Indonesia’s 40 million farmers may feed a nation, but a majority of them are smallholder farmers and geographically isolated from commercial centers. The traditional supply chain of middlemen and traders means consumers pay a markup of 100-200% over what the farmer receives. And some 78 million tons of food is lost each year because of supply chain problems, with almost half the fruit and vegetables that are grown, going unsold.
On the other hand, Indonesia’s middle class, which has grown from 45 million people to 85 million over the last 10 years, increasingly demands healthy, fresh and safe produce. But wholesale buyer and consumers often face inconsistent supply, poor quality and time-consuming processes as they try and source food supplies.
Indonesia is a very fragmented agriculture market that reduces the profits to farmers, increases prices for buyers and leads to food waste throughout the supply chain. TaniHub’s solution to this is an integrated B2B e-commerce, logistics and financing platform for the agricultural sector. The business model is a unique combination of sourcing network, demand aggregation and peer to peer lending to farmers that is a win-win proposition for all stakeholders. Flourish Ventures is proud to have co-led the company’s latest convertible note round.
Fragmented farming and broken supply chain
Indonesian farmers have three key challenges. Rather than risk not being able to sell their produce, they depend on middlemen to buy from them and have little room to negotiate. In other words, they suffer from not being able to diversify their buyer base and get the best price.
They also face serious logistical barriers. Indonesia is an archipelago with around 6,000 inhabited islands, and its farmers often live in remote areas. Even if they could find new buyers, they may not be able to deliver the produce if those buyers are in cities or cost of transportation may be prohibitive.
Finally, Indonesian farmers are starved of financing. Agriculture contributes 13% of the country’s gross domestic product, but only attracts 7% of its bank lending. Most of that goes to large estate farmers growing plantation crops like rubber and coffee rather than the 93% of farmers who are smallholders and earn an average of just over US$3 a day. This lack of financing prevents those smaller farmers from growing their cultivation, buying high-quality inputs or investing in projects like irrigation systems.
TaniHub’s founders are deeply familiar with these challenges. Pamitra Wineka worked with the World Bank in Indonesia and then co-founded Akulaku, an app-based microcredit company focused on Southeast Asia. Ivan Arie Sustiawan was at supermarket chain Carrefour and online grocer Happy Fresh, seeing the country’s food supply chain up close.
The business they have built operates across three main segments. TaniHub is the e-commerce platform, allowing farmers to diversify their buyers. TaniSupply is the procurement platform, operating five distribution centres around the country. These help solve farmers’ logistical challenge by developing strong supply chains that reduce wastage and move produce swiftly from farmers to their customers across the country. Third is TaniFund, a peer-to-peer financing platform that allows farmers in the TaniHub network to borrow money to fund cultivation and pay off the loan when their produce is sold on the platform.
Since it was established as a company in 2016, TaniHub has onboarded more than 30,000 farmers. Dani, a farmer since 2010 says the support from TaniHub has enabled him to boost his income and expand his cultivation. He says TaniFund is a fintech focused on farmers so they understand our needs and are very helpful. The company believes it has helped farmers on the platform to increase their incomes by more than 20%.
TaniHub’s buyers comprise small businesses, restaurants, caterers, street food vendors, warungs, fruit and vegetable vendors and households. One of their buyers, a street food vendor selling Nasi Kebuli (an Indonesian rice dish with lamb and spices) likes that TaniHub provides good quality and guaranteed delivery at his doorstep at the same or lower price as the wet markets. The app based ordering and doorstep delivery was a huge boon during the Covid-19 pandemic and has resulted in sustained increase in order volumes.
High potential for impact
TaniHub’s business model directly reaches farmers and SMEs with a value proposition to improve their income in a sustainable manner. Economic empowerment of these underserved customer segments aligns well with the Flourish investment thesis. By improving market linkages and reducing inefficiencies in agriculture value chains, TaniHub aims to improve prices and quality, benefiting both buyers and sellers. The small business owners benefit from improved sourcing of their food supplies leading to higher margins. In addition to facilitating the commerce, TaniFund facilitates funding and helps improve farmers’ production through technical assistance on farming methods, access to high quality inputs and assured offtake of produce. One of the major challenges to provide funding to farmers is lack of their ability to provide collateral and no transparency on their cash flows. TaniHub’s unique business model that embeds finance with the commerce platform reduces the risk for lenders and allows the farmers to pursue demand driven cultivation with higher yields.
The Indonesian food and groceries market is expected to be worth US$257 billion by next year, with spending on these items increasing by a compound annual growth rate of 8.5%. We are excited to have joined this journey and added TaniHub to our portfolio of fintech providers with purpose.