Where Have the Talents of Agricultural Enterprises Gone? A Close Look at Five Realistic Problems
I. Where Did the Money Go? —— The Capital Predicament of Agricultural Enterprises
Falling just before the dawn — this is the most tragic scene in many agricultural investments. The Qingdao blueberry and Sichuan kiwifruit bases acquired by Lenovo were, to some degree, also suffering the pain of a “darkness before dawn” in their original operating companies. Encountering Lenovo may not have counted as a “beauty marrying into a wealthy family,” but at least it avoided a tragic ending caused by an inadequate capital chain. Why are so many agricultural enterprises suffering from severe capital bottlenecks? Broadly speaking, there are the following situations:
The first is getting the investment budget wrong. Copying the industrial model of “heavy assets, light working capital” and assuming that focusing the initial investment on land acquisition, building sites and buying equipment will be enough, with a small amount of working capital to keep things running, the result is far from this. If in industry a fixed investment to working capital ratio of 8:2 is acceptable, then agriculture needs it reversed, requiring 2:8. Unfortunately, investors coming to the primary industry from the secondary and tertiary industries often fail to anticipate the enormous demand of agricultural enterprises for working capital. To put it simply, agriculture is strongly seasonal and cyclical, the funds tied up in raw materials and storage costs are also high, and the turnover speed of working capital is clearly slower than in industry; this alone inevitably ties up a large amount of working capital. Take live pigs, already among the shorter cycles in modern agriculture, yet they still require a 6-month turnover period. And note that during this cycle, the pig has not yet grown to completion, so it absolutely cannot be sent to the slaughterhouse; that is, there is no payment coming back during this cycle, only ever more working capital being added, toughing it out. Industrial products can at least be sold while being produced, or part of the products disposed of at a low price to tide things over; agriculture has no such option. Worse still, agriculture is the production of living things; industry in the worst case can pause the production line due to a liquidity shortage, but agriculture cannot even do this — it simply cannot stop. A pig must be fed four times a day without fail, vegetables must not lack water and fertilizer at critical times, and dairy cows must continue to be supplied with dozens of jin of fodder and dozens of jin of water every day. Animals and plants all grow according to their own biological laws, and cannot be stopped.
The second situation is underestimating the investment cycle. Although in theory the payback period is clear, in reality the influence of various factors often leads to serious deviations from investment expectations, with the return period never arriving. For example, the plan is to complete the transfer of farmers' land in winter and begin infrastructure construction or sowing in spring, but if a few households' land transfers do not go smoothly, so that the overall land transfer cannot be completed even in spring, then the entire subsequent plan is out of the question. Or it drags on until summer to complete the land transfer; although infrastructure can be built, the sowing season has been missed, and one can only wait until the next year. In the course of production and operation, severe natural risks can strike at any time, leading to destroyed seedlings and ruined farms; in serious cases one can only start all over again, not only suffering heavy losses but also severely lengthening the cycle. For instance, severe winter cold may freeze to death newly planted saplings in autumn, so they can only be replanted in spring, but with poor results; a severe late spring cold snap may freeze to death fruit tree flowers and young fruit, causing severe reductions in that year's output or even total crop failure. For example, in 2012, 374.43 million mu of crops nationwide were affected by disasters, accounting for 15.3% of the total crop sown area of 2,451.235 million mu, of which 172.1235 million mu were seriously affected, accounting for 7.0%; total crop failure reached 27.3945 million mu, accounting for 1.1%. The natural risks of agriculture are not only high in probability but have in practice already become normalized.
The third situation is taking the difficulty of financing too lightly. Industrial land is state-owned land, and once the right of use is obtained it can be mortgaged for loans; industrial plants, products, machinery and so on can also be mortgaged, so easing the working capital predicament always has multiple channels. But agriculture is different. First, farmland is collectively owned; if an enterprise transfers farmers' land, it can only obtain the operating right of rural collective land, which cannot be mortgaged for loans. Second, the livestock, trees, crops and so on operated by agricultural enterprises also cannot be mortgaged for loans, exactly as the rural saying goes, “A fortune of ten thousand strings, but anything with fur does not count.” Third, given that agricultural enterprises have such assets, finding guarantees is also quite difficult. Of course, the Third Plenary Session of the 18th Central Committee has already decided that the contracted operating right of farmland can be mortgaged, but this still requires a process of amending relevant laws, and formal implementation will take time. Therefore, financing for agricultural enterprises is extremely difficult; basically only rural credit cooperatives will lend, but at relatively high interest; there is also the policy-based Agricultural Development Bank, but its conditions are strict and its scope is narrow. In the course of agricultural operations, once funds are short at a critical production time, such as a shortage of pig feed, or topdressing and spraying at a key time for fruit trees, some agricultural enterprises have no choice but to turn to usury to tide things over — a case of drinking poison to quench thirst. The heavy interest alone will crush the enterprise, yet there is nothing to be done. How can this last? Some agricultural enterprise operators I have met, when speaking of funding shortages at critical production times, truly seem ready to sell their children, which inspires deep sympathy.
