddy and rice that are subpar
standard quality.
Commented [h88]: Check my amendment is correct
Commented [SD89R88]: Yes, correct
Commented [h90]: Did this happen?
Commented [SD91R90]: Not sure
Commented [h92R90]: Can we find out? We should make the report as up-to-date as possible.
Commented [SD93R90]: No data found yet on this. For now, let’s keep it like that.
Commented [h94]: 1.Again, can someone at your end check that this policy is relevant to this document? 2.Are the prices from 2015? If so, they’re out of date.
Commented [SD95R94]: The policy is relevant. the price is deleted because there are fluctuation.
60
Paddy: Buying Price by Government of Various Qualities
Source: Agriculture Ministerial Decree No. 21/ PERMENTAN/PP.200/4/2015. The existence of price stabilization policies influences the pattern of trade in grain and rice.
Rice: Buying Price of Various Qualities by the Government
Source: Ministry of Agriculture Regulation No. 21/Permentan/PP.200/4/2015. By 2016, the target of domestic rice procurement through GPP amounted to the equivalent of four million tons
of rice, or 8-10% of Indonesia’s national rice production. However, implementation is difficult to achieve, as the
price at the farm level is now generally above GPP. In the wet season, paddy procurement can reach 66%, and in
the dry season 30%, while in the lean harvest season it is only 4%.
The positive impact of the GPP policy has been that the price of grain at the farm level has remained above GPP.
On the other hand, it burdens consumers who are obliged to pay more for rice.
The milling industry is also experiencing pressure on its profit margins, as the artificially elevated purchasing
price of rice, along with pressure from government to maintain low consumer prices, keeps margins small.
3. Rice Stock Policy
Buffer stocks of rice created by BULOG, either through domestic procurement or through imports, serve as
inventory stored in warehouses across the country. These reserves can be used by government as a source of social
support, for market operations, during emergencies, and to supply a particular market. To procure paddy/rice,
BULOG cooperates with private rice mills.
4. Policy on Rice Price Stabilization
Price stability policy is a policy preferred by the Indonesian government. Food price stabilization policies operate
in Indonesia by using a dual pricing system. Rice price stabilization policy is now fully implemented, and is an
Moisture Content (%) Empty Hull Content (%)
1 Dry Paddy 14 (max) 3 (max) 4,000
2 Storage Unmilled Rice-1 14 (max) 4 - 5
15 - 18 6 (max)
3 Storage Unmilled Rice-2 14 - 18 11 - 15 4,000
4 Low Quality Umilled Rice-1 14 - 18 7 - 10 3,900
5 Wet Paddy 19 - 25 11 - 15 3,750
6 Low Quality Unmilled Rice-2 20 - 30 10 (max) 3,500
7 Low Quality Unmilled Rice-3 26 - 30 11 - 15 3,300
Criteria Price
(IDR/kg)Grade of QualityNo.
4,150
1 Premium -1 95 14 10 2 7,700
2 Premium-2 95 14 15 2 7,500
3 Medium 95 14 20 2 7,300
4 Low Quality 95 14 25 2 7,150
Price
(IDR/kg)
No. Grade of Quality Milling Degree
(%,min)
Moisture Content
(%,max)
Broken
(%,max)
Browerr
(%,max)
Criteria
Commented [h96]: Pls send me an editable version of this table
Commented [h97]: Pls send me an editable version of this table
61
attempt by the government to protect consumers, enabling them to obtain rice at a relatively cheap and affordable
rate. Policies currently in place are the Pure Market Operations (PMO) and the Special Market Operations (SMO).
PMO is part of a general price subsidy, used when the price of rice is too high because of excess demand in the
market. It acts by cutting the price of rice to about 10%-15% below market prices. SMO is the implementation
of the targeted subsidy price. BULOG’s SMO targets poor people and has been named Rastra (Beras Pra Sejahtera,
or Welfare Rice for Poor Families).
In general, efforts of the government and BULOG to stabilize the price of paddy/rice are considered successful,
where one side has been able to ensure farmers receive a decent price (above the government-established Harga
Pembelian Pemerintah (government purchasing price, or GPP) and on the other hand assures consumers to be
able to purchase rice at a reasonable price that does not burden them and the national economy.
