China’s biggest PC manufacturer to grow vegetables? It sounds ridiculous, but that’s exactly what Liu Chuanzhi, chairman of computer giant Lenovo, wants to do.
“Agriculture is a very important sector,” Liu told reporters early last month during a discussion about the future direction of the firm. Shortly afterwards, Chen Zhaopeng, Lenovo’s former senior vice president and president of emerging markets, moved to parent company Legend Holdings to take up a post as head of the modern agriculture business.
“The arrival of this new leadership marks a fresh strategy for our agricultural business,” said spokesperson Gui Lin.
At the start of the year, rumours were already circulating in industry circles that Lenovo was looking to partner with Chengdu city, western China, on farming projects. This would see the creation of a new food brand, concentrating initially on fruit products. Liu has also said talks about 12 agricultural investment schemes are under way.
Liu is not alone in his new passion. Property tycoon Wang Jianlin, chairman of Dalian Wanda is also heading out to the fields.
In Yanqing county, to the northwest of Beijing, Wang’s company is planning a 10,000 mu organic farm (one mu is around 667 square metres), set to produce over 1,200 tonnes of organic fruit and vegetables each year, even though Wanda has never previously had anything to do with organic agriculture.
Even e-commerce hotshot Liu Qiangdong, chief executive of 360buy.com, is getting in on the act. For a while his website was selling a brand of organic “entirely pollution-free” rice, grown in Liu’s home county in Jiangsu province, eastern China. The product is now listed as “sold out”.
“The rice was an experiment, and 360buy.com is still exploring the possibilities of organic agriculture,” said one industry insider close to Liu.
Zhu Xinli of Huiyuan Juice Group is even more ambitious. In a valley in Miyun, to the northeast of Beijing, he has taken charge of a new project. With 400 mu of organic peaches, 300 mu of organic apricot and plum trees, 30 mu of organic peppers, 20 mu of organic strawberries and more, Zhu wants to create a “second Huiyuan” on this 15,000 mu tract of land. Already in charge of the leading business in the fruit juice industry, Huiyuan’s boss now has a new goal: to become a giant of the organic farming world.
From IT to property, e-commerce to soft drinks, experienced and capital-rich executives are piling into organic agriculture, and their arrival could mean big changes for the industry.
Until five years ago, these businessmen had not woken up to the growth potential of organic agriculture. In the past, Zhang Lihui of Tsing Capital struggled to find organic agriculture projects to invest in. “There was a range of problems – limited land, a weak system for certifying organic products . . .the market wasn’t there at the time,” he said.
Then, in 2006, Sequoia Capital, the world’s largest venture-capital firm invested US$5 million (31.7 million yuan) in Fujian farming firm Linong, while investment bank Goldman Sachs spent US$315 million (2 billion yuan) buying meat-processor Shineway. The capitalists had announced their arrival.
In the years that followed, international investors including Deutsche Bank, the Blackstone Group, The Carlyle Group and SAIF Partners all jumped into China’s agricultural sector. Investment peaked in 2010. A consortium led by Tsing Capital ploughed US$10 million (63 million yuan) into Tony’s Farm, Shanghai’s largest organic outfit. Industry insiders say that the company made a profit of 50 million yuan (US$7.9 million) in 2010, and that this figure is set to at least double this year.
Figures from the Zero2IPO Research Center, a venture capital and private equity consultant, show that in 2010 investment in agriculture reached a new peak: 47 investments were made totalling US$891 million (5.7 billion yuan) – more than half the worth of all previous investments put together.
“Green and organic methods are one of the factors attracting capital,” said Zero2IPO researcher Xiao Jun. And the tycoons have sniffed out this opportunity.
State-owned foodstuffs corporation COFCO has repeatedly sent delegations to observe operations at Tony’s Farm and its food products website Womai.com is set to invest 10 billion yuan in an organic sales platform. Meanwhile, not content with selling organic rice, Liu Qiangdong is considering setting up farms around Shanghai, to be managed by Tony’s Farm.
