Dive into the poverty line to foster inclusive growth in rural China
by Shumin Liu
“Innovation has a direction, and inclusive innovation is a choice.” Together with policymakers and ecosystem shapers, we embarked on a learning journey to probe into the narrative of inclusive growth in the context of China and ASEAN countries. We asked ourselves how is innovation fueling development, and how can policies be designed to enable the space for inclusive innovation in the recent ASEAN-China-UNDP Symposium. Are inclusiveness and growth paradoxical? Can innovation play a role to connect them together? We found a case from China to answer some of these questions.
Yunnan, a province located in Southwestern China, is a mountainous region lying near the edge of Himalaya, sharing the border with Myanmar, Laos and Viet Nam. Traditionally, it is a tea-growing region producing the renowned Pu Erh tea, but is also the biggest coffee production province, accounting for 98% value of coffee produced in China.
The supply chain in the coffee industry is lucrative, but it is unevenly distributed in production, roasting, packaging, delivery, and retail. The middlemen indulge themselves with the biggest share of profit, while the farmers typically gain meagre earnings, while the consumers bear the high cost imposed by the multiple layers in the process.
Exemplifying this reality is Yan Xiudeng. He and his brother rented a 20-acre farm to grow coffee in a village near Baoshan City in Yunnan a few years ago. On average, they grew green coffee beans with the value of RMB 9,000 (around USD $1,300) a year and earned a profit of less than RMB 4,000 (around USD $560) after removing the expense on fertilizers and labour cost. Across the value chain in the coffee industry, the production part only earns about 1%.
The unusual market
Baoshan, a lower-tier city, is 500 kilometres away from the provincial capital of Yunnan. Due to the rugged topology, getting to the coffee farms mentioned at the beginning of the story is not easy. It often takes 1.5 hours to travel from Baoshan city to Dalujiang town. Then there will be another 8 kilometres of bumpy roads to the Conggang village and around 15 minutes of walking to climb up to the coffee farms inside the mountain. Difficult as you can see — but this used to be the only way for the villagers to connect with the outside world.
Apart from the physical inaccessibility, due to the information asymmetry, smallholder farmers are also facing the challenges of accurately sensing the signal from the market and finding the pathway to sales. So even though sometimes they have a bumper crop, they might end up with a lot of products that can’t be sold, this earning marginal income.
It seems to be a dry terrain for business. But Pinduoduo has an eye on this unusual market and has made the aloof village bustling — it mobilized six big coffee merchants to buy out more than 42.53 tons of coffee beans with a premium price from the smallholder farmers who are officially registered as poor households in Conggang and Nankang villages with the total amount of more than RMB 407,600 (around USD $57,600).
Pinduoduo is not a charity. And Baoshan is just an example. Nonetheless, through the model, it has reached gross merchandise volume of more than RMB 16.2 billion (around USD $2.4 billion) by selling agricultural products from registered poverty-stricken regions nationwide in 2018. It has also supported 170,000 poor households and created more than 300,000 jobs across the supply chain. How do they sustain business development while bringing inclusive growth to the impoverished villages?
Let the rural communities participate in the process and benefit from it
Pinduoduo is running a business-oriented poverty alleviation programme to economically empower smallholder farmers in the poverty-stricken villages. It connects their agricultural products with millions of consumers directly on its e-commerce platform. It uplifts the profit for smallholder farmers by increasing their products’ exposure to the market, trimming down the multiple layers of intermediaries and enabling economies of scale through “Pin” — a socializing shopping experience where customers can interact with friends and even strangers online to have bulk purchases with discounts.
To embrace the mindset of grassroots innovation, Pinduoduo comes up with the strategy of “talent localization, industry localization, and benefit localization” through programmes such as Duoduo University to develop farmers’ technical and managerial capacity in productive farming and agricultural management and “Next-Gen Farmers” to attract young talents back to the villages to manage the supply chain on the platform and coordinate with the impoverished households and local authorities.
In its localization model, the Agricultural Producers’ Cooperatives is the core. The Cooperatives comprise of officially registered poor households who are not just members but also take up the leading roles as Legal Representatives, Chairman, and Supervisors. Pinduoduo supports the Cooperatives with a one-off investment which are converted into equity for the members to procure devices, materials and other resources for the community. Through this model, the members are guaranteed that the Cooperatives will acquire their qualified crop and grant them the rights to pick the buyers who propose a higher price. And to diversify the income stream, the Cooperatives will also take out a certain percentage of profit as dividends to share with the members.
