An agricultural supply chain case study – where to next?

Supply chains occur wherever goods or commodities need to travel from where they are produced to their end market. Coronavirus has been impacting on these logistical arrangements, big and small, the world over.

This is true for seaweed, which provides vital income to the province of South Sulawesi in Indonesia. Looking at this community provides an insight into what might be possible for the region in terms of technology, skills and training. Development is needed as practices for moving raw seaweed have not changed much, nor has there been much effort to add value by expanding local industry further down the supply chain to a potentially more profitable point.

Read the AIC Backgrounder “Seaweed Nation: Indonesia’s new growth sector”

Understanding the communities that rely on this industry and improving current practices is one of the focal points of the research by the AIC, through its Partnership for Australia-Indonesia Research program (PAIR).

We asked a young seaweed distributor based in Palopo to explain the supply chain process in his local area, the impact of covid, and key areas for development.

Luwu Regency, surrounding the city of Palopo in the central northern part of South Sulawesi. Agung also acts as distributor for seaweed from Morowali regency on the far east coast of the island in Central Sulawesi, and from North Kalimantan and East Kalimantan. (Credit: Google) Top image: Agung Pananrang in Nunukan, North Kalimantan. Seventy per cent of the seaweed produced in this area is taken to Makassar. (Credit: Agung Pananrang)

Interview with a seaweed distributor

When covid hit in early 2020, seaweed distributor Agung Pananrang in South Sulawesi lost 90 per cent of demand from his largest export destination, China. With Chinese industry moving again, demand volume has steadied, but prices remain volatile and now flash flooding and other extreme weather have reduced yield of key varieties by 60 per cent.

What role does and could technology play in shoring up this industry that is hugely important for Indonesia and thousands of its coastal communities?

Basic messaging apps and photo sharing has of course eased communications, but for middlemen like Mr Agung this may also spell the end of an era, as some producers, he told us, were now dealing directly with foreign buyers.

Automation of distribution seems down the list of priorities, as when asked about technologies that could advance the industry Mr Agung spoke more of ovens for drying seaweed in wet weather, and processing capacity to turn raw seaweed into more profitable premium flour. This currently happens almost exclusively overseas – a fact that President Jokowi has stated a desire to change.

How much of your sales and distribution process is digital? How much is automated?

We mostly use technology in communication, particularly in sales and distribution.

We used to use the marketplace Alibaba. Now, we feel that to sell the raw material, the marketplace is no longer so important. Because now we can sell directly to end-users. Now, everything is simpler, especially thanks to communication technology which connects owner to middleman to end-users easily, even though the distances between them are quite far.

How could technology improve production and profits?

From what I have observed, this depends on the commodity. Agricultural products, such as rice and seaweed, are different from coffee and spices, whose markets can be described as premium.

Cocoa is another food which can attract a premium market, and is one of the main commodities produced in South Sulawesi along with seaweed. Seaweed generates a premium once it is processed into flour. However in South Sulawesi it is exported as a raw material so it does not attract the higher price.

Once our seaweed arrives in China it is processed with better technology and re-marketed, selling for much more.

New AIC research project: “Unlocking the potential of the South Sulawesi seaweed industry”

However, in general, the current technology that is used for communication is very useful in terms of sales and distribution. The information flows easily and much faster than before. If any of our products have problems, we don’t need to check personally in China. We can just ask for photos and the batch code of the goods.

In addition, now, we use electric-powered machines, making the process much faster than in the past when we used fuel oil.

But in terms of profit, mere communications technology does not give a big advantage for middlemen like me. We cannot stop the fast flow of information, between, for example, farmers and end-users. End users can now directly pre-order from farmers with a slightly cheaper price. So, with the new fast flow of information, soon we (middlemen) may not be needed anymore.

How could further skills or qualifications, for yourself or others, improve production and profits?

My team has an average of 15 to 20 years experience in this industry: average age 30 to 40. I’m the youngest, I’ve been involved for just 5 years. So, when it comes to skills, they are certainly qualified.

For technology skills, these young people are certainly familiar with the basics, such as social media for marketing etc. But they may still lack specialist skills in certain technologies, or for navigating the marketplace due to language barriers.

How are covid safety measures affecting production and distribution? What help is needed here?

We certainly pay attention to health and safety protocols during this pandemic, such as the use of masks and hand sanitizer. We also have rotating shifts now. In the past, 50 to 60 people worked in a warehouse each day, now there are at most 18 people per day.

The impact of covid-19 safe measures is, of course, that production has decreased. Usually one person is responsible for 15 sacks of seaweed, so there was a decrease in production of up to 60 per cent.

Latest AIC research: Profitable, sustainable seaweed-sourced bio-ethanol edges closer

Due to that, coupled with the decline in exports to major destinations such as China, and price fluctuations, our business almost collapsed, and we lost the trust of the banks. During this pandemic, it is very difficult to get a capital injection from banks.

What are your main concerns for the local seaweed industry at this time?

Technology

In terms of technology, I think we need a special “oven” for drying seaweed, especially during June, July and August, and other months that have quite extreme weather and rainy season in Luwu Raya. Currently, most of the seaweed production still uses human labour. We rely on direct sunlight, so this kind of technology will facilitate great developments in the seaweed industry in this area.

Government

From the government, we hope there will be more specific regulation in the seaweed supply chain. In this era of free-flowing information, there must be regulations governing how the farmers, middlemen, exporters and end users work effectively together for the benefit of all parties. Currently, there are no regulations that are truly binding between business actors, for example between exporters and end users, leaving the price too volatile.

A solution might be setting a minimum purchase policy or assistance with capacity to maintain stock [ie. with buffer stock]. For example, [if needed] the government can buy 1000 tonnes per month so that production is not disrupted.

In addition, it is hoped that there will be alternative finances. We lack financial assistance options, because credit from state-owned banks and private banks is very high interest. Middle management especially needs assistance from the government, in the form of low interest rates for agriculture, especially seaweed. Most middle managers have been trying to restructure loans recently. Even the approved loans are in arrears because the interest is too high.

Market

Lastly, it is the market alternative. If this pandemic continues, while there is no alternative market other than China, Japan and other Asian countries, it will certainly make it difficult for this industry to develop. We hope the seaweed market can reach Australia and other countries as alternative markets.