Natural Capital Investment Is Key to Rural Recovery and Resilience

Our experience during COVID-19 has demonstrated the resilience of agriculture and its enormous value in driving economic recovery.

The harsh health and economic impacts of the coronavirus disease (COVID-19) pandemic are being felt across developing Asia. As the region moves toward recovery, agriculture presents a major route to reducing poverty and food insecurity compared to other sectors.

Prior to the pandemic, agriculture accounted for a significant part of the economy for many emerging countries—7.7% in China, 12.7% in Indonesia, 7.3% in Malaysia, 8.8% in the Philippines, 8% in Thailand, and 14% in Vietnam. Since millions of rural migrants lost their jobs in cities and returned to rural homes for their livelihoods, rural development is now becoming vital to post-pandemic recovery. As experiences in Thailand and the Philippines have shown, investments in agriculture can help revive food production and create jobs following a crisis, and enable rural communities to recover.

Productive and sustainable transformation of agri-food systems is a key element in the successful transition from middle- to high-income status. This is always challenging. But as countries push for economic diversification, expand the use of modern technologies, and establish effective management of food supply during this pandemic, many countries in developing Asia are well-equipped to overcome the challenge.

In the past, farmers had few incentives to pursue sustainable agriculture and protect natural assets without incurring significant cost or loss of income. This was because of the disconnection between the retail price of food and the cost of production and distribution reflecting implicit environmental costs.

But now East Asia and developing countries in the Mekong have started introducing natural capital accounting such as gross ecosystem product (GEP) to attach a monetary value to nature, and applying eco-compensation or payments for ecosystems to provide incentives for farmers to change their behavior. These are critical to sustainable transformation of the agricultural value chain, and can be replicated to other regions including central and south Asia.

In February 2021, China unveiled a new government body for the promotion of rural vitalization as the world’s most populous country shifted its policy focus to further enhancing natural capital investment and boosting rural areas. The same week, China’s top leaders outlined priorities and tasks for the next-stage of reform at a key meeting, which stressed efforts to explore a market-based, sustainable way to realize the value of ecological products.

All of these actions are a move in the right direction for a rural recovery, while protecting the environment and natural resources. The wider region could consider how to incorporate similar approaches in their recovery plans.

Looking forward, several opportunities exist to continue the drive toward a more resilient and sustainable recovery in rural Asia.

Agribusiness marketplace. ADB is working with its developing members to establish an agribusiness marketplace on a digital platform. This platform will integrate modern advanced technologies, such as the Internet of Things, artificial intelligence (AI), big data, cloud computing, and blockchain, to digitalize agriculture value chains. This will reinforce food security and strengthen utilization, preservation, and improvement of natural capital. It will also help in solidifying transparency and traceability to improve food safety. At this marketplace, stakeholders of different sizes will have better channels to exchange information, sell products, arrange logistics, obtain financing, participate in training, and acquire third-party services, such as branding, certification, new product design, as well as professional assistance in legal, contracting, accounting and taxation issues.

Sustainable finance. Small and medium-sized enterprises (SMEs), including primary producers, dominate the food system. They are typically at a disadvantage when accessing finance, owing to opacity, under-collateralization, high transaction costs and lack of financial skills. Bank credits are the main source of external capital for SMEs. They need better access to alternative financing, such as equity finance, corporate bonds issuance, and mezzanine finance.

Incentive mechanisms. While there is growth in the adoption of eco-compensation or payments for ecosystem services in rural areas, the current incentive structures still encourage unsustainable short-term behaviors that deplete natural capital. This is a complex area requiring a suitable mix of appropriate “carrots, sticks, and narratives” to change the way that markets work (e.g., sustainable financing and payments for ecosystem services), to enact smart policies and regulations, and to change social norms through information disclosure and education.

ADB has established a working group to expand upon experiences in China and the Mekong subregion through a regional natural capital lab. The lab is designed as a living and virtual platform to incubate, accelerate, and expand natural capital investment, which will prioritize the support for greening of the agriculture value chain in developing Asia. The lab will leverage existing accounting tools to quantify the ecosystem service value of green agricultural value chains, strengthen eco-compensation or payments for ecological services to incentivize behavior change among small farmers, and establish a financial facility to convert ecosystem value or assets into the revenue model of agribusiness.

Our experience during COVID-19 has demonstrated the resilience of agriculture and its enormous value in driving economic recovery. The pandemic has also shown the importance of preserving the harmony among natural assets. Combining these two lessons underlines the need to transform agri-food systems so that they operate in a sustainable way. This transformation can be considerably enhanced by the use of digital technology and eco-compensation mechanisms. ADB’s natural capital lab and the associated financing facility would catalyze much-needed investment to achieve this transformation.

Author
Qingfeng Zhang

Qingfeng Zhang

Chief, Rural Development and Food Security (Agriculture) Thematic Group, ADB

This Op-Ed is reproduced from Asian Development Bank.

Improving Farmers’ Income in the People’s Republic of China through E-Commerce

The People’s Republic of China has adopted policies to encourage farmers to start selling their products online. Photo credit: Ian Gil/ADB.

