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Farmer's Agro-product E-commerce and Governmental Supports in Korea

Junghoon MoonInformation and Communications University

Department of IT Business

Consumers’ concerns in Food Business

• What are consumer concerned in shopping food?

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Freshness

Safety

Price

Others

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Heterogeneous Attribute of Food• Heterogeneous Attribute of Food

– Although online consumers always want to get sufficient information of the product from the internet, they cannot in most cases since information asymmetry still exists online.

– This asymmetry is considered the consumer’s perceived risk– If the product is heterogeneous, consumers feel stronger

uncertainty

Food Supply Chain

• Some of the latest trends in the fresh food supply chain– Increased focus on freshness. – Proliferation in fruit and vegetable product

variety. – Increased attention to maintaining the

"cold chain".– Combined with IT (e.g. e-commerce, RFID,

USN, mobile etc.)

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Fresh Food E-commerce in Korea2002 2003 2004 2005 2006

Total Amount of E-commerce Transaction

6,029 7,054 7,668 10,675 13,459

Fresh Agro-product E-commerce

307 294 280 284 312

Rate 5.1% 4.2% 3.6% 2.7% 2.3%

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1=1,000,000 USD

Fresh agro-product e-commerce in Korea has been increased slowly, Where E-commerce has been sharply increased About 10 agro-product ecommerce sites have been founded and supported by Korean central/local government.

Case: KGfarm (1)• In 2001, KGfarm was founded by KyongKi province

government to facilitate sales of agro-products grown and cultivated in KyongKi province

• Basic assumptions– By eliminating middlemen, the price of agro-products

can be dramatically reduced.– Farmers do not have good knowledge of computer,

internet. So, let them focus on cultivation. Local government permanently provides all technologies and manage the online shopping mall.

– Local government provides technology education for farmers over and over so that they will be able to manage their own malls on the KGfarm site in the future.

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Case: KGfarm (2)

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FarmersFarmers e-Mall Management Centere-Mall Management Center

Manage bulletin board of

his mall on the kgfarm site Manage Customers relationshipQuality Control of the product Manage shipping and delivery

Frequent update requests

towards his mall on the site

System maintenance Mass marketing

Membership management Mall management

Technology education for farmers Quick response to farmers' requests

Case: KGfarm (3)

• Initial online shopping mall construction in 2001: $ 175,000

• Extended construction in 2002: $ 350,000

• Shopping mall manage and maintenance in 2003 (for 7mon): $ 120,000

• Kept providing intensive technology education for farmers

• Some e-malls are managed by farmer him/herself on KGfarm

• These farmers manage their own e-malls on KGfarm

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Farmer

KGfarm

www.KGfarm.co.kr

(300 e-malls on the site)

Social Infrastructure: logistics, transportation, credit card, security, etc

Consumer

Case: KGfarm (4)

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Case: KGfarm (5)

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Case: KGfarm (6)

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Case: KGfarm (7)

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Case: KGfarm (8)

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Case: KGfarm (9)

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Case: KGfarm (10)• Strategies

– Trust, Trust, and Trust– Provide “Green Tour” program for customers– No commission or fee from farmers or customers– Maximize benefit for farmers– Cost reduction through technology education for

farmers, • High Information Quality for customers• Customer Relationship Management• Involvement of farmers psychological ownership “This

site is mine!”• Could reduce operational cost

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Case: KGfarm (11)

• In 2006 and 2007, many farmers of KGfarm mange their own e-malls hosted by KGfarm

• Annual net sales on the KGfarm web site is now about $1,200,000

• Total annual net sales on each e-mall managed by farmers (hosted by Kgfarm) is up to $ 6,000,000

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2001 2002 2003 (by Oct.)

# of visitors470,000( 38,000 monthly)

690,000(57,000 monthly)

800,000(80,000 monthly)

# of membership

17,332 30,612 42,835

Net sales$ 320,000($ 26,000 monthly)

$ 685,000($ 57,000 monthly)

$ 900,000($ 90,000 monthly)

# of e-malls 130 300 320

Summary and Discussion

• Food E-commerce is inevitable

• Food Business is totally different

• Infrastructure is very important

• Role of government is critical

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