Development Trends of Direct Development Trends of Direct Marketing in China: A Case Study of Marketing in China: A Case Study of “farmer connected to supermarket” “farmer connected to supermarket” ProjectProject

Qingdao Agricultural UniversitySui Shuyan

suishuyan@hotmail.com

Report Contents

IntroductionBackground of “farmer connected to

supermarket” projectCondition and problem of “farmer

connected to supermarket” projectMeasureConclusion

Ⅰ IntroductionConcerning Chinese agricultural products

market, significant changes to agricultural products distribution system, extend of marketing, change of consumers’ needs, food safety issue showed that small farming under “household contract system could not match current big market.

According to this, farmer cooperative movement and direct marketing are important keys to solute this conflict.

This report takes “farmer connected to supermarket” project as one type of direct marketing to analyze the condition, effects and problems of direct marketing. At last, measures are considered and the trend of direct marketing in the future will be viewed.

Ⅱ Background of “farmer connected to supermarket” project

Small scale farming vs. large market

Request of food safetyBoom of supermarket and

competitionFoundation and expansion of

farmers’ cooperatives

1 Small farming vs. Large marketHousehold contract system had improved the

production motivation of farmers, but some defects as following make farmers unable to act its role as principal distributor after all.

►small scale and unplanned production ►high-cost with long-distance transportation ► Low education level of farmers: technology,

marketing and information etc. As a result, more brokers take part in the

distribution channel that lead high cost and risks to agricultural products distribution system.

2 Request of food safetyFood safety issues had occurred frequently recent

years and caused a crisis of consumer confidence. To solute these issues farmer organization and quality management system are necessary.

Long and complex distribution channel currently can’t realize traceability system to find the cause of risk quickly and will cause more loss finally.

Lack of information system enlarges the distance between farmer and consumer that makes the markets work not efficiency.

3 Supermarket boom and severe competitionSince 1990 large foreign-owned

supermarkets had entered into China and developed rapidly. As a result the competition among them becomes more severe.

Fresh products corner has a role of attracting consumers. New demands of consumers for fresh products and severe competition urge supermarkets to find new collecting channel to get safe but low cost products. Direct marketing just match it.

4 Foundation and expansion of farmer cooperatives

In July 2007, “farmer cooperative Law” was carried out aiming at construction of farmer organization, large scale farming, effective use of resources and effective correspondence to market changes.

Farmer cooperative is a new rural collective economy organization by the farm households under “household contract system” based on ICA rules and linked by the voluntary principle.

By 2009, more than 200,000 farmer cooperatives were found as farmers’ organization specializing in production, sales, technical training, and they also have played an active role as the principal of agricultural products distribution.

Ⅲ Implementation of “farmer connected to supermarket” projectIn December 2008, together with the Ministry of

Commerce, Ministry of Agriculture proposed “farmer connected to supermarket ” project. In a word, large super chain is suggested to cooperate with farmer cooperatives to collect fresh products directly from farmers. This is what we called direct marketing.

This project is executed in three main ways as “farmer+famer cooperative+Supermarket”, “farmer+ famer cooperative+ enterprise+Supermarket”, “farmer+enterprise+ Supermarket”.

1 Overview of “farmer connected to supermarket” project The “farmer connected to supermarket” project

was conducted nationwide in 17 provinces over 205 places in 2009 first, absorbing 40 million RMB community investment, with 145 cold chain, 91 distribution centers, 190 rapid testing system established, 598 agricultural products branded, 987 certified agricultural products achieved and the direct marketing revenue has reached 211 billion RMB by 2010. In this way, farmer cooperative and supermarket are expanding their partnerships rapidly.

2 Advantage of “farmer connected to supermarket” project

Compared with traditional agricultural distribution system, “farmer connected to supermarket” project is to overcome the shortcoming of increasing distribution costs caused by long distribution channel with many distribution principals participated, and to solutes the food safety issue.

By cooperating with farmer cooperative directly to collect agricultural goods instead of wholesale market, super can realize the improvement of efficient logistics as well as complement information sharing, and can understand the dynamics of the market both supply and demand timely so as to achieve order farming system.

Project promotion

Project fresh products corner in

Carrefour

Project promotion by local government

Project products can be traced conveniently

3 Case study

Weifang City in Shandong Province is the study area as a main vegetable producing place and distribution center, here “One Village One Product” is carried out with good result as model and lot of vegetable processing enterprises are concentrated.

Till May, 2010,3276 farmer cooperatives had established and Weifang City was pointed as experimental place.

Here two farmer cooperatives are taken as example.

3.1 Case study-Y farmer cooperative

Established in 2007, members increased from 5 to 48 households.

Main products are vegetables, and its plantation area is over 528a.

Business scope is mainly purchasing agricultural goods, technical guidance, providing information and selling vegetables. Along with Y’s management, procedures from producing to selling are unified that ensure the quality control and obtain scale benefits.

3.2 Case study-L farmer cooperative

Established in 2007, with the members from 29 to 241 households. Main vegetables are eggplant, green pepper, tomato, cucumber and leek, total plantation area is 1125a. Till now two products branded.