5. Distribution Policy
The government distribution policy aims to ensure even food security throughout the year, affordable for all levels
of society. The process of distribution of rice in Indonesia is done in two ways: through BULOG and via market
mechanisms. BULOG only controls about 10% of the market share of rice, while about 90% is controlled through
market mechanisms. BULOG only acts as a stabilizer for the procurement price of rice in the country and not as
a determinant of the price of the rice market. To implement this policy, the government through the GPP, assigns
BULOG to distribute rice to pre-welfare families via the Beras Pra Sejahtera (RASTRA) program91. Compared to
the total consumption amount, the amount of the GRR, BULOG does not represent an influence on the
distribution of rice in the country. Most of the rice distribution in Indonesia (over 90%) is done through market
mechanisms.
6. Import Policy
Indonesia's import policy aims to reduce the level of dependence on rice imports to Indonesia. This policy is
implemented through two principal instruments, namely tariffs and non-tariff restrictions. Rice import
arrangements by the government are enforced by government regulations, the most recent being the Regulation
of the Minister of Trade No. 06/M-DAG/PER /2/2012.
Rice imports are regulated as follows:
a. Rice imports for the purposes of price stabilization, emergency relief, supplying the poor, and addressing food
insecurity, with a maximum broken content of 25%. These imports are executed by BULOG.
b. Rice imports for raw materials (that is, for industrial needs), for example, 100% broken rice and glutinous
rice with 100% broken content. The importers are manufacturers and companies which need these types of
rice.
c. Imports of healthy rice (dietary) and rice for special purposes or a particular segment, for example, Thai hom
mali (jasmine rice), japonica and basmati, each with a maximum of 5% broken content. It is compulsory for
prospective importers of glutinous rice and parboiled rice to acquire the status of registered importers;
registration is issued by the Ministry of Trade.
The Coordinating Ministry of Economic Affairs issues import permits for rice types which fall under certain
import quotas.
91 RASTRA (Beras Pra Sejahtera, or Rice for Pre-Welfare Families) is the most well-funded social assistance program in Indonesia. (The 1.5 Billion People Question: Food, Vouchers, or Cash Transfers? Eds. Alderman, Genilini, Yentsov. World Bank Group. 2018). It targets households with an income of less than xxx. It is administered via a system of
Commented [h98]: 1.Can we say what definition of ‘poor’ is used by government? We also need to explain ‘Pre-Welfare’ 2.This point is also discussed under 5.2.7 below.
Commented [SD99R98]: No need
Commented [h100R98]: Surely it’s important to define our terms?
Commented [SD101R98]: The term poor here is loose. The term pre-welfare is interchangeably used by government with poor. In semantic sense, pre-welfare sounds softer than poor. Thus no issue here.
Commented [h102]: What do we mean by ‘conducted’?
62
Another policy from 2004 is the import tariff set by government on rice of IDR 450/kg, equivalent to 30% ad valorem.
7. Export Policy
Rice export policy is stipulated by the Regulation of the Ministry of Trade No. 12/M-DAG/PER 4/2008 concerning
the Import and Export of Rice and amended by the Regulation of the Ministry of Trade No. 35/M-DAG/PER/8/2009.
These regulate rice exports as follows:
a. Certain types of fragrant rice may be exported when the supply of rice within the country has exceeded
requirements. These include:
1) rice with a maximum broken content of 5%. This may be exported by state-owned, regionally-owned or
private companies.
2) rice with a broken content of 5% to 25%. This can only be exported by BULOG.
b. Broken organic rice is open to export from 0% to 25% broken. Organic rice exports can be undertaken by
private companies without any restrictions on volume and when to do the export.
c. Black glutinous rice exports can be undertaken by private companies without any limitations to quality,
volume or time of export. First, however, export approval must be secured from the Minister of Trade of
Indonesia (for exporting organic rice and black glutinous rice, this will include recommendations from the
MoA) and from the Coordinating Minister for Economic Affairs Team (when the decision pertains to fragrant
rice).
8. Policy on Quality Assurance and Food Safety
To realize a quality assurance system in Indonesia, the Government has issued a policy of standardization through
Law 102 of 2000 concerning National Standardization. This decision also includes quality assurance system policies
in the agricultural sector.
