Friday, July 24, 2015

Anticorruption Drive Pushes Market Orientation

China's anticorruption drive led to a big drop-off in orders for fruit during its first year. This exposed an unhealthy reliance on government sales, and hopefully will spur farmers to pay more attention to what consumers want.

As the fruit harvest approached in August 2014, Shanghai fruit producers faced an estimated 10%-20% decline in sales. The problem was that government departments they normally can count on for a big chunk of their sales weren't buying. According to the leader of a grape-producers' cooperative, government units normally bought 30% of their product in bulk either to give as gifts or distribute to their employees as a type of fringe benefit. With officials being careful scrutinized for their handling of public funds during the anti-corruption drive launched by Xi Jinping, government officials are afraid to get caught using public money for anything questionable. So nearly all sales to government units vanished.

Last fall, another article reported that fruit producers in Yanqing County, another place in the  Beijing hinterland, were similarly worried that government units had stopped buying their apples and grapes. The director of the county fruit marketing center said normally more than half of the grapes are sold to government units, but there had been no orders after the communist party issued its "eight rules" to rein in official waste and corruption. Many fruit producers and farmer cooperatives had been able to sit at home and wait for big orders of a dozen boxes at premium prices from officials, but last year the orders stopped.

Fearful of anti-graft inspectors, one Beijing official told the reporter that he and his colleagues are now careful not to spend any public funds on fruit. He said, "Now we spend our own money to buy gifts."

A description of the strawberry industry in Changping County on the outskirts of Beijing boasted that 80 percent of the county's strawberries were sold in bulk to government units.

The articles describing the collapse of sales to the government viewed it as a development that might prod farmers to break their unhealthy reliance on connections with officials for sales. The Shanghai article described the government sales as a cloak of marketization and a "crutch" that was actually moving the industry further from a "real" market. The journalists viewed this as a painful, but necessary step toward a market-oriented fruit industry. Instead, said the journalists, farmers need to do market research and find out what consumers want.

In Shanghai and Yanqing, local leaders were said to be taking steps to increase direct connections between fruit producers and consumers by launching pick-your-own promotions, setting up a e-commerce platform, and marketing fruit in residential communities.

This month, a new food marketing campaign is being launched that intends to transform the way agricultural products are marketed to consumers. The national ag product community marketing project is spearheaded by the national vegetable marketing association with support from the Ministry of Commerce. The project plans to set up e-commerce platforms, payment systems, and delivery services to deliver fruits, vegetables, rice, flour, and oils directly to homes in residential communities. The project--an implementation of the "Internet + action plan" issued in May by the Ministry of Commerce--aims to  supplant the traditional "wet markets" and shops.

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