Indonesia Post-pandemic Agrifood Tech
Some years ago, agrifood tech was believed to be a risky, immature subset of agriculture; nonetheless, it is now a prospering industry of its own. Agrifood tech consists of a series of startups and venture capitals that aims to advance the food and agriculture system (aka agrifood).
This article examines the adoption of technology in the food sector of Indonesia. To thoroughly understand the integration of technologies in agriculture, topics such as the present market trend, laws and regulations, and the bilateral relationship between Taiwan and Indonesia will be covered.
What is Agrifood Tech?
Food technology plays a pivotal role in agriculture as we continue to face mounting challenges — a fast-growing population, climate change, a shortage of resources, health problems, food waste, and other threats that coerce the industry to take immediate actions. To preserve sustainability in the future of agriculture and implement the best solutions, businesses are willing to adapt and combine two independent sectors — technology and agriculture.
Nowadays, we are increasingly aware of the quality of the products we consume; therefore, agrifood technology is here to ensure food safety and quality.
Agriculture Digital Transformation in Indonesia
Since agriculture in Indonesia has the least connection with digitalization, it’s stagnating the overall productivity and development of the industry. However, Indonesia has been attempting to focus on developing an agri-tech ecosystem through various business models. To enhance food security and regulate agricultural systems, a sufficient amount of investment is required in the industry as it benefits farmers by allowing them to increase productivity and gain more income.
Digital transformation of agriculture refers to the application of cutting-edge technologies, such as artificial intelligence (AI), machine learning (ML), cloud computing, the internet of things (IoT), and distributed ledger technology (DLT), in the agricultural sector. Adopting digital infrastructure draws a new generation of business people into the field of agriculture as it contributes to the overall efficiency of production and financial gains.
Indonesian agriculture has been working towards innovation through the utilization of technologies — agriculture data, digital hardware, and digital software. These digital equipment have been applied to areas such as advisory services, market linkages, financial access, supply chain management, and macro agri-intelligence to assist different aspects of farming. To be specific, four approaches explain how Indonesia is practicing digital transformation in agriculture. To begin, cross-sector development — which incorporates FinTech into AgriTech — provides financing products that give farmers access to additional financial support. Second of all, establishing a strategic network of partners such as B2B partnerships also plays an important role in AgriTech startups. In addition, the industry has been working on solidifying its resilience against challenges such as the COVID-19 pandemic. Last but not least, it is apparent that sustainable practices have also been implemented in agriculture by controlling the use of fertilizers and irrigation with different techniques.
Economical Impact
In this study, there are three crucial parts of the food value chain — agriculture production, food, and beverage (F&B) manufacturing, and F&B distribution — that we refer to as the agri-food industry (including wholesale, retail, and hospitality services). As a nation endowed with various natural and human resources, Indonesia’s economy heavily depends on this industry. The 4.9 million new workers, or 8% and 23% growth in the working population, and its contribution to Indonesia’s GDP (Gross Domestic Product) between 2015 and 2019 serve as evidence of its significance.
According to Oxford Economics, this industry contributed to Indonesia’s GDP (Gross Domestic Product) in 2019 of about USD 374 billion, or almost 35% of the country’s overall GDP. In addition, nearly 63.4 million people in Indonesia have worked thanks to the agri-food industry alone, which generated tax revenues of USD 42.7 billion in 2019.
Market’s Trend
Between 2015 and 2019, the Indonesian agri-food industry continued to post significant trade surpluses. The trend was driven mainly by the unprocessed products of its sizable agriculture industry, highlighting the magnitude and significance of this primary sector to the country’s economy.
However, Indonesia’s agri-food trade surplus has decreased in the past few years. One of the main reasons is partly due to the Indonesian rupiah’s decline in value against the US dollar, which has reduced the US dollar’s worth of the country’s exports. However, the dwindling trade surplus also masks Indonesia’s economy’s rising local demand for these goods, brought on by a fast-increasing domestic market and the F&B manufacturing sector.
The Impact of COVID-19
Despite the adverse economic repercussions of the COVID-19 epidemic, analysts estimated that in 2020, the Indonesian agri-food sector will have increased its contribution to the national GDP by 2%. It resulted in an increase of 8.2 billion dollars in GDP contribution. In addition, according to official data, employment in these economic sectors increased by 1.1 million in 2020 compared to the prior year, or by 2%.
“Despite tough economic circumstances, Indonesia’s agri-food sector showed resilience in 2020.” -> quote for medium.
With just USD 14.6 billion in imports and USD 29.0 billion in exports of food and beverages in 2019, there was a USD 14.4 billion trade surplus (in 2020 prices). Additionally, agricultural exports totaling 22.1 billion and agricultural imports of 6.8 billion in 2019 significantly contributed to that favorable trade balance. For many years, Indonesia’s agri-food sector has consistently reflected the country’s status as a sizable net exporter.
F&B distribution, which includes retail, wholesale, catering, and hospitality, took the most hit from the coronavirus outbreak’s regulatory actions and the consequences of decreased tourism and the rise in supply chain prices. As a result, we project a USD 4.5 billion decline in its GDP contribution in 2020, a drop of 9%. Despite this, the agri-food industry as a whole remained robust. As a result, its economic impact increased by 2% in 2020 compared to 2019. The leading cause of this is the expansion of the agricultural industry, which increased its overall GDP contribution by USD 10.1 billion in real terms.