The fourth situation is policy expectations falling through. In the past, agriculture was said to depend first on policy, second on investment, and third on science and technology. This formulation is still not out of date. Because of agriculture's inherent weakness, the importance of state support for those doing agriculture is self-evident. A quick observation reveals that some listed agricultural enterprises rely mainly on policy subsidies to maintain a positive profit level and prevent delisting. But the problem is that ordinary cities and counties lack the financial capacity to provide large subsidies for agriculture and mainly rely on winning projects at the provincial and central levels, where the variables are considerable. Even if a leader above may have given instructions and the local administrative chief has made guarantees, the result is still unreliable. Not to mention that national policy will adjust with market changes, and it is obviously impossible for agriculture, with such long cycles, to chase the changes and adjustments of national policy. For example, since 2012, due to overcapacity in the live pig industry, the state basically stopped the policy support projects related to the live pig industry implemented since 2008. Enterprises that invested in the live pig industry during this period obviously could not obtain subsidies and projects, and with the market also unfavorable, they could only encounter a predicament of snow on top of frost. There is also another situation: the local government invites enterprises to settle in under the name of attracting investment, but very likely after landing, the preferential policies cannot be delivered, and policy changes caused by a change of county leadership may reduce earlier government promises to smoke. Although one cannot say they live by projects, once policy expectations fall through, the impact on the production and operation of agricultural enterprises is considerable.
(March 30, 2014)
[Published successively in China Science and Technology Fortune 2014, No. 4; Agricultural Products Market Weekly 2014, No. 15; and others]
II. Where Did the Profit Go? —— The Market Predicament of Agricultural Enterprises
Apart from bulk grain and oil agricultural products, the profit margins calculated for most cash crop cultivation and livestock breeding are not low, which is also an important reason agriculture attracts so much capital competing to invest. For example, the annual gross profit margin of greenhouse vegetables can reach more than 40%, and the gross profit margin of specialty fruits may exceed 100%, but once you actually do it, it is not like that at all. Many who invest in agriculture lose terribly, and still cannot figure out how they “died.” Where did agriculture's profits run off to? This is a question worth reflecting on.
First, gross profit margins can be deceptive. Profits calculated on paper may be reliable for the secondary and tertiary industries, but not necessarily for agriculture. For example, a supermarket's general gross margin must be maintained between 20% and 25%, so as to ensure a net profit of about 3% to 5%. So how much gross margin does agriculture need to ensure making money? This is a question hard to answer in practice, because such calculations can only serve as a bit of reference and are simply not applicable. Agricultural market fluctuations are large and hard to predict, to some degree no less than gambling, as with the “garlic you ruthless” and “ginger you army” episodes. Take pig farming: those in the industry basically all know the three-year pig cycle of “one year earning, one year breaking even, one year losing,” and in the first year one must earn back the money for the next two years. But how is profit calculated when investing in the live pig industry? It is calculated at 100 yuan earned per live pig, yet in practice when does it ever match! Now it is even more critical, because since the end of last year the “pig cycle” has also been ruthlessly broken, and all those who plunged in with heavy capital last second half to grab the bottom are trapped. In the 2014 Spring Festival there was an unprecedented counter-market decline, breaking even the rule that prices must rise during holidays. Under such circumstances, the carefully calculated profit is basically an irony.
Second, agricultural products are not entirely market-priced. Agricultural products, especially major ones such as grain and live pigs, because they involve the fundamental stability issue of governing the country under the principle that food is the first necessity of the people, are not fully marketized in any country; instead, strong macro-control is exercised to ensure that the quantity supplied is guaranteed and prices are relatively stable. An economist joked that one pig kidnaps the CPI, and the reality is about the same. Because the Chinese diet uses pork as the main meat variety, and prices have fluctuated sharply in recent years, the impact on the overall price index is indeed significant. Therefore, as soon as pig prices poke up they must be suppressed — subsidies in the production sector, release of reserve pork, imports as supplements — the price simply must be pulled down. And once production falls, subsidies are canceled and frozen pork collection and storage begins, but expanding exports is difficult. Collecting and storing frozen pork to support the market is understandable, but canceling subsidies adds frost to the snow for producers. Therefore, the profits of agricultural products are inevitably affected by national macro-control, an important factor that cannot be ignored.
