E-Commerce in Agriculture: The Implementation of Urban Farming Development in Indonesia

E-Commerce in Agriculture: The Implementation of Urban Farming Development in Indonesia

Published: 2021.09.16
Accepted: 2021.09.13
7
Indonesian Center for Agriculture Socio Economic and Policy Studies
College of Agriculture and Natural Resources, National Chung Hsing University, Taiwan
Senior Agricultural Economist and Research Professor
Indonesian Center for Agriculture Socio Economic and Policy Studies (ICASEPS), Ministry of Agriculture, Indonesia

ABSTRACT

Even though urban farming is relatively less paid attention to compared with rural farming in Indonesia, the development of urban farming is quite prospective in the country. It is to generate income, shorten the supply chain of agricultural products, and maintain the city’s environmental circumstances based-beauty and aesthetics. This article discusses urban farming development based on e-commerce since this platform is currently trending in Indonesia. There are opportunities and challenges to develop urban farming through information and communication technology since every Indonesian is currently inseparable from mobile phone gadgets. Hence, there is a need to carry out specific campaigns supported by training to urban communities to achieve the sustainability and affordability of urban farming in Indonesia.    

Keywords: urban farming, e-commerce, development, Indonesia

INTRODUCTION

Background

As an agricultural country, Indonesia has two general management systems, namely rural agriculture and urban agriculture. The former exists in a rural area, while the latter is found in urban regions, including peri-urban areas. The presence of rural agriculture is more developed as compared with urban agriculture. However, urban farming has become more attractive due to the decreasing agricultural land size in the rural area and the increasing urbanization movement.

Urban agriculture results from the interaction of the factors of yard area, development of environmentally friendly agricultural commodities and technology, agricultural extension and institutionalization, expansion of farming land, cooperation between stakeholders, and the provision of incentives or compensation. The condition of urban areas is already a separate agroecosystem that is significantly different from agriculture in rural areas.

Indonesia is recorded as one of the countries with the fastest urbanization growth in the world. Based on the population projection data (2010-2035), about 56.7% of Indonesians live in urban areas, and it is predicted that the number will increase to 66.6% in 2035. The World Bank also estimates that in 2045 as many as 220 million people, or 70% of Indonesia's population, will live in cities (Bappenas, 2013; DetikNews, 2020, and BPS, 2021). Thus, there is an opportunity and challenge to develop urban farming as a small landscape unit within Indonesia’s cities based on this phenomenon.

The development of information and communication technologies (ICTs) changes business systems and changes business patterns from conventional marketing to online marketing (e-commerce platform). This includes urban farming towards fulfilling the consumers’ needs in appropriate manners regarding fast and precise services with affordable prices.

Through Bappenas, Directorate of Food and Agriculture, the government has set two primary strategies for the agricultural sector in the Medium-Term National Development Plan (RPJMN) 2020-2024 (Bappenas, 2020). First, increasing the availability of access and quality of food consumption. Second, increasing added value, employment, and investment in the real sector and industrialization.

Objective

This article aims to discuss urban farming development through legal basis, government strategy, and e-commerce platforms development in Indonesia. It includes urban farming, e-commerce platform, opportunities and challenges analysis of the country’s urban farming development based-e-commerce platform.

EXISTING URBAN FARMING

Historically, urban farming dates back to about 3,500 B.C., and about 1,500 years later, the semi-desert towns of Persia offered one of the earliest pieces of archaeological evidence for urban food production (A.U. Online, 2019). Nowadays, the implementation of urban farming depends upon the development policy of each country in the world.

In the case of Indonesia, urban farming is less developed compared with rural farming. Urban farming is found in some stippled regions in the city, while rural farming is established in agriculture. The primary difference between urban farming and rural farming are, among others, related to the landscape feature (see picture), management system, and activity orientation. On the one hand, urban farming exists in a small unit of landscape managed with various methods such as (1) conventional land use; (2) vertical grow crops (viticulture); (3) planting in pot/polybag(s); (4) growing plants in nutrient-rich water without soil (hydroponics); and (5) baby plant (microgreen). In addition, urban farming can also be combined with raising poultry and aquatic animal or aquaponics (Rachmawati, 2020).  It is managed due to the limited land available to support its economic, social, and environmental sustainability. On the other hand, rural farming is characterized by large area size as a livelihood source of the countryside community based-food crops, horticulture, estate crops, and livestock. This is for commercial and subsistence orientation. 

Urban farming can be conducted in: (1) residential yards; (2) urban spaces (parking lots and rooftops); (3) parks and public green spaces; (4) institutional lands (courtyard of offices); (5) vacant lots/under-utilized sites; and (6) agricultural zone (designated lands for agriculture). Thus, it is relatively easy to select the location of urban farming while maintaining environmental circumstances based-beauty and aesthetics of the city (Ghana, 2014).

