Agricultural e-commerce catches the wave: a hundred-billion market ready for takeoff
At the 2015 National Two Sessions, one of the proposals by Zhang Jindong, member of the National Committee of the Chinese People's Political Consultative Conference and chairman of Suning Commerce Group, concerned “promoting the development of the agricultural product circulation system”; this time he focused on agricultural e-commerce. Behind the rush of giants such as Alibaba, JD.com and Suning to stake their claims in agricultural e-commerce lies the accelerated penetration of the internet into rural areas and the traditional agricultural industry.
Agricultural e-commerce stands at the wave, a hundred-billion market awaits takeoff
With capital from all sides actively positioning itself, plus strong support from government policies, the development of agricultural e-commerce is spreading like a prairie fire. Some industry insiders predict that once the rural consumer market is effectively activated, companies with a market value of a hundred billion will surely be born.
“The wind is rising”, agricultural e-commerce’s “spring has come”! But standing at the wave of agricultural e-commerce, even a pig may not necessarily be blown up; the fact that most self-operated fresh food e-commerce platforms describe themselves as “losing money just to make some noise” is one illustration. Behind this, what have they been through? Through interviews with participants in every link of agricultural e-commerce as well as industry experts, the Daily Economic News reporter sorted out and analyzed the true ecology, business models and real dilemmas of the entire agricultural e-commerce industry chain.
Industry ecology
Sellers multiply as the agricultural product e-commerce “feast” begins
Li Shizhong, a 62-year-old farmer from Ya'an, Sichuan, is known as the “e-commerce elder”; he sells the kiwifruit from his village across the country online. But to this day he is still not familiar with using the internet, though he still wants to sell more local specialties through an online store: “Compared with traditional wholesale channels, the prices sold online are all doubled, and in the end, the profit per jin of kiwifruit is 2 to 3 yuan higher.”
Li Shizhong's story is just one microcosm of the nearly one million agricultural product sellers across the country. According to statistics from the AliResearch institute, on the Alibaba platform alone, there were 394,000 agricultural product retail sellers in 2013, and the figure was 750,000 in 2014, nearly double. Alibaba also once predicted that the market capacity of agricultural product e-commerce was expected to break through 100 billion yuan in 2014.
Behind this is not only the enthusiasm of farmers to expand their sales channels through the internet, but also the desire of capital from all sides to compete for and seize a market of huge potential, and even the boost of national policies, all of which have raised the curtain on this agricultural product e-commerce “feast”.
After overturning most industries, e-commerce is also changing the most traditional agriculture. In the view of Wang Xiangdong, director of the Informatization Research Center of the Chinese Academy of Social Sciences, e-commerce's changes to agriculture are, first, breaking through market limitations, and second, breaking through resource limitations.
Agricultural product e-commerce sellers grow exponentially
Mingshan District of Ya'an is famous far and wide for the green tea of Mount Mengding. Although it is only a few kilometers from the core tea area of Mount Mengding, Feishui Village in Jianshan Township, where Li Shizhong is located, mainly produces kiwifruit. All things considered, producing kiwifruit is better than producing tea, so it has become the village's main source of income for many years.
Having served as village party secretary for decades, Li Shizhong is now chairman of the cooperative. In 2014 the village's kiwifruit was not only easy to sell, but also more profitable.
Of the 200,000 jin of kiwifruit sold as of early last December, online sales accounted for about one quarter. Compared with sales through traditional wholesale channels, prices on e-commerce platforms are all doubled, and the profit per jin is 2 to 3 yuan higher.
The astonishing sales speed left an even deeper impression on him. “Sales exceeded 70,000 yuan in 48 hours, and in the end 6,103 jin were sold, bringing in 115,354 yuan; this was unimaginable before.” Li Shizhong recalled his “electrifying” experience last September.
The surge in online sales came because Li Shizhong took part in two “e-commerce poverty alleviation” activities held by the China Foundation for Poverty Alleviation together with relevant parties.