Quality assurance and food safety for rice in Indonesia are assured by certificates issued by the Product
Certification Institutions for Standar National Indonesa (SNI, Indonesian National Standard) rice. To guarantee
food security, labels are issued by the competent authority or the regional center for food safety and halal food
by the Institute for Food, Medicine and Cosmetics, the Indonesian Ulama Council (MUI LPPOM). For marketed
rice in Indonesia, halal, and quality and food safety certification, are voluntary and non-binding.
9. Rice Milling Business Policy
To support the availability of adequate and high-quality rice as part of a national food security policy, this policy
aims to create a conducive business climate and a fair climate of competitiveness among rice millers operating in a
free trade environment; improving the quality and yield of rice; and suppressing rice losses.
In accordance with regulations, rice mills must have a permit with the following provisions:
a. Large-scale rice mills (installed capacity of >1,500 kg/hr) must have a business license submitted to the local
government including:
1) Acceptance Letter for Business Place
2) Letter for Trade Business License
3) Form List
b. Small-scale rice mills (installed capacity <1.500 kg /h) need to obtain business registration from local
government, including:
1) Acceptance Letter for Business Place
Commented [h103]: Restriction on time in what sense?
Commented [h104]: Pls explain. Also, why are we mentioning organic rice here?
Commented [SD105R104]: done
Commented [h106]: Pls go through this para. It needs tidying up, in particular it needs to be made clearer which bodies are responsible for which certification. Also, we need the names of the bodies in Indonesian and English, along with any commonly-used acronyms.
Commented [SD107R106]: I need to refine this more.
63
2) Form List
c. In accordance with government Regulation No. 65, 1971 (Article 3):
1) Rice mill company are mostly owned by the companies operated by private/foreign private companies
or Indonesian legal entities with foreign capital. Active in rice milling, huller and rice polishing business
in certain regions on Java island, being Indonesian citizens or Indonesian legal entities with Indonesian
capital (paragraph 1), or entities that have not been able to commercialize the company yet.
2) A company operated by a private or foreign-private company, operating as an Indonesian legal entity
with foreign capital. These must obtain special approval from the Minister of Agriculture in accordance
with applicable regulations.
As regulations have changed at the time of the review, it is necessary to conform to changes in the business
environment. For example, ‘mobile’ rice mills, currently very active in the field, are not accommodated within
the existing rules.
Current regulations only cover business licensing issues; they also need to contain activities undertaken by rice
milling companies to improve competitiveness, efficiency and revenue efforts.
Commented [h108]: Unclear – please rewrite.
Commented [SD109R108]: What do you think?
Commented [h110R108]: It’s still not clear… Are we trying to say that the business environment has changed but the regulations haven’t kept up with these changes and so need to be altered in order to cover new things which aren’t covered (because they’ve grown up since the regulations were passed)?
Commented [SD111R108]: yes
64
Annex 3: Sector Maps92
1. Core Value Chain Map
92 For visual clarity, not all market players have been included as separate boxes and not all market relationships have been included as separate arrows. For example, village standing crop buyers, collectors and traders have been grouped into one box even though there can be many varieties of these intermediaries between farmer and miller. However, the key actors and relationships are presented.
65
2. Irrigation Services Map
66
3. Financial Services Map
67
Annex 4: Intervention Logic Analysis Framework (ILAF)
93 GAP, or good agricultural practices, include planting practices such as distance between seeds sown, number of seeds sown, and appropriate use of water.
(1)
Problems/symptoms
(2)
Underlying
causes
(3)/(4)
Services and
enabling
environment
(5)
Service weaknesses/
underlying causes
(6)
Intervention areas
(7)
Service providers/
potential partners
Farmers experience low
production and
productivity
Farmer access
to information
on inputs and
GAP93 is
limited.
Extension
services
Government extension
services exist but do not reach
as widely as necessary, are not
as active as required, and do
not consistently include the
variety of methods
(particularly demonstration
plots/farms) needed to
convince farmers. In general,
private input sellers provide
extension services.
Intervention Area 1:
Promote improved
inputs, including
embedded technical
information and
GAPs.
National and multi-
national input
companies (in particular
Syngenta, Hextar, BASF,
FMC and Dupont who
are AIP-Rural’s partners)
Input retailers
Local seed
growers/sellers
ISPs
Miller associations
Farmer
adoption of
new, improved
inputs is
limited.
Input services
Improved inputs are generally
available, but word of mouth
(not compelling marketing)
drives farmer decision-
making. As rice is not as high-
value as other cash crops,
input companies often
prioritize crops where farmers
earn more and can therefore
spend more on production.
Financial institutions typically
require collateral for
Intervention Area 1:
Promote improved
inputs, including
embedded technical
information and GAP.
Intervention Area 2:
Promote value chain
As above
Commented [h112]: Check this
Commented [h113]: Is this ‘Miller Association’ ie a specific one, or ‘Miller associations’?
Commented [h114R113]: Note; I’ve changed the ‘A’ to ‘a’ (because you indicate there are several associations, not one Associaton). I’ve done this 3 times below as well. Check this is ok.
68
94 Good harvesting practices include the timing of harvest, methods to reduce lose, and storage methods.
Financial
services
agricultural loans, which
many smallholder rice farmers
needing loans for input
purchases cannot meet.
Culturally, farmers prefer to
buy what they can with their
own resources instead of
relying on loans. Buying on
credit is more acceptable than
taking out a loan, but most
input retailers do not sell on
credit.
finance options for
inputs and machinery
(including credit
through
input/machinery
retailers).
See above partner
companies
Input retailers
Local seed
growers/sellers
Rural banks
Financial Services
Authority (OJK)
program, Laku Pandai
Farmers access
to irrigation
services is
limited.
Irrigation
services
Some farmers living close to
water sources can irrigate
their land directly; the
majority obtain irrigation
services from private ISPs or
publicly-supported HIPPAs or
BUMDES. Areas easy to
irrigate are generally covered
by ISPs and HIPPAs, but
HIPPAs often struggle to
deliver effective irrigation
services. Areas challenging to
irrigate represent significant
financial investment and
perceived risk for private ISPs.
Intervention Area 3:
Promote expansion of
ISP-provided
irrigation services.
ISPs
Miller associations
Farmer lose product
during harvest
Farmer access
to information
on good
harvesting
practices94 is
limited.
Extension
services
As above. Intervention Area 4:
Promote improved
harvesting techniques.
Miller associations
69
95 Standing crop buyers, or penebas.
Farmer access
to modern,
low-loss
harvest
technology is
limited.
Harvest
services
Farmers generally sell their
paddy to SCBs95 who include
labour for harvesting as part of
the service. The labourers
manually harvest the paddy,
then thresh with metal or
small motor-driven threshers.
Post-harvest loss of paddy
associated with this method is
more significant than with
modern technology (e.g.
combine harvesters which
cuts, threshes and bags the
paddy in one pass).
Intervention Area 4:
Promote improved
harvesting techniques.
As above
Farmers often receive low
prices when they sell
their paddy
Farmers’ paddy
quality can be
low or mixed.
Extension
services
Input services
Harvest
services
As above.
As above.
Technology such as combine
harvesters (see above)
produces a higher quality
product after harvest, but
currently SCBs mostly use
manual harvest and low-tech
threshing.
Intervention Area 1:
Promote improved
inputs, including
embedded technical
information and
GAPs.
Intervention Area 4:
Promote improved
harvesting techniques.
As above
As above
Farmers access
to local drying
services is
limited.
Drying services Farmers sell wet paddy
through SCBs (see above) and
do not typically use local
drying services (such as
Intervention Area 4:
Promote improved
harvesting techniques.
As above
70
smaller mills) to increase the
value of their rice.
Farmers access
to market
information
and to
coordination
with mills is
limited.
Market
information
and
coordination
Farmers receive price
information from potential
buyer (penebas) and do not
receive coordinated demand
information from mills.
Intervention Area 5:
Promote improved
flow of market
information and
coordination of the
market between
farmers and millers.
