Rural e-commerce is making Chinese farmers more vulnerable
Jan 27, 2020
Rural e-commerce is a huge success story—unless you’re a farmer. Even if a program is not profitable, tech giants still reap market share and reputation; governments realize political achievements; consumers get good prices for agricultural products.
A few villages have won big with e-commerce. Jingdong claims its flagship corporate social responsibility project, “Running Chicken,” has helped farmers in Wuyi “increase their annual income by several thousand RMB each.” But it’s a winner-take-all system, and many products fail. And when a product fails in this market, the rural communities behind it lose a lot of assets in the process. Many face real hardship, and a long and hard recovery from their bid for national branddom.
Enter the giants
The major e-commerce platforms are all conducting strategic e-commerce programs marketing agricultural products. Alibaba has developed thousands of Taobao Villages, clusters of online sellers , that the company boasts bring jobs and business opportunities to the countryside; Jingdong, with a typically asset-heavy strategy, has created rural service centers (in Chinese), including drones to build out its in-house logistics. Kuaishou, a short video platform, cultivates rural influencers and invests its data flow resources in promoting agriculture produce.
Among all these players, Pinduoduo is the most successful.Sales of agricultural products via its anti-poverty program more than tripled last year to hit RMB 65 billion (about $9.3 billion). Compared with competitors, Pinduoduo is more rural community friendly because it focuses on the “lower market” and provides extremely affordable products for its budget-sensitive users. Meanwhile, agricultural produce has emerged as strategic sector since the firm’s founding. After its $3 billion Series C in 2018, Pinduoduo soon launched a $1.6 billion project to promote agricultural products.
Why e-commerce appeals
E-commerce solves many pain points in agricultural product marketing. Agricultural products are highly perishable, poorly standardized, and in China are usually cultivated on a small scale without much planning. Rural communities need more orders, larger markets, transparent interaction with consumers, and robust demand estimates to make planting decisions. E-commerce, which breaks geographic and informational barriers, seems to be the natural solution for these issues.
Rural e-commerce is aligned with the needs of stakeholders throughout the system. It benefits from support from government at all levels, who see it as a way to advance China’s poverty alleviation agenda (in Chinese). The saturation of urban markets makes rural areas an avenue for tech giants to grow. What’s more, many former migrant workers bring expertise and labor back to rural areas when they return to their hometowns, which may happen either voluntarily or not.
What farmers lose
Traditional informal sales networks are deteriorating as rural communities move to e-commerce. Agricultural products are traditionally sold through a less institutionalized marketing network that involves multiple levels of commissioning agents. This informal network runs on interpersonal trust and cash: all participants are symbiotic, sharing the risks, and each actor profits from a unique information advantage. Although middlemen are in a more privileged position, they still have an incentive to help farmers survive year to year by offering long-term credit.
This chain acts as a buffer between small landholders and the institutionalized market. However, the informal system faces competition from e-commerce and is being driven out of cities by changes in city planning: for example, wholesale and retail markets are disappearing (in Chinese) from urban areas.
Instead of making up for this decline, e-commerce places rural communities in a structurally weak position. The informal network is sustainable, inclusive, and guarantees the resilience of rural communities. The power distribution is relatively balanced, and even if some parts break, farmers can find alternatives easily.
E-commerce, on the other hand, is strictly institutionalized, and algorithms promote a few crops with outstanding sales or profit margins over all others. Further, the platforms are natural monopolies, and rural communities have no power to bargain with them in comparison as they would with brokers in an informal network.
E-commerce sites often claim to cut out the middleman; but the truth is it just creates a new class of middlemen. Based on a field study, CUHK anthropology PhD candidate Sun Rui says that most online shops are run by specialized companies, and that their role as middlemen is still significant in the age of e-commerce. Not only is the ability of farmers to use digital technologies usually overestimated; but efficiently packaging and shipping products requires specialized tools and labor beyond the reach of individual farmers.
The new middlemen do not consume less than the ones in traditional networks. Online services require operation and maintenance, which reduces profits. What’s worse, e-commerce companies have more power relative to farmers than traditional middlemen because they are centralized, which brings bigger risks for farmers.
Shortsighted e-commerce marketing strategies can also destroy the reputation of a regional product. Desperate to stand out from thousands of other sellers, e-commerce sellers often abuse eye-catching marketing—such as “pity sales.” In the most famous case, apples from Linyi county, Shanxi went viral after a marketing campaign—at best, one “inspired by real events”—begged people to buy thousands of unsalable apples from desperate farmers.
Ads often play on consumers’ sympathy, and many such ads are exaggerated and disconnected from rural reality: you might notice that many e-commerce companies use exactly the same picture (in Chinese) of an old farmer in their sympathy marketing. In 2018, the government of Linyi even formally condemned (in Chinese) relevant marketing strategies as negative and short-sighted.
Nothing more than branding
The success of today’s online agricultural products marketing is the result of institutions and traffic flows: governments provide favorable policies, subsidies, and legitimacy; e-commerce platforms invest funds, infrastructure constructions, training, and data flow, and select celebrity products promoted online are high value-added: Running Chicken chickens, for example, cost roughly RMB 100 per kilo, which is more than three times the normal price.
However, the average rural community cannot enjoy these benefits. The rural communities engaged in e-commerce today are still the minority. As more enter the e-commerce market, these resources will not be adequate. On the other hand, network effects mean that latecomers are easily marginalized and will be excluded from the market.
Behind the mysterious veil of technology and the poverty alleviation movement, stories about e-commerce transformation the countryside are really just branding. Using e-commerce to market agricultural products cannot overturn rural communities’ vulnerable status in China’s economic structure, where they lack power and resources. The process is actually destroying intangible assets for rural communities—while benefiting centralized business groups.
Are e-commerce platforms trustworthy partners for average rural communities? Not really: since the demand for agricultural products is inelastic, local rural communities are actually forced to compete with global suppliers in a single market by new retailers like Hema.
To improve the lot of China’s farmers, we need to go beyond technologies and marketing. We should question what can really change the structurally weak position of the rural economy.