China's online giants start agricultural revolution to secure grocery supplies

Chickens in Fuxin Farm in Fujian wear Apple Watch-style bracelets supplied by Alibaba that track the number of steps they take a day, with anything below 20,000 seen as an early sign of illness. (Below) The use of smart technology in Fuxin Farm has a
Chickens in Fuxin Farm in Fujian wear Apple Watch-style bracelets supplied by Alibaba that track the number of steps they take a day, with anything below 20,000 seen as an early sign of illness. PHOTO: BLOOMBERG
Chickens in Fuxin Farm in Fujian wear Apple Watch-style bracelets supplied by Alibaba that track the number of steps they take a day, with anything below 20,000 seen as an early sign of illness. (Below) The use of smart technology in Fuxin Farm has a
The use of smart technology in Fuxin Farm has allowed the owner to boost output without hiring more workers - a big plus as average pay in his village has almost quadrupled over the past decade.PHOTO: BLOOMBERG

SHANGHAI • The battle to supply 1.4 billion people with fresh fruit and vegetables is taking China's e-commerce companies into the country's hinterlands, where they are bidding to revolutionise centuries-old practices to secure produce for their burgeoning online grocery businesses.

The government has long made self-sufficiency in food a "top state issue" as it seeks to avert a looming food crisis.

The need to modernise China's 200 million, largely small-scale farms took on added urgency during the pandemic, when output and logistics disruptions coincided with homebound shoppers turning to Alibaba Group Holding and other Internet retailers for their needs.

Now, some of the nation's largest private companies have tied up with state efforts to help growers boost production, improve quality and lower prices.

For the e-commerce giants, it is one way of strengthening their foothold in an online grocery market that is expected to be worth more than US$120 billion (S$159 billion) by 2023, without running afoul of Beijing's recent crackdown on monopolistic practices like predatory pricing and forced exclusivity arrangements.

In Fujian along the eastern coast, Alibaba has provided chicken farmers with smart bracelets that track the health of their poultry.

Under JD.com's guidance, rice growers in the arid north have installed smart sensors to gain real-time insights for irrigation.

Out west, scientists in Yunnan are teaming up with Pinduoduo to use artificial intelligence (AI) to automate strawberry planting.

"Agriculture is a critical area supported by the Chinese government," said Ms Liu Yue, an analyst with market research firm EqualOcean.

With rural youth flocking to cities for better jobs and food safety increasingly threatened by pesticides and outdated farming methods, the country's tech champions are eager to lend Beijing a hand, she said.

The driving force behind the e-commerce platforms' push into smart agriculture is the boom in online groceries, which is expected to double to about 820 billion yuan (S$168 billion) by 2023 from last year, according to iResearch.

The category overtook consumer electronics as the biggest contributor at JD.com in the first half of last year, while Alibaba is making a bigger push into the business by taking a larger stake in hypermart Sun Art Retail Group.

"Covid-19 has helped accelerate the conversion of such purchases to online channels," said Bloomberg Intelligence analyst Vey-Sern Ling.

"It's a large, untapped market, and the companies have to participate or be left behind."

At a time when Chinese leaders are clamping down on monopolies in areas from fintech to e-commerce, smart agriculture is one sphere where the tech giants' commercial interests are aligned with the national agenda.

In guidelines issued last April, the agriculture and rural affairs ministry called for increased private investment to develop modern farming techniques and introduce technologies like the Internet of Things, 5G and blockchain to so-called digital villages.

Breeding and cultivation sciences were also listed among Beijing's top tech priorities for the next five years, alongside AI, quantum computing and computer chips.

JD has said its smart farm projects are at least 50 per cent funded by government subsidies.

Despite the efforts, the growing appetite for fresh fruit and vegetables has left most of China's traditionally labour-intensive farms - roughly 98 per cent of the 200 million operators are families or small businesses - struggling to keep up.

The restrictions on land ownership and diverse terrain spanning the steppes of Inner Mongolia to the tropical shores of Hainan island in the south make it difficult to implement the industrial-scale farming that is commonly seen in the United States and Europe.

Data from the National Bureau of Statistics shows that about a third of farm workers are 55 or older, and the birth rate is at record lows, driving labour costs higher.

Mr Lei Jinrong is one farmer who has benefited from linking up with the online retailers. The owner of Fuxin Farm in Fujian province has equipped 1,000 of his chickens with Apple Watch-style bracelets supplied by Alibaba.

The devices digitally track the number of steps the 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 his fields in search of sick poultry.

This means that he can expand production without hiring more workers - good news as average salaries in his village have almost quadrupled over the past decade.

In the eastern province of Shandong, peach farmers increased revenue by 50 per cent last year after using JD's blockchain technology to encrypt each step of the planting process and boost trust and transparency. This has attracted consumers long weary of food scandals from tainted milk powder to imitation eggs.

"The improved efficiency and the economies of scale will drive down costs while higher-quality produce will yield better prices," said Mr Charlie Chen, head of consumer research at China Renaissance in Hong Kong. This will benefit both farmers and the e-commerce operators, he added.

Pinduoduo, which raised US$6.1 billion last November in part to finance its agricultural innovations, is counting on these efforts to help it quadruple sales of farm products to a trillion yuan by 2025.

It expects the initiatives to help it diversify beyond online retail, as it aims to license cutting-edge farming technology down the road, according to Mr David Liu, vice-president of strategy.

Many of these initiatives are still in their infancy, and scaling up will take time, as farmers have only recently started to collect data - the foundation of running AI and other next-generation technologies - and test new methods of growing.

But the twin drivers of surging demand for online produce and Beijing's push for self-sufficiency in food supplies mean that the tech behemoths' forays into modernising China's farms have only just begun.

"Smart agriculture is really the way to move forward," said Mr Lei, the chicken farmer. "We all have to innovate."

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on February 23, 2021, with the headline 'China's online giants start agricultural revolution to secure grocery supplies'. Subscribe