Third, labor is a major cost. What farmers can do, enterprises cannot necessarily do, because farmers do not pay themselves wages; earn more or earn less, it is all their own. The profit margins of many industries look beautiful before deducting labor costs. A typical example is the beef cattle industry: market beef prices are so high and supply is very tight, so one would think profits must be good, yet few enterprises touch it, and the fundamental reason is still that it does not make money. Because the cattle-raising cycle is too long, generally more than two years, enterprise breeding costs are too high. Only farmers in mountainous areas can raise them: no need to build sites, fodder mainly solved by grass on the mountain, labor costs also very low, and ultimately profits are not bad. If an enterprise raises them, then site, fodder, labor, capital and other costs are high, and under current market conditions it is also hard to make money. Look again at those steadily rising agricultural product prices in the market; there is basically a rule: whatever can be industrialized and mechanized rises slowly or is relatively cheap; whatever cannot be industrialized or mechanized is definitely more expensive, and gets more expensive year after year. In the past people mocked developed countries for water being more expensive than milk and vegetables more expensive than meat; now in China it is about the same. This year's meat prices are so cheap that even consumers can hardly stand it, but vegetable prices overall are still rising. How many vegetables costing a few mao are left in the vegetable market now? Take Sichuan pepper again: everyone complains that more than 20 yuan per jin is too expensive, but in fact the labor cost for picking alone in one jin of Sichuan pepper is 2 to 3 yuan, not to mention the usual field management, production inputs and other costs. On average, one mu earns only about a thousand yuan; the price seems good, yet many farmers still give up. The continuously rising apple prices are also related to labor costs. Now in links such as flower thinning, fruit thinning, bagging, bag removal and picking, labor costs are more than a hundred yuan a day; and for ordinary fertilizing and spraying, which is not reliant on manual labor? Nowadays in fruit-growing areas it is by no means rare for farm workers to be driven to the orchard in private cars; without such conditions, one cannot even recruit farm workers. For labor-intensive industries like vegetables and fruits, if labor costs are not calculated well, profits will certainly be greatly reduced.
Fourth, one must see how much has actually rotted. The biggest feature distinguishing agricultural products from industrial products is freshness and living quality. Fresh-keeping storage is not only technically difficult but also persistently costly, and the losses in the final storage link are not a small number. Even for storable agricultural products like grain, storage losses are 8% to 10%, let alone fresh agricultural products. For ordinary vegetables, from field to long-distance transport to vegetable market to consumer hands, exactly how much is lost? For example, the cabbage everyone commonly sees: in the process from field to consumer hands, how many outer layers must be peeled off? Then there is water loss. The water content of vegetables and fruits is generally above 90%, and water loss during transport is common, not only reducing weight but also worsening appearance. What is described above is still normal loss, generally around 30%. Now one can understand why the early fresh food e-commerce ventures all collapsed? Because they naively locked horns with the vegetable market, thinking the Taobao model could be copied directly to agricultural products, not knowing that the wholesale-retail model of the vegetable market is precisely the most efficient and lowest-cost link in the sale of agricultural products. Even the stupidest vegetable seller knows that fresh vegetables of the day absolutely must not be left overnight, yet fresh agricultural products sold online unexpectedly take several days to reach consumers — can that produce a good result? As for the most miserable situation, it is being unable to sell. For industrial products, when the market is bad, one can at worst dispose of them at a reduced price, but once agricultural products are in oversupply, one can only watch helplessly as they rot in the warehouse and rot in the field, because for long-distance transport, freight is more expensive than the vegetables. And once the season passes, the next crop must be planted immediately, so they can only be mechanically plowed into the soil as green manure. A whole season's efforts are wasted, and fertilizer, pesticide, labor, machinery and other costs are thrown in as well. When this happens, what profit is there to speak of?
Fifth, one can afford to earn but not to lose. Making money in agriculture is not easy, but losing money is much easier. Carefully calculated profits simply cannot withstand the impact of risk. Agricultural risk is really hard to control. Nationwide, the area of crops hit by natural disasters each year is about 1/6, mainly including drought, floods, hail, frost, pests and diseases, impossible to guard against completely. One natural disaster can wipe out carefully calculated profits. For example, a late spring cold snap in spring may freeze to death the flower buds of cash trees such as walnuts, apples and Sichuan pepper, directly affecting that year's output, and in serious cases causing total crop failure. Another example: one hail storm can in a single night leave apples that could originally sell for three yuan a jin covered in scars, so in the end they can only be disposed of to a juice factory at a price of a few mao. The rumors of avian influenza around the 2014 Spring Festival (note: later corrected to not be avian influenza, but other influenza) dealt a heavy blow to the national poultry industry, with prices falling, sales sluggish, and vast numbers of poultry farms and households suffering heavy losses. But who compensates for this loss? At present the coverage of agricultural insurance is still quite limited, and in most disaster situations there is no insurance to pay out; this risk can only be borne by oneself. In the face of risk, where is there profit to speak of!
