Friday, December 31, 2010

Linking Supermarkets WIth Cooperatives

The Ministers of Commerce and Agriculture announced a new campaign to improve city vegetable supplies by pushing forward the "Farmer-Supermarket Counterpart" program. This is an arrangement in which supermarket chains buy fresh produce directly from farmer cooperatives. By cutting out the middlemen (traders, brokers, wholesale markets), farmers should get a higher price and supermarkets reduce their cost. Ideally, supermarkets form stable long-term supplier relationships with cooperatives, sign contracts at fixed prices, provide standards and technical training, and help the cooperatives develop brand names for their products. Retailers exert more control over producers and it becomes easier to trace products back to their source.

Earlier this year it was announced that the "farmer-supermarket counterpart" would be expanded, and another meeting was held in October 2009

The program's Chinese name, nong chao dui jie (农超对接), is hard to translate. Above, I translated it literally, but can also be translated "supermarket direct purchase." Direct purchase has been used by Carrefour for several years, based on its experience using it in France. In the last two years China's Commerce and Agriculture ministries teamed up to encourage use of the direct purchase mode as a pilot program in several large supermarket chains.

Another article today promotes the virtues of the direct purchase program in Daqing, an outlying district of Beijing. Their pilot program was begun shortly after a directive was issued by the Ministries of Commerce and Agriculture in December 2008. One Daqing farmer recalls two years ago selling vegetables on the side of the road to traders who gave them little say over the price and cheated them. Another farmer complained about the high cost of hiring a truck to drive vegetables into the city to sell. Farmers think it will be more convenient and less risky to have contracts to supply supermarkets.

This week's meeting announced that the "direct purchase" program will now be promoted nationwide as a means of ensuring reliable vegetable supplies in cities. The impetus for this is apparently the State Council's order that officials find ways to ensure vegetable supplies to address the rapidly-rising vegetable prices this year.

The campaign is a good example of China's unique approach to addressing economic problems in which government, communist party, and business interests are intertwined to promote new strategies. The term "counterpart" is showing up in more campaigns. This reflects the government/communist party's role as a matchmaker in bringing together scattered farmers (formed into cooperatives) with urban-based companies. One of the chief means of suppporting the program is a series of meetings and trade fairs organized by officials where supermarket chains and cooperative leaders come to arrange deals. Many of the cooperatives are organized by communist party branches, village or township officials, or leaders of agricultural extension stations.

The "counterpart" program is another example of officials attempting to impose socialist/confucian preferences for order, planning, hierarchy and organization from the top down on a society that tends toward bottom-up chaos and complex webs of business relationships.

The program draws on officials' central planning instincts combined with western-style MBA-think. Small farmers are organized into cooperatives and matched up with big supermarket chains. Farmers sign contracts to sell specified quantities of product at fixed prices. The program is being incorporated as part of the "vegetable basket" system in which mayors of cities are responsible to make sure that vegetable supply and demand is in balance. The article speaks of forming big standardized "vegetable gardens" to fill the "vegetable basket". The "counterpart" program will be incorporated into the new five-year plan, a holdover from the days of Stalinist central planning.

But unlike central planning, government is not a direct player. Instead, the goverment plays an indirect role by coordinating, guiding, and nurturing. The five work items that officials are to undertake in expanding "Farmer-Supermarket Counterpart" include:
1. Organize cooperative leaders, clarify responsibilities, form a mechanism for coordinating work of multiple departments.
2. Guide cooperatives to "get bigger and stronger" by encouraging them to form unions and create a set of model cooperatives.
3. Push forward standardization of cooperatives' production, record-keeping, and traceability systems.
4. Use various methods to match up supermarkets and farmers, "guide" farmers and supermarkets to enter into long-term supply relationships.
5. Give more policy support (subsidies for cooperatives to build storage, logistics, and product testing facilities).

The strategy entails channeling fresh produce business from wet markets into supermarkets. The Minister of Commerce said the 12th five-year plan calls for supermarkets in medium and large cities to double the share of their sales from fresh produce to 30 percent.

The direct purchase program faces challenges. In Daqing, the reporter estimates that only 1 percent of the city's supermarket sales of vegetables come from the pilot direct purchase program. One problem is that local vegetables are only available during the summer and early fall. The program is said to be more successful in the south where the growing season is longer. There are still few farmers involved in cooperatives in Daqing. The coops are small, they have to provide test results for products and they must acquire business licenses. Cooperatives are being encouraged to unite to sell their products together. Experts recommend that officials make it easier to get business licenses and provide financial and technical support to cooperatives. The Daqing reporter says he was told that the program has made much faster progress in Shandong and other regions.

No comments: