Interview transcript
Teymoor Nabili
When we’re looking at the perspective of how to deal with Asia’s agricultural needs, and make them as efficient and as valuable as possible, what’s holding us up here?
Arif Rachmat
Okay, if we think about the world of agriculture, obviously farmers are the main actors. Without farmers there is no growth of agriculture. It is my conviction that we need to find a holistic approach into improving the lives of the smallholders through capacity building. Now, the other main actors in the world of agriculture are the financial institutions. And we know for the most part that one of the main root causes of farmers’ low productivity is because of lack of financing. But I believe it is only the tip of the iceberg, you need to look underneath. And it is a complex issue. So the first question is, why do you think that financial institutions perceive smallholders as unbankable?
Teymoor Nabili
So we’re starting at the tip first? Or should we start at the bottom of the iceberg?
Arif Rachmat
People always make a comment that the farmers are unbankable, so we need to understand why that’s the case. Because that’s a good starting point, when you dig deeper, you’ll find a lot more issues. So when you look underneath, as a farmer, I think they go through this journey, where there are a lot of landmines For example, climate issues from droughts to floods and stuff. And then also the farming inputs. Sometimes they are substandard. Sometimes they are fraudulent even. And then, once they have harvested, then they don’t have buyers to buy. And all of this compounded by the fact that they, at times, bet their house literally, through loan sharks, because of lack of financing. Right. So anytime they step on any of these landmines, it’s game over for them.
Teymoor Nabili
This perception that the farmer is unbankable, is to a certain extent valid. Where is the best way of approaching that issue? Is it to change the farmers’ behavior? Or is it to change the model of the lender, to try and accommodate the realities of the farmer?
Arif Rachmat
In PIS Agro … or Partnership for Indonesia Sustainable Agriculture, we actually have a triple helix model of collaboration of the three elements: the private, public and the civil societies. And we believe that we have at least one possibility of the answers. We call this the inclusive closed loop flywheel model. Now what is it? The answer to this we have to go back 40 years. So actually, the World Bank in the 1980s promoted palm oil as a poverty alleviation project to Indonesia, under the ‘nucleus and plasma’ scheme. I don’t know if you’re familiar with it, but nucleus is the corporate-like industrialization of plantation and plasma are the smallholders. And so the secret sauce really relies on the relationship of these two institutions? How integrated are they? In the palm oil sector under this nucleus/plasma scheme, the nucleus has to guarantee the financing – this goes back to our financing question – for this plasma.
Teymoor Nabili
So the nucleus is the lead actor?
Arif Rachmat
Exactly. They’re willing to foot up the bill if anything goes wrong, because the close integration is for the entire cycle from planting or development, all the way to production, all the way to replanting. So this closed collaboration, that’s why we’re calling it the closed loop, inclusive of MSMEs – micro small, medium enterprises. So that is the really secret sauce of this whole thing.
Teymoor Nabili
But just describe what that nucleus consists of. I mean, where does that money come from? Is that credit from the government, is that direct loans?
Arif Rachmat
Of course, there’s an evolution from the 1980s to today. Today, the industry is so well off that everybody already has capital. But in the past, there was incentive by the government, the interest rate was very low. So those kinds of things, actually, government intervention is very important. But the palm oil industry now is becoming really almost like a monoculture. And we want to have it diversified. And when you look at sector by sector, they all have different unique challenges. But I still believe that if you implement this secret sauce, the inclusive closed loop model, you will have this flywheel effect that palm oil has seen.
Teymoor Nabili
So what you’re saying is that this closed loop model, over 40 years, has demonstrated that we can build an ecosystem of smallholder farmers, with all their disparate and needs and conditions, and unite them with various aspects of the value chain, various aspects of activity in their field, bring them finance to the extent they need, and create a flywheel, something that generates ongoing momentum and provides them with success and lifts them out of poverty.
Arif Rachmat
Exactly.
Teymoor Nabili
And why is it that this successful model is confined just to one industry? Because we keep talking about how the problem is scale, the problem is replication, the problem is getting everybody on board on a model that works. And everyone says there is no model. Why is this not being used elsewhere?