Sixth, PK with interest. Agriculture's financing costs are very high. If one could be as rich as Lenovo, then one could settle down, prepare for ten years without making money, cast a long line to catch a big fish. But most operating entities investing in agriculture do not have this strength and can only struggle bitterly over the funding problem. When farmland cannot be mortgaged and guarantees are difficult, at key farming seasons there is no choice but to rely on private financing. The high interest cost alone can devour a large amount of profit, and once market conditions fail to meet expectations, one can only stage a modern version of The Story of Three or Five More Dou. And the investment cycle is so long, so falling before the dawn becomes an important phenomenon of agricultural investment.
At the same time, there are also some inexplicable, unnameable things. This can also be counted as what general investment calls “unforeseeable” expenses. Doing agriculture involves dealing with many related parties, especially all aspects of rural society: paying some fees, pulling in some sponsorship. Such unnameable things are not only common but also costly, and are rigid cost expenditures. Yet many underestimate them, which also affects profits.
(April 6, 2014)
[Published in Agricultural Products Market Weekly 2014, No. 15; Organic Slow Life 2014, No. 7; and others]
III. Where Did the Talent Go? —— The Development Predicament of Agricultural Enterprises
The owner of a breeding farm poured out his dilemma to me: the college graduate responsible for technical work at the farm already had a monthly salary of six thousand, but he still demanded a raise, to eight thousand; without a raise he would leave. If raised, the current market was bad and the increased expenditure burden might also trigger a chain reaction of raises for other employees. I asked him how the college graduate's technical skills were, and whether he had found anyone else to replace him. He said the skills were very good, and there was temporarily no replacement. So I answered: it is normal not to find a replacement; every breeding farm cannot find professional talent, and you are already very lucky to have a college graduate. Raise the salary readily. As for other employees doing auxiliary work, how can their wages compare with technical work? They can follow the market.
In fact, among the many agricultural enterprise bosses I have encountered, basically all face this real difficulty: they cannot find talent; and when they finally find one, they cannot keep them. Recently I read a piece of material saying that the biggest problems of small and medium-sized enterprises are the shortage of talent and difficulty in financing. Applied to agricultural enterprises, this is especially so. As the saying goes, it is easy to get a thousand soldiers but hard to find one general. Without good talent, enterprise management cannot improve, technology cannot keep up, and efficiency will certainly be affected; this is a fundamental matter for enterprise development. But why is talent for agricultural enterprises so hard to find?
First, there is already little agricultural talent. Influenced by traditional ideas, when agriculture as a major is mentioned, everyone first thinks of working in the countryside. Given the huge current gap between urban and rural conditions, who is willing to go to the countryside? And those students who finally tested out of the countryside will not easily give up the chance to escape the farm gate and then study a major that takes them back to the countryside. Also, have you not noticed that many traditional agricultural universities have followed the tide of the market economy, some setting up humanities colleges, some even opening business schools, transforming one after another toward comprehensive universities? Under such circumstances, there will certainly not be many college students studying agriculture. From what I know, the animal husbandry major in agricultural colleges is one of the most sought-after majors; there is not even any need to hold a job fair, and graduates are snapped up. But even so, recruiting students for the major remains difficult. What can be done? You can criticize outdated ideas and problematic social values, but can they easily be changed?
Second, even fewer of those who study agriculture are willing to work in agriculture. What I studied was agriculture, and at the time some people shouted that studying agriculture, forestry and water conservancy was like being born under the wrong sign, and that after graduation the outcome would certainly be changing careers, mainly because the production and living conditions in the agricultural industry are poor. Large breeding enterprises are certainly built in isolated mountains and wild ridges far from cities, towns and villages, not only sparsely populated but also very inconvenient for living. At night there are no urban romantic moments under flowers and moonlight, nor bars or KTVs, maybe no wifi, and perhaps even the “home without 24-hour hot water” from In the Spring. Epidemic prevention at large breeding farms is also very strict; even to go out and meet a girlfriend, one has to change shifts in advance, and on returning one must still disinfect and isolate, possibly even affecting courtship and marriage. Under such circumstances, how can young people stay? A boss asked me this: you do youth work, so please tell me, what is wrong with today's young people? Advertise for a typist at a monthly salary of 1,500, and a bunch of graduate students come; advertise for a production manager at 3,500, and not one comes. I laughed and answered that this is precisely the “rational person” choice in economics. Not to mention that agricultural enterprises generally have difficulty making profits, and the salary standards they offer are themselves not high, putting them at a disadvantage compared with urban enterprises.
