Current Status, Problems and Improvement Suggestions for the Production and Marketing Structure of Agricultural Products in China (Part 1)
In the social and political news during the first two months, considerable space was devoted to reports on the collapse of farm-gate prices for fruits such as bananas, pineapples, papayas and dragon fruit, leaving farmers with nothing but heavy losses. These reports included helpless and sorrowful appeals and protests from farmers in various places, defensive explanations by Council of Agriculture officials regarding their policies and response measures, and even incidents in which local purchasing brokers were ostracized and attacked by peers because their purchase prices were too high, among many other examples too numerous to list.
The phenomenon of sharp rises and falls in agricultural product market prices in China actually occurs regularly and irregularly. Whenever such an incident occurs, ordinary people usually feel the price increases keenly, because retail market prices become so high that people cannot bring themselves to buy; when a bumper harvest in production areas drives prices down, consumers at the retail end often do not feel the decline, at most seeing prices return to normal or become only slightly cheaper than usual.
But for farmers, the common response is that when market prices rise, the farm-gate price they can obtain is not as high as the proportion of the increase in the wholesale market, while when a bumper harvest causes wholesale market prices to fall, that is when the pain begins, often with no way to sell or with total loss of their capital.
With this problem of sharp rises and falls in agricultural product market prices, government agencies often also become the target of criticism. It would seem unfair to say the government has done nothing about this problem, because very early on the government used various subsidy measures, such as removing surplus products or substandard goods from the market, to compensate farmers for their losses, or launched special overseas agricultural product procurement and other adjustment measures to stabilize price fluctuations and calm public discontent.
If the government can respond immediately to such incidents, the controversy will be much smaller; but if the response is too slow, it becomes social and political news that is hyped extensively. Regardless of which handling result occurs, once the incident subsides it usually leaves no trace, like a boat passing through water, and one can only wait for the next occurrence to respond again. The problem seems forever unsolvable.
Whenever there is a major phenomenon of sharp price rises or falls, the Council of Agriculture will propose some policy explanations and response measures to handle it; for example, in this round of turmoil, Council of Agriculture Chairman Lin, at the July 3 press conference on refined measures for fruit production and marketing adjustment, released a briefing slide, as shown in the figure below, explaining what measures the government had taken in the past to deal with overproduction and price collapses; but after so many years the problem remains, clearly showing that these measures have not been effective in truly solving the problem.
In the figure above, shaded boxes outline three types of agricultural producers, including individual farmers, production and marketing groups, and production cooperatives; producers' production methods include open-field cultivation, greenhouse/net-house cultivation, and plant factories, among other different types. Basically, apart from the plant factory production type, farmers' associations play a certain role in production guidance and marketing coordination among these producers.
Under the regulations of the Agricultural Products Market Transaction Act, farmers basically have the three channels for selling agricultural products shown in the figure: self-production and self-sales, contract production, and independent production sent to wholesale markets or specific trading markets for sale. With different sales channels, farmers' practices in agricultural production management differ in order to meet the special needs of that channel, and their ability to set and negotiate product prices also differs; the production and marketing environment and problems they face naturally also differ, as explained respectively below:
Self-production and self-sales:
As shown in the figure, the sales channels for self-production and self-sales include four types: markets, farmers' association storefronts/sales outlets, self-built official websites/e-commerce websites, and health-oriented self-operated specialty restaurants. Other practices, such as farmers loading products into vehicles themselves to sell at markets or roadsides, are ignored and not discussed here.
For agricultural products sold through this channel, whether fresh products or simply processed products such as jam and pickles, farmers can sell them as commercial goods, and farmers have the leading role in product sales, pricing and negotiation. However, this direct or indirect consumer-facing sales method requires a certain input of manpower and expenses for sales, including product packaging, promotion, and non-agricultural production work, with which farming friends are not familiar. Therefore, only some farmers sell products through this channel, and many of the farming friends who do sell will not put all of their agricultural products into this channel; usually they operate this sales channel with the mindset of a side business.
