Rural E-commerce Reshapes the Industry Chain, Opening a Trillion-Yuan Market
Rural areas are becoming an important battleground where e-commerce players fight it out. Especially after a series of supportive policies were implemented, Alibaba, JD.com and Suning Cloud Commerce have staged an intense "Three Kingdoms" battle.
Industry insiders say e-commerce is an important breakthrough for boosting rural "soft power." Through this path, a market worth more than one trillion yuan will open up, traditional agricultural production and sales models will change, agricultural enterprises will move toward scale operations, farmers' incomes will rise, and a new rural ecosystem will gradually take shape.
A New E-commerce "Blue Ocean"
On September 7, the Ministry of Agriculture signed an agricultural e-commerce cooperation agreement with JD Group. The two sides will carry out comprehensive cooperation in linking high-quality agricultural resources with production and sales, targeted poverty alleviation, channel expansion and bringing information to villages and households, big data research and cooperation, and rural finance, so as to advance agricultural e-commerce and modern agriculture, achieve agricultural transformation and upgrading, and help farmers increase their incomes and become better off.
Before JD joined hands with the Ministry of Agriculture, Alibaba had already signed a relevant agreement on rural e-commerce with the Ministry of Agriculture, and in the future it will roll out rural e-commerce in ten pilot provinces nationwide.
Alibaba, JD.com and Suning Cloud Commerce are all concentrating their firepower on the rural market, and their development path is roughly as follows: first establish a two-way logistics network from cities to rural areas and from rural areas to cities, then develop the rural fresh produce business and build an efficient cold-chain transport mechanism, and finally develop rural finance.
Judging by the current level of effort, JD.com and Alibaba have the upper hand. As of June 30, 2016, JD.com had nearly 300,000 rural promoters, the number of "JD Help Service Stores" exceeded 1,500, and the delivery service range for major home appliances covered more than 420,000 administrative villages; by the end of the second quarter, Alibaba's Rural Taobao had covered more than 17,700 village sites in China.
Suning Cloud Commerce chairman Zhang Jindong revealed that this year the company will invest 5 billion yuan to build another 1,500 Suning.com direct-sale stores and 200 online local specialty halls, create 20 "most beautiful countryside" models, and raise Suning's logistics coverage in tier-3 and tier-4 markets to 87%.
Policy support for rural e-commerce development has been even stronger. Since 2015, various ministries and commissions have intensively issued policies to promote the development of rural e-commerce.
The rural e-commerce market has broad space. A Ping An Securities analyst pointed out that the per capita annual income of rural residents in China has already exceeded 10,000 yuan, and its growth rate is faster than that of urban residents. The internet penetration rate of rural residents is less than half that of urban residents, and their e-commerce usage rate is clearly lower than that of urban residents. However, rural residents have a relatively high acceptance of online shopping and online payment, and their usage rate is rising quickly. It is expected that the development space for rural e-commerce will exceed one trillion yuan, and it will maintain a high-growth trajectory over the next 2-3 years.
Although rural e-commerce is still in an early stage of development, it has grown rapidly over the past two years. According to statistics from the Ministry of Commerce, in the first half of this year, rural online retail sales exceeded 310 billion yuan, and the growth rate of rural online retail sales exceeded that of cities. Authoritative forecasts show that the scale of rural online shopping this year will reach 460 billion yuan.
Reshaping the Industry Chain
Through e-commerce channels, many high-quality agricultural products have already sold well across the country, and farmers' incomes have risen significantly. Moreover, relying on e-commerce to achieve large-scale production and sales of agricultural products has produced a number of emerging agricultural enterprises. Data show that more and more migrant workers, college and secondary school graduates and veterans, and even business elites and returnees from overseas, have begun returning to their hometowns to engage in agricultural entrepreneurship and innovation, becoming a new type of farmer.
Li Guoxiang, a researcher at the Institute of Rural Development under the Chinese Academy of Social Sciences, pointed out that rural e-commerce applications are developing relatively quickly and are significantly promoting the circulation of agricultural product markets. Flattened sales channels are also having an impact on traditional agricultural input production and sales.
In the A-share market, many traditional agricultural input enterprises such as Xindu Chemical, Kingenta, Huilong Shares, Noposion, Sierte and ENN Shares have rushed to "get online," launching agricultural input e-commerce platforms.
