花椒合作社与Carrefour
Chinese Sichuan pepper and Carrefour
By Wang Ruohan
Source: http://www.21cbh.com/
We sold 15 tons in 2007, 30 tons in 20008 and how about in 2009? President of Liu Yue Hong Chinese Sichuan Pepper Specialized Cooperative, He Youxin feels pressure progressively.
At Mao County of Si Chuan Province, not so many people know He, but they know that is the person who sold Chinese Sichuan pepper to Carrefour.
After May 12th earthquake in 2008, Qiang Minority He You Xin, did a trade with Carrefour and the total value is 3 million RMB (30 tons of Chinese Sichuan pepper sold). It is a “big deal” at there.
What the pepper growers are most interested in is the benefit. Every grower who sold the Chinese Sichuan pepper to He You Xin could get 3 RMB/500 grams more than market purchase prize. What’s more, there are rebates from the cooperative. In the end of 2008, He You Xin took 80 thousands RMB from the benefit which takes 80% of the net margin to rebate in proportion to the 318 members and villagers who had a deal with him in one time. As a matter of result, there are 600 members join in the cooperative in 2009 and there were 300 in last year.
Mao County is known as its “Da Hong Pao” Chinese Sichuan pepper. In a good year, the total output will reach 5 million jin (1 jin = 0.5 kg) and Goukou County where He You Xin lives in can take 10% of that. Chinese Sichuan Pepper Society of Goukou County was the predecessor of the cooperative. The Society was chose by the World Wildlife Fund (WWF) since 2006 to work together with a project that mainly focus on the protection of panda and the living standard improvement of the local communities. The Society organized the villagers around Bao Ding Gou Panda Nature Reserve district to do trade with 100 stores of Carrefour through selling Chinese Sichuan pepper. In 2007, the Society did its first trial case with Carrefour and they sold 15 tons of Chinese Sichuan pepper.
As the cooperative is getting more and more popular, He You Xin feels that there is a great pressure ahead. In 2009, he has to prove that the trade between cooperative and Carrefour is not an exception.
Polarity Event
At 14：28, May 12th, 2008, the earthquake broke out. He You Xin, the director of Chinese Sichuan Pepper Society of Gou Kou County at that time, was printing the registration application of cooperative in a cyber café at the county. When he run out dragging his friends from the café, a fallen wall had pounded his truck that parked outside.
Mao County has ten km away from Wen Chuan where the epicenter is. The water, electricity, telecommunication and roads connecting with outside are all suspended. Fortunately, 15 people who are the personnel and the up-coming investors of cooperative survived.
However, this polarity event blows He You Xin’s marketing plan. He was going to participate in the goods order fair of Carrefour in Shanghai on May 14th. He kept the invention for a souvenir that he found in the debris. “They reserved a room in Shangri-La Hotel for me. Gone. ”
He You Xin spent over one day on foot to get back home in Gou Kou County on May 15th when he should be in the 5 stars hotel for the first time in his entire life. He has a two-flour building that locates very close to the main road of Jiuzhai Valley. He saved 600 jin (1 jin = 0.5 kg) rice as he once talked with one staff of WWF that the grain and oil price is going higher. After the disaster, he hung a banner said “Rescue Station of Chinese Sichuan Pepper Society of Gou Kou County ” outside his house. Since then, he and the mainstay of society shiftily take well water form the mountain to cook porridge and rescue the visitors, residence that escaped from the Jiuzhai Valley, army and volunteers passing by.
Many visitors stayed in He’s house overnight as his house is strong enough to defend the quake. Till the early of June, Ms. Du Ling, Principal of Shu Guang Community Development Advisory Service Center, Si Chuan (Shu Guang) that is a local NGO in Si Chuan that cooperates with a quick investigation project of China Foundation for Poverty Alleviation and Mr. Han Wei, Expert of the Center made a detour through Mian Yang, Ping Wu, Huang Long and Song Fan then they arrived at Mao County. Moreover, Shu Guang has a good contact with WWF and they decided to stay in He You Xin’s home.
During that time, He You Xin and the members of Society adventurously helped WWF to distribute the 100 thousands RMB camps, medication, radio and flashlights up to 2000 height hilly villages. They realized that if they cannot sell the pepper of 2008, they would not rebuild their homeland. However, they need to register the cooperative to start its business. What’s worse, there is a lot of rain and surface collapse after the disaster. They cannot rely on the traditional sun-cure method at a very large opening to dry the pepper. Only the drying equipment could help with it. But at that time He You Xin was collecting 1 million RMB for cooperative registration and he has no more fund.
