Development of Rice Reprocessing to Strengthen Small Scale Rice Mills in Indramayu West Java

Abstract

Small Rice Mill (SRM) has a very important role in rice production of strong institutional relationships to farmers and rice markets. Nevertheless, the rice produced in low quality and changing consumer preferences cause SRM to have difficulty in maintaining the role. Development of a reprocessing business - called Rice to Rice Processing Plant (R2RP) - as a separate business unit will support their role and existence. This study aimed at analyzing the feasibility of R2RP business that integrates SRM and market as an independent business unit and determines mutual partnership pattern. The study was conducted with special reference to West Java Province. The qualitative method used for non-financial aspects analysis includes raw material, market, technical-technological, management and regulation and partnership pattern. The financial aspect used the quantitative method of Net Present Value (NPV), Net Benefit Cost Ratio (Net B/C), Internal Rate of Return (IRR), Payback Period (PP) and Switching Value to check their sensitivity.The results showed R2R business is feasible for non-financially, technical-technological and financial aspects. Technology has evolved to produce various qualities (premium or medium) after the quality of raw materials (low quality or off-grade rice) using profit optimization. Value of the financial parameters was NPV of Rp 137 billion, Net B/C of 5.80, IRR of 84.27 percent and PP of 2.18 years at capacity of 19,800 tons/year with total investment of Rp 30 billion (Rp 13,500/USD). The switching value analysis showed that a decrease in product prices is sensitively influencing the financial feasibility. To strengthen cooperation that enhancing mutually beneficial relationship, R2R assists equipment investment in and buy raw material from SRM at a rational agreed price.