Third, the channel for talent advancement is narrow. Even if high wages are offered and emotional warmth is given, it is still hard to retain talent for long. Because agricultural enterprises are generally small and generally lack modern enterprise systems and mechanisms, and their bosses generally lack modern enterprise management concepts, with traditional and simple management methods. No matter how well talent performs in an agricultural enterprise, they are still just a hired hand, and they may also find the management methods and approaches hard to accept, let alone the practical factors such as going from city back to countryside and inconvenient living. Among the agricultural enterprises I have encountered, many have family-based management, which makes it very hard to give outsiders a chance to integrate, and property rights are neither socialized nor individualized, capable only of being described as “this is our family's.” How it is distributed among father and son, husband and wife, brothers is not clear, creating hidden dangers of internal disputes. In recent years, the wave of family business splits has staged many cases of fathers and sons becoming enemies and husbands and wives turning against each other. As an externally hired person in an enterprise, it is very hard to have much room for development, and once internal disputes arise, one is even more likely to be “when the city catches fire, the pond fish suffer.” Choosing to leave is then hardly surprising.
Fourth, talent supply and enterprise development are very hard to match. The talent agricultural enterprises need is broadly of two types. One type manages technology: how to standardize production, how to reduce epidemic risk, how to improve quality, and so on, very specialized, impossible for non-professionals to handle. The other type handles business management: how to manage employees, how to open markets, how to chase funds and projects, and so on. But unfortunately, these two types of talent each mind their own side within the enterprise, and integration is relatively difficult. There must be a generalist who understands both (not necessarily specializing in both) to take the helm. The specialized talent mentioned earlier is already very hard to find; this generalist is even harder to find. When Liu Chuanzhi chose Chen Shaopeng to helm Lenovo Agriculture, he said, “On what basis do we choose a person who did PCs to do agriculture? Later we studied it: tell me, is it more suitable to choose an expert in breeding, or in rice growing, or in fruit growing to do agriculture? None is suitable, because besides planting, there are also many fields such as transport, management and sales; in fact, what is needed is a person who truly understands enterprise operation to lead.” A large group like Lenovo naturally has plenty of talent to choose from, but what about ordinary agricultural enterprises?
Fifth, it is closely related to the boss's view of employing people. I have observed the views on employing people in agricultural enterprises, and broadly there are the following types. One is the nepotism type, fearful that real power in the enterprise will fall into others' hands; not only do they not delegate real power, but they watch very closely and make many demands, so talent is uncomfortable and certainly job-hops early. The second is the ulterior-motive type, hiring retired leaders or middle-level cadres. Although these people also have management experience, the main aim is to use their connections to compete for funds and chase projects; enterprise management and technology are secondary. The third is the vase-display type: the enterprise is not big, but the people invited have impressive backgrounds — returnees, top business administration graduates, fund or investment bank managers — far removed from the field of agriculture. They often aim too high, are not suited to local conditions, waste money in vain, and may even “bring in a son-in-law who angers the son to death,” driving away truly useful practical talent. The fourth is the White-Clad Scholar type: the enterprise is not large, but the airs are not small. When talent arrives, there is respect on the surface but jealousy in substance, afraid of appearing incompetent, just like Wang Lun, the White-Clad Scholar who first went to Liangshan, unable to tolerate others. And in this era, who is willing to be Lin Chong? Better to leave early and seek another mountain. And so on. Under these views on employing people, even if there is talent, it is hard to truly attract them.
In short, talent is always the chronic heartache of agricultural enterprises. There are problems of the broader environment and problems of individual enterprises. My suggestion is to start by improving oneself and create mechanisms that make talent willing to come, such as equity incentives, performance awards, and warm care, striving to weaken the disadvantages of agricultural enterprises in talent competition.
(April 8, 2014)
[Published in Agricultural Products Market Weekly 2014, No. 16; the inaugural issue of Talent Research; and others]
IV. Where Did Management Go? —— The Operational Predicament of Agricultural Enterprises
Are agricultural enterprises really enterprises? You could say yes, and you could say no. Because to some degree, agricultural enterprises are also affected by agriculture being different from industry, and establishing a modern enterprise system is quite difficult. For example, for listed agricultural enterprises, a very typical problem is finance. When dealing with farmers, cash transactions have no invoices. This is commonplace in rural areas, but under the listed company system it is not allowed, and once standardization is required, it increases management costs and operational difficulty. There is also the inventory problem: industrial enterprises count by the value of inventory goods, but for agricultural enterprises, how should what is planted in the field or raised in the pen be calculated? However, since agricultural enterprises want to enter the market and become bigger and stronger, they must establish a modern enterprise system, standardize management, and grow stronger through strengthened management. In reality, many people complain that agricultural enterprises cannot grow big. One important reason is precisely that enterprise management cannot improve.