Miller associations
Farmer associations
71
Annex 5: Interviewees96
Market Actors/RP Contact Person Position Location Phone Number
Farmers and farmer
association
Abdul Muin* Farmer Bojonegoro +6281335103117
Abdul Halim Farmer Tuban +6281333482012
Rodi Farmer Lamongan +6281335471080
Maftukhin* Farmer group head Lamongan +6282139931854
Standing crop
buyers (penebas), traders and
collectors
Sri Rejeki* Owner/penebas Bojonegoro +6285330329529
Gugah Pratama Collector Tuban +6281334279829
Hariyanto/Sucipto Owner/penebas Demak/Central Java +628123521701
Millers and miller
associations
Untung Basuki* Head of association Bojonegoro +6281235836005
Arif Wahyudin Secretary of association Bojonegoro +6281332118633
Rony Rice miller/owner Bojonegoro +628123133898
Akhsin* Rice miller/owner Bojonegoro +6285235449545
Kasmono Wibowo* Head of association Tuban +621330670194
Ashari Rice miller/owner Lamongan +6281357424555
Aji Rice miller/owner Lamongan +85649457888
Ali Maftukhin* Head of Association Lamongan +6281230972500
Seed growers Ruslan* Owner Bojonegoro +628123512568
Suyanto Owner Tuban +6281336821000
Input sellers H. Suyitno Owner Bojonegoro +6281330664438
Tamiaji* Owner/volunteer extension worker Tuban +6285334227255
HIPPAs/ISPs
Untung Basuki Owner Bojonegoro +6281235836005
Akhsin Owner Bojonegoro +6285235449545
Suyono Head of HIPPA Lamongan +6281216050959
Lender Gugah Pratama Owner Tuban +6281334279829
Zainal B Fanani* Head of Production Division, District
Agricultural Extension Services
Bojonegoro +6285204994787
96 This study builds on the foundation laid by previous rice-related studies performed by or for AIP-Rural. Some stakeholders therefore were deprioritized as they had already been interviewed by previous researchers. For example, researchers had recently interviewed financial institutions (such as rural banks and cooperatives) in the target districts; their findings were incorporated into this study without re-interviewing the same stakeholders.
72
Market Actors/RP Contact Person Position Location Phone Number
District/sub-district
officials, extension
workers
Ridwan* Head of Sub District Agricultural Extension
Services
Bojonegoro +6285790808159
Suparni* Senior extension worker Tuban +6281330689048
Pump seller H. Aslan* Owner/CEO Lamongan +6281231021565
*Key resource person and/or potential partner.
Annex 6: Investigation Team Due to scheduling conflicts, the project team was unable to participate full-time in the research and analysis needed for this study. National consultants
provided additional part-time support throughout the study process, including the content and review of this report.
Name Title
Literature review
and initial
analysis*
Field
investigation*
Post-research
analysis*
Agustin Karnaen National Rice Consultant FT FT FT
Albert Tanrian Senior Business Consultant, TIRTA PT PT PT
Pak Burhanuddin National Rice Consultant N/A FT FT
Eko Prasetyo Senior Business Consultant,
PRISMA
PT N/A PT
Gatot Waluyanto National Rice Consultant FT N/A N/A
Giulia Salmaso Principal Business Consultant,
TIRTA
PT PT PT
Kevin Robbins Senior Technical Advisor,
PROMARK
FT FT FT
Mangapul Sinaga Rural Finance Specialist, SAFIRA PT N/A PT
*FT = full-time; PT = part-time; N/A = not applicable
73
Annex 7: Relevant Input Companies Company Type Examples
Seed PT Advanta Seed Indonesia
PT Primasid Andalan Utama/PT Agrosid Manunggal Sentosa
PT DuPont Pioneer Indonesia
PT Benih Inti Subur Intani (BISI) International Tbk (distributed by
PT Tanindo Intertraco)
PT Sang Hyang Seri (Persero), a state-owned enterprise
PT Agri Makmur Pertiwi
PT Syngenta Indonesia97
Government fertilizer Pupuk Indonesia Holding Company; subsidiaries include Petrokimia
Gresik and Pupuk Kaltim in East Java98
Non-government fertilizer SADP (Wilmar Group)
CV Saprotan Utama
PT Saraswanti Anugerah Makmur (Sawaswanti Group)
Yaramila
PT Lautan Luas
PT Hextar Fertilizer Indonesia
FMC Indonesia
PT Sentana Adidaya Pratama (SAP)99
PT Agri Timur Mas (Agrifert)
PT BISI
Herbicide, pesticide, fungicide PT SAP100
Dow AgroScience
PT BISI
PT Syngenta Indonesia
PT Dharma Guna Wibawa (DGW)
PT BASF Indonesia
PT Bayer Indonesia
PT Dupont Indonesia
97 Syngenta is in the trial stage and working to secure its licence from the Government of Indonesia; it plans to start production in 2019. 98 Pupuk Indonesia works with other subsidiaries outside East Java and non-subsidiary outsourced suppliers. 99 SAP sells Mahkota Fertilizer brand is par to check this Wilmar Group parent company. 100 SAP is currently in fertilizer; it plans to expand to pesticide and herbicide.