Arif Rachmat
This inclusive closed loop is something that we are actually promoting under PISAgro. If you allow me, I’ll describe it a little bit closer. So PISAgro started more than a decade ago from an initiative by the World Economic Forum. At that time, it was called the New Vision for Agriculture. And it’s cascaded to the region by the name of Grow Asia, and then to Indonesia as PISAgro. So we have actually 25-strong members, composed of industry players, government as well as civil society. Now, the goal of PISAgro is to improve productivity of farmers by 20%, thereby reducing poverty by 20%, and carbon emission by 20%. And we have reached over a million farmers across 11 agricultural commodities. So it is not only in palm. And we have the goal of 2 million by 2023, which is next year, and we’re very confident we will surpass that.
Teymoor Nabili
Everyone you’ve spoken of has been particularly in the commercial sector. Where do we get in the sustainability elements? Where do we get in the aspects of carbon reduction? Where do we get in the social impact elements into all of this?
Arif Rachmat
This is the great thing about this inclusive closed loop model, because I truly believe it is one solution that resolves three main issues, the triple Ps – people, planet and purpose. So it goes beyond just rural community welfare. Because one of the root causes of let’s say, forest fire in Indonesia, is when during El Nino or long drought, farmers open their land by burning. During normal season it’s fine, but during a long drought, that’s a recipe for disaster. So if you provide incentive or alternatives for the rural community to not open the land by burning, but instead poultry breeding or aquaculture production, that require much less landmass, then we will have a much better environmental protection. So I truly believe that this inclusive closed loop will address the E part of the ESG, the environmental side.
Teymoor Nabili
You have this situation where you’re trying to convince a lot of farmers that they should behave somewhat differently to the way perhaps culturally, instinctively, historically, they have behaved. How do you do that? Informing them that there is a better way that is better for the environment makes sense on paper. Does it make sense to the farmer, and how do you actually make the action happen?
Arif Rachmat
First of all, as a company it has to come from the top right? As the owner, or the chairman, or the CEO, or whoever it is, you have to ensure that this view of the triple Ps or the ESG, must be a holistic approach, right? From that your management team actually have to spend a lot of touchpoints with the people living in the village to make sure that they see this.
Teymoor Nabili
That is mindset change at multiple levels.
Arif Rachmat
For sure. And you have to create, again, incentive and disincentive to change people’s behavior. So for example, if they don’t open their land by burning there’s some monetary reward by doing so. But that’s not enough. They still have to live from somewhere. So you need to give them some seed capital, to have other entrepreneurship within the community. So these are the kinds of programs that we’re trying to do.
Teymoor Nabili
And again, one of the contradictions is once again, between the commercial imperatives, and the sustainability, the SDG, the carbon reduction imperatives, these are not necessarily always aligned.
Arif Rachmat
But I beg to differ. I feel that it actually it’s not completely a trade-off. I completely believe it’s actually part of the same solution. So even in my palm oil industry, my ambition is to have a conservation force bigger than my palm plantation. Why? Because I truly believe that consumer behaviors as well as the political will of governments worldwide have now really driven the demand for carbon offsets and carbon pricing. And this is actually aligned with what our government is trying to push as well. Indonesia is one of the few lungs left in the world. We want to institute a global carbon exchange hub. And I think it’s really something that we have to commend. And with the G20, as host country this year, actually, this is one of our legacy events. And the other thing that I would like to point out is, I’m really happy that our government is using the UN SDGs, the 17 SDGs as the gold standard, to which ESG is being measured.
Teymoor Nabili
Let’s talk about the G20 agenda. You’re in charge of the trade and investment element of the B20, alongside the G20. What’s the agenda you’re going to put forward there? How do you think you can bring together the businesses in this region, particularly, to work together to achieve the kind of goals we’re talking about?
Arif Rachmat
So I think within the trade and investment taskforce, there are three elements. One is resiliency in the health security sense. So we want to make sure that there’s transfer of technology for the country to have vaccination and essential medical goods. The second one is inclusivity. So this whole thing about inclusive closed loop is something that we’re pushing forward. So not only this inclusive model becomes a national movement through our PISAgro model, and I can talk to you about the Jakarta Food Security Summit, because this is where we showcase our efforts of the one to two million farmers. Even before the pandemic, we had thousands of participants, local and international. We had close to 60 ambassadors and international reps present at the event. Even during COVID, we continued virtually. So it is already becoming a national movement. But what we’re trying to do with G20, and B20, is to make this an international movement. I just had my third taskforce call yesterday with close to 140 members, global members with eight or nine co-chairs. And one of our ideas or legacy events that we want to leave behind during this presidency is an inclusivity pledge, using this inclusive closed loop model as being the framework. And I’ve gotten a really positive response. So that’s something that we want to do at the summit. We’re still fine tuning the wording of it. But in addition to the pledge, what I want to showcase as well are best practices. So stories to tell. I know some of our members, even in the retail side, not outside of the agriculture, they mentioned hundreds of thousands of MSMEs that they’re nurturing, and half of them are women-led. So you know, these are the things that we need to showcase to create awareness. And then also to create sort of peer pressure by showing a dashboard, if you will, where people can be measured, where corporates can be measured. And whether you’re doing well, you know, there’s an incentive; if you’re not doing so well, we help you to get to the upper level.
