Agriculture is a lifeline for the Indonesian economy, contributing 12.8 per cent to national GDP. The agriculture sector is also the second-largest employer in Indonesia after services, employing around 30 per cent of the total workforce – although this share has been falling over the past decade.
Rapid digitalisation is impacting the Indonesian economy at large. Handheld devices are ubiquitous and mobile internet is cheap, bringing more people into the digital economy. The agriculture sector is no exception.
Digitalisation is making the agricultural sector rethink ways to remain relevant. Riddled with age-old traditions, the industry is wearing off and is burdened with the rising demand from Indonesia’s growing population and low yields. Technology is a potential game-changer disrupting the industry for the benefit of all stakeholders.
Current challenges in agriculture
Among the many challenges confronting Indonesia’s agriculture sector, perhaps the most critical is the lack of sufficient data. As a result, the government, even with the right intentions, is not able to effectively address the sector’s problems as the lack of quality data results in poor decision-making.
For instance, the Indonesian government provides an annual subsidy on fertilisers and seeds worth about IDR78 trillion (US$5.6 billion). However, due to a lack of proper management — stemming from a lack of proper data — the initiative has not been as successful as it should be, as the wrong fertilisers and seeds are given to the wrong farmers.
A tomato farmer may get tomato seeds but the wrong kind of fertiliser, while a rice farmer may get another crop altogether. This naturally impacts the productivity of crops.
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Another challenge is that in Indonesia, most farmers own small plots of agricultural land, resulting in lower productivity and usually lower quality crops.
Farmers also split their plots of land among their children, resulting in plots becoming even smaller over time. Additionally, the fear of not being able to sell their harvest compels many farmers to under-utilise their farmland.
The under-utilisation of land stems from a lack of access to market and information, which in turn proves a major hurdle in selling the products. The agricultural supply chain is fragmented and inefficient, and there are many layers of middlemen who take large cuts from the farmer’s produce.
Difficulties in selling their produce on time mean that many farmers eventually borrow money from unregulated sources. This leads to many farmers being burdened with huge interests in the principal amount, forcing them to sell land.
Many are unable to get loans from formal institutions as they associate the agriculture sector with high risks and low productivity. Of those farmers that do manage to get loans, some are unable to repay their loan amounts.
Lastly, the reliance on age-old traditions is also a problem, especially when new technology is being introduced. Many farmers in Indonesia still rely on their traditional farming processes handed over to them generation after generation and are reluctant to adopt new technologies.
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How are new technologies helping today?
The introduction of technologies such as the Internet of Things (IoT) and data analytics have enabled tech companies to gather relevant data from the agricultural sector. Using these data points, they are able to innovate newer tech-based processes that can help the industry achieve success. Such data viewpoints also help the government make agricultural policies that benefit the farmers.
Several tech startups are finding success from establishing e-commerce marketplaces for fresh farm produce – enabling farmers to sell their produce directly to consumers without the hassle of dealing with unregulated middlemen and ensuring they get paid fairly. This is a hugely important development because it helps farmers mitigate issues around lack of access to market and information.
Fintech startups are also using technology to extend loans to farmers who find it very difficult to get any sort of funding from formal financial institutions. Technology is enabling Peer to Peer (P2P) lending – these platforms meet with a farmer, make an assessment and post a project that requires funding onto the platform, so that interested parties can fund them.
Technology is resulting in straightforward processes that allow farmers to access money a little more easily.
As with other sectors, IoT is playing an increasingly prominent role too. For example, several technology startups have developed IoT-based irrigation systems that water the crops in an adequate manner, avoiding the wastage of excess water on farms.
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In fact, these startups are also helping farmers gain access to several distribution channels that allow them to sell their produce directly to consumers through an app. The app relays crucial information to farmers on products that are being sought after in the market, by aggregating demand data from the food industry, traders, hotels/restaurants/cafés (HORECA) and the end consumers.
Constraints faced in availing loans from banks and the fear of dealing with moneylenders gave rise to another innovative idea – the concept of P2P lending to finance the needs of farmers. Such platforms enable farmers to post their projects and raise funds from individuals and entities.
There are other similar applications of technology being seen in Indonesia, that serve to make the sector more efficient. However, the adoption of new technology is not always easy. Especially in the case of Indonesia’s agriculture sector, which is steeped in traditional processes, it is particularly difficult.
These difficulties are often compounded because the middlemen hold sway over the farmers and exercise a great degree of influence over farmers’ choices and decisions.
The future of agritech lies in digital transformation
Today, we are seeing a continuous inflow of new ideas fuelled by developing technologies to address issues in the agriculture sector. From a government standpoint, there has been an active interest in greater digitalisation in the agriculture sector too.
The Ministry of Communications and Information is supporting agritech startups and helping link them with investors while the Financial Services Authority of Indonesia has collaborated with agritech companies to launch programmes to create a value chain between farmers, off-takers, and banks.
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The Ministry of Cooperatives and SMEs, meanwhile, is collaborating with agritech startups to bring farmers and agriculture producers onto their platforms. The Ministry of Communication and Information Technology has developed a platform to encourage 1 million farmers and fishermen to go online to increase productivity.
But while many such initiatives have been launched, very few are actually managed well. The government has to persist with initiatives and back them with strong management so that the benefits of these initiatives are experienced by all stakeholders, including consumers, farmers, and startups.
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