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APR Workshop 2010-Market Development & Agriculture-Wu Laping


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APR Workshop 2010-Market Development & Agriculture-Wu Laping

  1. 1. Market Development & Agriculture Laping Wu Professor, College of Economics and Management, China Agricultural University Email: China-IFAD South-South Cooperation Seminar on Comprehensive Agricultural Development and Poverty Reduction Nanning Guangxi, Nov. 4-6, 2010
  2. 2. Laping Wu College of Econ. & Management China Agricultural University TEL: 62738573(fax), 62738816 Email: [email_address] Http:// E-card
  3. 3. Outline <ul><li>China’s economic system reform </li></ul><ul><li>Rural market reform </li></ul><ul><li>Domestic trade Policies </li></ul><ul><li>Small scale and big market: how small farmers adapt to the big MKT? </li></ul><ul><li>Outlook </li></ul>
  4. 4. 1. China’s economic system reform <ul><li>Before 1978: the planned economy </li></ul><ul><li>1984-1991: Planned commodity economy </li></ul><ul><li>Since 1992: the socialist market economic system </li></ul><ul><li>2002 and later: After joining the WTO, China accelerated the pace of market reform </li></ul>
  5. 5. 2 、 Rural market reform <ul><li>2.1 Framework of rural market reform </li></ul><ul><li>Major theme of reform (plan -> market) </li></ul><ul><ul><li>Quota </li></ul></ul><ul><ul><li>Marketing channel </li></ul></ul><ul><ul><li>Pricing mechanism </li></ul></ul><ul><ul><li>Consumption rationing </li></ul></ul><ul><ul><li>Restructuring of state-owned circulating enterprises </li></ul></ul>
  6. 6. 2 、 Rural market reform <ul><li>Objectives of Reform </li></ul><ul><ul><li>to stimulate farmers’ initiative </li></ul></ul><ul><ul><li>to improve industrialization </li></ul></ul><ul><ul><li>to stabilize market </li></ul></ul><ul><ul><li>to ensure food security and safety </li></ul></ul><ul><ul><li>to increase farmers income </li></ul></ul><ul><ul><li>to protect the environment </li></ul></ul>
  7. 7. 2 、 Rural market reform <ul><li>2.2 The main period of rural market reform </li></ul><ul><li>1978-1984: Highly centralized purchase and sale </li></ul><ul><li>1985-1997: Dual track system: </li></ul><ul><li>1998-2000: Government monopolize procurement for grain </li></ul><ul><li>2001-2004: liberalizing grain market </li></ul><ul><li>Since 2004: Fully competitive </li></ul>
  8. 8. 2 、 Rural market reform
  9. 9. <ul><li>2.3 Non-staple Food Market Reform </li></ul><ul><li>Live pigs and pork </li></ul><ul><ul><li>- Early 1950s, no direct intervention; from 1955 , it was enhanced; </li></ul></ul><ul><ul><li>-After 1960s, full control of production, circulation and consumption ; </li></ul></ul><ul><ul><li>-After 1978, liberalized market gradually. </li></ul></ul>
  10. 10. <ul><li>Vegetables and fruits </li></ul><ul><ul><li>-Pricing and market policies are similar to pork, but less control. </li></ul></ul><ul><ul><li>-Fruits & vegetables led the reform of ag. product marketing. In early 1980s , fruits & vegetables market system has been established. </li></ul></ul>
  11. 11. 2 、 Rural market reform
  12. 12. 2 、 Rural market reform <ul><li>2.4 formation of rural MKT system </li></ul><ul><li>Village market recovery phase ( 1978-1983 ) </li></ul><ul><ul><li>Since HRS, farmers free to trade surplus </li></ul></ul><ul><ul><li>Village markets have emerged, promote exchange between urban and rural </li></ul></ul><ul><ul><li>Specialized production households and traders appear. </li></ul></ul><ul><ul><li>from local transaction to long-distance </li></ul></ul><ul><ul><li>wholesale market emerged </li></ul></ul>
  13. 13. 2 、 Rural market reform <ul><li>Wholesale market growth ( 1984-1991 ) </li></ul><ul><ul><li>In1984, Guangzhou, Xi'an, Wuhan and other cities first opening the aquatic products and vegetable markets. </li></ul></ul><ul><ul><li>In 1985, a comprehensive reform of the procurement system of agricultural products </li></ul></ul><ul><ul><li>Most of the wholesale market developed on the basis of the rural or urban open markets. </li></ul></ul>
