This story was authored by Markus Rahardja, VP of Investor Relations at BRI Ventures, a USD250 million+ corporate venture capital arm of Bank BRI.
As Covid-19 grips the world, markets have crashed and many sectors have been hit hard across the board. But in emerging Southeast Asia, farming and agriculture are poised to serve as the backbone of the region’s economic recovery. When it comes to agtech in ASEAN, venture capitalists and institutional money have good reason to be excited about the decade to come.
Home to over 264 million people, Indonesia sits on the equator, enjoying virtually 365 days of sun and abundant rain. This farming-conducive climate, coupled with vast swathes of arable land, makes the Southeast Asian nation a key global producer of tropical agricultural products like palm oil, rice, tea, sugar, and high-value commodities such as rubber, coffee, and spices.
The agricultural sector utilizes about 30% of Indonesia’s landmass, and contributed approximately 13% to its annual GDP over the last ten years, seeing year-on-year growth of 3.8% in 2018, with projections of a further 3.9% to 4.1% growth in 2019.
But while the trajectory of the industry at large looks promising, the heyday of Indonesia’s agricultural scene was in the 1980s, which saw the employment of over 55% of the workforce. Since then, that number gradually declined to 45% in the 90s, then 41% (or approximately 49 million workers) by 2012, and now to 30% in 2019, driven largely by increased urbanization.
Indonesia sees an average of 4.4% annual urban growth — the fastest in Asia — and it is estimated that 68% of the population will be urbanized within ten years. Historically, perks of urbanization have been better-paying jobs and the potential for a better life.
Currently, the agricultural sector comprises two kinds of players: large plantations operated by state-owned or private companies; and smallholder producers such as mom-and-pop coffee farmers.
Why are millennials less interested in farming?
Most owners of Indonesian farmlands are traditional villagers, and their income tends to be at the low end of the spectrum (surviving on just a few dollars per day). The modern workforce tends to view this as financially unsustainable, making the agriculture sector unappealing to younger Indonesians. This is further exacerbated by a lack of access to capital, education for farmers, and ever-increasing operating costs.
Cities, boasting higher-paying jobs, thus become far more attractive to young Indonesians, especially those with middle to higher incomes.
Farming is mostly a communal effort, and trade agreements are still manually done on a ‘personal’ level, and thus lack standardization. Farmers are also reliant on raw nature itself to provide, and in the age of climate crisis, this has impacted their ability to stay afloat.
Climate change has made predicting the weather a challenge, especially without technological aid. Further, extreme temperatures and fluctuating weather adversely affect crop health and reduce outputs, leading to bigger financial losses and increased unsustainability.
Additionally, the agriculture industry as a whole is difficult to digitally transform, as it has capital-intensive brick-and-mortar operations and servicing costs.
While the share of the workforce in agriculture has been declining since the 80s, the sector remains a vital cog of the nation’s economy, providing basic livelihoods to a significant portion of Indonesia’s lower-income population. Due to its labor-reliant dimension, as well as its role in fueling other sectors like the food and beverage, hospitality, and other services sectors, agriculture strongly impacts the country as a whole.
Teched out farming
Recently, there has been a revival of interest in agriculture, or rather, the potential that can be harvested via technological advancements in the sector. Globally, agriculture technology (agtech) startups have been sprouting over the last half of the decade, and this has seen a surge of investor interest as well.
Hearteningly, in 2019, over US$19.8 billion was pumped into agtech startups around the world, a far cry from the US$2.9 billion in investments back in 2012.
Indonesia has been nurturing a growing community of startups and entrepreneurs over the past two decades, with those in agtech mushrooming over the past few years. The injection of innovation and technology in the sector also promises to escalate the financial output of the sector as a whole and attract more people to get involved in it.
The adoption of new tech by traditional farmers can drastically improve this situation. Firstly, it can bolster accessibility to the implementation of production standards and systems, such as irrigation. Also, its inclusion across the value chain from start to end can increase the transparency of the farming world to the public.
Several large agtech players have emerged in Indonesia, the most prominent being Tani Group, which recently banked a fresh round of funding from a group of firms including Openspace, Intudo, Vertex, and BRI Ventures.
Tani Group has two arms: TaniHub, an e-commerce solution that connects corporate buyers (such as hotels, supermarkets, and restaurants) directly to local farmers; and TaniFund, a crowdfunding platform that connects lenders to groups of farmers.
Other players include Sayurbox, a prominent vegetable delivery startup; and farmer empowerment platform Limakilo (acquired in March 2019 by retail startup WarungPintar), which connects farmers who wish to sell wholesale to direct vegetable sellers and small kiosks, who can then become ‘harvest agents’ with financing access.
There is also scalable organic farm platform iGrow Asia, shrimp farming productivity startup Jala, farming productivity and e-commerce app Simbah, farmer-direct buyer platform RegoPantes, and Good Agricultural Practices proponent RiTX.
Globally, agtech has an approximate value of approximately US$3 trillion. With sectors such as tourism and ride-hailing reaching a tipping point in consolidation, investor focus has turned to growth areas that have produced few unicorns, such as agtech.
It wasn’t until Boston-based Indigo Ag became the sector’s first unicorn that investors started taking real notice of agtech. Since then, synthetic biology companies like Gingko Bioworks have attained unicorn status.
The Indonesian government has identified agriculture and food resources as key national priorities for its 2019 work plan, which would see more support from the state in agricultural-boosting efforts. President Joko Widowo has also in recent years been implementing business-friendly policies and initiatives to woo local and foreign investment into the sector.
In Indonesia, agtech is seeing a similar interest from big players. In June 2019, Southeast Asian unicorn Grab announced ten finalists for its scale-up program for post-seed startups — three were Indonesian agtech names: Sayurbox, Tanihub, and farmer-lender platform Eragano.
The rise of agtech startups and increasing interest by investors globally bodes well for the farming industry. Investors will find multiple entryways into the agtech sector, including smart irrigation apps, next-generation farms, farm management software and solutions, and marketplaces.
So even as the world grapples with a global pandemic, and a multitude of sectors are now thrust into volatility, farming and agriculture look like they will remain formidable as ever. The sector, in general, is likely set to serve as a key support pillar of Indonesia’s inevitable economic rebound.
Startups are leveraging smart technologies and solutions (feel free to call it Agriculture 4.0, if you like), that incorporate IoT, artificial intelligence, drone tech, GPS, robots, blockchain, and more to revolutionize the industry.
It is time for investors to look toward the agricultural powerhouse of Asia and tap into Indonesia’s growing agtech sector. With efforts by local and global players, the agtech industry is already beginning to bloom.