Wednesday, January 15, 2014

Internet Pork Venture: Slow Download

Does it make sense for Internet companies to raise pigs? Can innovative "Internet thinking" contribute to solving China's agricultural and food safety problems? While many presume that IT tycoons can easily find solutions in a seemingly simple business like pig-farming, the reality is that raising pigs is more complex than creating a web site.

In 2009, the CEO of Netease, one of China's top Internet companies, announced a plan to launch an innovative pig farm which would allow customers to track the complete production process of the pork they buy. Nearly 5 years later, the project hasn't produced any pork.
Netease pigs are making slow progress.

A Southern Metropolitan News reporter visited the farm and interviewed the current director of Netease's agriculture project as well as former executives of the company. At the 2009 meeting of the Guangdong Peoples Congress where he was a delegate, Netease CEO Ding Lei announced his plan to apply science and technology to agriculture and address food safety problems by starting a pig farm. The initial plan was to set up a farm that would raise 6000 to 10,000 pigs annually with a target opening date in 2012. As of December 2013, the farm was still in an experimental stage and had only raised 400 pigs with 100 head nearly ready for slaughter.

The 1200-mu (about 200 acres) farm is under construction in a village in Anji County, a semi-mountainous area in northern Zhejiang Province. The company has ambitious objectives and met with many unexpected problems in the project. To start with, acquiring the land by consolidating plots held by hundreds of village families was a bigger headache than expected. There was also a legal dispute with an engineering company over payment for land surveys.

The extremely hot summer weather in Zhejiang is hard on pigs, and the farm had to develop a special cooling system. They spent a year choosing animal breeds, finally settling on hybrids of two domestic breeds instead of the imported breeds that are predominant in China now. Disposing of manure was another problem. The company hoped to eliminate bad smells by studying the behavior of pigs and training them to defecate in a designated area of the barn where the waste is carried through a pipe to a treatment facility.

The company describes their experience as a long-term process of collecting experience, debugging, and many detours in creating something from nothing. They learned not to expect the lightning speed of the Internet in the slow, deliberative process of farming. The company confesses that they overestimated their ability and underestimated the difficulties of pig-farming. Complex supply-chain management is not the company's strong suit. Web sites can be set up overnight and companies have nearly direct contact with customers, but the pig production and marketing process is more complex. A Netease spokesman was quoted, "We never had a project move so slowly."

The pig project appears to be a personal crusade of Mr. Ding, the Netease CEO. He set up an agriculture division of the company and recruited two of his high school classmates from Ningbo to run it. Ding reportedly participated in long meetings where he asked endless questions about the pig farm, although he didn't have direct responsibility for managing the project.

The two classmates quit the company last year. There is some indication of conflict over the operation's objective. Mao Shan, the farm project's former manager, indicated in an interview earlier in 2013 that the company's agriculture division was looking at other types of farming ventures like fruit orchards, flowers, bullfrogs, blueberries and strawberries that promised to make big profits.  The company downplays the profit motive, describing the pig project as the company's "social responsibility." Mr. Ding never set a deadline for earning money on the pig project, patiently allowing it to move at is own pace.

None of the Netease executives have a background in agriculture. Mr. Ding and one of his classmates were trained as engineers; the other classmate is a publicity specialist. They made dozens of visits to pig farms, equipment manufacturers, and breeders all over the world in preparation for the farm project.

Of course, Netease's access to capital is a big advantage that most farms and agriculture-focused companies lack. The Anji County government web site says the Netease pork project's investment is 300 million yuan (nearly $50 million).

The Southern Metropolitan News reporter suggests that agriculture can benefit from "Internet thinking," despite being a "slow, deliberative" process that contrasts with the "lightning speed" of the Internet. First is the potential for e-commerce, social networks and new sales channels. Internet companies emphasize interaction with customers. Narrowing the virtual distance between production site and customer in theory can increase confidence in the final product. The use of big data can potentially improve marketing and supply chain management.

Some other meat and poultry companies are implementing traceability systems. Chickens have codes attached that consumers can use to see on their mobile phones the farm and source of chicks and drugs used. (Similar systems were introduced for vegetables on an experimental basis nearly 10 years ago, but don't seem to have gained popularity.)

Other pig farms are using "ecological" and transparency strategies to produce local breeds of pigs, but most charge extremely high prices for the pork. One industry analyst suggests that Internet companies can contribute by serving as a platform for sharing information rather than raising pigs themselves.

The Netease Company project appears to be an attempt to "reboot" farming in China by bringing in a completely new set of actors, capital and concepts. Companies that made money elsewhere are expected to bring their money and expertise to reshape an activity stuck in the past. This appears to be official policy--in December Minister of Agriculture Han Changfu and State Council rural policy guru Han Jun both made separate speeches calling for companies to invest in agriculture. Minister Han warned investors not to expect "overnight riches."

Will a "ctrl-alt-del" reboot flush out the bugs clogging China's agricultural system, or will it result in a "blue screen"? Experiments like Netease's are not jokes. They should be carefully watched to gain clues about the best way forward.

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