“There aren’t any established organic agriculture brands, or any strong companies – it’s wide open for quick entry and expansion by investors,” explained Tsing Capital’s Zhang Lihui.
Organic and Beyond was one of the first firms to open up sales channels for organic food products, by offering them as corporate gifts. “Retail channels are the most valuable part of the chain,” its chairman, Zhang Xiangdong said.
“Besides capital, existing retail and online sales platforms give the big companies an advantage in the organic agriculture market,” added Xiao Jun.
Despite facing so many powerful competitors, founder of Tony’s Farm Zhang Tonggui doesn’t feel under pressure. Quite the opposite: he told Southern Weekend that “The entry of stronger companies will shake the sector up and force the small and medium sized firms to improve.”
The idea of organic agriculture first came to China in the 1980s. “But from then until 2005 it was export-orientated,” explained Shi Yan, who founded Beijing’s Little Donkey Farm after gaining a PhD in sociology from Tsinghua University.
By 2008, China was starting to pay a lot more attention to food safety due to a series of scandals, most infamously the poisoning of babies with melamine-tainted infant formula. “That was when community-led organic agriculture began to emerge in China,” Shi said.
But compared to thriving markets in the European Union and United States, China’s organic agriculture sector is still in its infancy. It remains marginalised and, if it is to expand, needs larger companies to get involved.
Since 2009, renowned agricultural expert Wen Tiejun has been helping Shi Yan experiment with organic community-supported agriculture on a 20 mu patch of land in Beijing’s Haidian district.
She said she has learned a lot over the last two years, including the fact the sector’s powers are limited: “There still aren’t any powerful interest groups involved, so when it comes to lobbying the government or influencing policy we don’t have anything like the impact of a major fertiliser firm like Sinochem.
“At the least the arrival of big business will have a beneficial effect on the soil and environment of the area.” Although Shi Yan is cautious about the changes, she is still positive.
But rich and powerful backers could prove a double-edged sword.
I spoke to farmer Gao Yicheng on the phone while he was out delivering vegetables. It was a Monday, so he was on his way from his home in Anlong, 30 kilometres outside of Chengdu, to make one of three weekly deliveries of organic vegetables grown by his farming cooperative.
The group of nine households has 40 mu of land, and provides vegetables to 170 Chengdu families. Its monthly income is about 2,000 yuan and Gao and the other farmers are very busy.
Over the past year, lots of companies have visited Anlong to propose cooperation, investment, even acquisitions, many of them well-known firms. But Gao has refused them all. “We’ve always been small farmers. If we become part of that industry, we won’t be able to do things the way we like anymore or guarantee our future livelihoods,” he explained.
To achieve economies of scale, it is crucial for the big firms to piece together large stretches of land from smaller holdings. Take Huiyuan’s 15,000 mu of land in Miyun as an example: that land belongs to 900 different households in two different villages. Chen Zhihui, a company official, explained that the company started to lease land here in 2006. The villagers get 800 yuan per mu per year, paid every five years.
“There’s been a fundamental change in the way the agricultural means of production are organised,” said Zhang Xiangdong of Organic and Beyond. In the short term, this means farmers are getting more income than they would if they worked the fields themselves, which seems like a good thing. But there are huge worries about what that separation of farmers from the land will mean in the long term.
Similar concerns exist in the United States, where organic agriculture is more mature and the industry is controlled by a small number of large firms. One of America’s earliest advocates of organic farming, Elizabeth Henderson, told Southern Weekend that, since discovering the profits to be made in the organic food market, big business has been snapping up existing farms, or establishing their own. This has created new challenges, she said. “Organic agriculture in the US faces problems, with these firms unfairly treating their workers, squeezing out small farmers and using their clout to influence organic standards.”
The values at the heart of organic agriculture – ecological protection, health, love and justice – seem to be at risk as the sector scales up and become more commercial.
The Chinese tycoons are already speeding up. How will the long term interests of farmers be assured once their land has been leased? How will Gao Yicheng and similar farmers compete? We don’t yet know the answer.
Yuan Ying is a reporter at Southern Weekend, where this article was originally published.
Homepage image from Greenpeace