Small by ability, big by management
Whether an agricultural enterprise continues to remain in a “country bumpkin” state or quickly grows into a modern enterprise often has its watershed in enterprise management, especially the modern enterprise operating system. I remember around 2000, two village-run dairy enterprises in Shaanxi simultaneously exceeded 100 million yuan in output value. This was something people delighted in talking about at the time. Although Shaanxi's private enterprises as a whole were not developed, agricultural product processing enterprises represented by dairy were developing vigorously. Another ten years later, one of these two enterprises still maintained a level in the hundred-million-yuan range, while the other had entered the ranks of national-level dairy enterprises, with output value reaching more than 2 billion yuan. Why was this so? The enterprise operating system was an important reason. The one that became a national-level enterprise quickly established a modern enterprise operating system and mechanism, transformed from a village-run enterprise into a modern large-scale dairy processing enterprise, moved into an industrial park in a timely manner, and later listed overseas to raise funds, giving enterprise development a qualitative improvement. The other continued to maintain the village-run enterprise system, with the enterprise's main leader also holding the leadership of the village “two committees” concurrently. The triennial election of the village “two committees” often brought personnel changes, directly affecting enterprise development. The operating approach might be greedy for merit and rash in advancing, or conservative and retrogressive, repeatedly tossing about; it was already fortunate that the enterprise did not collapse.
Looking back at many agricultural enterprises, when starting out they often rely on the leader's personal ability. Not only can they endure hardship and work hard, but they also have keen business sense, quickly opening up a world. But after reaching a certain point, they gradually find themselves unequal to the task, both boss and hired hand at once. Hard work aside, the ceiling of operation is hard to break. According to general management theory, once a team exceeds 50 people, the existence of a management layer is unavoidable. Those agricultural enterprise bosses who do well are not the highly self-confident ones who do everything personally; rather, they recognize their own insufficiency, promptly bring in talent, form a core management team, and continuously raise the level of management.
Easy to share adversity, hard to share prosperity —— beware the risks of family enterprises
Apart from those agricultural enterprises that come from capital going to the countryside, many homegrown agricultural enterprises are family-based. As the saying goes, “Brothers fight tigers together; fathers and sons go to battle together.” The main force in the entrepreneurial process of agricultural enterprises that can endure repeated risks and keep growing is often family members. Family enterprises exist both at home and abroad, but those abroad generally operate relatively smoothly, while domestic family enterprises are very prone to the phenomena of husbands and wives turning against each other and fathers and sons becoming enemies. The fundamental reason is that although foreign family enterprises are familial, their property rights are socialized. Including famous family enterprises such as Panasonic and Rockefeller, their equity is dispersed and does not affect the normal operation of the enterprise because of internal family problems. But Chinese family enterprises often carry strong patriarchal-clan characteristics, with closed equity, and enterprise operation can only depend on the ability level of family members. More importantly, Chinese family enterprises are not only not socialized in property rights, but also not individualized, capable only of being described as “this is our family's.” How it is distributed among father and son, husband and wife, brothers is not clear, laying hidden dangers for later internal disputes. In recent years, how many family feuds have been staged in the wave of private enterprise splits! Therefore, clarifying property rights is an institutional issue that agricultural enterprises, and private enterprises generally, must attach importance to in development.
This also raises an important topic that Chinese family enterprises need to think about: what is truly the sustainable development of a family enterprise? It is absolutely not always keeping it in the hands of one's own family members or descendants, but learning from the West to make the enterprise a part of society, just as water becomes part of the ocean, so that it will never dry up.
Harvard management studies may not work either —— the core of management is people, not things
There is a rather interesting story that illustrates the fundamental problem of agricultural enterprise management. A management team with PhDs from famous schools and returnees was at a loss when managing a farm. At this time, the enterprise leader's rural mother came to relax, strolled around the farm, and unexpectedly and accurately pointed out the crux of management. She saw that the company hired farmers to commute like workers in a city factory, and the labor scene resembled a reappearance of the people's commune; where would labor enthusiasm and efficiency come from? Afterward, management adopted a method similar to the household contract responsibility system, and production efficiency and agricultural product quality rose rapidly. What this story shows is that the core of agricultural enterprise management is managing people, and not superficial systems and norms; the root lies in conforming to economic and social laws and making employees generate the drive to work. In fact, this is true not only of agricultural enterprises; the core of all enterprise management is also people. In the best-selling finance and management book The 7 Habits of Highly Effective People, Eastern and Western management ideas are integrated at the level of “people,” namely that the core of management is people rather than things. Although the purpose is things, the root lies in people's spiritual issues rather than material issues; it mainly solves people's character issues rather than ability issues; the ideal realm of management is the coordination of a collection of people rather than an individual fighting alone.
Since it is managing people, it must be people-oriented. Now everyone says the customer comes first, but in the book Japan's Most Amazing Company: The Shining Soul of Sustainable Management, it is clearly proposed that running a company is to fulfill the “mission and responsibility to five groups of people,” in order: employees and their families, outsourced downstream manufacturers, customers, local society, and shareholders. The first is employees. Why should employees be first? Because enterprise employees do not merely pursue interests; what they seek is happiness and dignity at work. When an enterprise respects employees' needs, they will spontaneously work hard and loyally serve the company. When employees are put first, it inevitably makes employees and their families feel a strong sense of being moved and a work drive, which then transforms into superior product quality and excellent service, and ultimately is reflected in high customer satisfaction.