  14. 14. 2 、 Rural market reform <ul><li>Market system basically formed ( 1992- ) </li></ul><ul><ul><li>wholesale markets - center for ag. products marketing </li></ul></ul><ul><ul><ul><li>urban wholesale markets </li></ul></ul></ul><ul><ul><ul><li>rural wholesale markets </li></ul></ul></ul><ul><ul><li>direct sales, chained store sales, contract -purchase, future market and E-commerce. </li></ul></ul>
  15. 15. Product Circulation
  16. 16. Wholesale Trade (2009) Data source: Chinese Statistic Yearbook,2010 343994 5210 Wholesale of Textiles, Garments and Daily 651490 4281 Wholesale of Food, Beverages and Tobaccos 136946 1931 Wholesale of Farm Produce and Livestock Products 898077 30657 Private Enterprises 740837 12381 Limited Liability Corporations 77640 1101 Collective-owned Enterprises 690946 3922 State-owned Enterprises 2801147 50498 Domestic Funded Enterprises 3122535 52853 Wholesale Trade Engaged Persons Corporation Enterprises (unit) Item
  17. 17. 3 、 Domestic trade policies <ul><li>3.1 Major objectives </li></ul><ul><li>Rapid circulation of commodities </li></ul><ul><li>Easy connection btw farmers and MKTs </li></ul><ul><li>Efficient and effective trade </li></ul>
  18. 18. 3 、 Domestic trade policies <ul><li>3.2 Ideal model of China’s domestic trade </li></ul><ul><li>- key national wholesale MKTs as center </li></ul><ul><li>- Supermarkets/Chained stores connected to consumers </li></ul><ul><li>- Supported by modern logistic </li></ul><ul><li>- Full information, efficient storage technology etc. </li></ul><ul><li>- Stable investment mechanism </li></ul><ul><li>- Active traders/brokers </li></ul>
  19. 19. Ag. Domestic Trade policies MKT players Products MKT structure Brokers/Traders Cooperatives Trade companies Standards Quality Processing Logistic & information MKT infrastructure Traceability
  20. 20. <ul><li>3.3 Major polices </li></ul><ul><li>Rural supermarket project since 2005 </li></ul><ul><li>During 3 years, to cultivate 250 thousands farm stores/household stores/small supermarkets </li></ul><ul><li>To form a new rural consumption network with county-suburb stores/supermarkets as dragon head, township supermarkets as backbone and village stores as basis </li></ul><ul><li>so as to reduce the gap between rural and urban consumption environment </li></ul>
  21. 21. <ul><li>3.3 Major polices </li></ul><ul><li>Two 100s MKT projects since 2006. </li></ul><ul><li>To rebuilt 100 large wholesale MKTs and 100 large trade companies, focusing on </li></ul><ul><li>logistic and distribution, MKT information, inspection and quarantine, exchange & storage facility, live animal slaughtering areas </li></ul>
  22. 22. <ul><li>In 2009, in major producing areas and big cities </li></ul><ul><li>to support 200 large fresh ag. Product wholesale MKT, to guide wholesale market to build connection with farmers. </li></ul><ul><li>To support 400 county or township open markets to rebuild with high standard </li></ul>
  23. 23. <ul><li>3.3 Major polices </li></ul><ul><li>Cooperatives and brokers </li></ul><ul><li>July, 2007 Farmers’ Professional Cooperative Law </li></ul><ul><li>Different kinds subsidies to cooperatives </li></ul><ul><ul><li>Central government: 290 million (2003-06), 225 million (2007) </li></ul></ul><ul><ul><li>Local government: 460 million (2004-2006) </li></ul></ul><ul><ul><li>Major policy: Free registration, Loan subsidy, preferential tax </li></ul></ul>
  24. 24. <ul><li>3.3 Major polices </li></ul><ul><li>Cooperatives and brokers </li></ul><ul><li>Till June, 2010, the number reaches 310 thousands. About 10% of total households (2600 households) join cooperatives, 25.6 thousands of them have their own brands, covering grain and oil, vegetables and fruits etc. </li></ul><ul><li>10 million brokers/individual traders and 2600 broker associations, the traded value reaches RMB 1 trillion yuan. </li></ul>