74
Company Type Examples
PT Nufarm Indonesia
Annex 8: Rice Millers and Traders in East Java Medium-size Millers/Traders Five Largest Millers/Traders
PT Padi Unggul Indonesia (PUI), Ngawi
District
PT Lumbung Padi Indonesi (LPI), Mojokerto
District
UD Alam Perkasa, Banyuwangi District
CV Sinar Terang, Jombang District
PB Sinar Surya, Jember District
UD Suseno/PB Anugerah, Jember District
UD Terus Jaya, Jember District
UD Sepakat, Jember District
UD Witanto, Jember District
UD Tratakan, Bondowoso District
CV Sinar Terang, Jombang District
UD Berkat, Jember District
UD Terus Jaya, Jember District
UD Pelita, Bondowoso District
UD Srampang Jaya, Bondowoso District
UD Bumi Luhur/Aci, Situbondo District
UD Pelita, Bondowoso District
PT Beras Bahagia Sejahtera Indonesia, Kediri
District
Mr. H. Nellys Soekidi, Ngawi District
Mr. Hendra Tan, Jombang District
Mr. Yuddy Tjendra, Surabaya City
Mr. Irwan, Banyuwangi District
Mr. Sutikno, Banyuwangi District
The millers in this list trade rice, in the sense that after milling the rice they sell it to other buyers, including i)
millers who will process it further, ii) inter-island traders, and iii) wholesalers.
75
Annex 9: Companies Selling Relevant Machinery: East
Java and National
Company Location
Tw
o-w
hee
led
trac
tors
Fo
ur-
wh
eele
d
trac
tors
Tra
nsp
lan
ters
Co
mb
ine
har
vest
ers
Po
wer
thre
sher
s
Irri
gati
on
pu
mp
s
Irri
gati
on p
ipes
Mil
lin
g
mac
hin
ery
Iseki & Co. Ltd.
Agrowindo
Cans Agrinusa
PT Rutan Surabaya
Garuda Tasco International
PT Traktor Nusantara (branded as
Kubota)
Surabaya
Kubota Quick Toko (branded as
Kubota)
Surabaya
CV Surya Perkasa Mandiri (branded
as Kubota)
Tuban
CV Multi Mesindo Jaya Surabaya,
Bojenogoro
PT Torishima Guna Indonesia Surabaya
PT Trimitra Sukses Bersama Jakarata
PVC pipes (branded as i) Maspion and
ii) Vinilon)101
Various
101 These two brands of PVC pipes are sold at many local retail shops, as they are used for residential and commercial construction, and other general purposes.
76
Annex 10: Major Formal Financial Service Providers
in East Java Provider Type Examples
National banks BRI
Bank Mandiri
BNI
BCA
Bank Bukopin
Bank Danamon
Bank Sinarmas
Bank CIMB Niaga
Bank Mega
Bank Panin
Provincial and rural
banks
Bank Jatim and BPR Jatim (owned by Bank Jatim)
Hundres of BPR/Rural Banks throughout East Java (10+ per
district)
Cooperatives Koperasi Warga Semen Greski (KSWG)
Koperasi Setia Bakti Wanita (KSBW)
Puskopdit Jatim
Baitul Mal Wa-Tamwil (BMT) (Sharia-compliant)
