The Implementation of the Law of the Farmer using the Internet of

Things in E-Agribusiness in Indonesia

Intan Soeparna

Faculty of Law, Universitas Airlangga, Indonesia

Keywords: Internet of Things, E-Agribusiness, Farmer Law, Indonesia.

Abstract: The purpose of this study is to seek a solution to the problem of crops supplies chain and distribution in

Indonesia based on the Law of the Farmer. The government has issued an Economy Digital Policy to create

electronic commerce in agribusiness (E-Agribusiness) for farmers and to solve their agribusiness problem.

However, the farmer is still facing difficulty in crops supply chain and distribution. Therefore it needs another

technology to solve the difficulty. The methodology of the study is the normative approach and literature

review. The finding of this study explains that electronic commerce in agribusiness is not yet ample to solve

the problem of crops supply chain and distribution, as the Law of the Farmer mandates it. The solution is a

suggestion to apply Internet of Things that is using RFID technology to solve the problem of crops supply

chain and distribution in E- Agribusiness.

1 INTRODUCTION

In Indonesia, agriculture is an economic backbone of

the nations and an important sector because it

involves food and employment sectors. Almost half

of the population in Indonesia is directly or indirectly

working in the food and agricultural areas, either the

small-scale farming or big agrarian industry. In 2017,

nearly 39, 68 million Indonesian is working in the

farming industry or approximately 31, 86 per cent

from 124, 54 million workers in Indonesia (Badan

Pusat Statistik Indonesia, 2017). The major farmers in

Indonesia are small-scale farmers who are usually

owned by a family with a small amount of capital and

using traditional farming management (M. Faiz

Syuaib, 2016).

Nevertheless, the farmers typically lack financial

support and production guidance of professional as

well as technical experts. They also lack of

knowledge of modern agricultural technology that

affects their production outcome. And the major

problem of the farmers in Indonesia is relating to the

crops supply chain and distribution management

(Agribisnis, 2017).

The long crops supply chain and distribution will

consume an expensive operational cost for the

farmers. The cost will then affect the benefit from the

sale of the crops itself. The farmers are often facing

the problem relates to crops supply chain, interalia: 1)

the uncertainty quality of product; 2) the lack of

quality supervision along the chain; 3) the lack of

market information; 4) the lack of transparency in

pricing; and 5) there is no ability to tracking and

tracing the crops. The biggest problem in the crops

supply chain in Indonesia is the lack of transparency

in pricing. Farmers or producers are mostly struggling

to sell their crops at a decent cost. However, the

middleman takes up its role which is causing the price

of the crop is higher in the market than the original

price from the farmers. For example, in 2017, the

onion farmers sold their products up to Rp 10 -

15.000/kg (approximately a dollar/kg) and the

middleman sold their products up to 100% from the

original price. It means that the farmers only enjoy the

benefit of their products for 10% -20% of the market

price (hortikultura, 2017). It shows that the pricing

mechanism of onion was not transparent and it

depends on the power of the middleman in the supply

chain. To that end, crops supply chains in most

developing countries, including Indonesia, are

inefficient due to information asymmetry. The result

is that the farmers do not receive their due share, even

though they are an essential part of the chain (the

producers).

The problem above is resulting in a vast

transactional cost from production to the end

consumer, and it directly affects the farmers to

Soeparna, I.

The Implementation of the Law of the Farmer using the Internet of Things in E-Agribusiness in Indonesia.

DOI: 10.5220/0010050300490055

In Proceedings of the International Law Conference (iN-LAC 2018) - Law, Technology and the Imperative of Change in the 21st Century, pages 49-55

ISBN: 978-989-758-482-4

achieve economies of scale. The extra transactional

cost usually affects the income of the farmers

especially for the farmers who work in a small-scale

farming system that is using traditional farming

technology on less than 0, 3 hectare of land. The

income is often in the range of Rp. 3, 98 million - 1

million per month or approximately up to 47, 76

million Rupiah per year (Kurniawan, 2017). It is

usually lower than the average worker in another

sector which affects the welfare of the farmers.

Speaking about the welfare of the farmer, the

Government of Indonesia has given the best concern

regarding of it, by issuing Law No 19 the year 2013

about The Protection and Empowerment of the

Farmer (the Law of the Farmer). The primary

objective of the Law of the Farmer is to improve the

welfare of the farmer in Indonesia. However, there is

a gap between the law and the condition of the farmer

today that leads to a question of how to implement the

law to improve the income of the farmer?