Du Ling reminded that He You Xin could apply for appropriate funds for purchasing some driers and generators from China Foundation for Poverty Alleviation on behalf of help themselves. Therefore, Du Ling and Han Wei assisted He You Xin to complete the application in that very night.
China Foundation for Poverty Alleviation responded efficiently and granted 700 thousands RMB in the end of June. He You Xin and the director of agricultural committee bought 60 pepper driers and 10 generators at Han Cheng County of Shaan Xi braving the aftershocks and made a detour from Song Fan and Ping Wu. Shu Guang also helped He You Xin to get 10 thousands of waterproof cloth for airing pepper. In the late of July, traditional harvest time came, Chinese Sichuan Pepper Society has sent those machines to the major production villages where have highly centralized group of members. And the members have been trained already.
A Big Deal
On June 4th, 2008, Direct Purchasing Manager of Carrefour in Chengdu district, Mr. Fan Yongqing traveled to Mao County by a 6-meter truck for purchasing fruits and vegetables. He made a long detour to get there because the main roads have been blocked.
As for the partly communication paralysis and the engagement of aid work of the local government, the bureau of agriculture just gained contract with few villagers. At last, Mr. Fan purchased 8 tons of lettuce and potato in Gou Kou through the assistance of He Youxin introduced by WWF.
Mr. Fan reminded He You Xin to set up cooperative for many times while they had little conversation. Because the cooperative can possesses the status of a legal person, bear civil liabilities independently, provide invoice and receive special tax advantages. Direct Purchasing Department of Carrefour can directly do business with it and guarantee farmer’s long-term benefit comparing stably when market price is waving.
Direct Purchasing Department is a newborn thing in Carrefour. Since July 1st, 2007, Chinese government officially starts to implement the Law of the People's Republic of China on Specialized Farmers Cooperatives, Carrefour create a direct purchasing group of 40 people. The mission of this group is to have dealing with those newborn rural cooperatives around the whole domestic regions to list up a series of high quality and inexpensive agricultural products. The products on the list will be directly purchased by the negoziantes of Carrefour and sent to the local stores for sale.
He Youxin found 15 people to raise fund to register cooperative with registered capital 1 million RMB. He Youxin is the strongest stockholder covering 30 percent of the stock. Mr. Fan Yongqing reported this to his supervisor when he returned Cheng Du. Mr. Luo Guowei, President of Carrefour China, at once sent an email to every negoziante for promoting the sale of Chinese Sichuan pepper relieving the people in stricken areas.
So far, everything is ready except the circulating capital. Just like other beginning agricultural cooperatives, He Youxin badly is short of circulating capital. And Carrefour also cannot use cash to settle accounts (usually the account period to supplier is 60 days). In 2007,when He Youxin traded with Carrefour with 15 tons of Chinese Sichuan pepper, Carrefour paid 50% in advance because the project officer Li Ye of WWF did mediation between them. And He Youxin also borrowed 300 thousands from others to deal with the turnover.
But now, it two times the last trade and He Youxin offered a higher purchasing price to local growers. Moreover, labor cost, logistics and package cost go higher because of the earthquake. He Youxin’s financing gap was going to be wider.
For this purpose, Li Ye talked about He Youxin’s struggling condition when he met with Ms. Li Ou, Secretary General of China Food Safety Foundation. At the same time, Li Ye suggested He Youxin to collect funds as much as possible because “Carrefour is an enterprise.” It is an inconformity of retailing operation regulation if Carrefour paid supplier up to 1 million in one time. He remembered that was his toughest time “I have captured the case but it seems we could not finish it.”
Sooner, Li Ou replied Li Ye with one short sentence in it. “Carrefour will pay 80% in advance.”
Direct Purchasing System
We cannot ignore Carrefour’s Direct Purchasing System when we mention about He Youxin’s big deal.
It has 20 years history for directly purchasing the agricultural products from farmers as for the high level enlarged and modernized agriculture in Europe. Therefore, Carrefour created a specialized organization named Modern Agriculture Co, Ltd in Spain to purchase the 80% fruits and vegetables for the stores in Spain and distribute the local orange, lemon and other fruits to European nations.