  25. 25. <ul><li>Other policies or practice </li></ul><ul><li>Market information system </li></ul><ul><li>Connection between farmers and supermarkets </li></ul><ul><li>SuperMKT+ production base, superMKT+ coop., SuperMKT+ wholesaleMKT, superMKT+ distribution center </li></ul>
  26. 26. 4. Small scale and big market: how small farmers adapt to the big MKT
  27. 27. 4.1 Small farm <ul><li>Rural households: 223 million </li></ul><ul><li>Arable land area: 121.8 million hectare </li></ul><ul><li>Average farm size: 0.546 hectare </li></ul>
  28. 28. Special Case <ul><li>The biggest family farm in China: 1300 hectare </li></ul><ul><li>Rant from village leaders or direct from farmers </li></ul><ul><li>Covering 35 villages, 8 town, 2 counties, in Hubei province </li></ul><ul><li>Hire labors: 4 technician, 11 production teams (2-3 small-group leaders + their own family) </li></ul>
  29. 29. <ul><li>Income distribution: share system </li></ul><ul><ul><li>based on their inputs (group leaders: production and tech; Mr. Hou anjie: seed, fertilizer, pesticide etc. </li></ul></ul><ul><ul><li>Group leader: 30%; Family farm: 70% </li></ul></ul><ul><li>Average scale of group leader: 13 hectare per leader. If good harvest, the profit is 8 thousand USD per year, which is 16 times of average rural per capita income. </li></ul><ul><li>Agribusiness: rice processing; cooperatives </li></ul>Special Case
  30. 30. 4.2 Big market <ul><li>31 provinces, autonomic zones and municipalities </li></ul><ul><li>About 10 million square kilometers </li></ul><ul><li>1.3 trillion population </li></ul><ul><li>Rural population: 713/(913) million </li></ul><ul><li>International MKT </li></ul>
  31. 31. Population of several provinces Data source: China statistical yearbook, 2010 Rural share (%) Population(10000) Regions No 10 9 8 7 6 5 4 3 2 1 42.10 5180 Zhejiang 54.00 5720 Hubei 57.90 6131 Anhui 56.80 6406 Hunan 57.00 7034 Hebei 44.40 7725 Jiangsu 61.30 8185 Sichuan 51.68 9470 Shandong 62.30 9487 Henan 36.60 9638 Guangdong
  32. 32. Population of major countries Data source: world bank 2143 Australia 6141 United Kingdom 5983 Italy 8211 Germany 6228 France 3331 Canada Population(10000 persons) Country or Region
  33. 33. <ul><li>3.4 How to solve the problems and to increase farmers income/reduce poverty </li></ul><ul><li>To encourage more farmers to participate in MKT activities </li></ul><ul><li>To improve MKT system development </li></ul><ul><li>To bridge farmers and MKT </li></ul><ul><li>To organize farmers </li></ul><ul><li>To provide finance to farmers (microfinance) </li></ul>
  34. 34. <ul><li>3.5 Forms of farmer participating in MKT </li></ul><ul><li>- logistic form </li></ul><ul><li>- chained supermarket </li></ul><ul><li>- farmers’ cooperative </li></ul><ul><li>- leading/dragon (processing) enterprises </li></ul>
  35. 35. <ul><li>3.5.1 logistic form </li></ul><ul><li>Farmers sell their products to logistic /distribution center </li></ul><ul><li>then through the center these products are sold to other places </li></ul>
  36. 36. <ul><li>Logistic form chart </li></ul>Storage, transportation, sale Logistic/distribution center Producers Producers Retailers Wholesale MKT Contract units consumers Producers
  37. 37. <ul><li>Case: Guangdong Guotong Logistic Limited Company </li></ul><ul><li>Established in 2004, with 150 hectare area </li></ul><ul><li>Major business: Logistic and distribution; production, processing, sale and export etc. </li></ul><ul><li>Major products: vegetable, fruits, staple food, flower </li></ul><ul><li>8 centers/departments: Bonded center, Hongkong–Macao transfer center, suffocating processing center etc. </li></ul>