The law of the farmer introduces integrated and

suitable arrangement to achieve the optimum targets

of the protection and empowerment of the farmer. It

enshrines in its objectives as follows:

1) Realising the sovereignty and independence of the

farmers to improve their welfare, good quality and

better living;

2) Providing better agricultural infrastructures and

facilities to develop a farming system;

3) Providing insurance for the farming;

4) Protecting farmers from price fluctuation, high-

cost economy practice and crop failure;

5) Increasing the capability and capacity of the

farmers as well as farmer organisation

6) Developing agricultural finance institutions

These objectives are defined in the purpose to

protect and to empower the farmer. The purpose of

protecting the farmer refers to all necessary efforts to

assist the farmers to deal with the problems relate to

infrastructures and production facilities, business

certainty, price risk, crop failure, high-cost economic

practice and climate change. Meanwhile, the purpose

of empowering the farmer refers to all necessary

efforts to improve the capability of the farmer to

implement better farming through education and

training. The government set up strategies to achieve

the purpose of the protection of the farmer as follows:

1) Issuing the provision of agricultural

infrastructures and facilities

2) Promotion business certainty

3) Setting up the appropriate price for agricultural

commodities

4) The elimination of high-cost economy practices

5) Releasing the provisions to compensate the

farmer for the crop failure due to extraordinary

events

6) Issuing the provision of early warning system due

to exceptional circumstances

7) Tackling the impact of climate change

8) Developing agricultural insurance.

The government implemented the strategies to

protect the farmers along with the plan to empower

the farmers, as follows:

a) Education and training

b) Counselling and mentoring development of

marketing system and facilities for agricultural

products

c) Consolidation and assurance of agricultural land

area

d) Providing easy access to science, technology and

information, and

e) Strengthening the farmer organisation

One of the strategies to empower farmers is to

provide easy access to science, technology and

information. The aim of this strategy is to empower

the farmer with knowledge and to support the farmers

to solve the problem of the crops supply chain,

marketing and the distribution to the market.

The Information and communication technology

(ICT) is one of the best options to implement the

strategy to empower the farmer under the Law of the

Farmer. There are two systems in ICT that can help

the farmers to achieve benefit from their crop supply

chain, marketing and distribution. First is electronic

commerce in agribusiness (E-Agribusiness) and

second, is the application of the internet of things

(IoT) to support the system of supply chain and

distribution.

Electronic commerce (E-commerce) is any form

of economic activity conducted through electronic

connections. The bandwidth of electronic commerce

spans from electronic markets to electronic

hierarchies which incorporates electronically to

support entrepreneurial networks (Wigand, 1997).

The interface is interconnected to perform

entrepreneurial activities or to complete a particular

target. The information received from the

interconnected network is a processed data that has

meaning and useful for the user (Maman, 2016). E-

commerce has been used for many decades by

retailers and consumers in many countries, including

Indonesia. Some major leading countries have

developed and transformed E-commerce to be more

convenient and efficient by using the Internet of

Things (IoT). When it comes to technology, IoT is the

latest buzz, because the IoT is enabling devices to

exchange data with each other more efficient which

iN-LAC 2018 - International Law Conference 2018

is influencing the benefit of the users. IoT is expected

to have more impact on E-commerce business.

IoT is recognised as an interconnected object

through the internet, with the concept that every

object is connected through a unique identifier that

can transfer data through the network without human

interaction (Sarita Agrawal and Manik Lal Das,

2011). The concept of IoT in agriculture can be used

in the different domain, such as precision agriculture,

product supply management, smart grid, environment

monitoring and cloud computing (Raheela Shahzadi,

et al., 2016), it is known as smart farming. It can be

implied from upstream to a downstream agricultural

production system. Smart farming is the development

of agricultural technology that is using information

technology in the cycle of farming management using

cyber-physical. New technology such as IoT and

Cloud Computing has influenced the development of

agricultural technology, and it is using a robot or

artificial intelligent in agriculture (Sjaak Wolfert, et

al., 2017). Smart farming also includes the supply

chain of agricultural product using IoT.

2 METHODS

This research is analysing the possible technology to

solve the problem in crops supply chain and

distribution management of agribusiness in

Indonesia. It begins with the analysis of the Law No

19 the year 2013 Article 67 in regard with the

obligation of the government to provide easy access

for the farmers to the knowledge, science and

technology regarding improving the agricultural

system and agribusiness. Article 67 is implemented

through the application of ICT to tackle the problem

of crops supply chain and distribution. The method of

this research is a literature review of the type of IoT.