In contrast, the land in rural areas is still relatively large compared to the number of residents who occupy it. The population density is still low, and employment is still relying on the agricultural sector. Its livelihood in the agricultural sector can assess the main character of the countryside. Most of the population works in the agriculture sector (agriculture, plantations, livestock, and fisheries). The method of rural farming people is still relatively traditional, with most of the results still being allocated for daily living needs (subsistence farming).

To develop urban farming, the Indonesia Ministry of Agriculture (MoA) has implemented the Sustainable Food Yard Family Farming Program (MoA, 2017 and BKP, 2019). This program aims to optimize yardland use through sustainable food house areas to accelerate food diversification and strengthen community food security.

URBAN FARMING LEGAL BASIS IN INDONESIA

The legal basis for urban farming in Indonesia is related to the land use policy comprising national and regional regulations. At the national level, it comprises of State Law, Government Regulation, and Ministerial Regulation. Moreover, at the regional level, it includes provincial and regency/city regulations.

National regulation

The planning of agricultural land or agricultural revitalization in Indonesia is regulated in a special law related to the protection of agricultural land, namely the Law Number 41/2009 concerning Protection of Sustainable Food Agricultural Land (GoI, 2009). Moreover, several government regulations related to sustainable food agricultural land are as follows: (1) Government Regulation Number 1/2011 concerning the Determination and Conversion of Land Use for Sustainable Food Agriculture (GoI, 2011); (2) Government Regulation Number 12/2012 concerning Incentives for the Protection of Agricultural Land for Sustainable Food (GoI, 2012a); (3) Government Regulation Number 25/2012 concerning Sustainable Food Agricultural Land Information System (GoI, 2012b); (4) Government Regulation Number 30/2012 concerning Financing for Sustainable Food Agricultural Land Protection (GoI, 2012c); and (5) Regulation of the Minister of Agriculture Number 7/2012 concerning Technical Guidelines for Criteria and Requirements for Areas and Reserves for Sustainable Food Agriculture (MoA, 2012).

Regional regulation

The policy direction and strategy for sustainable urban agriculture development implementation is based on Law Number 41/2009 on Protection of Sustainable Food Agricultural Land. Based on this regulation, the local government sets regulation to be implemented consistently and sustainably.

Table 1 shows the example of policy direction and strategy for sustainable urban agriculture development in Jakarta (capital city of Indonesia) followed by its control mechanisms. This example can be referred for urban farming in other cities in the country.  

E-COMMERCE PLATFORM

Indonesia has a significant internet market share, including the market for e-commerce activities. In 2020, Indonesia’s number of internet users was recorded at around 175.5 million people out of 268.6 million people. There was an increase of about 25 million (17%) than the previous year in 2019 (Republika.co.id, 2020). With e-commerce hitting an all-time high in 2020, according to the latest report from research firm Momentum Works (Techinasia.com, 2021), the sector accounted for 20% of total retail sales in 2020, a significant rise from only 2% in 2016.

The increasing number of internet users and businesses make Indonesia one of the countries with great potential for e-commerce growth. The value of Indonesian e-commerce transactions had outstandingly increased from US$ 2.72 billion to US$ 30.41 billion from 2014 up to 2020 (Figure 1). It is estimated that the value would continue to increase up to US$ 124 billion in 2025 (Bain and Company, 2020; Damuri et al., 2020).

Nevertheless, unfortunately, this great potential has not been supported by adequate laws and regulations because no regulation has been issued specifically to regulate the e-commerce sector. There is only a Draft Government Regulation on E-Commerce (RPP E-Commerce) as a candidate for implementing Law Number 7/2014 concerning Trade or Trade Law (GoI, 2014). As long as the draft regulation has not been passed, the primary legislation related to e-commerce activities is still centered on Law Number 11/2008 concerning Information and Transaction Electronics or ITE Law (GoI, 2008). Creating a regulatory framework to ensure legal certainty for this rapidly growing sector is imperative so that the policy intervention can align with its progress innovation.  

E-commerce in Indonesia is multiplying, especially in the business sector. However, based on the data released by the product price comparison site on the iPrice marketplace, local online shopping platforms still dominate the Indonesian market until the first quarter of 2019. Tokopedia is in the top position as the online shopping platform with the highest number of monthly active visitors, followed by its two biggest competitors, Shopee and Bukalapak, in the second and third, respectively (Merdeka.com, 2019).

