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    Can China’s Farmers Cut Out the Middlemen?

    Policymakers and entrepreneurs have touted agricultural e-commerce as a way to lower prices while boosting farmer profits. The reality is more complicated.

    Despite decades of urbanization, nearly 300 million Chinese still work in agriculture, the vast majority as small-scale household farmers. In 2016, there were 230 million farming households nationwide; of these, 210 million cultivated plots of less than two-thirds of a hectare.

    These small plots, combined with poor mechanization and difficulty reaching consumers, have contributed to endemic poverty throughout the Chinese countryside. In May 2020, Premier Li Keqiang stated that 600 million Chinese earned less than 1,000 yuan ($137) a month. The majority of this group lives in rural areas. Although some farmers have developed alternative sources of income, as recently as 2020, an average of 35.5% of farmers’ disposable income came from farming sources — in particular, from selling their agricultural produce. The price of agricultural goods therefore has a profound impact on farmers’ income and quality of life.

    It’s unfortunate, then, that getting the best price is all but impossible. Chinese agricultural markets are overrun with middlemen. Wholesale markets account for an estimated 70% of agricultural produce sales, while direct farm-to-table sales and sales through non-wholesale middlemen like agricultural co-ops or private companies account for just 20%. Middlemen pressure farmers to sell their goods to them at low costs while ramping up prices further down the distribution chain. Not coincidentally, farmers’ share of the profits for agricultural produce — minus labor costs — decreased from 29% in 1999 to 20% in 2010.

    This problem has led to a slew of news items with headlines like “Fruit Prices Continue to Soar, but Farmers Cry Their Eyes Dry.” It has also inspired policymakers and entrepreneurs to propose an alternative: If farmers could cut out the middlemen and sell directly to consumers online, wouldn’t they be able to make a better living while offering the latter lower prices?

    This is the premise on which China’s agricultural e-commerce industry was founded. For example, farmers in one rural county of the southwestern province of Sichuan mostly grow mandarins. In 2021, they could make four yuan per kilogram selling through intermediaries. These intermediaries then send the produce on a four-day journey to the massive Xinfadi Market in Beijing, where it’s sold to local retailers and supermarkets. From there, it’ll be another week or so before the fruit is taken home by consumers. In the end, Beijing consumers spend approximately 16 yuan per kilogram on mandarins that were picked around 10 days beforehand. On e-commerce platform Taobao, the same mandarins cost 10 yuan per kilo and the door-to-door shipping process takes just three days.

    If that seems like a no-brainer, the Chinese government is inclined to agree. In recent years, officials have vigorously promoted the development of agricultural e-commerce. Since 2013, it has been mentioned in virtually all of the No. 1 Central Documents published at the start of each year. (The first central government document published in a year traditionally addresses rural issues.)

    Currently, e-commerce accounts for around 10% of all agricultural produce sales. But is it capable of addressing farmers’ retail woes? Setting aside the fictions that surround the industry, e-commerce is very different from direct sales. Farmers cannot rely on their own web presence to reach enough consumers, forcing them to open stores on major e-commerce platforms like Taobao, Pinduoduo, and TikTok to reach consumers.

    In the early years of agricultural e-commerce, farmers found it relatively easy to make money on these platforms, but as the field has become more competitive, a simple search for “kiwi fruit” now produces thousands of results on Taobao. Finding ways to stand out has become vital to the success of agricultural e-commerce ventures.

    Farmers have adopted a variety of tactics in an effort to solve this problem, but almost all of them are costly and involve paying fees to the e-commerce platforms. One common practice, known as “through service,” or zhitongche, involves paying platforms directly for better search placement. The more money farmers spend, the closer to the top of the page they’ll be. In rural Sichuan, where I carried out my fieldwork, “through service” fees could eat up more than 20% of small online merchants’ sales.

    A less onerous form of collaboration involves promotional activities such as “flash sales,” or miaosha. Although flash sales come at a cost to e-commerce merchants, they help boost sales volumes and improve the ratio of clicks to completed transactions — vital to increasing visibility on platforms. Particularly successful flash sales sellers might even receive free traffic from the platforms. One merchant I interviewed told me that, by offering kiwis for one yuan apiece instead of five, she received 3,000 orders in just a few minutes.

    The most expensive option is to enlist the services of an online influencer. In the county where I conducted my fieldwork, these kind of influencer sponsorships accounted for 20% of e-commerce merchants’ total operating costs.

    Regardless of the approach, the relation between farmers and their customers on e-commerce platforms can hardly be called “direct.”

    Complicating matters, individual farmers increasingly find themselves stuck in a relationship with platforms that is part collaborative, part competitive. When Taobao-owner Alibaba initially founded its Tmall Supermarket platform in 2011, it advertised the venture as a solution to the logistics problems that affected many supermarket items. The company promised to link customers with retailers, but didn’t sell products itself.

    That changed in 2019, however, drawing Alibaba into direct competition with the individual sellers who had grown to rely on the company’s platforms.

    Staying relevant in an increasingly crowded and competitive industry is expensive. Farmers cannot merely offer their produce; they have to market it. That means continually adjusting their sales strategies to keep up with complex, black-box algorithms and investing in film and editing skills to match the shift to platform’s latest obsession: livestreaming e-commerce.

    All this has made running a successful agricultural e-commerce business prohibitively expensive. Sellers who can afford increasingly costly promotional stunts have a better chance to gain a foothold on the market, while the rest fall behind.

    Farmers face further discrimination from suppliers of all stripes. Suppliers generally offer discounts to clients with higher sales volumes. The head of a courier company in Sichuan told me that shipping three-kilogram packages of fruit to Beijing in 2021 might cost a seller 5.6 yuan per package if they processed fewer than 200 orders a day; four yuan for 200 to 500 orders; and only 3.5 yuan for order volumes exceeding 500. This further tilts the scales in favor of a handful of already successful sellers while locking out the rest.

    Agricultural e-commerce hasn’t cut out the middlemen; rather, it has substituted one set of intermediaries for another. At least offline, farmers have dozens of buyers to choose from, but when it comes to agricultural e-commerce, there are only a few big platforms. Selling your produce on one of these platforms means playing by their rules, and farmers have little room to negotiate fairer conditions. It should come as no surprise, then, that some farmers are abandoning e-commerce platforms in favor of traditional channels.

    Translator: Lewis Wright; editors: Cai Yineng and Kilian O’Donnell; portrait artist: Zhou Zhen.

    (Header image: A farmer sorts figs at an e-commerce trade center in Buliu Town, Rongcheng, Shandong province, 2021. Yang Zhili/VCG)