From practice, agricultural enterprises should focus on managing three types of people well. The first type is the core management team, which concerns the very foundation of enterprise development and often makes one feel that “a thousand soldiers are easy to get, but one general is hard to find.” To find a good management team, one must rely on the enterprise's beautiful development vision; an enterprise with no future cannot retain people. One must rely on the personal charisma of the enterprise leader; doing things always depends on emotion and like-mindedness. One must also rely on effective incentive mechanisms; a hired hand cannot remain one for a lifetime. Shanxi merchants invented the “body share” long ago, and the equity incentive system for professional managers in modern enterprises is also quite mature; it needs to be effectively applied.
The second type is scientific and technological talent. The development of modern agriculture is essentially driven by modern science and technology. Professional talent determines whether an enterprise's development strategy can be smoothly implemented and its future direction. Scientific and technological talent should be respected emotionally, treated generously, empowered in production, and given relaxed space to exercise their abilities.
The third type is the large number of employees, including a large number of farmers. In fact, the agricultural production process is almost difficult to evaluate in a standardized way and effectively supervise, so the vast majority of agricultural operating units in the world are household-operated, because only in this way can labor enthusiasm be mobilized and the transformation from working for others to working for oneself be realized.
Of course, the word management itself can also be discussed. To some degree it is not “guan” but “li”: ideas, reason, understanding; realizing management through service. One should use an influential brand to attract and unite the team, use a culture with substance to lead enterprise development, and use genuine inner respect to make the team follow for the long term. Of course, these are no longer just problems of agricultural enterprises, but problems that general enterprises will encounter, and there is no standard answer to offer; they need continuous exploration and summary in practice.
(May 27, 2014)
V. Where Did the Standards Go? —— The Quality Predicament of Agricultural Enterprises
One year there was a breach of contract incident in “contract farming” that triggered social conflict. Crowds of farmers dumped agricultural products in front of the purchasing enterprise's gate, pouring out complaints about the enterprise's “cheating farmers” behavior. For a time, related reports full of moral condemnation spread rapidly, with all blame pointed at the enterprise involved and the local government. But as the investigation deepened, it was found that the matter was not simple at all, and even who had breached the contract became a question.
It turned out that what the enterprise and farmers signed was a production contract for green beans exported to Japan. To guarantee freshness, they had to be picked about 10 days after flowering, when the green beans were about 10 cm long and the pod skin had not yet become fibrous and hard. However, farmers found that green beans could grow longer, so most of what they delivered to the enterprise was around 20 cm, obviously unable to meet export requirements, and the enterprise therefore refused to accept them. How could the farmers be willing? Conflict was then unavoidable. In the end, although the local government and enterprise settled the matter by covering the losses, it highlighted an important real problem: in contract farming, meeting quantity requirements is relatively easy, but meeting quality requirements is relatively difficult. This is an important reason why many “enterprise + farmer” models reach a dead end or even turn into mutual enemies.
When I worked in the county, I specifically investigated this and found that when economic cooperative organizations or agricultural socialized service organizations are not developed, only the government's agricultural technology departments can temporarily step in to guard the technical gate and make the agricultural products conform to standards and meet quality requirements. But these are only temporary measures. With the strength of agricultural technology departments, how many contract farming projects can they manage? From this, we must also see certain particularities in the quality management of agricultural products and proceed from reality to standardize the quality management of agricultural product production.
First, we must see that agricultural products cannot possibly be standardized like industrial products. There is a philosophical saying, “There are no two identical leaves in the world,” and this fits the issue of agricultural product quality best. Agricultural products are the natural growth results of animals and plants. Although human factors can influence the growth of animals and plants, they cannot completely change it, nor can they erase the differences among individual animals and plants. Therefore, making agricultural products exactly identical like industrial products is impossible. Because industrial products are lifeless, made by machine tools and molds, and are certainly identical. Of course, differences in technical operation or aging machines can cause slight differences among batches, but on the surface they at least still look consistent.
Second, the current dispersed small-scale production of farming households makes standardization of agricultural products even harder. Different farming households have different operating levels, resulting in differences in soil fertility, technical management, and the growth and development of animals and plants, and the final agricultural products certainly also differ. A typical example is fruit. Although Luochuan apples are very famous, the apple quality in different farmers' orchards is different; taste, size, coloring, shape and so on all differ. Plots using organic fertilizer and chemical fertilizer are different, and even with the same organic fertilizer, plots using sheep manure and those using pig manure are also different. Therefore, many enterprises purchasing agricultural products often fall into quality panic when facing dispersed farming households, because this means that agricultural products from the same enterprise and the same production area also cannot maintain consistent quality; the customer may find that the agricultural product they eat this time tastes different from the one they ate last time.
