EMPOWERING small Malaysia landholders to directly benefit from their land – done right and at a national scale – could not only enhance national food security but also address digital inclusion, income inequality and propel the country out of the middle-income and low GDP trap.
Rather than amalgamating smallholders into big estates, we need to do precisely the opposite – encourage, support and enable them to become independent agri-producers. If land is absorbed into bigger estates, we are promoting wealth concentration in the hands of few.
While empowering a large enough number of individual farmers to unlock the gems they have in their hands, we create wealth distribution and economic independence on a national scale.
Rather than remain content with a small share of the potential fortune that can be made off their land, smallholders can now reap the full benefit with the proper usage of agri-tech (also known as agtech).
The belief that smallholder farming cannot be efficient is the old way of thinking. Elegant IR4.0 tech solutions allow efficiency to be achieved at every level and scale, in any industry, and the Malaysia Digital Economy Corporation (MDEC) has a proven concept in the agriculture sector.
To test its viability, scalability and knowledge transfer of technology use, such as the Internet of things (IoT), big data and artificial intelligence (AI), for the transformation of traditional farming into a high-skilled, digitally empowered, and data-driven one, MDEC under its eLadang programme embarked on a Digital Agtech Pilot Projects (satellite farms) initiative. Satellite farms deployment sites covered Selangor, Sarawak, Penang, Johor and Kedah.
The pilot deployment was highly successful in various agricultural activities such as smart fertigation, smart misting, smart aquaculture, smart poultry, smart irrigation, and smart soil monitoring. MDEC observed how agtech increased the productivity, quality and income of small farmers by over 20%.
For example, in Selangor, MDEC partnered with the Pertubuhan Peladang Kawasan (PPK) Kuala Langat to assist a few smallholder chilli farmers, who saw their yields increase by 33% and income by 22%.
Furthermore, the smallholder farmers who participated in the pilot study became mentors in agtech adoption to many other farmers attached to PPK Kuala Langat.
This success needs to be made known, studied, replicated and scaled up. A vibrant digital ecosystem, with strong support from proactive stakeholders, practical policies and an impactful framework is crucial to deliver impact at a national scale.
Higher income due to tech infusion into agriculture may also entice youth to relook at this sector and we could even see a reduction in youth unemployment and underemployment – crucial issues to address in the thick of challenges brought about by the Covid-19 pandemic, economy and politics.
Lack of financing is one area that can significantly hinder the agtech modernisation of smallholder farms. Banks conventionally shy away from investing in agriculture, and smallholders are the most overlooked due to the perceived high risk.
However, reluctant financiers need to understand that smart farming can be highly lucrative.
Agtech significantly changes the cash flow pattern of an agri-enterprise, transforming it into a business with high operating leverage and well-controlled downside risks.
Agtech involves relatively high upfront cost in the context of small farmers. However, it also significantly reduces variable costs and climate-related risks – conventional hurdles for the agriculture business.
Other carefully-designed policies and logistic infrastructure can further reduce downside risks of small agri-techpreneurs.
For example, PPK Kuala Langat uses stock aggregators to guarantee trust between the bank and small farmers. The loan is given to individual farmers who then use the money to invest to modernise their enterprises.
Once the harvest is collected, it is brought to a stock aggregator who immediately pays farmers what they are entitled to, minus interest to the bank. At the same time, the agri produce collected also plays the role of collateral.
To further build trust between financiers and small farmers, we can take some lessons from innovative fintechpreneurs such as InVenture and their Mkopo Rahisi app. This app disburses loans to small and micro enterprises based on its users' financial profile, which the app itself builds.
Loan applicants need to install the app and grant access to various data points such as mobile phone transactions, geo-location, social media activity, web searches, etc. The Mkopo Rahisi app then uses AI algorithms to crunch more than 1,000 such data points – data that is never found in credit history documents.
Still, the app can construct a much richer picture of an individual's potential to repay the loan. According to its founder, Shivani Siroya, the loan repayment rate is 90%.
For the farmers' specific case, big data for agriculture (BDA) can provide additional data points to be analysed.
Innovative fintech solutions of this kind can give new hope to small farmers who may seem unpredictable on the surface but have great repayment potential.
However, government involvement is crucially important in deploying these kinds of innovation to prioritise the interests of small farmers and make sure they do not fall victim to private players who may charge farmers arbitrarily high rates for financing.
Focusing on smallholder agri-business has yet another appeal to the government. A large number of farmers enjoying higher incomes and collectively bringing their produce to the market would exert downward pressure on food prices – provided, of course, there is sufficient protection from foreign food suppliers.
Lower food prices would reduce overall household spending, thus leaving a larger portion of the national income available to be spent elsewhere. This would stimulate the aggregate demand for other goods and services, fuelling national GDP.
According to an observation by the Economist Intelligence Unit, which runs the Global Food Security Index (GFSI), food consumption as a share of household spending is one of the key drivers of food security.
A lower percentage of household expenditure on food is also the common trend observed among the top-performing countries in GFSI. These nations also happen to be high-income nations.
From the above, a profound insight is that high-income status is both an essential predictor of the nation's ability to put food on the table, and at the same time, is the outcome of the right food security strategy in the first place.
The top-performers on food security among our regional peers, such as Singapore, Japan, South Korea, and others, already focus on smallholder farmers. The same countries also gear their national policies towards food sovereignty by pushing for food self-sufficiency and protective tariffs.
Dr Rais Hussin and Dr Margarita Peredaryenko are part of the research team at EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.