Market Development & AgricultureMarket Development & Agriculture

Laping WuLaping WuProfessor, College of Economics and MaProfessor, College of Economics and Ma

nagement,nagement,China Agricultural UniversityChina Agricultural University

Email: wulp@cau.edu.cnEmail: wulp@cau.edu.cn

China-IFAD South-South CooperationSeminar on Comprehensive Agricultural Development and Poverty Reduction

Nanning Guangxi, Nov. 4-6, 2010

Laping WuLaping WuCollege of Econ. & ManagementCollege of Econ. & ManagementChina Agricultural UniversityChina Agricultural UniversityTEL:TEL: 62738573(fax), 62738816 62738573(fax), 62738816Email: Email: wulp@cau.edu.cnwulp@cau.edu.cnHttp://www.cau.edu.cn/cemHttp://www.cau.edu.cn/cem

E-card

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Outline Outline China’s economic system reform China’s economic system reform Rural market reformRural market reform Domestic trade PoliciesDomestic trade Policies Small scale and big market: how Small scale and big market: how

small farmers adapt to the big small farmers adapt to the big MKT?MKT?

OutlookOutlook

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1.1. China’s economic system reformChina’s economic system reform Before Before 1978: the planned economy1978: the planned economy 1984-1991: Planned commodity economy1984-1991: Planned commodity economy Since 1992: the socialist market economic Since 1992: the socialist market economic

systemsystem 2002 and later: After joining the WTO, C2002 and later: After joining the WTO, C

hina accelerated the pace of market reforhina accelerated the pace of market reformm

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22 、 、 Rural market reformRural market reform2.1 Framework of rural market reform2.1 Framework of rural market reform Major theme of reform (plan -> market) Major theme of reform (plan -> market)

• QuotaQuota• Marketing channelMarketing channel• Pricing mechanismPricing mechanism• Consumption rationingConsumption rationing• Restructuring of state-owned circulating Restructuring of state-owned circulating

enterprises enterprises

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22 、 、 Rural market reformRural market reform Objectives of ReformObjectives of Reform

• to stimulate farmers’ initiativeto stimulate farmers’ initiative• to improve industrialization to improve industrialization

• to stabilize market to stabilize market • to ensure food security and safetyto ensure food security and safety• to increase farmers income to increase farmers income • to protect the environmentto protect the environment

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22 、 、 Rural market reformRural market reform2.2 The main period of rural market reform 2.2 The main period of rural market reform 1978-1984: Highly centralized purchase 1978-1984: Highly centralized purchase

and saleand sale 1985-1997: Dual track system:1985-1997: Dual track system: 1998-2000: Government monopolize 1998-2000: Government monopolize

procurement for grainprocurement for grain 2001-2004: liberalizing grain market2001-2004: liberalizing grain market Since 2004: Fully competitiveSince 2004: Fully competitive

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22 、 、 Rural market reformRural market reform

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2.3 Non-staple 2.3 Non-staple Food Market ReformFood Market Reform Live pigs and pork Live pigs and pork

- - Early 1950s, no direct intervention; froEarly 1950s, no direct intervention; from 1955 , it was enhanced; m 1955 , it was enhanced;

-After 1960s, full control of production, ci-After 1960s, full control of production, circulation and consumption rculation and consumption ；；

-After 1978, liberalized market gradually.-After 1978, liberalized market gradually.

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Vegetables and fruitsVegetables and fruits

-Pricing and market policies are simi-Pricing and market policies are similar to pork, but less control.lar to pork, but less control.

-Fruits & vegetables led the reform o-Fruits & vegetables led the reform of ag. product marketing. In early 19f ag. product marketing. In early 1980s80s ，， fruits & vegetables market sfruits & vegetables market system has been established.ystem has been established.

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22 、 、 Rural market reformRural market reform

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22 、 、 Rural market reformRural market reform2.4 formation of rural MKT system2.4 formation of rural MKT system Village market recovery phaseVillage market recovery phase （（ 1978-1981978-198

33 ））•Since HRS, farmers free to trade surplusSince HRS, farmers free to trade surplus•Village markets have emerged, promote eVillage markets have emerged, promote exchange between urban and ruralxchange between urban and rural

•Specialized production households and traSpecialized production households and traders appear.ders appear.

• from local transaction to long-distance from local transaction to long-distance •wholesale market emergedwholesale market emerged

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22 、 、 Rural market reformRural market reform

Wholesale market growthWholesale market growth （（ 1984-19911984-1991 ））• In1984, Guangzhou, Xi'an, Wuhan and otheIn1984, Guangzhou, Xi'an, Wuhan and othe

r cities first opening the aquatic products anr cities first opening the aquatic products and vegetable markets.d vegetable markets.

• In 1985, a comprehensive reform of the procIn 1985, a comprehensive reform of the procurement system of agricultural products urement system of agricultural products

• Most of the wholesale market developed on Most of the wholesale market developed on the basis of the rural or urban open markets.the basis of the rural or urban open markets.

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22 、 、 Rural market reformRural market reform

Market system basically formedMarket system basically formed （（ 1992-1992- ））• wholesale markets - center for ag. products wholesale markets - center for ag. products marketingmarketing urban wholesale marketsurban wholesale markets rural wholesale marketsrural wholesale markets

• direct sales, chained store sales, contract -purdirect sales, chained store sales, contract -purchase, future market and E-commerce.chase, future market and E-commerce.

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Product CirculationProduct Circulation

Wholesale Trade (2009)

ItemItemCorporation Corporation Enterprises Enterprises

(unit)(unit)

Engaged Engaged PersonsPersons

Wholesale TradeWholesale Trade 5285352853 31225353122535 Domestic Funded EnterprisesDomestic Funded Enterprises 5049850498 28011472801147 State-owned Enterprises State-owned Enterprises 39223922 690946690946 Collective-owned Enterprises Collective-owned Enterprises 11011101 7764077640 Limited Liability Corporations Limited Liability Corporations

1238112381 740837740837

Private Enterprises Private Enterprises 3065730657 898077898077 Wholesale of Farm Produce and LWholesale of Farm Produce and L

ivestock Productsivestock Products 19311931 136946136946

Wholesale of Food, Beverages anWholesale of Food, Beverages and Tobaccosd Tobaccos 42814281 651490651490

Wholesale of Textiles, Garments aWholesale of Textiles, Garments and Dailynd Daily 52105210 343994343994Data source: Chinese Statistic Yearbook,2010

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33 、、 Domestic trade policiesDomestic trade policies3.1 Major objectives Rapid circulation of commodities Easy connection btw farmers and MKTs Efficient and effective trade

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33 、、 Domestic trade policiesDomestic trade policies3.2 Ideal model of China’s domestic trade3.2 Ideal model of China’s domestic trade - key national wholesale MKTs as center - key national wholesale MKTs as center - Supermarkets/Chained stores connected to - Supermarkets/Chained stores connected to

consumersconsumers - Supported by modern logistic- Supported by modern logistic - Full information, efficient storage technolo- Full information, efficient storage technolo

gy etc.gy etc. - Stable investment mechanism- Stable investment mechanism - Active traders/brokers- Active traders/brokers

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Ag. D

omestic T

rade policies

MKT players

Products

MKT structure

Brokers/Traders

Cooperatives

Trade companies

Standards

Quality

Processing

Logistic & information

MKT infrastructure

Traceability

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3.3 Major polices3.3 Major polices

Rural supermarket projectRural supermarket project since 2005 since 2005 During 3 years, to cultivate 250 thousands farm During 3 years, to cultivate 250 thousands farm

stores/household stores/small supermarketsstores/household stores/small supermarkets To form a new rural consumption network with To form a new rural consumption network with

county-suburb stores/supermarkets as dragon county-suburb stores/supermarkets as dragon head, township supermarkets as backbone and head, township supermarkets as backbone and village stores as basisvillage stores as basis

so as to reduce the gap between rural and urban so as to reduce the gap between rural and urban consumption environmentconsumption environment