The rise of e-commerce-based businesses in Indonesia is motivated by various challenges and turmoil in the world economy, so e-commerce is expected to be the backbone of the Indonesian economy. This was stated by the Minister of Communication and Informatics (Kominfo) and emphasized by the President of Indonesia (Kompasiana.com, 2019). Three main factors affect the growth of the e-commerce industry in Indonesia, including the population and consumptive character [1], the increasing number of internet and smartphone users in Indonesia, and the online payment system in Indonesia has developed a lot (SmartBisnis.co.id, 2019). The COVID-19 pandemic has accelerated the e-commerce industry in response to the government policy of limiting people’s mobility and physical interaction.

The online payment system manages the payment process from buyers to sellers through transfer mechanism or cash on delivery based-payment channel (Gunawan et al, 2020). In other words, it is managed under transfer money based-bank account according to the deal price while the products or services will deliver by the sellers to consumers directly or through courier service. This system involves certain entities, namely: (1) Consumers who purchase products or services; (2) Sellers who provide products or services; (3) Software developers who generate and manage online purchasing and selling applications; and (5) Delivery channel that provides product delivery services as a result of transactions between buyers and sellers.

Infrastructure development in fiber optic networks, namely the Palapa Ring project, also significantly impacts the development of e-commerce in Indonesia. The Minister of Industry explained that the increased use of smartphones made the digital economy more substantial and faster (MoI, 2017). Both external and internal factors play an essential role in the development of e-commerce in Indonesia. The growth of e-commerce is expected to open the insights of national industry players to seize current opportunities and prepare steps in facing the industrial era 4.0.

URBAN FARMING DEVELOPMENT BASED- PLATFORM OF E-COMMERCE

Controlling food prices is still a particular concern for the Government in Indonesia’s current agricultural economic development. Law enforcement officials find several things that cause food price and supply fluctuations, such as supply-demand imbalance and obstruction of food distribution channels to food hoarding/retaining that are still severe problems for Indonesian agriculture. In addition, it is not to mention that the extended supply chain from producers to consumers adds to a series of problems regarding food distribution. Therefore, the government implements an electronic trading system (e-commerce) to stabilize food prices for agricultural products and the rate of inflation without burdening farmers and consumers.

With the implementation of e-commerce, both farmers and consumers will know the correct market price information. There will be extension workers prepared in each area so that farmers can find out this information via the website or application. The mobile application platform connects farmers and consumers directly, both in large and small parties. An open transaction system between farmers and consumers is beneficial for both parties by obtaining optimal prices. The Minister of Communication and Informatics (Kominfo) said that this integrated application would, in turn, change the thinking patterns of farmers. So far, farmers have only been piling up their products and waiting for mediators. So currently, farmers have to sort the good ones because consumers who buy are also premium (Ekonomi.bisnis.com, 2016). There is no general pattern of distributor-to-consumer ratio for Indonesia farmers due to varied commodities and market systems. However, most farmers rely on the distributors as the main selling channel and revenue source. Even though distributors are smaller in number (oligopsony), they play an important role as a price maker. It is expected that through e-commerce, farmers would be able to recognize market price information correctly.

Opportunity

It can be noted that the development of agricultural e-commerce in Indonesia is categorized as one of the market initiatives in the country. Therefore, the Indonesian Ministry of Agriculture has established Toko Tani Indonesia/TTI (Indonesian Farmer's Shops) through e-commerce involving farmers, food business institutions, farmer’s shops, food industry, producers, and distributors, as well as consumers towards stabilizing the prices at the producer and consumer levels. The establishment of TTI aimed to facilitate network access among farmers, financial institutions, and transportation systems (Sisfo TTI, 2020).

 Apart from government intervention, some agricultural market initiatives are based on e-commerce set by non-government institutions (private sector). Among other things were 8Villages, CI-Agriculture, Crowded, Eragano, Habibi Garden, iGrow, Karsa, Kecipir, Limakilo, Pandawa Putra, PanenID, Pantau Harga, Petani, SayurBox, Sikumis, Simba, and Tanihub, which generally managed by youth based-agribusiness applications.

E-commerce is quite prospective in Indonesia. It is to facilitate farmers in marketing agricultural products and attract the young generation’s interest in agriculture. This business type might be able to assist farmers in going through structured market based transparency. It is quite a promise since there are numerous mobile subscriptions in Indonesia (Figure 2). The mobile phone could be a breakthrough for farmers where applications are used for agricultural marketing and create awareness of market prices and the demand for agricultural produce.  

People dominate the social media audience in Indonesia within the age group between 18 and 34 years old (Figure 3), representing the “gadget generation.” This generation is expected to assist the old generation in agriculture rather than using social media for unproductive purposes. Hence, a positive campaign is required to encourage the youth involving in agriculture based contemporary model.  

