When you walk into a Walmart in China, you might encounter a variety of interesting grocery items, from bulk rice to green-tea Oreos to live turtles. One thing I find personally interesting is a label called “Direct Farm.” Not to be confused with labels indicating organically grown food, the Direct Farm label can be found on tomatoes, apples, spinach, and a whole host of other produce items. At the Walmart I visited this past weekend, Direct Farm products had a whole island to themselves, complete with display.
The Direct Farm concept is an arrangement whereby retailers source food directly from suppliers, significantly reducing the supply chain linkages between the store and the farm. In China, it is an initiative driven by the government to help advance the agricultural system. Walmart and other retailers have adopted the program around the country, linking stores to nearby farms. The program enables better traceability, contributes to improved farmer incomes, and allows buyers to directly engage with suppliers to promote the adoption of environmentally, socially, and economically sustainable practices at specific supplier farms.
Why is sustainable agriculture important to companies in China? Several unique reasons:
- Food safety: Consumer trust of food in China is at all-time lows. One food scandal in the current Chinese environment is a surefire way to taint a brand for a long time. The few brands that can maintain consumer trust by guaranteeing the safety and quality of their products have an advantage in this market.
- Resource constraints: It is no secret that demand in China is booming as millions enter the middle class. Less well known are China’s unique supply-side constraints, which include access to land, adequate water sources, and other quality inputs required to produce food. Without equal growth in production, this burgeoning demand becomes not a boon, but a lost opportunity.
- Social issues: With China’s Gini coefficient beyond that of the United States or India, income disparity increasingly is on the minds of the Chinese government, civil society organizations, and the general public. Nowhere is this more apparent than in rural China, especially among farmers whose incomes have not kept up with those of urban dwellers. Companies operating in rural China need to be mindful of this—as well as other social dynamics.
All of these issues intersect on the farm. Companies that successfully promote more sustainable agricultural practices in their supply chains may be able to secure advantages in customer loyalty, long-term supply stability, and stronger license to operate.
BSR is active in this space. Through a project funded by the Walmart Foundation, BSR has set up a farmer-training program together with Walmart China to promote more sustainable agricultural practices among Walmart’s Direct Farm suppliers in China. We also support other member companies and clients through research and other sustainable agriculture initiatives across China. These activities bolster BSR’s mission in a very tangible (and edible) way.
This work is by no means easy. Operating in agricultural settings—where change occurs on a seasonal timescale—takes patience. Directly engaging farms requires people and effort. Just understanding Chinese farms—which vary widely in size and sophistication—is no simple matter. Yet while direct engagement of suppliers may be complex, when implemented well, it has benefits for all: the farmer, the company, and we consumers in the midst of our everyday grocery shopping.