Migration away from rural areas is reshaping smallholder value chains in South East Asia. Over the next 15 years, 1 in every 5 people in rural Asia are expected to move to a city. One of the most significant implications for farmers is the declining availability of labor. Farmers face a lack of access to laborers to weed, spray and harvest crops; as a result, day rates are gradually increasing.
A range of equipment is available to replace labor on farms, from tractors which have been available for over 100 years, to spray drones that have been developed in the last 10 years. These tools have replaced labor at scale in developed markets. For example, in the US, farmworker numbers have dropped by 80% in the last 100 years while grain production has increased six-fold. Many of these machines not only reduce labor costs but also increase yields.
Despite its advantages, the shift toward mechanization in Asia has been very slow. Small farm sizes are the main barrier. It is simply not viable for a farmer to buy a tractor to plow one hectare of land once or twice a year. Instead, it is more common for an investor to buy a tractor and lease it out. This allows the cost of the equipment to be amortized over hundreds if not thousands of individual farms.
However, there are presently inefficiencies in equipment allocation. Hiring is normally arranged ad hoc over the phone, and the time to travel between farms limits both availability and returns to the investor.
A solution to this challenge is the digital mechanization platform. These platforms allow equipment owners to offer a service on a digital portal, matching them with farmer customers. Using digital portals improves efficiency as it avoids the ad hoc placement of multiple phone calls and opens up new farmer customers. However, it also allows more effective scheduling around clusters of demand. For example, a tractor owner can be notified when 200 acres of plowing is required in one village, enough to make vehicle allocation economical.
Digital platforms have also driven the allocation of spray drones in China, with drones also allocated around clusters of farmer demand. In this model, drones have a number of advantages over tractors:
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They can be moved more easily between farms.
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They spend less time on each farm (about 15 minutes to spray a hectare).
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They are cheaper, allowing a contractor to get set-up (and generate a return) more quickly.
Amortizing the equipment over many farms is the critical element of the mechanization platform model. For example, while a spray drone might cost the buyer $10,000 to purchase, an individual manual spray application by a laborer in Indonesia is typically only $10 per hectare. Moving the equipment quickly and efficiently to over 1,000 farms in the drone’s life cycle is critical, and contractors need multiple farmers signed up to use it each day. As the service is only needed at certain points in the cropping season, there is pressure on contractors to move quickly.
Mechanization platforms are being used by tractor owners for ploughing and harvesting as well as for spray drones. The model could be extended to seeders and farm imaging and mechanical weeders. Platforms provide the greatest value where the service not only displaces labor but adds value in other ways. For example, drone operators may bring value by not only spraying the crop, but also by providing insights from imagery or advice on pest control.
These mechanized contract services are generating new and preferred employment opportunities in rural communities. Providing services to other farmers can be an important pathway for young people to exit their family farm and enjoy a higher income and more meaningful work.
The mechanization platform model stands out from the others in the series in that the complexity of the digital platform is relatively low while the required effort and value is in marketing and equipment selection, and ensuring contractors are trained to provide the service to farmers.
Comment from Hujjat, CEO at Tun Yat Limited
"As the author states, we can confirm that we are seeing how Digital Mechanization platforms that address mechanization needs of smallholder farmers in South East Asia are leap-frogging a process that is often limited in reach. Farmers use smart phones combined with social media platforms like Facebook, to find machines and book them to use on a seasonal basis. The question is, how does the Digital Mechanization platform evolve from Facebook to beyond?
What we learned was that in implementing the digitization process, a lot of trust-building and handholding is needed with smallholders to become platform users and even more effort is needed for on-going users. In our first three years, we found that delivering a reliable mechanization service that is affordable and on-demand itself is a foundation to first build and gain trust from farmers, followed by delivering the service and then adding on the technology layer after. Once farmers see the actual machine on their land harvesting / tilling their crops, they become more interested in value-added and efficient services as the next upgrade of this core service and are more open to learning and using the tech.
Scaling in an agricultural or rural market is not the same as scaling in an urban setting of savvy application and tech users and requires patience. Based on our experience, we found that many apps and platforms claim thousands or millions of users, but in fact this is more Facebook boosting or content-type users rather than active paying users – in fact this last step of gaining paying users via mobile wallets was a process that took us several months to learn about and grow; machine owners were more tech-savvy on this side including using of payment wallets compared to famer users.
Yes, it’s true, farmers use Facebook and Google Maps, but beyond those apps, using a dedicated app for tractor bookings is challenging. Google Maps are often not updated in these areas. Internet connectivity drops in / out, usually depending on if there is a nearby telecom tower for mobile signal. Many of the remote areas are not near these towers, thus causing connectivity issues and data usage is a cost constraint. Sometimes it was the farmer’s daughter/son who was the actual user vs. the farmer themselves and so there is a gap between the decision maker and the young person using the tech that needs addressing.
Overall, the process is complex. We are still continuing to learn, but it is great to be at this frontier of learning to help bridge this gap and move this system from traditional service delivery to tech-enabled transfer, bookings, customer profiles and transactions. The opportunities from this continue to unfold."
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Comment from Larry, Co-Founder at The Yield Lab Asia Pacific
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"Firstly, let me say that I am a believer in the general concept that is described in the Mechanization Platform blog. More convincingly perhaps is that the Yield Lab is an investor in rolling out such technologies.
Firstly, on the human side there is indeed migration from rural to urban living, and importantly it is the younger generation that is moving, leaving the rural area with limited talent to operate agriculture. Loss of labor is one factor, but loss of owner/operators with the skills to engage with new technologies compounds the problem. We run the risk of loss of land under viable cultivation. The author suggests that professional farm services is an opportunity and we agree. Professional services that bring effective and efficient technologies to the aging rural owner/operator presents the dual benefits of keeping hectares in viable production and proving interesting and remunerative careers for the younger generation.
Secondly, on the equipment side. The ‘developed’ economies that have experienced the mechanization described, mostly have large scale farms or have crop values that afford mechanization. Smallholder farming presents unique challenges. Equipment needs to be sized to perform in small plots. Drone applications introduce efficiency for some functions, but only some; and then small adjacent farmers need to manage drift, and relations with neighboring crops; both drones and tractors (and robots) are needed. Digitalization of the ‘hiring’ of the professional services, offering the drones and tractors and combines etc, will introduce both economic efficiencies as well as democratization to the owner/operators. Due to the seasonal crunch on demand of each type of equipment, the author may be overestimating the number of farms assisted by a given set of equipment. But this just means that there is widespread opportunity in rural agriculture for professional services that provide mechanization - they offer selection, deliver, maintain, operate, service, train, and advise… all for a value added to the agriculture production community."
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