The following op-ed was contributed by Lauren Blasco. Blasco is a principal and the head of ESG at AC Ventures, a leading venture capital firm in ASEAN, with more than USD 500 million in assets under management. The firm is a generational partner to founders driving positive societal change and economic impact in Indonesia and beyond.
In the last few years, global corporations have begun to recognize the increasing importance of traceability and transparency in their agriculture supply chains. Fast-moving consumer goods giant Unilever, for instance, has revised its sustainable sourcing program and pledged to ensure 100% sustainable sourcing of its key crops.
Other giants in the food production space such as Coca-Cola and Nestle have also committed to creating systemic change in the agricultural supply chain by prioritizing sustainable sourcing and enabling traceability.
Recent research has shown that the global food traceability market is estimated to reach USD 45.29 billion by 2031. One of the major drivers for market growth will be the tightening of global supply chains by governments—a move to improve long-term environmental health and eliminate forced labor across the global supply chain.
For instance, the European Union’s new regulation that came into effect in June 2023 aims to curb deforestation and forest degradation. The recently enacted law mandates that businesses involved in the trade of cattle, cocoa, coffee, palm oil, rubber, soya, and wood, including products made from these resources, must thoroughly examine their supply chains. This is to ensure that their products are not sourced from areas affected by recent deforestation or forest degradation and that they do not violate local environmental and social regulations.
This drive for sustainable sourcing has given rise to new verticals such as sustainable agritech and supply chain traceability. Considering that it is predominantly developed nations that are driving these changes in supply chain regulation, it’s easy for most to assume such innovations can only come from developed nations.
Quite the contrary, emerging markets like Indonesia, which are fueled by unique socioeconomic challenges, climate vulnerabilities, and cultures of innovation, are spearheading novel solutions—both online and offline—in sustainable agritech. They have the potential to lead the next wave of global innovation in agriculture and supply chain transparency.
With its massive economic dependency on the agricultural sector, a market like Indonesia is poised to benefit significantly by implementing traceability frameworks in agricultural supply chains that are up to par with Northern European standards.
The emerging market lure
Indonesia has been known as an agrarian country for centuries as it is one of the world’s largest producers and exporters of important crops such as palm oil, rubber, coffee, rice, and others.
Agriculture was the only sector that grew during the pandemic, serving as a cushion to the entire Indonesian economy. The local government stated that Indonesia’s export value on agriculture drastically increased from IDR 300 trillion (around USD 20.14 billion) to IDR 665 trillion (around USD 44.66 billion) in 2021.
The local agriculture sector contributes almost 14% of Indonesia’s GDP, making it the third largest pillar of the local economy. However, it is also one of the least digitized sectors in the country. This translates to massive untapped opportunities for both startups and investors. Building technology that matters to the agriculture sector is therefore crucial.
Over the years, we have seen a slew of agritech startups such as aquaculture platform Aruna, B2B food supply chain startup EdenFarm, and sustainable agritech platform Koltiva do their part in digitizing the agricultural supply chain. They utilize novel technology to monitor and increase crop production as well as to enable access between farmers, stakeholders, and end users.
The importance of the sector to the Indonesian economy is already pushing the country to innovate and deal with supply chain challenges head-on.
Beyond tackling supply chain disruptions, there’s also a growing urgency to zoom in on sustainable practices in agriculture as the country drives toward an ambitious net-zero goal.
Climate change brings a new dimension of challenge to this puzzle. The industry itself contributes around 6% of Indonesia’s total greenhouse gas emissions, the fourth biggest carbon emission contributor in the country.
On the other hand, Indonesia’s growing population is exerting pressure on the agriculture sector to increase its productivity and meet food security targets. This pushes farming players to convert more land under forests to farm crops across the nation. This is true for most of Southeast Asia, where agriculture contributes at least 10% to the region’s GDP.
Close to 90% of forest loss is associated with the expansion of agriculture. But without credible tracking and traceability tools to understand complex supply chains, it is hard to understand where changes should begin.
As such, sustainable agritech is key in pushing Indonesia’s farming sector forward and ensuring accountability. The transparency provided via certification and traceability is critical to sustainably managing supply chains that are responsible for excessive land use and forest loss.
In emerging markets such as Indonesia, the distinct challenges faced by small-scale farmers, who constitute a major portion of suppliers, growers, and producers in key crop sectors, provide a prime opportunity for startups. Innovators can leverage these challenges as a springboard to develop new solutions tailored to the unique agricultural landscape dominated by smallholders.
The local upstarts
Koltiva is a sustainable agritech and traceability platform. Its software that provides “seed-to-table” traceability has helped multinationals and large enterprises trace the origin of their goods’ core components, many of which are produced by farmers in Indonesia.
The Indonesian company serves over 1 million producers across 52 countries, with only around 49% of participating farmers based locally. The remaining are scattered globally in Ecuador, Colombia, Peru, Brazil, Mexico, the Ivory Coast, Nigeria, Tanzania, Kenya, the Democratic Republic of Congo, India, Pakistan, and China. Meanwhile, at least 50,000 businesses are now obligated to adhere to the EU’s deforestation regulation, offering Koltiva another large pool of potential customers in addition to the 6,500 enterprises it already serves.
More importantly, Koltiva’s solutions are also improving the livelihoods of smallholder farmers. By prioritizing sustainable practices and traceability, sellers can command a better premium for their crops.
Beyond traceability, there are also several local startups that are working on adjacent solutions within sustainable agritech that help farmers to improve their productivity via sustainable practices.
One of them is Beleaf Farms, which provides farming-as-a-service solutions to smallholders, empowering them with knowledge on hydroponic farming, a method known to save water and preserve land. The company also helps farmers to distribute and sell their crops to end clients.
Another example is Eratani, which provides digital solutions to help farmers modernize their practices, ensuring sustainability in their operations and production yield. Starting in 2021, the company now works with more than 10,000 rice farmers to increase their crop yields by furnishing them with a set of sensors to monitor productivity, as well as digital avenues to better finance their businesses and distribute products.
Looking ahead
The Indonesian government’s net zero goal is seemingly a great start to combat climate change. However, more granular support is needed to improve local government support to link digital innovators with farmers. By getting closer to the sector, startups can better understand farmers’ needs and the context needed to offer meaningful solutions.
Regulators can shape policies to enhance transparency across the agricultural supply chain by making it necessary for large food companies to track emissions and ensure sustainable sourcing.
While governments will undoubtedly have a role to play, the largest force for scaling a sustainable transformation on this front will come from the private sector.
Private funding for the agritech space in Southeast Asia has grown substantially in the last decade. It is one of the top-funded sectors this year, having raised USD 248 million in this quarter alone. There’s a strong need for investors to reassess their strategies when it comes to funding food and agritech. By getting capital into climate and sustainability funds, global investors can position themselves at the forefront of a transformative wave, ensuring both impactful and profitable returns.
Update: In the initially published version of this op-ed, it was mentioned that over 50,000 companies have integrated Koltiva’s services into their operations. The correct number is approximately 6,500, while the 50,000 figure pertains to companies that might potentially become customers of Koltiva due to the EU’s deforestation regulation. This story has been edited to reflect this correction.