Buyer Community> Trade Intelligence> News> Can E-commerce Ease Poverty in Rural China (Video)
Source: Alizila Alizila

Can E-commerce Ease Poverty in Rural China (Video)

Published: 06 Feb 2015 00:34:59 PST

GUANYEPING VILLAGE, China — Near a mountain pass that connects China's Henan and Shanxi provinces, there is a tunnel bored through a ridgeline that serves as a portal to the past. Built by a now-defunct toll-road company, the tunnel is part of a little-used road that climbs from Henan's fertile North China Plains into the rugged southern range of the Taihang Mountains. On the eastern side of the tunnel in the valley below lies Xinxiang, a city of 5 million that buzzes with activity typical of a modernizing Chinese metropolis.

Drive into the tunnel, though, and the 21st century disappears in the rear-view mirror.

On the other side lies Guanyeping Village, a tiny mountain enclave where about 100 dirt-poor farmers scratch out a living from terraced fields of wheat and corn as their families have done for generations. In the heat of a recent summer morning, chickens strut among mud-and-stone houses, some of them abandoned and falling to ruin; Guanyeping's population has been shrinking as young villagers leave in search of jobs and better fortunes. There is no cellphone coverage here, plumbing is rudimentary, and the Internet is just something people read about—or they would if the village had Internet service.

(Watch an Alizila News video featuring rural entrepreneuer Du Qianli. To watch in China, click here)

Yet, in spite of the absence of computers, cellphone towers or fiber-optic cables, e-commerce has come to Guanyeping. Several years ago, entrepreneurs in Henan province began opening online organic and natural products shops on Taobao.com, collecting from villagers the fruit of the qing qiao (forsythia) bush, a Chinese cold remedy and one of the 50 fundamental herbs in Chinese herbology. Guanyeping villagers had long been supplementing their meager farming income by foraging in the surrounding forests for medicinal herbs and plants such as forsythia and hawthorn, selling to local Chinese medicine shops in the valley below. But the demand was limited and the money they received from middlemen made it barely worth the effort. Villagers often could not sell all the product they were able to gather, leaving it to rot when they collected too much.

This began to change with the coming of the online herb shops. Almost overnight, China's 193 million online shoppers became potential customers. As online shops proliferated and demand increased, an overabundance of herbs and forest plants turned into a shortage; retail prices for sought-after products like wild walnuts more than doubled, wild hawthorn jumped six-fold.

The price increases trickled down, providing extra income to farmers like Xu Dongling, a 48-year-old Guanyeping Villager who is paid a little more than 2 kuai (about 31 cents) for every kilo of forsythia fruit she gathers from the surrounding forests. "We are a very poor family, we can't earn much from what we grow," explains Xu, whose three sons, aged 19-23, have moved away, leaving her to tend the family farm alone. "The neighbors raise pigs and goats, they make more money than me," she complains. She can't afford to raise livestock. So almost every day, when Xu is not working the stony fields, she supplements her income by climbing the steep trails that criss-cross the surrounding hillsides to collect herbs to be sold online.

Everybody talks about China's economic miracle, its gleaming skyscrapers, expanding consumer class and vibrant Internet culture. Less discussed are the country's 600 million farmers who, like Xu, have been largely bypassed by China's economic and technological advances. Accounting for roughly one-third of the country's population, members of this agrarian underclass live a hand-to-mouth existence, accepting subsistence-level prices for their crops that are set by distributors and market forces they are often unable to understand let alone influence. The average rural resident makes less than RMB 5,919 ($900) a year.

There are, however, a handful of entrepreneurs and academics who believe the Internet can make a difference in their lives—that e-commerce, with its power to flatten supply chains and eliminate middlemen, can confer upon the lowly farmer some of the same advantages enjoyed by more modern businesses, allowing them to market their products to wider audiences, enjoy higher profit margins, and break the monopolistic practices of conventional agricultural wholesalers and distributors. If their plans work, the Internet might even help ease poverty and narrow China's much-discussed wealth gap.

E-commerce has the potential to "allow [farmers] to do what they have never been able to do before," says Professor Wang Xiangdong, Dean of the Center for Information Study at the Chinese Academy of Social Sciences. "They can become entrepreneurs at home. They can interact directly with hundreds of millions of buyers and can actually bargain on an equal footing with buyers, helping them set their own prices. It gives them a voice in the deal."

Such lofty goals could take many years to achieve. Wang, who has been following the impact of the Internet on rural China, says a recent market survey conducted with Taobao, the country's largest online marketplace, indicates there are several hundred thousand rural Chinese selling online. That's less than 10 percent of Taobao's total seller base of more than 6 million. "Rural e-commerce," says Wang, "is still at the beginning stage."

Leading this emerging business are entrepreneurs like Du Qianli, founder and owner of Gift of the Mountain Products Co., the first Taobao shop selling organic and wild comestibles gathered from Taihang Mountain villages. In the summer of 2008, Du was an unemployed schoolteacher who had just received his MBA from Zhengzhou University and was pondering his next move when he decided to take a joyride on his motorcycle into the mountains near his home village outside Xinxiang. "I was just fooling around, when I met this old guy, who was 86 years old and was collecting a wild mushroom," Du recalls. He says he was surprised to learn the man was only getting only one or two kuai per kilo; in the city the mushroom (the ganoderma, used in Chinese medicine) sold for much more. After spending the night on a stone bed at the old man's home, Du—who was from a poor farming family himself—had an idea. "I decided to start my own business," he says, helping his fellow villagers earn more income by selling herbs, organic grains, wild walnuts, dates, hawthorns and other products online.