Teymoor Nabili
The agendas of the B20, and the ASEAN region, all this talk of collaboration of working together of solving the last mile problems, and putting the finance into the hands of things, even your the closed loop model. They all sound good on paper, but are they actually applicable? Are they actually being implemented? I mean, I know you’ve spoken very positively about this happening.
Arif Rachmat
There is always room for improvement, right? And my philosophy always starts with the person in the mirror, which is yourself, you know, ourselves. And then we get together with like-minded business people. And that’s what PISAgro is all about. And then you engage the government. So we are utilizing our PISAgro platform, Grow Asia platform, the Jakarta Food Security Summit, to showcase this, to get more involvement. And I agree with you, getting the government to be involved is actually a game changer. No one has more resources than the government. So they provide the land, the regulation, the infrastructure, which is needed to make sure that irrigation and everything has been done, and also the certification part.
Teymoor Nabili
So what is needed to get to make that happen?
Arif Rachmat
The government is starting to get involved, but it takes years. We have done Jakarta Food Security Summit, I think it was number four, number five, times… you know it’s biannual, so it’s like eight years, 10 years, right? But the fight, you just have to continue.
Teymoor Nabili
At least reassure me that it’s speeding up!
Arif Rachmat
Exactly. So from 1 million we have 2 million targeting by next year. It’s by numbers, right? And when you measure things, it’s going to get done. And we are leveraging on this B20, G20 event, to take it to the next level.
Teymoor Nabili
And you mentioned earlier on, digitalization. Presumably a lot of this is based upon technology and traceability using digital means. So how important is that?
Arif Rachmat
So actually, they are what I consider my most recent heroes of the world of agriculture, these millennial agritech startups, founders. And I do see this mushrooming of agritech startups – no pun intended – to really make a change in the farmer’s or fisherman’s life. And I can segmentize these startups into three categories: the upstream productivity of farmers, that’s where they focus; the middle ones are the supply chain, because from farmers to consumer – 50%, food wastage by some research; and then those that actually focus just linking the two through their platform. One important insight is that, no matter where their starting point is, they all aspire to integrate the three segmentations of the supply chain, and be the only solution to the farmers and consumers. So I’ll give you one example. E-fishery is now commanding probably one of the highest valuations. And their focus is improving the life of fishermen, improving the fish pond. I don’t know if you know this, but 80% of the costs amongst fishermen is actually aqua feed. And they invest in this IoT – Internet of Things – where they can sense when the fish actually needs the food, instead of just giving it at any given point in time. So, you not only reduce the amount of feed you give, you actually harvest the fish much sooner, by a few months. So this is huge productivity.
Teymoor Nabili
So the technology plays a role. But we go back to one of the earlier problems we talked about, which is how do we get it into the hands of the right people? How do we organize it, orchestrate it, and make it talk to each other – coordinate all the different parts of value chain using that technology?
Arif Rachmat
I would even go farther than that. I would even say that when you overlay this digital technology over inclusive closed-loop, you really have this explosive breakthrough in the agricultural world. And the example that I gave you just now on e-fishery, not only they’re improving the upstream portion by the feed mill, but now they’re providing even BNPL financing model – buy now pay later. So we talked earlier on about access to finance. There you go. And all of them eventually will provide financing to farmers. So these platforms, when you improve on certain segments, they will continue to enhance the product line. And the great thing is money is being thrown at them by investors. And I truly believe that this is the moment of breakthrough that you were looking for.
Teymoor Nabili
I’m afraid I’m still going to be cynical with you and say, you’ve described a wonderful situation where we have the capacity, and to a certain extent, the desire to create better systems. But human nature and cynicism tends to lead us to remember that we’ve been here a lot of times before, and there’s a lot of bad actors in the situation. A lot of it will rely on getting the mindset changes and the collaboration purposes, tell me how you’re going to bring people together to act rather than talk.
