How Farmer-Led Digital Ecosystems Can Boost Yields and Incomes in Indonesia

Anni Mariah, a smallholder farmer from Sukabumi, West Java, uses the Nilaiku mobile app to access information and connect with buyers. Photo credit: ADB.

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Mobile apps enable farmers, including women smallholders, to modernize and diversify their production and transact with suppliers and buyers directly.

Overview

Smallholder farmers play a critical role in Indonesia’s agriculture sector, cultivating more than 90% of the crops in the country outside of palm oil.

However, these farmers—particularly the women—suffer from low productivity largely because they continue to rely on outdated production methods. They also do not have sufficient access to information and technology that would help them to increase their yields. With limited access to markets, they are unable to maximize their profits within the multi-layered and opaque traditional supply and value chain systems.

To help address the problem, a project supported by the Asian Development Bank sought to turn widely available mobile phones into powerful online farmer management tools. This was achieved by creating local digital ecosystems that were managed by the farmers in partnership with providers of information and communications technology (ICT) services. This allowed farmers to easily obtain the information they need, connect with more suppliers and buyers, and engage in faster and more transparent online transactions.

With up-to-date information, farmers can choose what to plant based on market demand and climate conditions. With direct, online access to fellow farmers, suppliers, and buyers, farmers can also find the most advantageous business relationships and transactions. Women, who made up over 48% of project participants, were able to increase their incomes, improve their bargaining position, and take part actively in local water associations.

Implemented over 3 years from September 2018 to September 2021, this technical assistance project built on and strengthened the outcomes of another project that upgraded irrigation systems in 74 districts throughout Indonesia. In doing so, the project helped maximize investments in infrastructure development and value chain services, built up the capacity of agriculture extension services, and promoted the sharing of relevant technology and market information among farmers online. It now serves as a blueprint for leveraging ICT in increasing smallholder farmers' participation in agriculture value chains throughout the country.

Project Snapshot

  • September 2017 : Project approved
  • September 2021 : Project completed

  • $1.99 million : Project cost (Japan Fund for Prosperous and Resilient Asia and the Pacific)

Challenges

Agriculture plays a crucial role in Indonesia’s efforts to improve food security, reduce poverty and promote inclusive growth. However, workers in the sector – which account for about a third of the country’s total workforce – suffer from low levels of productivity, estimated at $3,000 per worker per year. By contrast, the comparable figure is $9,000 in neighboring Malaysia. The development challenge is exacerbated by the fact that women make up almost half of the country’s smallholder farmers.

The Indonesian government has been working to address this problem, undertaking a range of investments to strengthen irrigation management and agricultural value chain development. However, millions of smallholder farmers across the archipelago are unable to find decent work or to maximize opportunities and capture the economic benefits of these investments. Key constraints and gaps are lack of access to up-to-date information and markets and to connections with other stakeholders in the agriculture value chain.

Context

Traditional agricultural value and supply chains are multi-tiered and lack transparency in terms of dealings with local intermediaries. Farmers do not updated information on sources and costs of inputs nor do they have market connections that would minimize their dependence on middle persons.

Farmers need new husbandry techniques and agricultural technologies to help them adapt to changing climate conditions, boost productivity, and diversify crops to meet evolving consumer demands. They need information to guide decisions on what to plant, how to add value to their produce, and how and where to market their products to maximize profitability.

The government often relies on agricultural extension workers to train farmers on new technologies and inputs, as well as farm, soil, and water management techniques. But this has limitations in terms of reach and quality. With 28,000 government extension workers and 38.8 million farmers, this means there is only one extension worker for every 1,300 farmers. There is also a wide disparity in their educational backgrounds and experience. It is only by leveraging ICT can far-reaching and increasingly complex extension relationships develop.

In addition, with only 45% of the nation’s irrigation system functioning at full capacity, there is need to enhance real-time information exchange between farmers, water user associations and, irrigation commissions to support efficient operation and maintenance of irrigation systems.

Solutions

The project tapped widely available mobile phones to deliver tailored information services to farmers in rural districts and to allow them to transact and communicate online without going through several layers of intermediaries. It facilitated the development of digital ecosystems (Figure 1). With the farmers at the center, these ecosystems comprise stakeholders in the agricultural value chain, including farmer organizations, water associations, cooperatives, government extension workers, and commercial stakeholders, such as product buyers, input suppliers, village kiosk owners, processors, and intermediary traders.