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3.3 Major polices3.3 Major polices

Two 100s MKT projectsTwo 100s MKT projects since 2006. since 2006. To rebuilt 100 large wholesale MKTs and 100 lTo rebuilt 100 large wholesale MKTs and 100 l

arge trade companies, focusing on arge trade companies, focusing on logistic and distribution, MKT information, inslogistic and distribution, MKT information, ins

pection and quarantine, exchange & storage facpection and quarantine, exchange & storage facility, live animal slaughtering areasility, live animal slaughtering areas

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In 2009, in major producing areas and big cities

to support 200 large fresh ag. Product wholesale MKT, to guide wholesale market to build connection with farmers.

To support 400 county or township open markets to rebuild with high standard

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3.3 Major polices3.3 Major polices Cooperatives and brokersCooperatives and brokers July, 2007 July, 2007 Farmers’ Professional Cooperative Farmers’ Professional Cooperative

Law Law Different kinds subsidies to cooperativesDifferent kinds subsidies to cooperatives

• Central government: 290 million (2003-06), Central government: 290 million (2003-06), 225 million (2007)225 million (2007)

• Local government: 460 million (2004-2006)Local government: 460 million (2004-2006)• Major policy: Free registration, Loan subsidy, Major policy: Free registration, Loan subsidy,

preferential taxpreferential tax

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3.3 Major polices3.3 Major polices

Cooperatives and brokersCooperatives and brokersTill June, 2010, the number reaches 310 thousanTill June, 2010, the number reaches 310 thousands. About 10% of total households (2600 househds. About 10% of total households (2600 households) join cooperatives, 25.6 thousands of them olds) join cooperatives, 25.6 thousands of them have their own brands, covering grain and oil, vehave their own brands, covering grain and oil, vegetables and fruits etc.getables and fruits etc.

10 million brokers/individual traders and 2600 10 million brokers/individual traders and 2600 broker associations, the traded value reaches RMbroker associations, the traded value reaches RMB 1 trillion yuan.B 1 trillion yuan.

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Other policies or practiceOther policies or practice- Market information systemMarket information system- Connection between farmers and supermarketsConnection between farmers and supermarkets- SuperMKT+ production base, superMKT+ cooSuperMKT+ production base, superMKT+ coo

p., SuperMKT+ wholesaleMKT, superMKT+ dp., SuperMKT+ wholesaleMKT, superMKT+ distribution centeristribution center

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4. Small scale and big market: 4. Small scale and big market: how how small farmers adapt to the big MKTsmall farmers adapt to the big MKT

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4.1 Small farm4.1 Small farm

Rural households: 223 millionRural households: 223 million Arable land area: 121.8 million hectareArable land area: 121.8 million hectare Average farm size: 0.546 hectareAverage farm size: 0.546 hectare

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Special CaseSpecial Case

The biggest family farm in China: 1300 hectare

Rant from village leaders or direct from farmers

Covering 35 villages, 8 town, 2 counties, in Hubei province

Hire labors: 4 technician, 11 production teams (2-3 small-group leaders + their own family)

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Income distribution: share system Income distribution: share system • based on their inputs (group leaders: productibased on their inputs (group leaders: producti

on and tech; Mr. Hou anjie: seed, fertilizer, pon and tech; Mr. Hou anjie: seed, fertilizer, pesticide etc.esticide etc.

• Group leader: 30%; Family farm: 70%Group leader: 30%; Family farm: 70% Average scale of group leader: 13 hectare per leAverage scale of group leader: 13 hectare per le

ader. If good harvest, the profit is 8 thousand Uader. If good harvest, the profit is 8 thousand USD per year, which is 16 times of average rural SD per year, which is 16 times of average rural per capita income. per capita income.

Agribusiness: rice processing; cooperativesAgribusiness: rice processing; cooperatives

Special CaseSpecial Case

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4.2 Big market4.2 Big market

31 provinces, autonomic zones and 31 provinces, autonomic zones and

municipalitiesmunicipalities

About 10 million square kilometersAbout 10 million square kilometers

1.3 trillion population1.3 trillion population Rural population: 713/(913) millionRural population: 713/(913) million International MKTInternational MKT

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Population of several provincesPopulation of several provinces

No Regions Population(10000) Rural share (%)

1 Guangdong 9638 36.602 Henan 9487 62.303 Shandong 9470 51.684 Sichuan 8185 61.305 Jiangsu 7725 44.406 Hebei 7034 57.007 Hunan 6406 56.808 Anhui 6131 57.909 Hubei 5720 54.00

10 Zhejiang 5180 42.10Data source: China statistical yearbook, 2010

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Population of Population of major countriesmajor countriesCountry or Region Population(10000 persons)

Canada 3331

France 6228

Germany 8211

Italy 5983

United Kingdom 6141

Australia 2143

Data source: world bank

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3.4 How to solve the problems and to increase 3.4 How to solve the problems and to increase farmers income/reduce poverty farmers income/reduce poverty

To encourage more farmers to participate in To encourage more farmers to participate in MKT activitiesMKT activities

To improve MKT system developmentTo improve MKT system development To bridge farmers and MKTTo bridge farmers and MKT To organize farmersTo organize farmers To provide finance to farmers To provide finance to farmers

(microfinance)(microfinance)

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3.5 Forms of farmer participating in MKT3.5 Forms of farmer participating in MKT

- logistic form- logistic form

- chained supermarket- chained supermarket

- farmers’ cooperative- farmers’ cooperative

- leading/dragon (processing) enterprises- leading/dragon (processing) enterprises

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3.5.1 logistic form3.5.1 logistic form

Farmers sell their products to logistic Farmers sell their products to logistic

/distribution center/distribution center

then through the center these products then through the center these products

are sold to other places are sold to other places

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Logistic form chartLogistic form chart

Logistic/distribution

center

Producers

Producers

Retailers

Wholesale MKT

Contractunits

con

sum

ers

Producers

Storage, transportation, sale

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Case: Guangdong Guotong Logistic Limited Case: Guangdong Guotong Logistic Limited CompanyCompany

Established in 2004, with 150 hectare areaEstablished in 2004, with 150 hectare area Major business: Logistic and distribution; pMajor business: Logistic and distribution; p

roduction, processing, sale and export etc.roduction, processing, sale and export etc. Major products: vegetable, fruits, staple fooMajor products: vegetable, fruits, staple foo

d, flowerd, flower 8 centers/departments: Bonded center, Hongko8 centers/departments: Bonded center, Hongko

ng–ng–Macao transfer Macao transfer center, center, suffocating suffocating processing centerprocessing center etc. etc.

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By advanced technology and logistic mode, By advanced technology and logistic mode, they build traceability system and responsible they build traceability system and responsible systemsystem

Supply chain management: breed aquatics, Supply chain management: breed aquatics, processing, packaging, transportation, border processing, packaging, transportation, border inspection etc.inspection etc.

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All products for export are from registered fishAll products for export are from registered fishing grounding ground

They have near 6667 hectare modern productiThey have near 6667 hectare modern production base in Fushan and Nansha cities, which inon base in Fushan and Nansha cities, which include ecological breed, integrated technologies clude ecological breed, integrated technologies of arable land planting-breeding etc.of arable land planting-breeding etc.

