Regional Review: Southeast Asia

by Teresa Acklin
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Out of the chaos

      Indonesia's newest flour mill rides out economic, political turmoil.

   It has been a challenging year for Antonio Scippa. A little more than a year ago, the veteran milling executive was in the midst of overseeing the final construction stages of Indonesia's newest flour mill — P.T. Sriboga Raturaya's 1,500-tonne mill in the port city of Semarang — when the country began sliding into chaos.

   In the ensuing months, the Indonesian rupiah plunged into near worthlessness and the economy slid into a recession — its worst financial crisis in 30 years. Food became scarce. The poverty rate soared. Rioting forced the evacuation of thousands of foreigners. Thousands of Indonesian demonstrators called for the resignation of President Suharto, who had emerged as the country's leader after a coup in 1965.

   The Indonesian flour milling industry did not escape unscathed. P.T. Indofood Sukses Makmur, Indonesia's largest instant noodle manufacturer and owner of the country's largest miller, P.T. Bogasari Flour Mills in Jakarta, reported a U.S.$100-million loss in 1997 in the wake of the collapse of the rupiah and at one point halted trading of its shares.

   According to reports from the U.S. diplomatic attache in Indonesia, Bogasari's two large flour mills, which normally operate at about 60% to 70% of capacity, were running at near capacity in January and February because of panic buying and hoarding of instant noodles by consumers. By July, the attache's office said, production at all five of Indonesia's flour milling plants had returned to normal levels, with the two newer and smaller mills — Sriboga and Citra Flour Mill in central Java — running at about 50% of capacity.

   Today, with a new government led by President H.J. Habibie and a U.S.$43-billion economic package from the International Monetary Fund, life is showing signs of a return to normal in Indonesia and at the Sriboga mill, which went on line in March.

    “At the moment, it is in many ways life as usual,” said Mr. Scippa, Sriboga's general manager, in an interview in late June with World Grain. “Everybody is awaiting better days, awaiting the much-needed reforms at any level.”

   The standard of living in Indonesia is “bearable,” he said. “People have no money, but they are not going hungry and are still buying sufficient food, including baked goods and noodles. Rice and other grain products are still cheap.”

   That may change, he said, when the Indonesian government abandons wheat subsidies. The I.M.F.'s recent bail-out extends distribution control of the government's Bureau of National Logistics, or BULOG, which handles all wheat imports and controls the price of wheat and flour. Under the current system in Indonesia, millers get their wheat through BULOG, then sell flour to BULOG at an agreed price; BULOG then sells the flour to wholesalers and retailers at lower prices, with government subsidies covering the difference.

   Because of the recent turmoil, the official privatization program mandated earlier by the I.M.F. has now been pushed back to October. “It was premature (to end BULOG's control) when the economic and monetary situation was, and still is, driving up the prices of basic food,” Mr. Scippa said.

   Currently, 100% of the wheat milled at Sriboga comes from Australia through BULOG. However, Mr. Scippa said he planned to buy wheat from other sources, including the United States, as soon as purchasing decisions were no longer under BULOG's control. “Price-wise and quality-wise, it would make sense,” he said, to buy from the United States, because of export credit guarantees available under the U.S. General Sales Manager program.

   The political climate in Indonesia today “is one of more democracy and freedom than before,” Mr. Scippa said. Even before President Suharto's ouster, the government was willing to issue licenses to new mills, breaking a 25-year monopoly in the Indonesian flour milling industry held by BULOG and Bogasari, he said.

   Bogasari is not only Indonesia's largest flour producer, but one of the largest in the world. Its two flour mills in Jakarta and Surabaya, with combined daily milling capacity of 16,000 tonnes, wheat equivalent, account for 73% of Indonesia's total annual milling capacity, according to the U.S. attache.

   Sriboga's other competitors are Berdikari Flour Mill in Ujung Pandang, with 3,300 tonnes daily milling capacity, and Citra Flour Mill in Cilacap, with 1,000 tonnes of daily milling capacity.

   Sriboga was formed in late 1994 by a group of Indonesian grain traders who recognized that demand for wheat-based products was increasing in that country at a rate of 16% to 18% a year. Mr. Scippa was commissioned to complete a feasibility study for the mill and stayed on as general manager.

   During his 30-year career in milling, Mr. Scippa has been involved in a half dozen mill projects for various companies (see article on page 12). The Sriboga mill in Indonesia is dear to his heart, he said, “because it has had to overcome so many difficulties.”

      Surmounting Obstacles

   The first obstacle was reclaiming the land from the Java Sea.

   “When I saw the area (where the mill was to be built) for the first time, there was only water and a little bit of land,” Mr. Scippa said.

   Beginning in August 1995, workers began placing an initial layer of earth, covered with geotextile material, then another layer of earth until the land was about three meters above sea level. To fortify the soil, steel pilings were driven 45 meters down into the earth. On top was poured a thick concrete slab.

   The ground preparation included about 90,000 cubic meters of earth, 3,000 steel pilings and 9,000 cubic meters of concrete. At the peak of construction, there were about 500 workers involved in the project.

   “It was really a spectacle,” Mr. Scippa said. “It was quite chaotic, or at least it looked that way to outsiders, with people taking away each other's tools and all wanting to work in the same area.”

   Because of the limited land area (only 340 meters by 100 meters), a seven-story mill was commissioned. The turnkey complex was designed, built and equipped by Braibanti Golfetto S.p.A., Padova, Italy. Construction began in August 1997, and by this March, the mill was fully on line.

   Mr. Scippa described Sriboga as a “classic 24-hour flour mill.” The unloading facility can accommodate a 30,000 dwt vessel, and a pneumatic shipunloader can move 300 tonnes of wheat per hour. Fourteen steel silos hold about 64,000 tonnes of wheat. Other storage capabilities include 4,000 tonnes of bulk flour in 12 concrete bins; 2,000 tonnes of millfeed in 12 steel bins; and 3,000 tonnes of bagged flour, 1,500 tonnes of bagged millfeed and 6,000 tonnes of bulk bran pellets in a flat warehouse.

   The mill is divided into two parallel 750-tonne units, each equipped with 26 double and three quadruple rollermills, a configuration designed to save space. Each section also has five eight-section and one four-section plansifters.

   An electronically controlled cleaning section includes an air recycling system. Wheat can be tempered in three stages, if necessary, with the first two stages each providing up to 25 hours of conditioning and a third intensive wheat damper providing up to 40 minutes. The mill also features an up-to-date laboratory and a test baking facility.

   All aspects of the milling process at the Sriboga facility, including wheat blending, are fully automated and run by programmable logic controllers, with computer-linked scales and real-time access to yield results.

   “Technically, we experienced practically zero problems, and the yield was and still is above our expectations,” Mr. Scippa said.

      Demand for Noodles

   Although rice is still the largest food staple in Indonesia, instant noodles are becoming more and more popular with consumers in the fourth-most populous country in the world. Unlike pasta, which is made from durum semolina, Oriental noodles require only strong or medium-strength flour.

   Historically, the people of Southeast Asia — China, Japan and Korea — have been large consumers of noodles. “Noodles are very cheap, easy to make and are a full meal,” Mr. Scippa said.

   About 60% of all wheat flour produced at Indonesia's five mills goes to the instant noodle industry; the rest is used in baked goods and biscuits. The Sriboga mill produces three grades of flour: high (12.5% protein), typically used in bread, croissants, alkaline noodles, bagels and buns; medium (10.5% protein), used in pizza crust, flatbread and eastern and white noodles; and low (9% protein), used in biscuits, snack foods and the cheaper fried noodles and bread.

   Because all of Sriboga's flour is bagged, the packing area is the most labor-intensive. About 100 workers are assigned to this area, which is equipped with four carousel packing stations with automatic sewing lines and swinging belt loading for flour and two Auger-type packers for millfeed. All the flour produced in a 24-hour period can be sacked off in 13 hours.

   Another 40 workers are divided into other mill operations: loading/unloading, screening and pelletizing, warehousing, maintenance and sanitation. The mill is operated by six workers in three shifts.

   Workers already have shown considerable loyalty at the Sriboga mill, Mr. Scippa said. During the height of rioting in Indonesia in May, Sriboga lost only two days of operation. Most of the rioting took place in the capital of Jakarta, Mr. Scippa said. “There were only a few big demonstrations and some anti-government slogans” in Semarang, he said.

   He added that while the mill's workers condemned the looting and burning going on around them, they also believed that change was long overdue in Indonesia. “You see, the Indonesian people are very, very patient, although on a daily basis they keep demonstrating to make sure that the present government does not become condescending and (returns to) the status quo,” he said. “Steps are urgently needed to start mending the economy as well as restoring the confidence of the people.”

Scippa ready to slow down after 30 years in flour milling.

   After a milling career that has spanned four decades and taken him from Italy to Colombia, Malaysia, Venezuela, Puerto Rico, the United States and Indonesia, Antonio Scippa recently said he was ready “to slow down a bit.” Currently the general manager of the new P.T. Sriboga Raturaya Flour Mill in Semarang, Indonesia, Mr. Scippa has overseen every aspect of construction of the mill, beginning with a feasibility study in August 1995 through the start-up in March of this year.

   Born and educated in Italy, Mr. Scippa joined his family's pasta and wheat milling business in Bogota, Colombia, soon after receiving a bachelor's degree in cereal technology. In 1968, he joined K.G.F.M. of Singapore as production manager of a flour mill and oat mill in Malaysia. In 1974, he was promoted to mill manager and transferred to K.G.F.M.'s head office in Singapore.

   Mr. Scippa joined Continental Grain Co. in 1978 as general manager of its flour, maize and feed mill operations in Curacao, Venezuela. A few years later, he was promoted to vice-president and general manager of Continental's operations in Puerto Rico.

   In 1984, he took over general management responsibilities for a durum mill jointly owned by Italgrani of Italy and Prince Macaroni of Ayer, Massachusetts, U.S. In 1988, Mr. Scippa was hired by Bay State Milling Co. to be general manager of its flour mill operations. Bay State is the sixth-largest U.S. milling company with a daily wheat and durum milling capacity of about 3,200 tonnes in terms of flour. Mr. Scippa was with Bay State until 1995.

   Mr. Scippa has been a member of the Association of Operative Millers since 1971 and was a member of the technical committee from 1988 to 1995.

   The Sriboga mill was one of a half-dozen mill projects in which he has been involved in his career. Mr. Scippa said it had been one of his favorite projects. “I like almost everything about Indonesia,” he said. “The landscape, the food, the culture, the easy-going life.” But he is planning to return to the United States in mid-1999 with his family. At age 56, he said, “I am not that young or that poor to keep working 10-plus hours, day in, day out.”