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Indonesian rice executive arrested over mislabeling scandal

Govt steps up fight against alleged food cartel to control inflation

JAKARTA -- The head of a subsidiary of Tiga Pilar Sejahtera Food has been arrested over mislabeling accusations that have sent the Indonesian company's shares tumbling in recent weeks.

The unit, rice producer Indo Beras Unggul, allegedly sold low-grade rice under premium labels -- and thus at inflated prices. Trisnawan Widodo, the president of the subsidiary, has been named a suspect over his role in the scandal.

"The evidence is enough to charge [Widodo], as he was allegedly very responsible for fraudulent practices and violations ... [of] consumer protection and food laws," Sr. Comr. Martinus Sitompul, a spokesman for the National Police, told reporters on Wednesday. "[Indo Beras] allegedly cheated consumers, denying them what they should have got as stated on the packaging labels."

The news sent shares of Tiga Pilar, which is partially owned by U.S. private equity fund KKR, falling 4.2% on Wednesday, while the benchmark Jakarta Composite Index rose 0.32%. The share price has plunged 23% since July 20, when police raided Indo Beras' warehouse outside Jakarta and confiscated 1,000 tons of allegedly mislabeled rice.

Sitompul said lab tests found that the rice sold under two premium brands was not top quality.

"It's not first-grade, or even second-grade quality -- but lower," he said.

Nutritional information on the labels was found to be misleading, and Indo Beras put a different company's name on the labels of at least one brand -- hindering official oversight.

Furthermore, Indo Beras allegedly monopolized grain purchases from farmers near its factory, causing other rice millers in the area to suffer shortages, Sitompul added.

Tiga Pilar last week admitted to having bought grains from farmers who may have received subsidized seeds and fertilizer from the government, but it denied all accusations of misconduct. The company said its business practices meet existing regulations and follow industry standards.

One of the company's arguments is that the premium labeling reflects the percentage of intact grains in its rice, which is processed at Indo Beras' mills.

Sitompul said the investigation is ongoing, and that Widodo -- who may soon be questioned over alleged money laundering as well -- could face up to 20 years in jail.

The spokesman denied speculation that the case is politically motivated. This theory stems from the fact that Anton Apriyantono, president commissioner of Tiga Pilar, is a former minister from the opposition Prosperous Justice Party.

"This is purely law enforcement," Sitompul said. "The output we expect is that the rice price drops. Maintaining price stability requires synergy so that rice and other food remain affordable to the public."

The government has been stepping up efforts to control inflation - it recently revised the inflation target in this year's state budget to 4.3%, from originally 4%. In early May, the government established the so-called Food Taskforce -- comprising officials from the National Police, Agriculture Ministry and Trade Ministry, among others - to fight what they call the food cartel or mafia often blamed for volatile food prices.

Rice distribution is the current focus of the team due to rice prices' large contribution to inflation rates as compared to other staples. Last month's raid of Indo Beras' warehouse is part of the taskforce's operations also targeting other rice producers in several other regions.

"We hope [rice price] can be maintained until the end of the year - because it weighs very heavily in inflation [calculations]," Central Statistics Agency head Suhariyanto said in a separate occasion.

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