The reason to imply IoT is because this technology

can solve the problem of crops supplies chain and

distribution.

3 DISCUSSIONS

3.1 The Implementation of Article 67

of the Law of the Farmer

Under Article 67 of the Law of the Farmer, the

government should provide easy access to

knowledge, technology and information for the

farmers to achieve a standard of the quality of the

agricultural commodities. The access to technology

includes:

1) Dissemination of knowledge and technology

2) Transfer of technology

3) Providing the facilities for farmers to access the

ICT or other knowledge related to agriculture.

According to Article 67, the information

regarding technology should be accurate, punctual,

fast and easy to access by farmers, the agricultural

industry and society. It means that the technology

should be visible and flexible to accommodate the

need of the farmers to overcome the problems in

agricultural activities. The most relevant technology

is the technology to aid the supply chain and

distribution management in agribusiness. It is

necessary to equip the farmers with the technology

that helps them to overcome the problem of lengthy

and costly supply chain and to provide better market

information.

In 2016, the government issued the program of

Economic Digital called “Action Synergy Program”

to aid the farmers to solve the problem of the crops

supply chain, and moreover, to tackle the issue of the

middleman. This program is introducing easy access

for farmers to interact with the end consumers using

digital service in the form of electronic commerce to

sell the crops (Kementrian Keuangan, 2016).

Through this program, the government is supporting

the digital application for farmers to sell their

products directly to the consumers using E-

commerce. Both farmers and consumers are able to

use a web browser where the farmers can upload the

information of the products, and the consumers can

purchase the product directly.

There are several E-commerce applications start-

ups for agribusiness in Indonesia such as

www.limakilo.id, Pantau Harga and TaniHub. These

applications are integrating the electronic commerce

components such as website, logistics, online

advertisement, and payment gateway as well as

market analysis in agribusiness. The purpose of E-

commerce for agribusiness in Indonesia is to cut the

middleman on the basis that the direct sale of crops to

the consumer will give fair pricing of the products.

TaniHub has the concept to help the farmer to connect

with consumers directly, cutting out many

intermediaries who drive prices up for consumers and

keep farmers’ profit margins are low. Pantau Harga is

an app that provides producers and consumers with a

real-time commodity price (Freischlad, 2016). In

addition to this, the E-commerce for agribusiness can

strengthen the position of the farmers which it offers

excellent opportunities for collaboration and joining

forces by farmers (Strzębicki, 2015), for example,

The Implementation of the Law of the Farmer using the Internet of Things in E-Agribusiness in Indonesia

www.limakilo.id is providing cooperation of farmers

for the specific product to give a certain amount of

crops for retailers or consumers.

3.2 Electronic Agribusiness in

Indonesia: A Challenge

Electronic Agribusiness (E-Agribusiness) is a part of

Electronic Agriculture (E-Agriculture) which is

defined as “the application of modern information

and communication technology (ICT) to agriculture

and rural development with the goal to improve

human livelihood by reducing poverty and hunger

among the rural communities”. FAO defines E-

Agriculture as “an emerging field in the intersection

of agricultural development and entrepreneurship,

referring to agricultural services, technology

dissemination, and information delivered or enhanced

through the internet and related technologies. More

specifically, it involves the conceptual, design,

development, evaluation and application of new ways

to use existing or emerging ICT” (Maumbe, 2010).

Many agribusiness organisations have capitalised on

many advantages of electronic commerce to improve

the marketing of their products. The technology of

information embodied in E-commerce is a platform to

provide sharing information among farmers

(producers), retailers and consumers. The modern

infrastructure of information technology integrates all

types of information and resources through technical

facilities in advanced networks and communication

tools (Bo, 2010). E-commerce is increasing benefit

for agricultural sectors because of the high reliance on

accurate and punctual information in a considerable

physical distance between farmers and consumers.

Many benefits of E-commerce in agribusiness are: 1)

providing the possibilities of cost reduction and

enhancement along the agriculture or food supply

chain, 2) automation capacity that substantially

reduces transaction and procurement cost, 3)

improving efficiency by reducing inventory levels,

transportation costs, order and delivery time, and 4)

more transparent and competitive than physical

market (Nadarajan & Ismail, 2011).

