Indonesia Expat
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Entrepreneurs Cut Out Middlemen in Indonesia’s Agricultural Trade

Technology has long been supporting the agriculture sector in Indonesia, with the use of modern machinery to increase farmers’ productivity and efficiency. Recently, however, technology has been helping the agriculture sector in a new way, and likely changing the industry for good. Several new tech companies have set up shop in Indonesia to empower agriculture businesses by letting local farmers cut out the middlemen.

The ubiquitous presence of ‘brokers’ in the farming business is something most local buyers and sellers have taken for granted over the years. But, as industry experts know, having a long chain of brokers between the farmer and the consumer tends to drive prices up to unreasonable levels.

The price of shallots bought directly from Indonesian farmers, for example, can be around Rp.38,000 (US$2.88) per kilogram. But at the retail level, prices soar to around Rp.60,000US$4.55) per kilogram. Four young web developers realized this was problem when they entered the Hackathon Merdeka competition in 2015. For those who don’t know, a ‘hackathon’ is an event where developers come together in teams and have a finite amount of time to conceptualize and build an innovative digital product.

“We wanted to connect farmers directly with consumers so they can get better prices. Maybe there are already similar attempts, but they are all still small in scale,” says 26-years-old web developer Arif Setiawan in an interview with Indonesia Expat.

 

Farmers | Photo by Jos Dielis
Indonesian farmers  | Photo by Jos Dielis

 

As a result, Setiawan and his three friends came up with the idea to set up an online marketplace for shallot farmers and buyers to interact with each other. “Most groups discussed staple foods, such as rice, sugar and corn. We did some brainstorming, and we thought the one that has the most fluctuating prices and could be sold online was shallots,” explains Setiawan.

This idea gave birth to a new company called Limakilo, which earned the team first place in the hackathon. The victory encouraged the team to develop Limakilo into a full-fledged mobile app, which was officially launched by Indonesia’s Communications and Information Ministry earlier this year. Since the launch, as many as 20 farmers in the Brebes Regency of Central Java and the Sleman Regency of Yogyakarta have signed up to use the product.

“We are focusing on farmers with less than one hectare of land each. If the farmers have a big plot of land, they probably already have good livelihoods,” says Setiawan, adding that farmers have already been able to bolster their income by selling appropriately priced produce directly to buyers through the app.

“If they sell it to brokers, they will have to give cheaper prices because the brokers usually buy in bulk. The difference could be up to Rp.2,000 [US$0.15] per kilogram. If the volume of sales is one tonne, then the difference in a farmer’s income could be substantial.”

Former Indonesian Trade Minister Thomas Lembong said that mobile apps such as Limakilo could increase a farmer’s income by an average of 15 percent, and also help push down prices at the consumer level by another 15 percent.

While Limakilo focuses on selling farmers’ produce directly to buyers, another company called Eragano aims to be the first one-stop-shop for all agricultural needs in Indonesia. Co-founder of Eragano, Stephanie Jesselyn, says she came up with an idea to provide a wide range of agricultural services, as problems facing the agricultural sector in Indonesia were complex and abundant.

Based on the 2013 Agriculture Census, the national agricultural industry is still dominated by home operations, with more than 26 million households qualifying, while the number of agricultural companies added up to merely 4,165. This means that the majority of Indonesian farmers are small share operators, with undeveloped technology and limited access to education and information.

Further, the census showed that Indonesia recently lost about 5 million farmers due to a lack of support and low profits.

As small farmers are finding it harder to survive in the archipelago, Eragano looks to strengthen them.

“If we only help them sell their produce, the quantity and the quality won’t be good. We need to provide solutions from the beginning until the end, including guiding them,” Jesselyn tells Indonesia Expat. Since the Eragano mobile app launched in April of 2016, the company has so far been able to help 40 farmers increase their income for one harvest season.

“They get better prices as well as increased productivity because we help them. So their income increases from two sides: prices and productivity,” says Jesselyn, adding that farmers can get a price of Rp.3,000 (US$0.23) per kilogram for tomatoes if they sell through Eragano, for example, while they would only be able to get Rp.500 (US$0.04) per kilogram if they sell via traditional brokers. Jesselyn hopes to soon have 3,000 farmers using Eragano in Indonesia.

Digital businesses like Limakilo and Eragano are at the forefront of change for Indonesian farmers, who have so far earned the smallest piece of the pie in the agriculture industry, while bearing all the risks, including crop failure.

“This could be a new hope, since they bring science, digital technology, as well as access to information and global networks for the local farmers to utilize and compete,” said Bagus Handoko, who works at the Center of Macroeconomic Policy in the Finance Ministry’s Fiscal Policy Agency, as quoted by The Jakarta Post.

But the digital revolution is still relatively new, with most startups in Indonesia not focusing on traditional sectors like agriculture. That said, the potential for agriculture technology is big, with more than 25 million farmers in the nation who are ready for higher profit margins. For many of them, smartphones are no longer a luxury. But problems still arise, however, as Indonesian farmers often don’t know how to use — let alone profit from — fast-developing mobile technology.

For this reason, it’s important for tech founders to approach farmers directly, and on the ground. “Literacy in technology, particularly IT for farmers, is very important. Without it, they cannot use the services and software provided by startups [that are trying to help them],” Handoko said.

For agriculture tech firms to truly take off in Indonesia, it’s important for founders, investors and public officials to understand why such companies are needed. “A few things need to be undertaken, starting with building awareness and providing knowledge about the needs of […] farming,” said Handoko.

“For agriculture, research and surveys are important. We have to do market research to know who to target. There are some [entrepreneurs] who have the spirit, but do not do research. Once they have started their companies, the reality in the field turns out to be wildly different [from what they originally thought],” says Jesselyn, adding that the government can also help by providing comprehensive policy support, ranging from licensing issues to access to capital and other incentives.

Handoko added, “A government-established incubator is a good starting point because it facilitates access to capital and advocates for policy support.”

 

Featured Image by Lukas Bergstorm 

 

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