Agricultural Product Circulation: A Detailed Explanation of China's Four Major Models and Current Situation

At present, China's agricultural product circulation market has formed a pattern with farmers, farmer cooperatives, agricultural product processing enterprises and distributors as the main circulation entities, and farmers' markets and wholesale markets as the carriers. It has evolved over many years of market-oriented reform from the unified purchase and unified sale model under planned regulation. Below we analyze the several models that currently coexist in China:

Model One:

Farmer + (purchasing peddler) + wholesaler + retail terminal can be further divided into two forms:

(1) Peddlers exist. In the vast rural areas of China, it is normally the case that farmers sell their agricultural products directly to peddlers right after harvesting, and these peddlers directly resell the purchased agricultural products to the next-level wholesalers, who then resell them to retailers, thus completing the circulation of agricultural products. The characteristic of this model is that, due to the single channel, farmers can easily become extremely dependent on peddlers.

(2) Peddlers do not exist. The precondition of this model is that a certain agricultural product is planted in large concentrated tracts in a certain region. Because of this large-scale planting, economies of scale can be formed, and farmers can enter the market at relatively low cost to trade directly with wholesalers. The characteristic of this model is that the transaction between the farmer and the wholesaler is a one-time transaction, and both parties merely seek to maximize the benefits of that particular transaction.

Model Two:

Farmer + leading enterprise + (wholesaler) + retail terminal. The key to this circulation model lies in the relationship between the farmer and the leading enterprise. According to the contract signed by both parties, the farmer produces a specified quantity and variety of agricultural products according to the corresponding product quality standards in the contract, while the leading enterprise concurrently handles purchasing, processing and sales work, carrying out deep processing of the purchased agricultural products to increase their added value, and then reselling them to lower-level wholesalers and retailers to complete circulation. This circulation operation is called "order agriculture." The advantages of this model are: first, by binding the farmer and the leading enterprise through a contract, the farmer and the leading enterprise can share market pressure together, thereby safeguarding the farmer's interests. On the other hand, compared with the first circulation model, this model can better optimize agricultural product circulation, maintaining the independence and autonomy of agricultural products while saving the cost of information searching. At the same time, this model also has some disadvantages, such as the relatively fragile contractual relationship between farmers and enterprises.

Model Three:

Farmer + farmer cooperative + leading enterprise + (wholesaler) + retail terminal. This model adds a farmer cooperative between the farmer and the leading enterprise; in fact, it is an improvement and correction of Model Two. Compared with Model Two, in this model the farmer and the leading enterprise are no longer directly connected, and the farmer cooperative becomes the link and bridge between them. The cooperative gathers scattered farmers together, organizes production according to order requirements, purchases farmers' products in a unified way, and then organizes sales in a unified way. The advantages of this model are: first, the farmer cooperative replacing scattered farmers in trading with the leading enterprise can save negotiation time, and the relatively stable relationship can make the circulation channel smoother. Second, compared with scattered farmers, a cooperative certainly has stronger bargaining power, and can therefore secure more benefits for farmers. The advantages of this model and the benefits it brings to farmers are beyond doubt, but farmer cooperatives are still at an early stage in China, are not yet familiar in operation, and lack standardization, so it is necessary to strengthen the cultivation of excellent farmer cooperatives.

Model Four:

Farmer (agricultural cooperative) + retail terminal (supermarket). This circulation method is called "direct farmer-supermarket connection" and is an agricultural product circulation model that China has focused on encouraging in recent years. The characteristics of this model are: the retail terminal represented by the supermarket and the farmer cooperative representing farmers have no other intermediate links whatsoever, and the two are connected in the form of direct supply and direct procurement of agricultural products. With its own advantages in capital, management, technology and other aspects, the supermarket participates in the production, processing and circulation of agricultural products, and with its information, technology, logistics and other aspects provides a one-stop service for agriculture, so that farmers and the market can be effectively connected without circulation organizations, achieving the purpose of reducing circulation links and lowering circulation costs. The advantages of this model are mainly reflected in the following: first, it shortens the length of the supply chain to the greatest extent, reduces consumption and costs in the circulation process, and the supermarket monitors the circulation process of agricultural products, fully guaranteeing product quality. Second, from the farmer's perspective, it greatly reduces the market uncertainty that affects farmers' planting, and avoids blind production by farmers. Third, from the supermarket's perspective, eliminating intermediate circulation links saves circulation costs, thereby lowering product prices and improving the product competitiveness of the retail industry. Fourth, from the consumer's perspective, lower product prices are the greatest benefit to consumers.

Although the circulation channels and methods of agricultural products are constantly developing and improving, the following points are still current realities that cannot be ignored and that affect the efficiency of agricultural product circulation:

First, ultra-small-scale farmers and self-employed households remain the most important entities in China's agricultural product circulation.

Compared with developed countries, both the production entities and circulation entities of China's agricultural products are mainly farmers and self-employed households engaged in the wholesale and retail of agricultural products. There are very few agricultural enterprises, and their operating scale is small. Among them, the average operating cultivated land area per household is 7.94 mu. The average sales per household are 1047.34 kg of grain, 97.62 kg of pork and 55.48 kg of poultry eggs, making it a relatively small-scale household production type in the world. Moreover, this current situation is difficult to fundamentally change due to China's geographical environment, population factors and so on, and carrying out agricultural production and operation with the family as the unit is not unique to China but a common phenomenon in many countries; for example, the operating scale of farmers in Japan is also very small. However, small-scale household production will inevitably have a great impact on the level of circulation efficiency.

Second, the number of agricultural product wholesale markets is huge, but the average transaction scale is small, the grade is not high, and the functions are incomplete.

Starting in 1991, China began to treat the establishment of "an agricultural product market system centered on wholesale markets as an important part of circulation reform," and separately established interconnected and mutually supporting central-level and regional agricultural product wholesale market networks in concentrated production areas, distribution centers and large and medium-sized cities. By 2007, the total transaction value of agricultural product wholesale markets with a transaction value of over 100 million yuan in China was about 930 billion yuan, accounting for 37% of the total value of agricultural production. The proportion of agricultural products nationwide traded through agricultural product wholesale markets was as high as more than 70%, and this proportion is still continuing to rise.

Third, the technology content of the channels is generally low, resulting in low efficiency.

The technologies required for preservation, anti-corrosion and loss prevention used in the transportation channels of agricultural products are relatively advanced and are extremely important technologies in agricultural product channels. The characteristics of agricultural products, such as high water content, short shelf life and extreme susceptibility to rot and deterioration, place very high demands on transaction time and preservation conditions in the channels, while China's current channel construction and technical level both still need to be improved.