However, the application of E-Agribusiness in

Indonesia is facing some challenges, for example, 1)

the most of the farmers lack knowledge and necessary

information for the use of electronic commerce and

internet networks due to low education background of

the farmers. 2) The lack of infrastructure on the

internet. 3) The high price of the software in E-

agribusiness. 4) The characteristic of agriculture

product is seasonal with the high volume but the low

value with different standard in each country

(Soekartawi, 2007). In addition to those, E-

agribusiness in Indonesia mostly is using

conventional electronic commerce in which the

application still comprises some problems. The

prominent problem in E-agribusiness is supply chain

management, especially in the logistics and

distribution system. It is an integral part of E-

commerce operation and plays a vital role in E-

commerce of agribusiness. The agricultural supply

chain in agribusiness encompasses the flow of

products, knowledge and information between

agricultural stakeholders and consumers (Braun,

Colangelo, & Steckel, 2018). It is essential that the

whole supply chain process for E-Agribusiness is

smooth and effective.

E-Agribusiness is similar to other E-commerce

for business where the internet is connecting

customers or mobile devices with online and service

providers through E-commerce website or mobile

applications. The retailers or distributors are mostly

acting as intermediaries between producers and

consumers. For example, Tani Hub is only

intermediary application that is connecting farmers or

producers to consumers. However, the retail or

intermediary is seldom joining other things such as

products (in agriculture is the crop or food) that is

purchased by consumers. The online retailer is also

hard to collect information regarding the quality of

the product during transport or whether the product is

satisfied the consumers. Especially for perishable

good like fresh agricultural products, the

conventional E-agribusiness mostly lack real-time

information, disperse of production and the

disequilibrium of market forces (Zhang, 2016). The

lack of real-time information leads to misplace

information among the producers, retailers and

consumers. The absence of real-time information also

creates a long time product circulation and

distribution that hinders to the upstream enterprise to

know the sales and other downstream enterprises to

know the product situation. The disperse situation of

production also becomes a problem in E-

Agribusiness where producers or farmers scattered

around the country as well as consumers who will

find difficulty to grasp specific information on the

market supply and demand (Zhang, 2016). To tackle

the problem of supply chain and distribution in E-

Agribusiness, some scholars suggest applying

Internet of Things (IoT) (Jin, 2012; Liu, 2014; Zhang,

2016; Xu, 2014). The application of IoT to supply

chain management would wipe off the “bullwhip

effect”, and the real-time product information would

help the E-Agribusiness stakeholders to track product

during the supply chain process (Jin, 2012).

iN-LAC 2018 - International Law Conference 2018

3.3 The Application of IoT in

E-Agribusiness

Internet of Things is a part of the development of ICT

today. The concept is basically to connect numerous

things or objects such as Radio Frequency

Identification (RFID) tags, sensors, actuators, mobile

phones or others through the internet. the objects has

a unique address to interact and co-operate, to

compile, process and distribute using wireless and

non-wireless communications systems with each

other (Md Nazmus, et al., 2016). The RFID

technology is integrating the data, distribution and

safety of quality in the agricultural supply chain

effectively (Liu, 2014) which can develop electronic

commerce in agribusiness. Moreover, the IoT can

enhance the application of electronic commerce in

agribusiness, for example in the core of supply chain

management in which logistics is part of it. IoT thus

can support the intelligent logistics to develop better

electronic commerce in agribusiness, where the

whole process of the goods delivery, supplies,

transportation base on an instruction of corporate

computer systems.

IoT can also streamline the supply chain process

from one stage to the next step without interruption.

It allows E-Agribusiness stakeholders to track

products from downstream to upstream. The GPS and

RFID technologies aid the E-Agribusiness

stakeholders to track product in the supply chain

process such as transit and delivery using key

information about location to prevent shipments from

being misplaced or lost and to estimate the delivery

times.

Xu (Xu, 2014) analysed three leading roles of the

IoT in intelligent supply chain system, as follow:

a) Management tools smart upgrades

This intelligent management tool is the

coordination between computer technologies,

barcode, RFID in the logistics and supply chain in

which the function is to reduce the costs of the

logistics chain. In agribusiness, the accurate and

precise time for the management of logistics is

necessary since it is related to the perishable good.

This tool is creating fast and accurate information of

product along the distribution chain.

b) Transport intelligent upgrades

The e-commerce in agribusiness will not fall apart

from the reliable transportation system. In the

intelligent transport, GPS and networking technology

could be used to realise the visualised tracking

management as a part of the process, accurately

predict the arrival time of goods, shorten delivery

time and improve efficiency. In the agribusiness

where the agricultural product often has expiry

period, intelligent transport can reduce the possibility

of uncertainty delivery timing.

c) Product safety upgrades

The RIFD technology can create a traceability

network system for an agricultural product. The

intelligent product traceability system provides a

solid cargo logistics support for agriculture and food

safety. RFID tags are acting as enhanced barcodes

that is enable the tracing and tracking agricultural

product during the supply chain or distribution. It

combines more than one sensor to enrich the

information of product status whenever this is

recorded (M. Maksimovic, 2015).

3.4 The Challenge of the

Implementation of IoT in

E-Agribusiness in Indonesia

Although IoT in E-agribusiness will ensure the

process of supply chain and distribution of product to

be more efficient, traceable, transparent and

accessible for E-Agribusiness stakeholders that may

increase the income for farmers, IoT may bring some

challenges, especially in Indonesia. It is similar to the

implementation of electronic commerce in

agribusiness; Indonesia is facing some problems to

apply IoT in E-Agribusiness. These challenges are as

follows:

1) Security Issues

The prominent threat of IoT is a security issue

where the system is vulnerable to computer attacks,

such as DDOS, malware and other cybersecurity

issues. The method of IoT is a collaboration among

all participating nodes, sensors and other wireless

devices and items that connected automatically

without a fixed infrastructure. This method will be

vulnerable from the interception of non-trustworthy

networks, where the data may be stolen or altered

without authorised (Chen, Jan, & Chien, 2010).

Cybersecurity is another problem to solve in

Indonesia because it is obliged coordination between

technical solution and regulation.

2) Data Privacy

The IoT represents taking the data collection,

storage and analysis mechanism to a higher scale that

without data privacy protection will create a

challenge for users. Indonesia itself does not have

data protection policy which will create a vulnerable

situation for IoT user.

3) The complexity of the devices, people,

interactions and interfaces are creating more risk for

data security

4) The expensive of the device

The Implementation of the Law of the Farmer using the Internet of Things in E-Agribusiness in Indonesia

The primary IoT devices and software are costly

especially for the farmers in Indonesia.

5) Human resources

The lack of human resources who experts in IoT

also a challenge for IoT in E-agribusiness in

Indonesia

4 CONCLUSIONS

This research concludes that the farmers are often

facing the problem in agricultural supply chain and

distribution where the traditional mechanism of

supply chain and distribution is costly and time-

consuming. The government hence is supporting the

farmers to easy access to technology by providing the

program on the digital application in which can solve

the problem of agricultural supply chain and

distribution.

The farmers can use ICT application in the form

of E-commerce which also can tackle the lack of

transparency in pricing because the integration

system of electronic commerce pursues the

transparency of pricing between the farmers and the

consumers. The result of this application is that the

farmers can sell the crops directly to consumers

without involving the middleman. Moreover, the

application of ICT through IoT can tackle the

problem of logistics and distribution in E-

agribusiness by using the IoT intelligent logistic. This

IoT is then able to address the issue of the long chain

of distribution. The result is that the IoT in intelligent

logistic is also solving the problem of quality of the

product along the chain by using RIFD tag and

barcodes and it also helps the farmers to trace and to

track the crops along the chain of distribution. The

IoT is creating fast, timely and accurate information

of the product to sell.

The success of the application of the ICT in

agribusiness, both are using the digital application in

E-Agribusiness and IoT, is following Article 67 the

Law of the Farmers. Under this article, the technology

should assist the farmer to obtain the information

accurately, fast and easy. As a result of the use of the

technology, the farmer can conduct better

agribusiness to increase their income and to improve

their welfare according to the objective of the Law of

the Farmer.

However, there are still many challenges

regarding the implementation of both E-agribusiness

and IoT. The government and E-Agribusiness

stakeholders can solve the problem by increasing the

awareness of technical cybersecurity, establishing

legal environment such as data protection policy and

providing a reliable and good condition for

investment in the ICT sectors.

ACKNOWLEDGEMENTS

The research is a part of the annual research funded

by Universitas Airlangga 2018 (RKAT 2018).

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The Implementation of the Law of the Farmer using the Internet of Things in E-Agribusiness in Indonesia