E-commerce can enhance rural livelihoods with public investments in facilities and training, access to funding, and favorable market conditions.

Overview

There has been rapid adoption of information and communication technology (ICT) in the People’s Republic of China (PRC) in the past decade. It is a world leader in e-commerce. However, access to ICT is concentrated in coastal and urban areas. The government has taken steps to strengthen infrastructure and capacity as well as provide funding to support e-commerce development in rural areas.

study by the Asian Development Bank (ADB) and the International Food Policy Research Institute (IFPRI) looks at the impact of policies and investments in e-commerce on farmers. It shows that online selling is still new to farmers, but they are receptive to it because of the potential for higher income and self-employment.

However, a successful e-commerce venture is dependent on infrastructure and location, as well as the farmers’ relevant knowledge and skills. Government initiatives in these areas are needed for e-commerce to impact positively across the agriculture sector in the PRC.

Survey Results

The development and adoption of ICT have seen a significant increase in the PRC, with the number of internet users and mobile phone subscriptions reaching 772 million and 753 million in 2017, respectively. E-commerce has experienced even more rapid growth, as PRC has become the largest e-commerce market in the world since 2013. In 2017, it posted online sales valued at RMB 5,328.8 billion (more than $700 billion).

The study examined the ICT uses and development of e-commerce in rural PRC. It used data based on the two rounds of surveys done by the CCAP in 2017 and 2018, which covered 1,128 households that represent seven provinces in the PRC.

Survey results showed significant improvement in rural ICT infrastructure, logistic services, and the use of mobile phones by farmers. In 2017, all villages in rural PRC had access to mobile phone services, with about 70% having access to the internet. Nearly 90% of adults had a mobile phone, and 71% of them used a smartphone for social networking, news monitoring, watching videos, shopping, and online payment.

Many farmers are willing to venture into e-commerce, the survey reported. The number of villages doing e-commerce increased to 63% in 2017 from 41% in 2016. That year, only 3% of farmers sold their products online, but 25% of farmers surveyed were open to doing e-commerce. Those hesitant to go into the online business cited as reasons the lack of relevant knowledge and skills, lack of storage and preservation facilities, high logistical costs, and inadequate marketing skills.

The survey showed that purchasing agricultural products online was not popular, but almost 20% of farmers are willing to transact through e-commerce for convenience and lower prices. Reluctance to buy online was attributed to a lack of relevant knowledge and skills, poor trust in online transactions, and high uncertainty on the quality of products.

An intensive e-commerce survey was also conducted in 250 households from 20 villages in Shandong and Zhejiang provinces. Results indicated that e-commerce raised farmer’s income and self-employment as online transactions resulted in higher net profits and are more labor-intensive than offline sales.

While the overall use of ICTs is impressive and rapidly growing in PRC, E-commerce is yet to get a good start. Several challenges stand in its way. A primary concern cited by farmers is the lack of facilities that can store and guarantee the freshness of products for long-distance deliveries. This limits products for online sales and the range of potential buyers.

Another challenge is in marketing, with low trust in online transactions, especially involving agricultural products. The initial investment to set up an online store is high and usually prohibitive for small farms without external support. Even after a successful startup, the retention of customers may require additional costs.

Recommendations

The study recommends six measures to facilitate the development and adoption of ICT and e-commerce in rural areas.

  1. Invest in the storage and transportation of agriculture products.
  2. Invest in capacity building by training farmers on how to operate an e-commerce business.
  3. Provide financial and credit support to farmers who are in e-commerce.
  4. Facilitate cooperation among farmers.
  5. Improve regulations and provide a favorable market for the development of agricultural e-commerce.
  6. Promote more inclusive e-commerce development in rural areas.

E-commerce is more likely to benefit the regions with better infrastructure and location and farmers who have relevant knowledge, skills, and resources. The role of government is to close the gap between the haves and have-nots to broaden and deepen the impact of agricultural e-commerce.

References

ADB, CCAP, and International Food Policy Research Institute. 2019. Information and Communication Technology for Agriculture in the People’s Republic of China. Manila.

J. Hinrichs. 2018. How Technology Plus Agriculture is Triggering Growth in the People’s Republic of China. Development Asia

X. Li, H.C. Tang, and J. Xu. 2019. Development Asia. What Can ASEAN Learn from the People’s Republic of China’s Poverty Reduction Strategy?, Development Asia. 

Author
Akmal Siddiq

Akmal Siddiq

Chief of Rural Development and Food Security (Agriculture) Thematic Group, Sustainable Development and Climate Change Department, ADB

Md. Abul Basher

Md. Abul Basher

Natural Resources and Agriculture Specialist, Sustainable Development and Climate Change Department, ADB

Jikun Huang

Jikun Huang

Professor, School of Advanced Agricultural Sciences and Director, CCAP, Peking University

Min Liu

Min Liu

Professor, Lanzhou University

 Huimin Wang

Huimin Wang

Ph.D. student, School of Advanced Agricultural Sciences, Peking University

This blog is reproduced from Development Asia.

Improving Logistics for Perishable Agricultural Products in the People’s Republic of China

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