How to solve the last-mile problem in agricultural product distribution

Not an optimistic picture for agricultural product distribution

In the past two years, Chinese media have often used phrases like ——“cheap vegetables hurt farmers.” Mentioning this topic inevitably brings to mind what happened to Han Jin, a 39-year-old vegetable farmer in Jinan, Shandong. On April 16, 2011, Han Jin suddenly took his own life, leaving behind his 38-year-old wife and two underage daughters. The reasons for Han Jin's suicide are said to be very complex; introverted by nature, he had suffered one setback after another over the previous two years. Six mu (1 hectare = 15 mu) of cabbage, two or three months of careful cultivation, yet it met the worst possible outcome——a selling price of 8 fen per 50 grams. This sudden blow became the last straw that crushed him. There was a similar case in Panyu, Guangzhou, where a vegetable farmer drank pesticide and took his own life.

On one hand, cheap vegetables and cheap fruit hurt farmers: rape greens in Beijing were plowed down in whole patches, lettuce in Fujian was destroyed, cabbage in Shandong rotted in the fields, and bananas in Hainan could not fetch a good price. On the other hand, retail vegetable and fruit prices remained very high, producing the strange phenomenon of cheap vegetables alongside expensive vegetables, or cheap fruit alongside expensive fruit occurring at the same time. For example, Chinese cabbage in Beijing and Shanghai often sells for 4 yuan/kg, while when farmers sell these cabbages, they get only a few fen per 500 grams. The gap between fruit prices at the place of origin and market prices is also huge.

Why is the gap between terminal vegetable or fruit prices and wholesale prices so large? One of the most important reasons is that problems have arisen in the distribution links for agricultural products.

The “last mile” problem

The agricultural product distribution system refers to the sum of the commercial flow, logistics flow, capital flow and information flow of agricultural products. In the normal distribution process, every stage of agricultural products consumes various resources, incurs costs and adds value, thereby also generating appreciation and profit; this forms the agricultural product value system (also called the agricultural product value chain).

At present, for domestic agricultural products to go from the place of origin to the consumer's dining table, they must pass through at least the links of farmer—dealer procurement—wholesale market—distributor—retailer. Each link adds at least 10%-15%, which not only causes poor distribution channels but also artificially drives up terminal product prices. The final result is that most of the drop in vegetable prices is borne by vegetable farmers, while the rise in vegetable prices is paid for by consumers.

According to the results of a tracking survey conducted by the Ministry of Agriculture for four consecutive years, in winter and spring, under relatively normal weather conditions, cucumbers grown in farmers' greenhouses in Qingzhou, Shandong, were shipped to the Shouguang wholesale market and sold at about 5 jiao per kg, then shipped to the Beijing Xinfadi wholesale market and wholesaled to middlemen or stallholders in farmers' markets at 1.00-1.30 yuan per kg, and farmers' markets then sold them at about 2.20-2.80 yuan per kg. Based on this calculation, in the retail price of each kg of cucumbers, the selling price of the producer, that is, the farmer, accounts for only 17.9%-22.7%, and the retail price is equivalent to 4.4-5.6 times the selling price of farmers at the place of origin.

The more transaction entities there are in agricultural product distribution, the lower the distribution efficiency. Therefore, in theory, transaction entities should be reduced as much as possible to improve distribution efficiency and optimize the value chain. In particular, it should be noted that in the distribution links, the final link from the city-level wholesale market to the retail market is called the “last mile.” The costs generated by this “last mile” account for more than 50% of the total price and represent the link with the highest markup in the entire distribution process.

The main reason for the sharp price increase in the “last mile” is that the fees paid by distributors in this link have increased substantially. According to surveys, distributors in wholesale markets must pay at least 5 kinds of fees, such as stall fees, entry fees and bidding fees, and the amounts paid keep rising while the payment cycles become shorter and shorter. Excessive fees directly lead to higher prices for agricultural products.

“Small production, small distribution”

At present, constrained by the small-scale household management model of farmers, farmers lack representatives for their interests, while specialized cooperatives, which have long been highly expected to play this role, cannot perform well in actual operation. This leaves farmers lacking bargaining power when facing the market and distributors individually; they can hardly predict risks, nor can they participate in the distribution of benefits. Therefore, most domestic farmers can only transport agricultural products to nearby origin wholesale markets for sale, or have market purchasers buy directly at the field edge, after which long-distance transporters ship them to wholesale markets in large and medium-sized cities, and these wholesale markets then circulate and spread the agricultural products to community farmers' markets, supermarkets and institutional consumer units. As a result, for a long time, the current situation in which farmers “rely on heaven for their livelihood” has not been fundamentally changed. Most farmers have long been squeezed into the very end of the agricultural and sideline product distribution system, and combined with asymmetric information, this makes “cheap grain hurts farmers” and “cheap vegetables hurt farmers” occur from time to time.

In fact, both the production and consumption ends of agricultural products are scattered across millions of households. Therefore, establishing a “large-scale production, large-scale distribution” pattern suited to modern agricultural development is particularly important for agricultural product marketing. Leading enterprises should be used to drive the distribution of local agricultural products as a whole, and among these, leading enterprises are undoubtedly the main body and core of agricultural product brand management.

Judging from the successful experience of agricultural product brand enterprises and regions across the country, building a strong brand must rely on the two-way cooperation and mutual pull between leading enterprises and the government. For example, the local industrial cluster effects of enterprises such as Changyu in Shandong, Sanquan and Si Nian in Henan, and Mengniu and Yili in Inner Mongolia fully demonstrate the backbone role of leading enterprises in brand building. Therefore, cultivating and supporting leading enterprises is an important way to develop industrialized agricultural management and create more brands.