Law/Regulation:
The bilateral relationship between Taiwan and Indonesia in agriculture has been more vital than ever. Both countries have been helpful to each other to boost business between two countries. Starting by Taiwan established New Southbound Policy (NSP) in late 2016, and Indonesia later followed to establish several domestic policies in 2020.
- New Southbound Policy
Taiwan will strive to promote regional agricultural development and deepen its connections with partner nations under four primary objectives set out by the Council of Agriculture (COA).
- To stimulate the trade of Taiwan’s agricultural products, equipment, and technology to New Southbound Policy partner nations and to strengthen agricultural cooperation with these nations;
- To foster cross-border growth of agricultural and human resources; to enhance bilateral exchanges of technology, people resources, and agriculture;
- To encourage Taiwanese firms (as well as those owned by abroad Taiwanese) to engage in the agricultural sectors of New Southbound Policy partner nations, which expand bilateral agricultural trade and investment with partner countries; and,
- To implement the New Southbound Policy in agriculture and create food production zones to protect regional food security among partner nations.
2. Indonesian Minister of Agriculture Regulation №40/2019
One of the early initiatives to promote the simplicity of conducting agricultural business in Indonesia is Regulation Number 40/2019. The licensing process is streamlined and made more straightforward to attract more investment in the agriculture sector. However, the nation’s extensive collection of conflicting, frequently overlapping rules and regulations may put investors off.
It is possible to interpret Indonesia’s Minister of Agriculture Regulation №40/2019 as an effort to attract investors and expand the nation’s agriculture industry. It is not only to make agricultural investments better but also to increase their sustainability to promote the growth of agriculture in Indonesia. The more successful investments made, the more employment prospects and revenue are accessible.
3. Law Number 11/2020
When carrying out its actions, which include Indonesian agriculture, the New Southbound Policy shall refer to Law Number 11/2020. A total of 42,875 regulations exist, including 1,687 laws, 2,008 presidential orders, 14,722 ministerial directives, 3,758 non-ministerial rules governing government institutions, and 15,965 regional and local rules. The concept underlying this legislation is essential since Indonesia has too many laws (many of which overlap and are hard to implement).
Decreasing red tape (compliance to formal norms), streamlining the land acquisition process, and loosening limits on foreign investments should assist in removing long-standing barriers to conducting business in Indonesia. The revisions will give Indonesia a greater chance to benefit from changes in the world’s industrial supply chains. It focuses on creating a flexible labor market, reducing company license requirements, and opening the nation up to global investment.
Study Case:
In 1976, Indonesia and Taiwan completed an agriculture technical cooperation agreement signed by both sides to aid Indonesia’s agricultural development and expand agricultural cooperation between Taiwan and Indonesia.
For more than 40 years, Taiwan has sent specialized agricultural teams to Indonesia to assist farmers in creating and improving their goods. One Village One Product, the ADC “University Farm,” Corporate Agriculture Development and Improvement, Rice Superior Variety Development, and Agricultural Pilot Area Cooperation are just a few projects between the two nations.
Agribusiness Development Center (ADC) “University Farm”
From 2007 to 2013, the Taiwan Technical Mission implemented the ADC “University Farm” program/project at Cikarawang Village, Bogor (West Java), in conjunction with Bogor Agricultural University (IPB). The main goal of this project/program was to raise the standard of Indonesian farmers’ resources so they could access domestic and foreign markets. Its construction started on 10 hectares of IPB land; a third was devoted to buildings, such as workplaces, parking garages, cafeterias, and other structures. Therefore, the designated third part of the area will be agricultural land.
One village, one product (OVOP)
From 2011 to 2015, The Bangli and Badung regencies hosted the OVOP program and initiative. In this project, the Indonesian Ministry of Agriculture (MoA), the Taiwan Technical Mission (TTM) in Indonesia, and the Indonesian Ministry of Cooperatives and Small and Medium Enterprises worked with (MSMEs).
Corporate Agriculture Development and Improvement
The goal of a collaborative project or program was to increase the welfare of Indonesian farmers. For example, the corporate agriculture project increased the markets and improved the products through a cooperative institution. Farmers also received information, including a quality grade needed for products with market-based branding and training.
Rice’s superior variety development
The establishment of the Greenhouse Prototype for Rice Superior Variety Development at Makassar was completed in collaboration with the Faculty of Agriculture at Hasanuddin University by the Taipei Economic and Trade Office (TETO) and the International Cooperation and Development Fund (ICDF) of Taiwan. The greenhouse’s duties include evaluating the current crop kinds, identifying susceptible areas, and increasing output. South Sulawesi Province’s seven primary rice-growing regions will each have a greenhouse prototype. Experts predict that the greenhouse can generate five tons of rice seeds per hectare, with a total harvested output of about 7–8 tons per hectare.
Conclusion:
The agri-food industry will undoubtedly be aiming to rebound and reach its full potential after showing some resilience throughout the current economic turbulence. At the same time, Indonesians are attempting to incorporate and adapt technology, which is rapidly developing in this area, to their business models. Therefore, advice from a developed nation may be helpful to hasten the transition.
Taiwan may hold the key to easing the transition after more than 40 years of cooperation. The two nations’ bilateral cooperation will grow since it was now Taiwan’s tenth-largest import source in 2021. While Taiwan continues to export finished goods to Indonesia, including integrated circuits, knitted and crocheted goods, textiles made of synthetic fibers, and car components, Indonesia can export various natural resources, including labor and natural products like palm oil and pulp.
