November 3, 2020, by aczjb1

Connecting small farmers to big markets

What is the opportunity of E-commerce for cooperative development in China’s poor areas?

HGI’s Dr Bin Wu, with Lei Luo and Xinhong Fu

In the context of sustainable rural development in the developing world, the emergence of e-commerce seems to offer opportunities to empower small farmers, – and the rural poor in particular – by linking up with external markets. Optimising such opportunities, however, depends on many conditions, including infrastructure (such as internet, road and logistical networks), standardised and scaled-up agricultural production, and available talents in e-commerce and farmers’ organisations. In this regard, China’s experience sheds new light on the application of e-commerce via cooperative development in its rural poor areas.

Since the 21st century, the Chinese government has promoted the development of rural e-commerce. This has led to an increase in the penetration rate of rural internet e-commerce to 26.7% and in the volume of e-commerce trade to 579.24 billion yuan[1] (in 2019, four times as much as in 2014. The growth rate of the e-commerce trade in the countryside exceeded that of urban areas by 4.9%, and shared 17.3% of the national total in e-commerce trade. These achievements cannot be separated from the “E-commerce to the countryside” campaign run by Taobao, JD.com, and other world-renowned e-commerce enterprises. For example a Taobao village is a cluster of rural e-tailors within an administrative village where at least 10% of village households actively engage in e-commerce or at least 100 active online shops have been opened by villagers. These now have an annual e-commerce turnover of more than 10 million yuan. This is an increase from only three in 2009, 1,311 in 2016 to 4,310 in 2019 across China.

However, the development of rural e-commerce is uneven. For example, 90% of Taobao villages are located in the developed coastal areas of Zhejiang, Guangdong, Fujian and Jiangsu, while only 8% and 2% are located in the central and western regions, respectively. At present, the penetration rate of e-commerce is 76.9% on national average, compared only 26.7% in its countryside. In the western rural areas, such figure is much lower due to the scattered population and poor infrastructure.

In recent years, the government-led poverty alleviation campaign has provided new impetus for not only local economic development but also rural e-commerce in the poorer areas. They have done this through:

• Transport infrastructures in rural areas have been significantly improved, and the coverage of Rural Express Logistics and e-commerce service outlets has increased significantly, reaching 92.4%.
• The broadband network in western rural areas has been upgraded, and the proportion of fibre-optic network in administrative villages has reached 98%.
• The government has encouraged the return migration of young talents to start their own businesses by providing subsidies.
• There has been policy and strong government funding support for the establishment and development of farmers’ professional cooperatives. Bringing together policies opportunities for the development of both rural e-commerce and cooperatives, there is an emerging model in the poor areas of rural China in recent years, -called the “E-commerce + Cooperatives” model.

To understand the “E-commerce + Cooperative” model, we conducted field research in Hanyuan, one of the poorest counties in Sichuan province. The fieldwork was a part of a Global Challenge Research Fund (GCRF) pilot project, which aims to understand the barriers and good practices of cooperative development via e-commerce. With a support from local government, the project team selected three farmers’ cooperatives to host field observation and interviews. The selected cooperatives covered a range of production fields, crop planting, livestock breeding, processing of agricultural products, and rural tourism. With respect to the bottlenecks of cooperative and e-commerce development in the poor areas, we now have the following findings:

• The return migration and entrepreneurship of young talents is a foundation for the development of rural e-commerce and cooperatives in the rural poor areas. Our field study found that all the cooperative leaders had prior working experience in the cities with relevant skills in food supply chain companies, as a fruit trader or in an e-commerce operation. These experiences have laid a solid foundation for their success of return entrepreneurship.
• Flexible and diverse market docking model. We found that cooperatives vary in production organisation and the application of a docking model with the market. Three models can be identified:
  1. The co-development of a co-operative and e-commerce platform, which requires a high standard of cooperative leader in terms of knowledge and skills.
  2. The partnership between co-operative and ecommerce sales: co-operative and e-commerce enterprises establish stable cooperative relations.
  3.  Internet + Agricultural E-commerce: cooperatives use the instant publicity function of e-commerce to attract social participation, such as fruit tree claim, e-commerce planting, online monitoring, cloud-picking, etc.
• The co-operative start-up capital is key to developing rural e-commerce and co-operatives. All three co-operative start-up funds were initially raised by individual leaders, either by using their 10-year savings and business surplus, or by borrowing money from relatives, friends and institutions. On this basis, the co-operatives have made further use of government subsidies for the development of e-commerce, the creation of co-operatives and the scaling up of agricultural production. Moreover, they have introduced external private investment and institutional equity for the sustainable development of the cooperatives.
• Building green brand to attract public participation. We found that some e-commerce and cooperatives have built relations with mainstream media (such as CCTV, Tik Tok) to promote their high-quality agricultural products. Others have made full use of the internet and e-commerce platforms to develop models such as “field picking” and “fruit tree claim”. Urban customers can claim a fruit tree on the internet at a price of 1,000 yuan per year. Co-operatives promise that no pesticides and fertilisers will be used to ensure safe and high-quality fruits. They have developed “cloud picking and monitoring”, and customers can also come in person to enjoy fruit picking in the field.

The experience of Hanyuan County in e-commerce and cooperatives offers an insight to a pathway for poverty alleviation via e-commerce and cooperative development in China. The combination of e-commerce and cooperative development in the poor areas, however, cannot be separated from its national poverty-alleviation policy environment and strong support from local government.  Further research is needed to understand the scope of this model, decide on its suitability and the extent to which local farmers can gain benefit from it.

[1] 1 GBP = 8.68 yuan CNY

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