  38. 38. <ul><li>By advanced technology and logistic mode, they build traceability system and responsible system </li></ul><ul><li>Supply chain management: breed aquatics, processing, packaging, transportation, border inspection etc. </li></ul>
  39. 39. <ul><li>All products for export are from registered fishing ground </li></ul><ul><li>They have near 6667 hectare modern production base in Fushan and Nansha cities, which include ecological breed, integrated technologies of arable land planting-breeding etc. </li></ul>
  40. 40. <ul><li>3.5.2 SuperMKT/chained stores mode </li></ul><ul><li>Distribution center of SuperMKTs /chained stores is responsible for purchasing and distributing </li></ul><ul><li>They have integrated information and logistic system </li></ul>
  41. 41. Self-logistics model: Wal-Mart supermarket suppliers Distribution center Super markets customers Distribution Information flow
  42. 42. suppliers distribution model: Carrefour Information flow Goods flows Branch of supermarket Headquarter of SuperMKT Suppliers Branch of supermarket Branch of supermarket
  43. 43. <ul><li>3.5.3 cooperative model </li></ul><ul><li>Cooperatives organize production, technology and sale </li></ul><ul><li>Increase sale quantity/scale, bargaining power, to charge for high price and ensure certain income </li></ul>
  44. 44. <ul><li>Cooperative mode </li></ul>Farm 1 Farm 2 Cooperatives Wholesale MKT Retail store Farm n SuperMKT consumers Production, marketing, sale etc
  45. 45. <ul><li>Case: Ruoling Watermelon Cooperative, Wenling city, Zhejiang province </li></ul><ul><li>Established in July, 2001. Member 352 persons; 21 production base, total area 13 thousands hectare; Watermelon brand: yuling </li></ul><ul><li>More than 150 sale stores/franchised stores in Beijing, Shanghai, Shenzheng etc. The sales network covers more than 26 cities of 20 provinces </li></ul><ul><li>Average income of Coop. members is more than 100 thousand yuan, some can earn 300 thousands yuan </li></ul>
  46. 46. <ul><li>Operation style </li></ul><ul><li>Allocate land to members based on their technology, management ability and skill </li></ul><ul><li>Unified cultivate, input, technology and sale </li></ul><ul><li>Profit distributed by land area </li></ul><ul><li>Member need input labor and invest, they become professional farmers </li></ul>
  47. 47. <ul><li>3.5.4 leading company mode </li></ul><ul><li>Mainly by contract </li></ul><ul><li>Farmers +company, or farmers +production base + company </li></ul><ul><li>Company provides certain inputs (seeds or young animal/birds) and technology etc. </li></ul>
  48. 48. <ul><li>Dragon company mode </li></ul>Farm 1 Farm 2 Leading company Wholesale MKT Retail store Farm n SuperMKT consumers Processing, sale etc
  49. 49. <ul><li>Case: Beijing Shunxin Agriculture joint-stock company </li></ul><ul><li>Established in Nov. 1998 </li></ul><ul><li>Products: boar, pock meat and its products, alcohol, fruit juice, fruit and flower etc. </li></ul><ul><li>Covering different activities in upstream and downstream of production </li></ul><ul><li>Contracted farmers: 61550 farm households, raised pig in the base is 3 million heads, planting 14 thousands hectare of carrot, pumpkin etc. </li></ul><ul><li>Every year farmers income increases by 1400 yuan. </li></ul>
  50. 50. Outlook <ul><li>Constraints to scale enlargement </li></ul><ul><li>Opportunity to find non-agri job (labor quality) </li></ul><ul><li>Stable non-agricultural income </li></ul><ul><li>Social security safeguard system </li></ul>
  51. 51. High priority to agri & rural development (7No. 1 documents) 2004: Boost growth in farmers’ incomes 2005: Improve overall production capacity 2006: Building a new socialist countryside 2007: Developing modern agriculture 2008: Strengthening foundation of ag. infrastructure 2009: Improve ag-development & farmer’s income 2010: Integrated development of rural & urban area
  52. 52. Thank You