Saturday, March 7, 2015

E-commerce for Chinese Farmers?

A company selling organic rice from northeastern China exemplifies an e-commerce strategy for connecting farmers in the vast hinterland with urban consumers...with help from the "invisible hand of the government."

An article posted by Farmers Daily and many other sites--indicating official endorsement--tells the story of a company in a rice-growing area of Jilin Province that had a hard time getting the attention of consumers when it first started trying to sell organic rice, beans and other products online. The company decided they needed advertising help when it came up at number 600 in searches of Taobao--a leading e-commerce site in China. However, the 700,000 yuan cost of advertising was more than the company could afford by itself.

The company got help from a provincial program to promote e-commerce. In 2014, Jilin Province officially began a "strategic partnership" with Alibaba to promote provincial products on Taobao. The company used "the invisible hand of the government" by tapping into a 10 million yuan fund set up by the provincial government to help companies promote Jilin products online. The article also mentions unspecified support from the municipal government.

The company geared up to sell products like "Shuangliao rice," "pregnant women's rice," and organic black beans in the "Jilin Pavilion" of Taobao for "double-11" day (November 11 "singles day," a huge shopping day in China). The promotions feature the fertile black soil of the northeast, organic production, and food safety. Sales reached 400,000 yuan and included orders from Japan and Taiwan. In two days, a farmer reportedly sold 4,500 kg of sweet potatoes at six times the usual price. Northeastern products like Shuangliao red beans, mung beans, glutinous rice balls, and Shuangshan dried tofu were sold to southern China. A package of 8 rice balls sold for 32 yuan.

The strategy generated a lot more sales than traditional ventures like opening specialty shops and sales counters in urban markets. According to the article, the featured company has offered free training to other rural ventures who are selling their liquor, peanut, and bean products online. E-commerce is described as a new strategy for rural development.

E-commerce presents potential to connect farm products in China's vast hinterland with consumers in far-off skyscrapers. By bypassing long chains of traders and retailers, it potentially puts more of the consumer's dollar in the farmer's pocket.

Like everything else in China, it will not turn out as planned. E-commerce sites will be clogged with thousands of indistinguishable sellers as every company and local government gets on the e-commerce bandwagon.

The article suggests that all of these companies will need to hire advertising advisors, creating an advertising war in which the main beneficiaries are the "advisors," funded by government subsidies.

All of the e-commerce sellers are offering premium goods--most in fancy packaging intended as gifts--aimed at a relatively small market segment. It will quickly become glutted. The more important e-commerce strategy will be b2b sales of common rice and flour, feeds, veterinary medicines, and farm inputs online.

Most of the sellers will not be romantic grassroots collaborations of poor farmers--they will be companies set up by local real estate tycoons who have a connection in the mayor's office.

The high prices will be sure to attract fly-by-night operators in some Beijing alley masquerading as organic farmers in some verdant corner of the countryside. Consumers could again become confused and cynical about "green" and "organic" products offered on e-commerce sites.