Bloomberg
Alibaba and Pinduoduo fight China’s impending food crisis
(Bloomberg) – The battle to supply 1.4 billion people with fresh fruits and vegetables is taking China’s e-commerce companies inland, where they are trying to revolutionize centuries-old agricultural practices to ensure the future supply of their growing crops online grocery business. The Xi Jinping government has long made food self-reliance an “important state issue” in trying to avoid an approaching food crisis. The need to modernize China’s 200 million small-scale farms gained additional urgency during the pandemic, when disruptions in production and logistics coincided with domestic buyers turning to Alibaba Group Holding Ltd. and other Internet retailers to get your products. Now, some of the country’s products The largest private companies have joined the efforts of the state to help producers increase production, improve food quality and reduce prices. For e-commerce giants, it is a way to strengthen their position in an online food market that is expected to be worth more than $ 120 billion by 2023, without conflicting with Beijing’s recent crackdown on monopolistic practices such as prices predatory and forced exclusivity agreements. Fujian, along the east coast, Alibaba provided chicken breeders with smart bracelets that track the health of their birds, while under the guidance of JD.com Inc., rice farmers in the arid north of China installed smart sensors to obtain information on real time for irrigation. In the west, scientists in Yunnan are teaming up with Pinduoduo Inc. to use artificial intelligence to automate strawberry planting. “Agriculture is a critical area supported by the Chinese government,” said Liu Yue, an analyst at market research firm EqualOcean. With rural youth migrating to cities in search of better jobs and food security increasingly threatened by outdated pesticides and agricultural methods, the country’s technology champions are eager to help Beijing, she said. The driving force behind the push for e-commerce platforms for smart agriculture is the online shopping boom, which is expected to double to about 820 billion yuan ($ 127 billion) by 2023 compared to last year, according to iResearch. The category overtook consumer electronics as the biggest contributor to JD.com in the first half of last year, while Alibaba is giving a bigger boost to the business by taking a bigger stake in the hypermart Sun Art Retail Group Ltd. Meanwhile, a group from smaller rivals ranging from Xingsheng Youxuan and MissFresh – both supported by Tencent Holdings Ltd. – Dingdong Maicai are in the process of raising billions of dollars to grab bigger slices of the fresh food online distribution market. This prompted state media in December to warn against overcrowding in the industry, saying, instead, that Internet giants with immense data and advanced algorithms should do more in technological innovation. “Covid-19 helped accelerate the conversion of such purchases to online channels,” said Vey-Sern Ling, an analyst at Bloomberg Intelligence. “It is a huge untapped market and companies need to participate or stay behind.” At a time when Chinese leaders are restricting monopolies in areas ranging from fintech to e-commerce, smart agriculture is a sphere where the trade of technology giants’ interests are aligned with the national agenda. In guidelines issued on Sunday, the Council of State called for greater private investment to develop modern agricultural techniques and empower villages using advanced technologies. The reproduction and cultivation sciences have also been listed as one of Beijing’s top technology priorities for the next five years, alongside AI, quantum computing and computer chips. JD said his smart farm projects are at least 50% funded by government subsidies. Despite efforts, the growing appetite for fresh fruits and vegetables has left most of China’s traditionally labor-intensive farms – about 98% of the 200 million operators are families or small businesses – struggling to keep up. The country’s restrictions on land ownership and diverse terrain, from the steppes of Inner Mongolia to the tropical coasts of the island of Hainan in the south, make it difficult to implement agriculture on an industrial scale that is commonly seen in the US and Europe. Data from the National Bureau of Statistics also show that about a third of agricultural workers are 55 years of age or older and the birth rate is at record levels, increasing labor costs. Lei Jinrong is a farmer who has benefited from the partnership with online retailers. The owner of Fuxin Farm, in Fujian province, equipped 1,000 of his chickens with Apple Watch bracelets provided by Alibaba. The devices digitally track the number of steps that birds take each day and anything below 20,000 would be an early sign of illness, he said, adding that he no longer needs to patrol their fields for sick birds. This means that Lei can expand production without hiring more workers – good news, as average wages in his village have almost quadrupled in the past decade. In eastern Shandong province, peach growers increased revenue by 50% last year after using JD’s blockchain technology to encrypt every step of the planting process and increase trust and transparency, attracting long-tired consumers from food scandals, from contaminated milk powder to imitation eggs. “Improved efficiency and economies of scale will reduce costs, while higher quality products will yield better prices,” said Charlie Chen, head of consumer research at China Renaissance in Hong Kong. This will benefit both farmers and e-commerce operators, he said. Pinduoduo, which raised $ 6.1 billion in November in part to finance its agricultural innovations, is counting on these efforts to help it quadruple sales of agricultural products to 1 trillion yuan by 2025. The company hopes that the initiatives will help diversify beyond online retail, as it aims to license cutting-edge agricultural technology in the future, according to David Liu, vice president of strategy. Many of these initiatives are still in their infancy and expanding will take time, as farmers have only recently started collecting data – the basis for implementing AI and other next generation technologies – and testing new farming methods. But the twin drivers of increased demand for online products and Beijing’s drive for self-sufficiency in food supplies mean that the tech giant’s advances in modernizing China’s farms have just begun. “Smart farming is really the way to go,” said Lei, the chicken farmer. “We all have to innovate.” (Updates with online shopping competition in the seventh paragraph) For more articles like this, visit us at bloomberg.comSubscribe now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP