Episode Fourteen

Upending Aquaculture:

Gibran Huzaifah of eFishery

3 September 2020

(past transcripts)


ALAN  0:10  
Welcome everyone to Episode 14 of Indo Tekno. Pleased to have you tune in again. With this episode we step pretty far afield from our previous focus on how innovation is enriching the online lives of Indonesian consumers. Indeed, past instalments are focused on topics such as streaming video, new FinTech solutions, e-commerce and other "2C" or "to end customer" solutions. This week we examine the application of cutting edge technology to one of the world's oldest industries, aquaculture or fishing. According to a recent article in Nature Magazine, food from the sea represents only 17% of the current production of edible meat. Experts anticipate innovations from the likes our guest, Gibran Huzaifah, and his company eFishery, to help drive edible food from the sea to increase by 21-44 million tons by 2050. That's a 36%-74% increase compared to current yields. This represents up to 25% of the estimated increase in all meat needed to feed 9.8 billion people expected by 2050. It is thus not an exaggeration to say that the productivity improvements planned by eFishery and the other leaders of the aquaculture technology movement will have a truly fundamental and global impact. Gibran, a warm welcome to Indo Tekno, could you please share with us your story? 

Thank you so much, Alan. Hi, everyone. I'm Gibran, CEO and Cofounder of eFishery. We're a technology startup that focuses on building solutions for the fish and shrimp farming businesses. And the main reason why we are in the aquaculture industry is because before we started eFishery, I was a fisherman myself. So I studied biology and studied in particular aquaculture and I was inspired by how aquaculture has a huge opportunity in Indonesia, the second largest aquaculture producer in the world. From that inspiration, I started my own farm, from one farm to 76 farms when I graduated from college. And that's also when I saw a root issue in aquaculture. This long and old traditional sector has no technology and solutions that can help them increase their productivity. And one of the biggest problems was in feeding, which accounts for 70% to 90% of the total cost, and it is currently done manually by labor. It's a big issue for the business. But it is also a big issue for the environment. In a lot of water bodies in Indonesia, fish feeding is the largest pollutant in the water. So I saw this as a market opportunity. It's a big issue for  business and socially. It's also a big issue for the environment. So this is a problem that we're solving, and it's where I started building a solution involving smart feeding technology. 

ALAN  2:56  
Now, Gibran eFishery is founded in 2013. Can you share with us the major chapters in the company's development?

At the beginning, it's about building the product. We didn't have any technology before. And it's really hard in 2013 to build a technology that has a hardware component. We didn't have enough talents, we didn't have enough supply chain, and the users were not even ready for a smartphone-based IoT (Internet of Things) solution. So what we did at the beginning is try to find a way to build the product quickly, to create a product that could be radically affordable for the farmers to use. So that's one chapter. And afterwards, the challenge was how we educate farmers that have been doing the same thing for decades to use an automated solution using smartphones when they have never used a smartphone before. So the education process and adoption took a long time, and after that we created a model. And for the next one or two years our focus was mainly on expanding our value chain solution using the data that was generated from our IoT. 

ALAN  3:57  
Gibran, what is your vision as the founder of eFishery?

We see that from a sustainability perspective, if you consume fish, it is much more sustainable when you consume it with other sources of animal protein. So in that model, it will help the whole food sustainability effort if the aquaculture thrives. Traditionally, the supply chain is over-marginalised. There's too many people in the supply chain, and the farmers don't have enough technology to increase their own yield. We envision that eFishery can help to accelerate aquaculture growth to be the largest provider of animal protein in the world by creating an efficient supply chain, as well as increasing productivity using technology. 

ALAN  4:40  
Now Gibran, you mentioned that Indonesia is the world's second largest harvester of fish, I think behind China. And there are more than 3.3 million fish farmers in Indonesia. How do your solutions currently help them? 

There are a lot of farmers and there's more than 30 million fish ponds all across Indonesia, and every farm and every pond has the same problem. The first problem is on the feeding costs, which is 70% to 90% of total costs, and is currently done manually by labor. We're trying to solve the problem by creating a smart feeding technology that can help the farmers feed the fish automatically, connected to the sensor that can sense the fish's appetite and send the data to the cloud. And by using this, the farmers can increase the efficiency of the feeding process and then also reduce their harvest, which also increases the growth. And all in all, it can almost double their income by using the technology with the whole feeding solution, using much better practice because of the solution that we provide. And secondly, the other issue is how farmers can get access to both upstream inputs and the downstream market, because they only have a small scale and can't get a good price from the factory as an input. And they can't really get access to the end buyers. There's five to six middlemen from the farmers to the end customers. So in that model we're trying to solve by using the data that was generated from our smartphone and our IoT solution to help them connect with cheaper inputs and more efficient inputs as well as with the market. We're using predictive data so they can have enough scale, aggregating to group-buy, and purchase directly from the feed manufacturers for the inputs, and then use the same model to connect them directly to the restaurants and the end consumer buyer, so they can connect with the buyers offering the highest price. 

ALAN  6:24  
So it sounds as though you're outlining a vision of pretty full vertical integration, from procurement to downstream sales. How far along that path are you now in September of 2020? And how far along will you be to completing this vertical chain within the next year? 

We started off as an IoT solution with a "Feeding-as-a-Service" model. And in that model, we already deployed tens of thousands of units all across Indonesia, in 24 provinces, with more than 7,000 farmers already in our current ecosystem. So that's one thing and then using this, we have a massive amount of supplies that we can provide, and massive amounts of community that we can create. We can also create value from both the input and the output sides. 

And on the feed solution side, we've currently sold around 1,000 tons of feed to hundreds of farmers in a couple of provinces in Java and South Sumatra. And for output, we're currently connecting hundreds of farmers with large companies and more than 2,000 outlets in Jakarta. So in terms of both input and output, it's still taking off. We just have been doing it in the last one year. But we envision ourselves to be the largest fish suppliers and the largest feed suppliers in Indonesia without having to own any single pond. So that's the idea of the whole business. 

ALAN  7:47  
Gibran, can you quantify the benefit using the eFishery solution in terms of cost savings? You talk about group-buying of fish feed on one hand and then more efficient sales downstream. What are the cost savings of buying the fish feed through eFishery? And what kind of better pricing can the farmer get, on the other hand, from selling through eFishery?

It really depends on the communities within the area because we're connecting the farmers on a certain scale directly to both the big manufacturers and the buyers. So currently from the input side, by cutting off the distributors and the smaller agents, we're able to reduce the price from 8% to 10% compared to the price that they usually got before joining the eFishery ecosystem. And I think considering that with feed 70% to 90% of the total costs, 8% to 10% savings for every cycle for everyone would create massive value for the farms. So that's one thing on the input side. From the output side, usually they have to sell fish to the middlemen, but by cutting off middlemen and connecting to restaurants, we can create an additional 40% margin, and we're buying around 25% more than the normal price that the middleman usually bought before. So that's the value that we can create, both in the input and the output side. You can also create value with our technology solution, tripling their income compared to before, by using the whole technology ecosystem that we provide them.

ALAN  9:17  
Those are absolutely massive improvements. Very impressive. Now I have a more specific question about the technology. How does the fishery solution work in the area of feeding fish? You earlier mentioned sensing the fish's appetite and you talked about pond-level data. How did those technologies work? 

The technology itself flows like a machine with drums that you can put the feed in. But it is controlled with a certain simple computing solution that is connected directly with peer-to-peer WiFi-to-smartphone. And it is connected to a sensor that can sense the appetite. The way that we sense the appetite: we use two types of sensors. Technically, the first one is vibration-based sensors so it's more like an accelerometer that senses the movement of the fish when they're hungry or full. Then we know when they're already full and stop the feeding, because fish tend to be more aggressive when they're hungry, and less aggressive when they're full. So it's more like a "fish fullness" sensor. 

And the second is also similar to "fish fullness", but we're using an acoustic bass sensor. We're putting a microphone inside of the water that hears the "nyum nyum," the "chop chop" sound when the fish are eating. So when they stop eating, then they're already full. And we stop the feeding. And then we send the data through peer-to-peer Wi Fi, and then send the data to the cloud. Within the cloud itself, we are creating different kinds of machine learning. We then send back the feedback to the smartphone and the edge computing that we have. 

ALAN  10:41  
I wonder, are there any human applications to this? I can imagine my wife using this to better control my diet, because I indeed get very aggressive when I'm hungry. 

That's a good idea. A lot of people asking me whether they can feed their family using this technology. So I have to think through.

ALAN  10:58  
I'll pay good money for it.

Now Gibran, does eFishery maintain any inventory of feed itself? Or is it purely a marketplace? 

The idea is of a group-buying model based on the predictions that we have. We are aggregating, for example, 100 farmers that need a certain brand of feed. Then they have enough scale to buy directly from the feed manufacturers. And we then keep it on-demand at certain pickup points based on the day that they need it. So, in short, we don't really have inventory per se, but we do have a 12 hour window for the farmers to pick up at certain pickup points that we have all across the country.

ALAN  11:38  
You may have mentioned this earlier, but how widespread is the adoption of eFishery solutions today? And what will the level of adoption be in three years?

Currently, we already have more than 7,000 farmers in our ecosystem, and more than 40,000 ponds all across Indonesia in 24 provinces and 252 cities in Indonesia. So it's pretty spread out. In terms of adoption, what we are happy and proud about is that we have a zero percent churn rate in the last three years. It shows that our technology actually can create a benefit for them to stay.

ALAN  12:14  
I've heard that aquaculture is growing nearly 20% per year. How could such a traditional industry be growing so quickly? What's driving the growth?

Two things that are driving the growth. The first is definitely the consumption from the consumer himself, because with the increasing of the middle income society, then they tend to want to eat animal protein. And particularly in Indonesia and other parts of Southeast Asia, fish is the most affordable animal protein that is available in the market. So that's what is driving this kind of consumption. And the second is a shift in how we get our fish because in the last 30 to 50 years, most of the time we got our fish from wild capture; fishing in the sea.

But in the last 10 years with overfishing and the global warming issue, the way that we produce the fish has shifted to aquaculture. Initially, we ate more fish from wild capture. Right now, in the last five years, we eat much more fish from aquaculture and fish farming rather than from wild capture. So those are the two things that drive the growth in the fish and shrimp farming business.

ALAN  13:24  
Another basic question, Gibran. How does he fishery make its money? Is there a subscription fee? Do you take a percentage of your customers revenues? 

We make revenue based on subscriptions. We call it "Feeding as a Service". We have a flat fee per month that they have to pay.

ALAN  13:40  
Gotcha. And are you planning to layer in additional services over time, or does that flat fee entitle them to whatever new developments and innovations that you make in the future? 

For example, if we sell the feed and help them sell the fish, then we're taking margin from the transaction. It is not meant to be adding to the subscription because it's on a transaction basis. But for example, let's say we're adding a new kind of sensor and upgrading the solution itself, then they have to pay for an add-on on a subscription basis. We also have been experimenting with incremental base revenue. We increase their income, then we take a cut from the income. But there's just currently in an experimental phase. 

ALAN  14:22  
Now Gibran, I assume that there is a significant hardware cost in deploying the eFishery solution. Does eFishery subsidize that? Do you bring in bank financing? Or does the pond owner buy the equipment outright? 

We don't charge for the hardware in advance. So it's all eFishery's "burden". And the way we do that is we use our own capital to manufacture it and then have it deployed to the farmers. We have seven to nine months breakeven for the manufacturing costs. As long as they stay with the products for a longer time,  we generate much more margin from the farmer and from one subscription. So that's the idea of the business. And the way that we finance it: we're raising our own capital, mostly equity-based, but we're foreseeing that in the long run, we can blend it and combine it with bank financing and other alternative financing that is available. 

ALAN  15:15  
Let's stay on the topic of financial services. I wanted to discuss what financial services eFishery has in mind going forward. 

The financial surfaces that we have, we call it the eFishery Fund, because we know the data; how many fish that the farmers produce and how much feed that they're using. So practically speaking, we know their margin and we can correlate the data with other kinds of data. For example, the fish behavior data that we get, also water quality data and weather data. So practically, we know the margin. So by using this data, we have been creating some kind of credit scoring to analyze which farmer are good and which are not really that good. We're using those data and credit scoring as a complimentary credit scoring that we work on with the financial institutions, the banks and the peer-to-peer lending platforms. And using that data, we'll then underwrite the loan for the farmers and then the farmers can receive and get access to the financing. And we take a fee from the origination processes that we have. So that's the idea of financial services. We don't really disburse and provide loan by ourselves, but working with the other financial institutions. 

ALAN  16:26  
How do you think about competition in this space? I can't imagine there are a lot of players here, but what do you regard as your competition at eFishery? 

We currently don't have any head-to-head competition. There are definitely other solutions in other countries such as India, Norway, China and Japan, for example. But in Indonesia, we're the only company that is currently doing this, so we don't have any competition. Our potential competition and threat is the traditional establishment that has been here before. For example, in the auto-feeding process, our competition is not the other smart IoT feeding solutions, but the way that they feed the fish manually, because that's the way that we have to change it. And for both financing, and input and output side, our competition is the middleman, the other fish feed distributors that were already there and have been doing the business for decades. The traditional establishment is what we see as our competition. How we can disrupt and provide much bigger value to the farmers is what we're aiming to do to defeat the competition. 

ALAN  17:27  
Understood. Is there an international component to eFisheries future? Or do you find that you will remain Indonesia-centric for many years to come? 

In the last one and a half years, we have been doing pilots in other countries like Vietnam, India, Bangladesh, and Thailand. The main reason why we were in those countries first is because there is demand there. There are a lot of large companies and farmers asking whether they can get our solutions there. And we also have strong local partners to deploy our solution in those respective countries. The model that we imagine in the future is that we have local partners, typically large companies, that can help us deploy our product better. So to answer your question, definitely there will be regional and global opportunities because the opportunity is still there. And right now we're the second largest market. And the countries that I mentioned are third to sixth largest, and the largest is China. So we definitely want to be in the top six to top ten producing countries in the next three to five years. And we just need to find the right operating model for us to expand.

ALAN  18:34  
Now Gibran, I noticed recently that GoVentures is an investor. Are there potential synergies with Gojek itself? 

Yes, definitely. There are potential synergies with the Gojek. I think fundamentally, what we're trying to solve in our different sectors is similar. We are trying to provide technology and access to SME's, and informal workers. The difference is we're in the aquaculture sector and Gojek is more in the consumer, ride-hailing and food delivery sector. Let's say we're doing financing and taking the fish from the farmers. There's definitely synergy from that. For example, a lot of GoFood merchants need fish. And currently they buy the fish from the traditional market. Using their massive amount of GoFood merchants and our massive amount of supply, we can connect the demand in the last mile and the downstream level to the supplies that we have. And both of us are tech companies. We can do this using a much better way, which is using data and technology that we have. So that's one thing. The other thing that Gojek has is GoPay: their big play right now. GoPay had never expanded into the aquaculture sector, but we can provide a better use case because we're dispersing loans and they're transacting within our ecosystem. GoPay could be the backbone of those payments for the aquaculture sector itself. You can connect directly to the downstream to Gojek from GoFood merchants. It can be transacted by Gojek users using GoPay. They can buy directly from the farmers with GoPay. And then the farmers will pay the fee to our distributors using that payment infrastructure. We have a lot of different kinds of use cases that we're currently working with Gojek to provide solutions and additional value to all parties involved in the ecosystem. 

ALAN  20:27  
Clearly far more synergy than initially meets the eye. This has been an absolutely eye-opening discussion, Gibran. eFishery's innovations clearly have massive longer term global ramifications, and we look forward to seeing its impact grow with time. Well, this concludes our 14th instalment of Indo Tekno. Thanks so much for joining us today Gibran. 

Thank you so much, Alan. 

ALAN  20:48  
The podcast was translated from English to Bahasa Indonesia by Alpha JWC Ventures. Terima kasih untuk mendengarkan. Sampai jumpa lagi.

Transcribed by https://otter.ai