In order to precisely match the supply of agricultural products and the demand in the market, Pinduoduo has built an AI-powered system which collects data such as farm locations, signature products, mature periods and produces predictive models for crop yield. The system also has designed a mechanism to understand customer’s behaviours and aggregate their scattered needs to match with the maturity of agricultural products.
The mechanism is seemingly simple as it is described. But due to the challenges of communication in dialects, different living styles, and preconception of technology-driven development by the urban business, there are a lot of barriers to gather precise and high-quality data from multidimensional agriculture activities across the process. The data is rooted in the field, and it has to be from the local, requiring in-depth engagement with the community.
Poverty alleviation is a complex development challenge. Relying on Pinduoduo itself won’t be sufficient. Behind the inspiring story, governments across multiple levels from local authorities to the State Council have played a critical role to guide the strategic direction of inclusive growth in villages, mobilize resources from the society, provide financial support, and build up an incentivized environment to promote poverty alleviation.
For example, the Yunnan Provincial Government has signed a Strategic Cooperation Framework Agreement with Pinduoduo to build 100 Duoduo Farms. The Central Government has assigned the Shanghai Municipal Government to pair with Yunnan to combat poverty. And there are national policies being set as an overarching strategic framework to support poverty reduction with e-commerce and development of digital villages, such as:
Leverage on the local advantages for solutions
The famous Shaji Taobao Village has shown us how grassroots villagers in rural communities grow their e-commerce on homeware into a vibrant business that is worth RMB 10 billion (around USD $1.4 billion) with more than 16,300 online shops in total. It is worth noting that Shaji has the advantages of access to internet and transportation. And the grassroots entrepreneurs are equipped with electronic devices, basic digital literacy, the funding to purchase goods, and business acumen for the market.
For those rural villages in remote mountain regions in Western China such as Yunnan, these conditions are not easy to find. But the local context and perhaps constraints sometimes could be the source of innovation. The mega Taobao village in Daji Town, Cao County was originally initiated by a few leads in e-commerce and gradually attracts support on infrastructure, resource mobilization, finance and policy guidance from governments to boost the business development. For some villages that lack of entrepreneurial mindset and capacity even at the small scale, such as those in Mengjin County, Henan Province, local government identifies the traditional Chinese handicrafts, pottery and painting as the unique strength in the villages and explores a model to work with the e-commerce service provider to mentor and incubate small business on the ground. And we can also see farmers using livestream to promote and sell agricultural products with short video apps.
Pinduoduo is just one of many local solutions, and it has shown a case of the inclusive development model that benefits villages, business, and customers. However, agricultural products are perishable. Ensuring the high quality of products when it is delivered to customers will require proper packaging and advanced cold chain logistics. How to standardize the agricultural production and processing in collaboration with thousands of smallholder farmers is a key question for Pinduoduo to contemplate. Meanwhile, offering a lower price to obtain a market advantage through directly linking smallholder farmers with customers will rely on the platform to be the gatekeeping for quality assurance.
To sustain and scale up a long-lasting impact for the villages and businesses, the e-commerce platform like Pinduoduo will also need to strengthen the branding of smallholder farmers’ products and improve the trust of the platform associated with the quality of product and service. So far, the impoverished villages have been receiving a lot of technical, financial, and policy support from governments, society, and the private sector. But eventually, a self-sustainable growth pathway that is designed, managed and led by the local communities needs to be developed and operated organically.
Also, transforming the supply chain to shift more value towards the production part is not just a simple technical issue that could be addressed with a large amount of investment, agriculture science, and technological support, but is also related to a deeper level of the mental model — the design of local solutions should take social norms and farmers’ behaviour change into account, make the best use of them, and embed them into the programme.
Apparently, there is no single universal model to apply for lifting the remaining 30.46 million people in the impoverished villages out of poverty. Rather than copying so-called “best practices” from elsewhere, why don’t we take a deep breath and dive into the poverty line to understand their niche needs and leverage on their unique advantages to unlock the puzzle of inclusive development?
Shumin works with the Regional Innovation Team on data for development— you can see more see more on Twitter @ricap_undp and @SL_ShuminLiu
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