Above all, Government of Indonesia (GoI) is targeting to issue 31 Ministerial Regulations related to e-commerce in 2018. To increase the effectiveness and focus of its work, the government formed the Three Working Groups. In addition, the GoI has issued Presidential Regulation Number 74/2017 concerning the roadmap for the Electronic-based National Trade System 2017-2019. It was created to regulate seven issues namely: technology, taxes, logistics, consumer protection, socialization, cyber security, and infrastructure (Pandina, 2018). In line with this, the GoI has also issued some supporting regulations, mainly related to business licensing, trade, and tax of e-commerce, such as Government Regulation (GoI, 2019), Ministry of Trade Regulation (MoT, 2020), and Ministry of Finance Regulation (MoF, 2020). It is essential since e-commerce is one of the main contributors to the increasing digital industry in Indonesia. Technology innovation is potentially significant to increase multi-sector productivity and expand community participation into more inclusive economic activities.  

Challenge

According to Damuri et al., (2020), creating a digital economy roadmap and strategy is needed to guide e-commerce policies and regulations in Indonesia. Without a clear strategy and direction, the regulations issued will tend to be ad-hoc. Unfortunately, at this time, various regulations have been issued before the strategy and directives are set. As an illustration, Figure 4 shows the policy framework of e-commerce in Indonesia.

The development of e-commerce is very rapid and potential to generate state revenue in Indonesia. Consequently, the government must involve the marketplace or parties who can determine sales and purchases. By implementing the e-commerce tax, it is expected that e-commerce players can apply and comply with the implementation of tax obligations (Hukumonline.com, 2020).

In agricultural e-commerce, GSMA (2019) stated that “Indonesia has been a hotbed for agricultural innovation in recent years, driven mainly by AgTech start-ups focused on creating opportunities to optimize fragmented value chains and connect crop producers and buyers in more efficient and profitable ways. A growing number of Indonesian start-ups have developed solutions that optimize the value chain by addressing pain points faced by both producers and buyers. For crop producers, poor land practices result in high production costs and sub-optimal yields, while the dominant role of traders leads to low prices at the farm gate. For crop buyers, such as those in the palm oil, cocoa, and coffee value chains, ever-growing demand for sustainable agriculture practices and traceable production creates the need for improved systems and processes”.

CONCLUSION AND RECOMMENDATIONS

There is a trade-off of urban farming in Indonesia. On the one hand, urban farming has relatively less paid attention compared with rural farming. On the other hand, urban farming seems to be running because the urban consumers depend highly on agricultural products from the rural farming supply.

Urban farming provides employment opportunities and becomes an additional source of community income and a buffer for economic stability in critical situations, especially during the economic recovery due to COVID-19, and is directly related to poverty alleviation efforts and a sustainable environment. Urban agricultural designation areas need to be designated as sustainable food and non-food agricultural land by complying with the land use provisions for agricultural cultivation areas in urban areas. Local governments have a legal basis for specific policies in the form of laws on urban agriculture.

There are certain benefits to develop urban farming, including its peri-urban socioeconomic and environmental aspects. Among other benefits of urban farming are: (1) generating employment, (2) supporting food security, (3) shortening the supply chain, and (4) conserving the environment. Nevertheless, the extent of the community’s perception and attitude toward urban farming is relatively quite low. Hence, it is required to campaign the urban farming supported by training to communities massively. It includes e-commerce implementation through information communication technology platforms since everyone is inseparable from mobile phone gadgets currently. This should be based on the principles of sustainability and affordability manners.

The government’s policy regarding urban farming is still in the assessment stage. Thus, the following are recommendations for urban farming development in Indonesia:

  1. Agricultural extension and institutions. They are improving extension performance to support farmers to get technical guidance and institutional functions more intensively and sustainably. Urban farming requires adding urban agricultural extension workers following regional needs, such as the Agricultural Extension Center office. The existence of farmer institutions, namely a combination of farmer groups (Gapoktan) or private parties (limited companies), can support urban farming activities in Indonesia.
  2. Development of environmentally friendly urban farming technologies to increase the productivity of land products and protect the urban environment from operational hazardous chemical residues. Indonesia still needs to regulate selective planting policies and environmental protection.
  3. Cooperation among stakeholders: Improved coordination and cooperation in implementing activity programs following the main tasks of each agency.

ACKNOWLEDGEMENT

We would extend our appreciation to P. T. Safe Chemical Indonesia, Jakarta, for providing consultation on urban farming development in Indonesia, both in regulation and current status, and recommendations for better Indonesian urban farming. 

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[1] It is found especially at urban middle classes that tend to consider the signifying or symbolic value and social pressure as important deciding factors when buying a particular consumer product, rather than its use value and exchange value (Suyanto et al, 2019).

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