The proportion of farming friends who purely take the self-production and self-sales route, that is, who sell all or most of their agricultural products through this channel, is even smaller (see note). Usually such farming friends focus on the production of specific agricultural products, operate their own brands, build product quality reputations, and also have their own websites (official websites) or join e-marketplace websites mainly engaged in agricultural product sales.
Note: Terms such as "proportion" used in this article are only conceptual statements because specific statistical figures are lacking as supporting evidence. If government departments also lack relevant statistical figures, they may in the future collect them as a basis for decision-making and management.
If marketing through the internet, such farming friends usually rely on the assistance of professional website operators, such as OwlTing Market, to shape brand image, expand online customer groups, and cultivate a fixed customer base. More ambitious farming friends will simultaneously join or operate multiple websites to expand the reach of online customer sources, thereby increasing product sales volume and sales speed.
Overall, the proportion of agricultural products and processed agricultural products sold through this channel in the total national sales volume of agricultural products is very low, so it will not affect changes in national agricultural product prices. If farmers thereby establish their own brands and quality reputations, they instead become relatively less affected by market price fluctuations and can sell products at prices better than those in wholesale and retail markets.
Although online shopping has become a trend, agricultural administration agencies also encourage farmers and farmers' groups, such as farmers' associations, through guidance and subsidies to set up websites for agricultural product sales; there are also various private commercial website operators mainly selling agricultural products. However, this type of sales channel is only suitable for specific consumption patterns, specific types of agricultural products, and specific types of consumer groups, and cannot be promoted as a sales channel that meets the consumption needs and habits of the general public. Even if development succeeds, because the market scale is small, only farmers who invest early in this niche and continue operating can benefit. Therefore, the prices of agricultural products sold through this channel cannot affect the large daily trading quotations of agricultural products, nor can they improve the risk problem faced by most farmers of sharp fluctuations in agricultural product trading prices in each production period.
Contract production:
"Contract production" is a production model similar to "contract farming" or "guaranteed purchase." For the buyer, because it must meet the market demand of existing channels or develop the commercial interests of channels, it must seek trustworthy agricultural product producers and obtain stable sources of agricultural products to meet the needs of its commercial and service operations. Conversely, for agricultural producers, because they do not need to worry about the future predicament of having no way to sell their agricultural products or suffering losses from severe price drops, they can reduce agricultural production risks and focus on agricultural production operations. Therefore, adopting contract production is a relatively secure production and sales model for farmers.
The farm-gate price of agricultural products under contract production is basically agreed upon in advance by both parties. The buyer calculates its commercial costs and profits and proposes an acceptable purchase price; the producer estimates its production costs and expected returns and proposes an expected selling price, after which both parties negotiate. An ideal price agreement result will set a purchase price range based on a certain product quality foundation; that is, a flexible pricing plan will be adopted depending on the quality of the harvested agricultural products and the wholesale market price at the time; but the maximum will not exceed a certain number of yuan, and the minimum will not be lower than a certain number of yuan. As for whether this price is better for farmers, the leading role in negotiation is mostly held by the buyer.
Because the terminal market demand operated by the buyer involves a considerable volume, its contract production partners are usually mainly production and marketing groups and production cooperatives, and it less often signs contracts with individual farmers. However, because some buyers still take profit as their main consideration, and farmers may also be attracted by occasional high profits from other farmers, a stable and widespread contract production relationship still needs further cultivation, and government departments can certainly play a certain guidance role in this.
Although the quantity of agricultural products released through contract production is clearly much higher than that of self-production and self-sales, and because there is a certain sales model and production-marketing order, the price fluctuations of agricultural products sold through this channel are clearly lower. As shown in the figure above, because its sales channels have low overlap with wholesale market channels and still cannot compete with wholesale markets in quantity and variety; in most cases its product attributes also differ from those of wholesale markets, and unit prices are mostly higher than the average wholesale market price; therefore, product prices in this channel also cannot clearly affect wholesale market prices and price changes. At most, when retail market prices of agricultural products rise unreasonably, agricultural administration agencies will use a combination of persuasion and pressure to urge hypermarket operators to increase shipments from their contract production origins to slightly balance the soaring agricultural product prices.
From the above analysis, it can be seen that contract production is a production model that provides farmers with greater security and can produce good production-marketing relationships. Agricultural administration agencies should consider how to effectively expand the development of the contract production model and guide wholesale markets to open up a trading environment for such products or induce wholesale market purchasers, such as jobbers, to switch to purchasing agricultural products from contract production suppliers. The policy promoted in early 106 of the Republic of China, that is, early 2017, by the Council of Agriculture, the Ministry of Health and Welfare, and the Ministry of Education based on food safety needs, requiring school lunch ingredients to comply with the "Four Labels and One Q" policy, is an excellent policy that mutually supports improvements in the agricultural production and sales procurement environment. Agricultural administration agencies can further track and compile statistics on the impact and changes this policy produces on the contract production environment and understand whether the two sides thereby establish a healthy contract production cooperation model.
Independent production sent to wholesale markets for sale
In every discussion of incidents of sharp rises and falls in agricultural product prices, the source of the incident is actually the trading prices in this wholesale market, especially the daily wholesale prices at Taipei Agricultural Products Marketing Corporation's First and Second Fruit and Vegetable Markets, which have a clear effect in guiding changes in retail market prices.
In the 60s and 70s of the Republic of China, that is, the 1970s and 1980s, the Agricultural Products Market Transaction Act was passed and agricultural product wholesale markets were established. The original purpose was to establish a unified, open national agricultural product trading environment and order, avoid uneven regional arrival distribution and unfair trading phenomena caused by factors such as artificial monopoly or information gaps, and thereby prevent unreasonable agricultural product prices and farm-gate purchase prices being exploited by middlemen.
This system has been in place for many years, and with the assistance of information technology, the transparency of trading information has developed rapidly and in detail, but the frequency of major fluctuations in agricultural product prices and the severity of changes show no sign of easing. In addition, farmers are still often heard complaining that when wholesale market prices rise they do not receive corresponding benefits, while when prices plummet it is the time when they lose everything and suffer heavy losses. The role of government departments here also appears unusually passive and awkward: they have no coercive power to restrain changes in agricultural product prices, yet when agricultural product prices sharply rise or fall they must bear the scolding from both farmer producers and end consumers and spend huge amounts of public funds and effort to clean up the mess, repeating endlessly in a seemingly endless cycle.
In exploring the causes of sharp rises and falls in agricultural product prices in wholesale markets, it is true that they can be attributed to supply-demand imbalances caused by seasonal and climatic factors, such as bumper harvests or disaster-related damage and shortages. But by reviewing relevant materials and information, it is not difficult to find that there are also issues worth discussing throughout China's entire agricultural production and marketing transaction chain.
Mr. Lin Yu-hung, who has long paid attention to China's agricultural production and marketing issues and has the dual identity of farming friend and columnist, and Mr. Chiao Chun, another columnist for "Agriculture 23 Things," have pointed out some problems in many articles; for example: the operational methods by which suppliers/brokers and consignees in wholesale markets may influence wholesale prices, the behavior of jobbers in compressing purchase prices from farmers in production areas, the phenomenon that the production and marketing mechanism of wholesale markets cannot effectively link purchase prices with market prices, and calls for continuous review and improvement of China's transportation and marketing system and structure.
In addition, from the news incident in June this year in which a banana broker was beaten, it can also be seen that in the field of agricultural product purchasing brokers there are so-called unwritten industry rules. When someone does not follow these rules and affects the interests of others, they will be ostracized or even attacked; and these unwritten rules are not conducive to producers, that is, farmers, obtaining the production profits they deserve.
Therefore, if agricultural administration authorities want to change this role of being passive and vulnerable everywhere, they need to actively face the problem, come up with effective measures, and gradually improve China's production and marketing structure and constitution, reduce the amplitude of agricultural product price fluctuations, and increase the returns farmers deserve.
How should this be done? It will be explained clearly in the next section.