The traditional agricultural input sales model is hierarchical distribution after production. After the emergence of the agricultural input e-commerce format, in terms of the downward flow of agricultural production inputs, it can provide farmers with money-saving and efficient full-process solutions; in terms of agricultural products entering cities, it can help create branded agricultural products; and in terms of agricultural finance and insurance services, it can provide financial support and guarantees for large growers to expand production.
E-commerce is only the breakthrough point for agricultural informatization. Information technologies such as e-commerce, the Internet of Things and big data are increasingly being applied in agricultural production, and to a certain extent they are accelerating the transformation of agricultural production methods, thereby speeding up the pace of modern agriculture development.
Through real-time monitoring by the Internet of Things and analysis and forecasting using big data, precision agriculture can be achieved, unit costs reduced and unit yields increased; internet technology promotes informatized management of farms, enables factory-style process operations, further improves operating efficiency and helps promote and replicate advanced models; "Internet + agriculture" can generate enormous demand for technical services such as data collection and information platform construction.
According to the "13th Five-Year Plan National Agricultural and Rural Informatization Development Plan," by 2020 the application rate of information technologies such as the agricultural Internet of Things in China will rise from 10.2% in 2015 to 17%, raising the level of informatization and intelligence in agricultural production. By strengthening the application of remote sensing technology in monitoring soil moisture, crop growth, natural disasters, pests and diseases, and the output of major agricultural products, the bottleneck of large-scale application of information technology in field crop farming will be broken through.
Many Opportunities Lie Within
In the process of advancing "Internet + agriculture," two types of agricultural informatization enterprises will take shape. One is pure data service providers, mainly selling data products and developing supporting software; the other is platform-based agricultural input enterprises formed by providing value-added agricultural informatization services, relying on information services to provide value-added services for agricultural input sales.
Shenzhou Information signed the "Agreement on Jointly Promoting Agricultural and Rural Big Data Cooperation" with the Ministry of Agriculture. Through application platforms, Shenzhou Information lands and collects data and nurtures it, and through the integration, analysis and mining of big data, it grasps the key production factors in rural areas, supports large-scale agricultural operations, and provides comprehensive socialized services covering technology, products and operations across the entire agricultural industry chain.
Among platform-based agricultural input enterprises, Xindu Chemical provides services through its e-commerce platform. It is reported that the number of registered members on its e-commerce platform Haha Farm has exceeded 199,800, the cumulative transaction volume of "mall + wealth management" has exceeded 1 billion yuan, and it has developed 4,177 township experience stores nationwide, building a rural e-commerce operation system.
A Changjiang Securities analyst pointed out that large-scale agriculture in the United States has been developing for more than half a century, but at the present stage the scale of pure agricultural data service providers is relatively small, while the scale of "agricultural inputs + agricultural informatization" enterprises continues to expand. In the future, the latter model will have strong vitality in China's agricultural development. It organically combines agricultural informatization services based on the internet and big data with agricultural input sales, and realizes the monetization of the value of agricultural input products by providing value-added agricultural informatization services.
A Ping An Securities analyst, however, believes that in the future the rural e-commerce platform may present an oligopolistic situation dominated by the three major e-commerce players Alibaba, JD.com and Suning, but rural e-commerce logistics will bring opportunities to many agricultural input enterprises. At present, rural e-commerce development faces problems such as relatively high logistics costs and a lack of e-commerce knowledge among rural residents. The three major e-commerce players are laying out a two-way rural logistics system in counties and townships in an O2O model. By using economies of scale, they will greatly reduce logistics costs. The O2O service sites also serve as both e-commerce publicity stations and service points. Many listed companies such as Batian Shares and Huilong Shares mostly cooperate with JD.com, Alibaba and others. Their products are sold at scale through e-commerce, while their original offline channels become distribution and service sites, solving the last "one kilometer" of rural e-commerce.
Industry insiders point out that the "Internet + agriculture" market is huge, and e-commerce is only the beginning. The entire process of agricultural production and sales involves many levels, and it is difficult for a single enterprise to handle the whole process. On the basis that large e-commerce platforms undertake the introduction of sales traffic, many opportunities lie in fields such as precision agriculture, farm informatization management and agricultural big data.