Figure 1: Digital Ecosystem (DES) Actors

These digital ecosystems must include the following components:

  • A means to obtain and share information on prices, market demand, weather forecasts, agricultural technology, and experiences of other local farmers with new farming systems.
  • Access to e-commerce platforms where farmers can sell their produce and acquire agricultural inputs, technology, and services to boost their productivity.
  • Access to financial services for savings, digital payments, microcredit, and crop insurance.
  • Local communications systems to allow farmers to create a broader network with other locations to establish new markets, exchange experience, and more.

At the heart of each ecosystem is a mobile application that enables all network components to operate together seamlessly. Instead of creating a new application, the project worked with three ICT partners from the private sector that already had suitable irrigation digital ecosystem applications: NilaiKu, Matani, and Ritx bertani. To ensure sustainability and replicability, the project tapped a financial modeler to develop business models for these applications and forecast costs and revenues over 3 years, such as from commissions and datamining. Two business models were piloted (see Lessons).

At the same time, it was important to boost the digital literacy of farmers as well as the skills of agricultural extension workers through capacity-building exercises.

As the COVID-19 pandemic severely disrupted the project’s implementation, an important project response was digital capacity-building through simple mobile applications onboarding, user training online, customer support services, and webinars.

Results

Despite the challenges created by the pandemic, the project achieved all its intended outcomes. The assessment of the project found that the use of ICT has had a statistically significant positive impact on both productivity and income. Farmers could now negotiate better prices and plant crops in line with market demand. It also led to a change in behavior, specifically when it came to the way the crops were sold.

These impacts were illustrated by the experience of 159 farmers in a study group, which showed a 73% increase in chili production from 2020 to 2021 after downloading and using irrigation digital ecosystem applications. The increase is even more remarkable given that chili production for the entire group of 800 farmers surveyed decreased slightly over the same period. The income per hectare of the 159 farmers also increased by 213%, clearly indicating that this was not only the result of improved productivity but also from being able to network together and negotiate better prices.

The project also mainstreamed the participation of women. In total, 73% of farmers (48% female) in the project areas were reached through ICT and mobile extension services. In addition, 79% of extension workers (46% female) in the covered districts had increased access to and knowledge of cutting-edge farm management practices, ICT, and mobile services.

In July 2022, Indonesia’s Ministry of Home Affairs, with support from the Integrated Participatory Development and Management of Irrigation Program, started replicating the project’s strategic model in 41 districts, reaching more than 36,000 farmers by December.

Lessons

Organic design. Digital ecosystems are best created organically by the farmers, communities, and other value chain stakeholders, with mobile applications from the private sector playing a key role in enabling online groups and virtual meetings.

Focus on women’s participation online. Being able to use mobile phones during periods outside traditional working hours increases women’s access to income-generating activities. This develops their potential and strengthens their bargaining position in accessing economic resources and family decision-making.

Implementation and delivery. The first model piloted a “closed loop” approach based on farmer cooperatives. This proved effective in creating a digital ecosystem that allowed farmers to gain unprecedented income security from contracts with off-takers that guarantee a minimum volume that will be bought against a minimum price. The second model, a training mechanism called Jago Tani built on the concept of commission-based network marketing, proved effective at reaching large numbers of farmers, small businesses, and water users.

Knowledge building. Modern and user-friendly ICT systems are effective at combatting traditional information asymmetry in rural areas. Webinars, such as MicroAid’s Halo Nilaiku which last 20 to 75 minutes, proved to be an effective alternative to face-to-face training during the COVID19 crisis. The project enlisted the help of young people, who are technically proficient and have an agricultural business in the project site, to serve as aggregators.

Partnerships. Partnerships between the public and private sector contributed significantly to the project’s achievements. The government can provide valuable extension information, while the private sector can contribute resources. It is important to have agreements in place for application program interfaces (APIs) that will allow government agencies to transfer data directly to farmers via the irrigation digital ecosystem applications, as well as to provide the support needed for these apps to become sustainable businesses.

Priasto Aji
Senior Economic Officer, Indonesia Resident Mission, Asian Development Bank

Aji has served as project officer for ADB-financed projects and activities where he brought his experience in technological innovation, financial inclusion, and agro-industry accelerator management, among others. As Resident Mission economist, he also conducts economic surveillance and research, writes papers and articles, including contributions to ADB’s Asian Development Outlook series, and helps design and implement loans and technical assistance. He holds degrees from the University of Strathclyde in the United Kingdom and the University of Siena in Italy.

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