The actual results of the activities exceeded expectations. “After two practices, we feel that e-commerce can play a greater role in poverty alleviation in the future,” Liu Wenkui, secretary-general of the China Foundation for Poverty Alleviation, said in an exclusive interview with the Daily Economic News. “In vast poor areas, transportation and infrastructure are relatively poor, and the cost of goods in the circulation link is relatively high; integrating them through e-commerce can solve the original shortcomings.” Liu Wenkui said. In addition to online promotion, the foundation also helped farmers with unified packaging and brand building for the kiwifruit.
The “spring breeze” of agricultural e-commerce is blowing over more “old farmers”. Like Li Shizhong, Tang Hong from Renshou County in Meishan, right next to Ya'an, also quickly witnessed the “power” of e-commerce. On February 3, 2015, this person in charge of the Renshou Hekou Buzhihuo cooperative told the reporter, “These past few days we've been selling several thousand jin every day”; taking part in the “Renshou Specialty Store” activity on a well-known e-commerce platform directly boosted sales.
“Old farmers” like them, who previously relied only on traditional channels, turned to selling agricultural products online, and they gained a new identity label——“agricultural product seller”. Today, the total number of this group has reached nearly one million.
From “a single spark” to “a prairie fire”, AliResearch described the rapid development of agricultural product e-commerce in 2012 and 2013 in these terms. The report “Alibaba Rural E-commerce White Paper 2013”, released in early last year, pointed out that on the Alibaba platform, the number of sellers dealing in agricultural products reached as many as 394,000. “From Alibaba's data, the number of agricultural product retail sellers reached 750,000 in 2014, nearly doubling year on year.” Chen Liang, a senior expert at AliResearch, revealed to the Daily Economic News reporter that the final data had not yet been confirmed, but it was almost exponential growth.
Farmers gain the right to orders and pricing
Agricultural product retail sellers have doubled and redoubled, and many of them are farmers who previously did not understand the internet. What moved them was that e-commerce enabled agricultural products to escape their original predicament of unsold goods.
The head of a loquat association in a certain part of Sichuan frankly admitted that in the past, whenever there was a bumper harvest, the loquats would go unsold, because after ripening, loquats can be stored only a short time, and it is difficult to find a market in a short period.
For a long time, farmers' production has generally been relatively blind, fragmented and low-end, and finding a market is often the biggest problem. In Wang Xiangdong's view, e-commerce's changes to agriculture are, first, breaking through market limitations, and second, breaking through resource limitations.
Wang Xiangdong told the Daily Economic News reporter that by using e-commerce, farmers break through the limitations of the local market and gain the convenience of a direct channel to the vast, broad market.
“E-commerce gives farmers the right to orders and pricing.” Wang Xiangdong pointed out that the previous asymmetry of information put farmers at a disadvantage in market transactions, but now farmers can “do business directly online, face the market directly, negotiate prices directly, and take orders.”
At the same time, e-commerce makes price information more transparent. For example, when wholesalers used to buy goods, farmers did not know the prices at each intermediate link and the end market; “through e-commerce, they can learn about prices in other places, it is not easy for buyers to cheat them, and they have room to bargain”, Wang Xiangdong pointed out.
In fact, what moved Li Shizhong even more earlier was seeing the high profits of wholesalers: “Our wholesale price is no more than 5 yuan per jin, while wholesalers can sell 3 jin online for as high as 99 yuan.”
E-commerce reduces the intermediate links in the circulation of agricultural products and can also break the limitations of the original local resources. Around the 2015 Spring Festival, Li Shizhong also began selling other types of fruit produced nearby in his online store. “By obtaining orders online and organizing production on the spot, bringing in raw materials, equipment, materials, parts and so on, a brand-new industry chain oriented by market orders can be established.” Wang Xiangdong pointed out. The case of Liu Pengfei, the “King of Sky Lanterns”, is regarded as a typical example of e-commerce changing resource limitations. Liu Pengfei's hometown of Ningdu, Jiangxi, was originally a major agricultural county; the making of sky lanterns boosted local employment and gave rise to a new industry. “Through e-commerce platforms, local specialties can be promoted at lower cost and sold online in large quantities at reasonable prices, thereby guiding the local agricultural industry to transform and upgrade toward e-commerce and modernization.” said Li Heming, head of rural e-commerce strategic cooperation at JD Group.