E-Commerce Gives a Lift to China’s Rural Farmers

E-Commerce Gives a Lift to China’s Rural Farmers

By Christina Larson February 13, 2014

A recent series of food safety scandals has created a hunger in China’s big cities for natural or traditionally grown food, absent buckets of fertilizer and pesticide. Two beneficiaries of this new market are Li Chengcai, 83, and his wife, 76-year-old Cheng Youfang, who grow white radishes in fields shadowed by the Yellow Mountain range. They get orders online from distant urban customers willing to pay more for flavorful, safe food.

The couple lives in Bishan, a village of 2,800 residents, in an old stone home on a narrow street lined with crumbling mansions. Rich merchants built the homes more than a century ago when the village, in southern Anhui province, was in its heyday. Many villagers, including their four daughters, have left for the cities. In 2011, China’s population was more than half urban for the first time. But Li and Cheng, who are illiterate and speak only their local dialect, say they have no plans to leave. Fortunately, a new opportunity has come to them—as it may to many more farmers in the next few years.

About a year ago, Zhang Yu, a 26-year-old “young village official”—that’s her actual title—knocked on Li’s door. In the summer of 2012, as national newspapers carried heated debates about genetically modified organisms and food safety, Zhang and a few other young colleagues had an idea. In their capacity as village officials they launched an account on Sina Weibo, a microblogging site, to post items about the fresh, traditionally grown produce of the Yellow Mountain region. Soon afterward they began an online store through Alibaba Group’sTaobao.com platform to connect local farmers with urban buyers. The first order, for 5 pounds of sweet corn, came from a resident of the wealthy port city of Dalian.

The online grocery, officially known as the Young Village Officials’ Farm, has customers in Beijing, Shanghai, and elsewhere, and about 10,000 followers on Weibo. Twenty-seven farms now fill orders, including that of Li and Cheng, who sell dried radishes. Customers place orders online, and Zhang visits farmers to inform them of the order and work out logistics and shipping. Zhang says the reason for their success is a renewed interest in local farming traditions—which she documents in lush photographs on social media—and strict quality control. Her team inspects harvests and literally throws out bad apples. “We prefer to work with farmers in mountainous regions with better natural environments,” she says.

In an area where the average monthly household income is only about 600 yuan ($99), farmers selling produce through the online grocery store can increase their income by a third, according to Zhang. The store’s most popular items include dried bamboo shoots, firm tofu, and jars of honey. Many of the farmers can’t read and have never used the Internet. But they can still reap the economic benefits of e-commerce with the help of younger villagers who “use the Internet on our phones,” says 20-year-old Mu Er, general manager of an inn in Bishan. Zhang sends Weibo postings from her Xiaomi smartphone.

Zhang’s online store is part of a growing trend that could change the economic prospects of China’s rural population and slow the migration of young villagers to the cities. According to a December 2013 report from Alibaba, China’s e-commerce giant, the number of Taobao stores registered to rural IP addresses in China rose 25 percent in the past year, to more than 2 million. At least a few e-commerce businesses have not only padded rural incomes but also made some wealthy. Former farmer Liu Yuguo founded an online business selling woolen yarn from his home in the rural outskirts of Beijing in 2007; now he imports yarn from Inner Mongolia, employs 200 people during peak sales season, and drives a BMW.

“E-commerce is bridging the gap between people’s aspirations and what is locally available offline.” —Yougang Chen, McKinsey

Rural residents are also going online to buy items they can’t easily find in nearby stores. With increased exposure to television and social media, “consumers in remote areas are now very aware of brands,” says Jeff Walters of the Boston Consulting Group’s Beijing office. Mu, the innkeeper, says he buys shoes from Taobao because “shoe stores here only offer low price and low quality.”

A June 2013 Taobao study found that consumers in China’s small cities spent a greater proportion of income shopping online in 2012 than those in China’s big cities. A March 2013 McKinsey Global Institute Study, China’s E-Tail Revolution, showed that in the smaller cities—essentially country towns—the average online shopper spent 27 percent of her disposable income via e-commerce. It’s “bridging the gap between people’s aspirations and what is locally available offline,” says Yougang Chen, a McKinsey partner in China and co-author of the report.

In Zhejiang province’s Suichang county, the local government has made online shopping easier by establishing drop-off and pickup sites for merchandise. As Barney Tan, a senior lecturer in business at the University of Sydney who’s done research in Suichang, explains: “Farmers can place orders for shampoo and farming supplies in bulk, and there are common established points of delivery.”

While the migration from China’s countryside into its cities shows no sign of reversing, the rise of e-commerce in rural areas does afford more opportunities. “We need to better balance development between the rural and urban areas,” says Ou Ning, an editor who moved to Bishan to study rural growth. He worries about the social cost of seeing rural areas as left behind. McKinsey’s Chen says the villagers’ online grocery store and other businesses have potential. “Chinese people’s love of different kinds of food is already creating a very good market,” he says. “The Internet has liberated millions of entrepreneurs in China.”

The bottom line: The number of e-commerce sites registered to rural IP addresses in China rose 25 percent in the past year.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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