The opening of Du's Taobao shop cooincided with worries about food safety among members of China's middle class, who were increasingly seeking out organic and natural produce. "I didn't get a lot of orders at first because people didn't believe we had so many authentic natural products," Du recalls. But after shipping out a lot of small samples for free, "they could see and taste that it was real." Orders began flooding in from as far away as Hong Kong, and the trade quickly grew. By 2011, annual turnover reached 1 million RMB.

Today Du, 38, is teaching again, at the primary school in his home village ("no one wants to teach here, it's a mountain village," he explains). When not at school, his time is devoted to his prosperous business. Du says when he was growing up, even bicycles were rare in his village. Now he drives a late-model SUV, and his company employs six people, plus three more at a Xinxiang retail store selling organic and wild produce he opened in April. Although he no longer has the market to himself—his success has inspired scores of copycat Taobao stores—"Business is going pretty good," he says.

Song Haigen, who works for Du as a produce "collector," agrees. When he isn't farming corn, wheat and peanuts, Song rides his beat-up motorbike into the mountains, regularly buying natural produce from about 10 rural households and delivering the merchandise to Du in large sacks tied precariously to the back of his two-wheeler. "This is more profitable than farming," Song says, straddling his bike on the apron of the road to Guanyeping Village. He says he has to replace his vehicle every year due to wear-and-tear from the potholed mountain roads, which cuts into his profits. But he's earning enough to toy with the idea of buying a small truck to make it easier to transport products. "Definitely my income has increased," he says, "because Mr. Du gives a better price."

No question, the Taihang Mountains trade is still primitive. But Wang, the Academy of Social Sciences professor, says that this kind of private-sector, "bottom-up" e-commerce model, adopted on a wider scale, has a better chance of alleviating rural poverty than China's conventional "top-down" model, in which agriculture is controlled by the government and large companies. Rural reform efforts dating back to the 1980s were designed to help improve farmers' incomes after collectivism ended, Wang says, "but companies started to rip off the farmers to get more profit." The average rural Chinese today is no longer a feudal peasant, but farmers remain unorganized and have no leverage to influence the prices they are offered for their crops from wholesalers and distributors.

The government has tried to offset systemic imbalances by promoting Internet adoption in the countryside, based on the assumption that knowledge is power and more knowledgeable farmers would be better equipped to maximize their profits. These efforts have focused mainly on spreading market information, helping farmers become more savvy about prices as well as become more efficient and productive. In practice they have done little to improve incomes, says Wang, who argues that the Internet can be used to solve more problems than just an imbalance in information. "With e-commerce, farmers can directly interact with the market and this can truly help them make more money," he says. "It's not just about developing agriculture more scientifically, it's to help them get a better life."

Currently, farmers like those in the Taihang Mountains who are participating in e-commerce are still surrendering some of their potential profits to middlemen: the online store owners. Ultimately, Wang says, farmers may benefit most by becoming online store owners themselves. There are many obstacles, however. Logistics networks that would allow the delivery of perishable foodstuffs from far-flung fields to consumers' doorsteps are underdeveloped in China, especially so in rural China, where infrastructure like decent roads and warehouses are lacking.

And, while millions of rural residents have access to the Internet, if not through computers then through less expensive mobile phones, they may not see the value in becoming technologically expert enough to run online businesses. "The biggest obstacle is how to motivate farmers, how to convince them they can actually earn money by getting online," Wang says.

For now, the growth of rural e-commerce is more likely to be driven primarily by online marketplaces like Taobao, which generally are focused on products like clothes and consumer electronics but which are experimenting with agricultural products. On June 1, Taobao opened its first "vertical mall" dedicated to organic produce, hoping to tap growing demand in China for food untainted by pollutants or chemicals following numerous food-safety scandals.

The mall launched with 11 online merchants who source products from 30 government-certified organic farms located in the Shanghai and Hangzhou area, says Xu Jian, a senior product specialist in Taobao's Agriculture Development Department. "The idea of organic produce is still quite new in China and a lot of merchants are reliant on traditional distribution channels," says Xu. "We want to help them shift to online, making sure they have the necessary capabilities such as customer service and logistics."

About 400 products are offered on the site, which are currently being delivered only to consumers living in the areas surrounding the farms to simplify logistics. Xu stresses that the project is experimental. "This is an entry point so we can start to encourage the consumers' way of thinking about organic produce," says Xu.

No farmers are selling on the site yet. "It's hard to completely eliminate the middlemen just by shifting business online," Xu says, "but on our platform there may be only one or two middlemen between farm and table. You can shorten the supply chain," allowing more revenue to flow to farmers.

Ultimately, Taobao plans to help provide farmers with assistance in logistics, customer service and warehousing so they can set up online shops and sell directly to consumers. "The overall aim in the future is to bring in more [small-and medium-sized enterprises] that are farming organic products," Xu said.

That may take awhile, considering the mindset of those accustomed to farming with shovel and hoe, not mouse and mobile phone. "Change will take place gradually," says Wang. "We still have a long way to go."

By Jim Erickson and Dora Chai | Aug 02, 2012 | 02:50 PM

Share this post:
Related Article
Most Popular
icbu-news010177201201