URBANA, Ill. – When Hope Michelson joined a group of economists working to evaluate Walmart’s direct-to-farm sourcing program to its stores in China she believed the research would confirm a straight-forward journey of melons and other produce from point A to point B.
Upon closer examination, Michelson, from the University of Illinois, and her colleagues at the University of California, Davis and the Center for Chinese Agricultural Policy at the Chinese Academy of Sciences learned that the journey from farm to Walmart stores has a few additional stops along the way. Although the trip isn’t as direct as they expected, Walmart’s program may provide economic incentives that afford farmers some benefits.
Michelson traveled to China three times during the course of the project, staying for several weeks each time to visit farms and observe firsthand how Walmart’s program worked.
“In 2010, Walmart announced a commitment to support sustainable agriculture. One of their stated goals was, by 2015, to source from 1 million small and medium farmers. A second goal was to increase the incomes of these small farmers by 10 to 15 percent. They needed evidence as to whether or not they were achieving their goal,” Michelson says. “Walmart thought that they were buying direct from many small farms in China, but we quickly discovered the presence of at least one intermediating layer of private firms sitting between the farm and Walmart. With 416 Walmart stores in China, we found 73 primary and 125 secondary buyers between farmers and the stores. The sales turned out to be a lot less direct than we – or Walmart – originally thought.”
Michelson says that the research team expected to find large contiguous areas called farm bases, functioning like farmer cooperatives and interacting directly with Walmart buyers. “That was the model that we had in mind. What we observed when we arrived and started visiting farms and farmers looked more like company farms with different models of managing labor and land, including a system relying on wage workers. We thought we’d see a village in which, for example, everyone was producing honeydew melon and a Walmart pick up—that level of directness. But for the most part we didn’t see individual plots run by families. We saw large farms.”
Some of the farms had aggregated and then subleased land back to farmers. In others, the owners managed all of the production and hired the same farmers that they had aggregated the land from as workers. With this arrangement, Michelson says there are some advantages for farmers.
“There is some risk-mitigation happening when the company assumes the risk of production and marketing,” she says. “In many cases the company was making big investments, too. They had big storage warehouses, and irrigation systems—serious capital investments to increase productivity. But at the same time, the benefit will depend on exactly how the risks and benefits are shared.”
Michelson explains that farming and land rights are very complicated in China, and although there are more intermediaries than they anticipated, the model in China still has fewer middlemen than the traditional supply chain.
“We interviewed many of the intermediary vendors,” she says. “Some of them seemed like traditional spot-market buyers, just guys who go out and buy. They don’t have a lot of capital. They have a relationship with the Walmart buyer, negotiating the price and handling the communication.”
Because of the many food scares, scandals, and safety concerns in China, Michelson says Walmart believes that shortening the food chain will mean safer foods. Consumers can know where their food comes from as well as the reputation of the farmer. Outbreaks can be traced.
Michelson says understanding how intermediary vendors function in China’s supply chain is important because it affects whether and how farmers might benefit from the relationship. She has also studied Walmart’s fresh fruit and vegetable supply chains in Nicaragua and India.
“These sourcing relationships don’t just drop out of the air,” she says. “There is nearly always an institution determining how the farmers will benefit. In Nicaragua, it was often an NGO; in other locations, farmer cooperatives do the work of aggregating the product and negotiating the sales relationship with the buyer. Who is the intermediary, what are the details, and who is the buyer? All of these components are extremely relevant to the outcomes, to the benefits that small farmers do or do not receive. Yet these details are often absent from other research on the topic of small farmer contracting or small farmer participation in value chains. If we care about the development impacts, we need to understand how these intermediaries determine what those impacts will be.”
Michelson also describes one of the largest apple production enterprises in the world in Shandong province that had an interesting distribution model. “Many individual farmers each have a small plot of land with apple trees. A company managed individual relationships with each of the nearly 1,000 farmers. The company gave them some technical advice and services related to pest management and the farmers sold exclusively to the company. The farmers still seemed to have a fair bit of autonomy and controlled the asset of production.”
The study, “Connecting Supermarkets and Farms: The Role of Intermediaries’ in Walmart China’s Fresh Produce Supply Chains” is published in Renewable Agriculture and Food Systems. In addition to Michelson, authors are Xinzhe Cheng and Steve Boucher of University of California, Davis; Jikun Huang from the Center for Chinese Agricultural Policy; and Xiangping Jia from Northwest Agriculture and Forestry University. The research was supported by a grant from the Walmart Foundation.
Hope Michelson is an assistant professor in the Department of Agricultural and Consumer Economics in the College of Agricultural, Consumer and Environmental Sciences at the University of Illinois. She is also a faculty member in the Division of Nutritional Sciences at U of I.