Mr. Luo Guowei, President of Carrefour China, was one of the initiators of the Spain project. He knew that intermediary business raises 30% to 40% at least of one product’s purchase cost. In China, merchants need at least 4 days period to resell at a profit. If Carrefour purchase the products directly from farmers, it not only can guarantee the fresh quality and trace the origin of source which means once food safety has problem we can find the producer through the record, but also can enjoy the preferential VAT policy that government gives to the agricultural cooperative.
Direct Purchasing System brings a great space of benefit and Carrefour can give 10% of benefit purchasing farmer’s products by higher market price as well as cut down its own cost by 10 to 20 percent.
He Youxin captured the chance: In 2007, he returned the benefit from net profit to farmers in proportion after deducted the essential fund to support the association. During the disaster period in 2008, He Youxin went up to the mountain villages to purchase the Chinese Sichuan pepper with 3RMB higher than market price per 500 grams and paid the villagers who did a trade with him back in proportion. What’s more excited is that the villagers who have agreed credit sell gained more.
At present, more and more people try to accept the account period of pepper cooperative not the cash. These little trust has been accumulating and it is attracting more and more people to join in the cooperative. Thus, it could relieve the pressure of circulating fund in the future.
He Youxin also has worked fluently with Carrefour. However, this achievement learnt from a long-term experience and toughening. In 2007, when it was an association, He Youxin always made mistakes when issue the invoice (guild needs to report to national tax department in that time). Finally, he had to go there and back for correction of fault of 65 requested invoiced to Carrefour. And that whole procedure lasted for one month.
Fact forces the big retailers efficiently modify one’s own strategy toward suppliers. Direct Purchasing System of Carrefour asked Finance and Service colleges for aid, they decided to change the original recognized method. They let the cooperative to transport all products directly to the local flagship stores and direct purchasers and other purchasers cooperate with the fresh food department to accept the products. Therefore, cooperative just needs to issue one single invoice with correct total price. Carrefour will distribute the products inside. More fortunately, due to the lack of circulating capital, Carrefour China changed the global unified account period from 60 days to 15 days.
Purchasing department also changed their “cool” attitude to supplier and specially assigned person will help cooperative seek for logistic and package supplier in local areas. Among the essential fruit and vegetable production areas, Direct Purchasing Group will send on-site quality control manager to select agricultural products together with farmers to assist them with wastage control.
“You can say, Chinese peasants conversely changed Carrefour.” Luo said.
After the economic crisis, for improve the quality of agricultural products and cut down the cost, great supermarkets are trying to jump over the middlemen to find their own agricultural base where could produce and supply the vegetables and fruits. In April of 2008, CCU of Carrefour accidentally met with Si Da Supermarket of He Nan at Yellow River meadow and farm in Zheng Zhou. Both of the two party declared that they have the exclusive contract with Yellow River meadow and farm. This is the typical case to show the contention of meadow and farm resource.
Three-person Game Theory
Nowadays, direct purchase has changed the Chinese red pepper business in Mao County.
He Youxin often drives up hills with couple of co-workers in cooperative to deliver the fertilizer and mulching film to association members. Shen Gou village of Gou Kou town is a Qiang Minority village where locates at 3000 meters high mountain. Due to the global warming, Da Hongpao Chinese red pepper of Mao County moved from plain up to 2000 meters high areas within 10 years. Therefore, most of the growers live in those areas and it becomes one of the daily businesses for cooperative to deliver the considerable amount of fertilizer and farm implements that bought from supply and marketing cooperatives with wholesale price and sell to farmers with normal marketing price.
Meanwhile, some people cannot understand this, said by He Youxin. Because it costs much including the wear and gear of truck and gas cost and cooperative gains less profit. Furthermore, cooperative members have to travel around hundred villages of 16 towns annually. “We also have to help the villagers to remove goods when there only has old persons or kids at home.”
However, this kind of frequent trade also strengthens the connection and trust between the cooperative and its members. He Youxin agrees the villagers can use the coming pepper to pay if they do not have enough cash. Every year, He Youxin and his cooperative members will visit 10 times to each village in average including plant training organization and pepper purchasing. According to this, cooperative efficiently monitors and controls the fertilizer source of pepper and guarantee the security and quality of it.
During the disaster period, though the labor cost goes very high, He Youxin still employed 30 persons to do carefully selection again for Carrefour after the machine selection when he purchased the pepper from villagers. During the whole process, cooperative bared nearly 30% of impurity wastage.