Third, frequent natural risks also make quality control of agricultural products very difficult. The biggest difference between agriculture and industrial production is that it is clearly affected by natural risks. Although protected facilities can form artificial micro-environments, the vast majority of agricultural products still have to be produced in open fields. Drought, frost, low temperatures with little sunlight, pests and diseases all affect the quality of agricultural products, including appearance and internal quality, such as smaller or even deformed shape, scars on the skin, degraded flavor, and so on. If the degree of impact is light, it may make the contracted quantity hard to meet; if the degree of impact is heavy, the contract may not be fulfillable at all. Many enterprises cannot respond quickly enough to the unexpected quality effects brought by such natural risks, and the losses are very heavy.
In addition, a market order that is not yet fully standardized also makes quality issues confusing. When something is good, everyone imitates it en masse, and in the end “Li Kui” may not even beat “Li Gui.” This is a chronic disease in the current market. If this is so even for industrial products, agricultural products need hardly be mentioned. Take tea as an example. Truly famous tea must be originally produced in a special region, but because famous teas have their own appearance characteristics, imitations with similar appearances appear on the market. For example, the two leaves and one bud and flat shape of West Lake Longjing are very easy to imitate with current tea-making techniques, but ordinary consumers find it hard to distinguish. At present, quality supervision of agricultural products is still inadequate. Under the inducement of profit, adulteration and fraud may exist in every link — producing farmers, purchasing, processing and sales enterprises, terminal sellers, and so on — which also increases the difficulty of controlling quality standards.
Although standardization is very difficult, exploration of agricultural product standardization continues to move forward. At present, the following paths have broadly been explored:
First, guarantee quality with a sound standards system. What kind of product is to be produced and what quality is to be achieved should, as far as possible, all be converted into standardized and detailed technical operating procedures: when to sow, when to fertilize, when to weed and control pests and diseases, when to harvest, how to store, and so on, all digitized and made operable, guiding production operations according to these to achieve standardization.
Second, improve quality with a scientific management system. Having enterprises produce is too costly; having farmers produce separately makes quality hard to unify. Thus, the “enterprise + farmer” form gradually evolved into: the enterprise uniformly providing production materials, technical guidance and operating norms, guiding farmers to sow uniformly, fertilize uniformly, control pests uniformly, harvest uniformly, and so on. Some summarize it as the “six unifications,” others as the “eight unifications,” and farmers become the enterprise's production workshops. Or the enterprise uniformly transfers land, and farmers become farm workers, operating according to production scheduling orders like workers, but facing real problems such as difficulty supervising the production process and difficulty guaranteeing efficiency, possibly reenacting the collective labor scene of the people's commune. Or the enterprise and farmers cooperate in the name of shareholding or partnership operation, with the enterprise signing contracts with farmers similar to contracted operation, assessing by benefits and standards as the basic measure, and so on.
Third, protect quality with a complete monitoring system. The whole-process traceability system represented by Lenovo Agriculture has given agricultural product quality control modern means. The latest technologies such as 3G, cloud computing and the Internet of Things have made an intelligent agricultural system integrating sensing, transmission, control and operation a reality, giving agricultural products that were originally impossible to clarify once sold on the market an identity card. Production management, storage and transport and other links all have records that can be checked, preventing the market behavior of passing off fakes as genuine. And Chic Group has taken fruit to the peak: three days before fruit harvest, sampling inspectors go to pick fruit along a predetermined sampling route and secretly attach radio-frequency barcodes to each fruit. When the samples are loaded and the box lid is closed, the built-in combination lock in the barcode immediately locks, and only when arriving at the testing site with a matching GPS signal will the combination lock open. In this way, sampling inspectors cannot swap samples midway; if forced open, the system will enter an automatic alarm system.
Fourth, improve quality standards with advanced technology. For example, in apple production there are complete fruit sorting production lines that can grade apples by size, color degree and so on, automatically sorting and packaging, giving originally inconsistent bulk apples a relatively standard quality. Another example is improving animal and plant varieties to produce traits and characteristics that better meet target needs, such as gift watermelons, cherry tomatoes, mini tomatoes and so on. With improvements in modern breeding methods, they have become relatively consistent in size, shape, maturity, main quality indicators and so on, greatly raising the degree of quality standardization. But more agricultural products are still on the road of quality improvement.
In short, due to certain characteristics of agricultural products themselves, it is very difficult to achieve fully standardized production like industrial products, but the direction of standardization cannot be changed. All exploration will continue, and in particular the accelerated penetration of modern science and technology and information technology will further drive this process.