A farmer plows a rice field with a phone in his hand in Tangerang, Banten, on April 23, 2021. (B1 Photo/Ruht Semiono)
Bring Tech to Agriculture, MSMEs for Economic Growth: McKinsey
BY :JAYANTY NADA SHOFA
MAY 19, 2021
Jakarta. Indonesia needs to bring technology to agriculture and smaller businesses, for the country to unlock post-pandemic growth and become the seventh top economy by 2030, according to global consulting firm McKinsey & Company.
In a recent report, McKinsey revealed the return to pre-pandemic growth rates would be crucial for Indonesia to emerge as the world’s seventh largest economy by 2030.
To this end, Indonesia must boost technology adoption in agriculture and micro, small, and medium enterprises (MSMEs) — both big contributors to the national gross domestic product (GDP).
McKinsey senior partner Khoon Tee Tan said agriculture contributes 13 percent of Indonesia’s GDP. In addition, McKinsey estimated adopting modern agricultural technology could spur up to $6.6 billion a year in additional economic output from improved yields and reduced costs.
“In terms of digital technology, [we should work on] how to increase yield, labor productivity, automatization, and mechanization. Such things can boost agriculture productivity and food security,” Khoon Tee told an online conference on Wednesday.
According to Khoon Tee, Indonesia is the world’s fourth largest agricultural producer. In 2018, their gross agricultural production stood at $344 billion. The archipelagic country, however, is still lagging in agricultural export, which reached $38.6 billion in 2018. This places Indonesia as the 12th largest agricultural exporter. Followed by India with $38 billion.
Khoon Tee also noted how there should be a digital ecosystem for smallholder farmers, as they constitute a large part of Indonesia’s agricultural areas.
“There should be a digital ecosystem, digital supply chain, and digital marketing for these smallholders. So they can use technology to find cheaper supplies and secure a good price for their crops,” Khoon Tee said.
And despite having internet access, only a few farmers in Indonesia are making good use of digital channels.
A McKinsey survey showed 85 to 90 percent of farmers can enjoy internet access and are WhatsApp users. Only 2 percent go online to buy or sell goods, whilst 30 percent are willing to consider this.
Contributing about 60 percent to the national GDP, MSMEs play a vital role in Indonesia’s economic recovery. In their report, McKinsey estimated digitization efforts for MSMEs would generate $140 billion in added economic output, thanks to additional sales from e-commerce and improved productivity.
The government is currently focusing on helping MSMEs navigate the pandemic, and technology adoption is an important piece in the puzzle.
“E-commerces are also stepping in to help these MSMEs. We can also see efforts by banks to provide financing for MSMEs,” McKinsey & Company Indonesia managing partner Phillia Wibowo said.
At the conference, Phillia highlighted how a one-stop platform would make the process much easier for the MSMEs, so they would not need to switch from one platform to the next.
“There should be a single one-stop platform that captures all of MSMEs’ needs. So MSMEs do not have to go on one platform to sell their products and then go on another platform for their financing needs, and so on,” Phillia said.