This quality insistence acquired by the past harsh realities. In 2005, over 300 two-way merchants controlled Chinese Sichuan pepper market of Mao County. Because of the small scale production and inconvenient transportation, the growers of pepper in Gou Kou hilly areas just waited for those two-way merchants to purchase their pepper at door with very low price. After the purchasing, those merchants will mix 10 jin (1 jin = 0.5 kg) water or edible oil with each 100 jin (1 jin = 0.5 kg) Chinese Sichuan pepper. What’s worse, they will paste the brand “Da Hongpao of Mao County” on this product and sell it to wholesale market. Till they resell at a profit through four to five times and the customers only can buy the low quality and easy to be rot pepper.
He Youxin was a lavish planter of Chinese Sichuan pepper. He deeply understands the harm of peddlers to pepper’s reputation, as his main business is that sell his own good pepper to tourists. Once the reputation goes bad and his pepper cannot have a good business. Certainly, once the pepper cannot have a good profit, farmers will cut down the trees to plant other crops. “ When this vicious circle completes and Mao County’s variety of pepper will be no longer in existence. ” said by He You Xin. “I cannot leave it alone.”
He accepted the invitation of head of Gou Kou town to be the president of the pepper association. He went back to the town and started to organize local villagers to plant and sell Chinese Sichuan pepper.
In the beginning two years since the association found, He Youxin spent his own hundred thousands savings for “market seeking” through participate countless food exhibition with the association members. The sales never go beyond 10 tons. (Most of the product is sold to hotpot flavoring factory in Chong Qing with low price.) Although, He Youxin wanted to build sense of trust through organize the agricultural technique-training, growers still swung to the peddler once He Youxin could not give them a considerable purchasing price or there has no suitable large-scale distribution channel.
Till 2007, WWF introduced Carrefour to join in this game. Since then, the business opportunity and favorable turn start to appear to local pepper industry.
Seeking for Credit
Over 10 months pasted since the earthquake, many Mao County government departments locate at the same disaster relief sample rooms. He Youxin practically walked around in this sort of puzzle rooms to seek for credit to support the circulating fund for coming order in 2009.
Although most of the civilians in Mao County know each other very well, friends in Agriculture Bank and Rural Credit Association were willing to help but unable to do so. While He Youxin asked them with one same question: “ Whether actually government give any credit or grant-in-aid policy to rural cooperative? ” He got the same answer like “ For us, there has no relative documents in detail implements. “or “ You have gotten every kind of tax preferential policy and funds that cooperative can have.”
Half day later, He Youxin came to the Finance Bureau. Managing Director suggested him to pay a visit to the newborn bonding company after learnt about the present condition.
“What mortgage cooperative can take out if you want to apply for credit?” one staff of bonding company asked after a carefully understanding about cooperative’s management situation. He leaned against the back of the chair again. He knew empty-handed starter of cooperative has nothing fixed assets to be mortgage.
“Do you have the singed sales contract with Carrefour?” the staff asked. “ We could help you with the bill mortgage.” It is He Youxin’s first time to hear about this that he can use the contract to gain credit. After a further explanation about bill mortgage, they settled down next meeting time and the staff of bonding company enjoined He Youxin must bring cooperative’s financial statement to him next time.
“Careefour will not pay in advance for ever.” He Youxin explained his motivation of credit application like this. “We cannot ask for aid from others who treat us like quake victims for ever; we cannot rely on WWF for ever. ”
Even in the association time, He Youxin dreamed about he future of the organization. “If I can gain a 7.9 million credit, we can build a factory that concludes the Chinese Sichuan pepper oil, Chinese Sichuan pepper seed abstraction and other deep processing. ” In this very moment, this 41-year old Qiang Minority gentleman looks more like an ebullient idealist who is ready to introduce his pepper blue print to WWF, Carrefour and any possible people or organization that will grant credit or fund to him.
However, in this afternoon when he walked out from the bonding company, he looks like a completely smart businessman. He calculated the bail and the commission of bonding company for a long while. He prepared to have a conversation with cooperative members.
He clearly realized that the mediation of WWF and the payment in advance of Carrefour still are very important to cooperative in 2009. The root of cooperative is still unstable and few members can accept sell on credit. Furthermore, he doesn’t want to recruit new members, as he does not want to “change the ownership structure.”
Even though the just established bonding company gave him good news, He Youxin also was informed that the detail constitution of company and sponsorship need “authorized approval”. This is the typical tip of Chinese agricultural society that the later few preferential policy implements arrive the greater variable will come to the mortgage credit: Will rural cooperative gain the credit? And how much rural cooperative can achieve at last?