Arif Rachmat
I think the best way to engage people is leading by example. That’s why we’re doing this in our companies. We had in the past only palm and rubber. Now we are going to corn, we’re going to rice. So you need to lead by example. But you also get together with other players. Therefore, we have a platform called PISAgro, we have platform called Grow Asia. That’s why I’m here. I don’t normally like to give interviews or discussion, but I feel compelled to do so because we do want to be evangelical in terms of spreading the inclusive closed-loop, secret recipe, which is it’s not rocket science but you just need the tenacity to continue to implement it.
Teymoor Nabili
So give us the pitch. Within your own activities, obviously you can bring those ideas to bear. How do you get other people to join? How do you get other people to to not only buy into the substance but collaborate with each other to make it happen? What is the incentive for those people to do such things?
Arif Rachmat
I told you about the example of PISAgro. We didn’t start with 25 members. Today, we already have 25 members. We didn’t have 1 million farmers, now we already have more than 1 million. It will get to 2 million, I’m very confident we will surpass that 2 million next year. We’re adding few members into our board in PISAgro as well.
Teymoor Nabili
What role does the finance industry play in the inclusive closed-loop model?
Arif Rachmat
It’s huge. But my point is, the financial institution is only supporting it. You still need the offtaker, you still need the nucleus, you still need the leading actor, to ensure that this entire value chain is being done. Banks will not give directly to small holders, unless they know it will be paid back. They know that the product will be sold to the right person. So that’s the reason why the corporate or the nucleus is so important. The role is so important. And this is why I’m trying to convince more and more business leaders to adopt the inclusive closed loop. Whatever agriculture sector you are, aquaculture sector you are, it’s been proven. I told you just now that e-fishery is already transforming into a financial institution through their buy now pay later model. And I think the digital startups are taking the lead in this. Not the traditional players anymore. I think it’s the agriculture, the agritech players will do that, the aquaculture.
Teymoor Nabili
There are so many organizations, institutions, groups, initiatives approaching this problem, approaching these issues from slightly different angles. How do we create a situation where that collaboration doesn’t itself become siloed? Where each individual group of collaborators doesn’t sort of become a silo? How do we make sure that collaboration as a principle becomes the dominating element of how we do these things?
Arif Rachmat
The way I go through these kinds of things – first, it has to come from me, right? From each individual person. For me, it’s always you have to put, what is the greater mission? The greater mission is what drives you. And I hate politics, I don’t want to get into the politics of things. I think the true North Star should be that. Are we doing this because of the greater mission? Or are we doing this because of some other reason? So I think that mentality, that mindset has to be ingrained in the organization. And that’s what I try to do, to make sure that the spirit, the greater mission is above everything else.
Teymoor Nabili
And you are involved, to a large extent with Grow Asia and a number of these other collaborative platforms. How do we encourage people? What advice would you give to Grow Asia, if it wants to be a player in that space, and to the other platforms in that space, to grow themselves in the way that you’re talking about? The kind of growth that we need?
Arif Rachmat
I don’t mean to lecture or anything. I mean, Grow Asia is actually the super body, right? PISAgro, we’re supporting Grow Asia. I don’t mean to be arrogant enough to tell people what to do. But I think in our small ways, is to show by examples. We will be more than happy, if there are more business leaders who would like to follow our footsteps, we will be an open book, we can tell you what the secret sauce, we will provide you with our technical expertise. The more people that participate in this effort, the better for the country, for the world, and also, obviously, for the farmers themselves.
Teymoor Nabili
Let me finish by addressing one of the big picture issues, and that is the movement of business leaders taking on the ESG message and really acting on it within their own companies. You’re going to sit at the B20, Indonesia’s driving the G20 and ASEAN leadership in the next couple of years, it’s a really good platform to push those messages. Are they going to be the key messages? And how do you think that’s going to pan out? Do you think business is going that way?
Arif Rachmat
For sure. It’s already happening. I think, even before G20, B20, I think this COVID thing really accelerated a lot of things. And I think green transition is one of them.
Teymoor Nabili
I was going to ask you, what would success look like to you after these events? And I guess it would be the mass adoption of this closed-loop model.
Arif Rachmat
Exactly. And I think the key word is adoption, not only the signing of the pledge but truly an adoption, and we can measure it. And hopefully the things that can be measured is being done.
Teymoor Nabili
Very nice talking to you. Thank you so much for giving your time.
Arif Rachmat
Thank you for your time and questions.
