Tech’s potential lies downstream for South-east Asia’s small farms
When we imagine the farm of the future, it is exciting to picture a drone hovering over each plant carefully spraying chemicals on just those leaves affected by a pest. Meanwhile, a cluster of sensors monitor every aspect of the soil, applying fertiliser with precision.
While these technologies are exciting, and no doubt promising, we need an approach to agricultural technology in South-east Asia that is fit for the region. The investors and entrepreneurs who succeed in agritech in South-east Asia will focus on technologies that address real needs in the distinctive agricultural value chains of the region.
Much excitement in agritech flows from the United States and Australia, and with large deals like Monsanto’s acquisition of Climate Corp it is easy to see why. However, Australian and US farms are big. In fact, the largest farm in Australia is 32 times larger than Singapore.
What sets farms in South-east Asia apart is their small size. The majority of rice farms in Indonesia are less than half a hectare in size. Smaller sizes mean different technologies are useful, and economical to adopt. For example, remote soil moisture measurement on a farm that takes three hours to drive across is very useful, allowing the farmer to measure what they cannot see. On a small farm, a moisture meter will only tell the farmer what they can learn from leaning over and touching the soil.
Small farms limit the efficiencies that come from automation and data collection. While some great technologies will emerge for small farms, the most exciting opportunities are actually “downstream” of the farm gate. In South-east Asia many of the most intriguing opportunities for investors and innovators are in the value chain between the farm gate and the customer. There are three glaring inefficiencies in the region’s agricultural value chains; and each one represents a sizable opportunity for digitisation; they are logistics, trade and finance.
The logistics opportunity is most pronounced for perishable products, vegetable, and fruit but also palm oil and rubber. A surprisingly large amount of supermarket fresh produce in South-east Asia is grown on very small farms. The combination of poor roads, remote locations and the ticking clock of spoilage leads to huge waste, with a regional average of 30 per cent lost between farm gate and store. Scheduling trucks with greater precision around supply and demand could make all the difference.
Opportunity number two is in trade. There are opportunities for e-commerce in both supplying goods to farms and buying commodities from them. The supply of pesticide chemicals is particularly ripe for disruption. Pest and disease outbreaks peak and trough, and to make it even more challenging in many cases a crop is only grown once a year. This leads to enormous inventory costs for dusty chemical bottles in remote retail locations, followed by a shortage of supply just as demand rises. E-commerce is well-positioned to better manage supply, demand and inventory.
Finance is the largest of the three opportunities, with some farmers paying up to 20 per cent per month to finance fertilisers over a three-month cropping season. The traders who buy goods from farmers control much of the information needed to conduct credit scoring, so farmers have few options for credit. However, a number of peer-to-peer digital lending solutions are beginning to demonstrate what is possible when farmers adopt digital lending. Digitising lending will lead to lower acquisition costs for lenders and more borrowing options for farmers.
Viewed individually, logistics, trade and finance each present a compelling prospect for building a solution that addresses a significant market failure. However, it is when viewed together that the full story emerges. A unified platform that offers small farms in ASEAN all three services would not only present a powerful “platform play”, but an opportunity to bring cheaper finance and better market access to some of the poorest families in our region.
It remains to be seen whether a global community trader, existing e-commerce platform or a new startup entrant will win the race to build such a platform.
This opinion piece was first published on The Business Times here and has been republished with permission.