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3.5.2 SuperMKT/chained stores mode3.5.2 SuperMKT/chained stores mode Distribution center of SuperMKTs /chainDistribution center of SuperMKTs /chain

ed stores is responsible for purchasing aned stores is responsible for purchasing and distributingd distributing

They have integrated information and logThey have integrated information and logistic systemistic system

suppliers

Distribution center

Super

markets

customers

DistributionInformationflow

Self-logistics model: Wal-Mart supermarket Self-logistics model: Wal-Mart supermarket

Information flowGoods flows

Branch of supermarket

Headquarter of SuperMKT

Suppliers

Branch of supermarket

Branch of supermarket

suppliers distribution model: Carrefoursuppliers distribution model: Carrefour

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3.5.3 cooperative model3.5.3 cooperative model Cooperatives organize production, technology Cooperatives organize production, technology

and saleand sale Increase sale quantity/scale, bargaining power, Increase sale quantity/scale, bargaining power,

to charge for high price and ensure certain to charge for high price and ensure certain incomeincome

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Cooperative modeCooperative mode

Farm 1

Farm 2 CooperativesCooperatives WholesaleMKT

Retail store

Farm n

SuperMKT

con

sum

ers

Production, marketing,

sale etc

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Case: Ruoling Watermelon Cooperative, WenlinCase: Ruoling Watermelon Cooperative, Wenling city, Zhejiang provinceg city, Zhejiang province

Established in July, 2001. Member 352 persons; 21 prEstablished in July, 2001. Member 352 persons; 21 production base, total area 13 thousands hectare; Wateroduction base, total area 13 thousands hectare; Watermelon brand: yuling melon brand: yuling

More than 150 sale stores/franchised stores in Beijing,More than 150 sale stores/franchised stores in Beijing, Shanghai, Shenzheng etc. The sales network covers Shanghai, Shenzheng etc. The sales network covers more than 26 cities of 20 provincesmore than 26 cities of 20 provinces

Average income of Coop. members is more than 100 Average income of Coop. members is more than 100 thousand yuan, some can earn 300 thousands yuanthousand yuan, some can earn 300 thousands yuan

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Operation styleOperation style Allocate land to members based on their Allocate land to members based on their

technology, management ability and skilltechnology, management ability and skill Unified cultivate, input, technology and saleUnified cultivate, input, technology and sale Profit distributed by land area Profit distributed by land area Member need input labor and invest, they Member need input labor and invest, they

become professional farmersbecome professional farmers

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3.5.4 leading company mode3.5.4 leading company mode Mainly by contractMainly by contract Farmers +company, or farmers +production Farmers +company, or farmers +production

base + companybase + company Company provides certain inputs (seeds or Company provides certain inputs (seeds or

young animal/birds) and technology etc.young animal/birds) and technology etc.

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Dragon company modeDragon company mode

Farm 1

Farm 2 Leading compLeading companyany Wholesale

MKT

Retail store

Farm n

SuperMKT

con

sum

ers

Processing, sale etc

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Case: Beijing Shunxin Agriculture joint-stock compCase: Beijing Shunxin Agriculture joint-stock companyany

Established in Nov. 1998Established in Nov. 1998 Products: boar, pock meat and its products, alcohol, frProducts: boar, pock meat and its products, alcohol, fr

uit juice, fruit and flower etc. uit juice, fruit and flower etc. Covering different activities in upstream and downstrCovering different activities in upstream and downstr

eam of productioneam of production Contracted farmers: 61550 farm households, raised piContracted farmers: 61550 farm households, raised pi

g in the base is 3 million heads, planting 14 thousands g in the base is 3 million heads, planting 14 thousands hectare of carrot, pumpkin etc. hectare of carrot, pumpkin etc.

Every year farmers income increases by 1400 yuan.Every year farmers income increases by 1400 yuan.

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OutlookOutlook

Constraints to scale enlargementConstraints to scale enlargement Opportunity to find non-agri job (labor Opportunity to find non-agri job (labor

quality)quality) Stable non-agricultural incomeStable non-agricultural income Social security safeguard systemSocial security safeguard system

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High priority to agri & rural developmentHigh priority to agri & rural development(7No. 1 documents)(7No. 1 documents)

2004: Boost growth in farmers’ incomes2005: Improve overall production capacity 2006: Building a new socialist countryside2007: Developing modern agriculture2008: Strengthening foundation of ag. infrastructure2009: Improve ag-development & farmer’s income 2010: Integrated development of rural & urban area

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