Distribution route is divided into three: large supermarket in Beijing by cooperating with other farmer cooperative, wholesale market, and others.

As a development strategy, L has established a federation with 15 farmer cooperatives around in 2010, it will put emphasis on the production of high-quality or organic vegetables, and try to combine their products to start home delivery business in the near future.

Federation members

Organic plantation

Wholesale market near to farmer cooperative office and plantation place

3.3 Case study-effect of projectfarmer selling costs and supermarket purchasing costs are red

uced by simplifying the distribution channelexpansion of sales channels and increase for farmers’ income

are obtained.the implementation of this project realized the

construction of traceability system that makes it possible to trace back information of direct market products for consumer to enhance their confidence in food safety.

information exchange among farmer, supermarket and consumer is also enhanced.

consumers have an increasing tendency to buy fresh food from the supermarket instead of traditional free market in case of good consumption environment.

4 problems for “farmer connected to supermarket” project

Conflicts between small-scale production of farmer cooperatives and mass sale of supermarket. Farmer Cooperatives is still in embryonic, its average number of members is about 10 household. In case of small scale production the output is small and can’t meet the quantity required by supermarket.

Conflicts between the supply of “One Village (towns) One Product” and the demand of diversified product of supermarket. Items of vegetable products required by large supermarket are generally more than 40, but most of farmer cooperatives are developed on the base of “One Village (towns) One Product” project that can’t meet the requirements of the supermarket.

Conflicts between the requirement of goods standardization and annual supply from supermarket with the farmer cooperatives’ low commodity rate products and seasonal producing. In addition, financial constraints and shortage of basic facilities for farmer cooperatives delay the processing of agricultural products as well as value-added products.

The entry condition of “farmer connected to supermarket” project is too high. Less farmer cooperatives and supermarkets can meet the requirements in fact, which actually have a negative impact on “farmer connected to supermarket” project.

The lack of support and cooperation from the government, and most preferential policies haven’t been thoroughly executed.

Rough financial management makes lot of farmer cooperatives unable to fulfill tax registration. As a result, they can’t issue receipts for supermarkets to receive agricultural value-added tax exemption which make supermarket give up cooperating with them.

Lack of relevant legislation is becoming barriers for farmer cooperatives to entry distribution system. For example, the law or legislation for internal loan of farmer cooperatives and federation is not yet enact, which make them can’t register and can’t run formally to play their functions.

5 Measure

Ensuring continued support of cooperatives and policies related to the “farmer connected supermarket” project ,especially, the execution tax policy and commerce registration. Moreover, financial assistance, new legislation in time and construction of facilities are required to improve the effect of the “farmer connected supermarket” project. Furthermore, training program for the dissemination of knowledge on management, marketing as well as technology for farmer cooperatives with the assistance of relevant departments or Chinese government is essential.

Encourage the formation and participation in farmer cooperative by enhancing cooperatives management itself. In details, to expand its numbers and production scale, strengthen its management system, financial system in particular. Also, to cooperate with other cooperatives so as to strengthen their power and to improve the ability of responding to supermarket is also a good choice.

Supermarket as a long-term business strategy should cooperate with farmer cooperatives actively. As a partnership supply some technical guidance, marketing knowledge and of course some common sense on goods so as to make farmer cooperatives fully understand and support the needs of supermarkets.

Finally, create awareness on farmer cooperative and “farmer connected to supermarket” project with media and policy makers at national and local levels. each department or entity related to the agricultural production, distribution and consumption should give the “farmer connected supermarket” project wide publicity to consumers so as to promote the usage of direct marketing products corner and spread direct marketing movement further.

Ⅳ ConclusionIn current China, by utilizing the function of farmer

cooperatives and supermarkets, fresh agricultural products direct marketing supplements the peasant farming, improves the efficiency of distribution by shortening distribution channels, increases farmers’ income and creates quality control system and so on.

However, direct marketing is facing various problems such as lack of relevant policies, less awareness of direct marketing that in some degree bring limit to its development. In particular, the relationship between farmers and supermarkets is unstable with various factors.

Therefore, the guidance and support by government necessary. Moreover, farmer cooperatives or agricultural processing enterprises as the entity of producing should try to expand their collaboration with supermarkets based on self-improvement and long term cooperative strategy.

By challenging and developing, direct marketing movement will go on further in the future.

References:

[1]Fujita Takehiro, New Development of fruits and vegetables supplying systems in major cities in China, Tsukuba Shobo bookstore, June 2002.

[2]Hu Dinghuan, “Farmer connected supermarket” project and farmers’ cooperatives’ development, Rural management Ⅷ (2009). [3]Wang Zhigang, The reconstruction of fruit and vegetables wholesale market in China, Kyushu University Publishing Group, March 2001. [4]Xu Gang, New engine of modern agriculture –Study on the development of “farmer connected supermarket” project, rural management IV, pp.13, 2010.

Thanks for listening