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Agricultural crowdfunding to make up for financial shortages in rural areas

ZHANG ZAISHENG, ZHOU BOWEN | 2018-05-09 | Hits:
(Chinese Social Sciences Today)

Crowdfunding for agriculture helps facilitate a direct supply-demand interaction and is an important link in agricultural supply-side structural reform that aims to provide more green and high-quality products. (XINHUA)


The 2017 Central Economic Work Conference, the annual meeting to set the national economic agenda for the following year, called for more supply-side structural reform in the agricultural sector, with a focus on green and high-quality products. It proposed a shift in agricultural policy from incremental expansion to quality-oriented growth.

In recent years, China has highlighted the strategy of mass entrepreneurship and innovation, applying this approach to raising farmers’ incomes and spawning a boom of crowdfunding as a new form of financing to drive the development of rural society.

It can be said that crowdfunding for agriculture is essential to supply-side structural reform in the new era, and is also crucial to the crowd innovation in rural economy. The core, though, lies in inclusive rural financing, which aims to solve the imbalances and inadequacies of rural funding, so that the strategy of high-quality and green agriculture could be carried out in a precise manner. 


New impetus
Crowdfunded farming originated in the United States. It is the combination of traditional agriculture and the crowdfunding model of financing. Early in 2014, it was introduced to China, as the first domestic agricultural fundraising platform Changxian Zhongchou went online and began to attract public attention.

Crowdfunding for agriculture is indeed a new type of agricultural financing that relies on the internet to realize a dialogue between farmers and investors or consumers. In practice, fundraisers launch a campaign to raise money on crowdfunding platforms. The money collected from various investors will be used for farming and planting. When agricultural products are mature and ready for sale, they will be delivered to consumers directly. In this way, small investments from the public are pooled together to fund agricultural projects and it could also be understood as group purchase plus presale of agricultural products.

However, unlike traditional agricultural financing, crowdfunding could, with the aid of convenient, real-time, intelligent and instrumented tools, engage fundraisers, namely agricultural producers, third-party network platforms, and all the investors (or consumers) in the whole process of ploughing, sowing, fertilization, harvesting, storage and sales, which in turn has a great impact on the agricultural production chain and injects momentum into agricultural supply-side structural reform.

According to the Report on China’s Crowdfunding Industry 2017, there are 4,400 crowdfunding projects for agriculture in China in 2016, accounting for 7.51 percent of all crowdfunding projects in China, ranking fifth on the list. There have been nearly 2,800 successful financing projects that have collected a total of about 468 million yuan and attracted about 826.16 million investors, ranking first in the crowdfunding industry. There are 16 crowdfunding platforms focused on agriculture, signaling that a branch of agricultural crowdfunding has begun to take shape in China. There are roughly three types of crowdfunding for agriculture: investment-based, presale-based and donation-based crowdfunding.

Investment-based crowdfunding allows for interested parties to receive equity or land usage in the companies they support.

For presale-based crowdfunding, investors receive the finished product in return for their contributions, as we see in Taobao Crowdfunding. Finally, donation-based crowdfunding, in its purest form, runs on philanthropy. The incentive to make a contribution is not financial return or gain, but to support poverty-stricken areas and help the poor. Most projects in this category run on low cost but great social significance, such as Tencent Public Welfare.

In fact, crowd innovation economy consisted of crowd support, wisdom, crowdsourcing and crowdfunding. Agricultural crowdfunding is thus a benign exploration in the field of agricultural supply-side structural reform. Crowdfunding and inclusive financing are both emerging economic models that intend to benefit the people. In this light, it must be understood that agriculture is the basis, whereas crowdfunding is simply a form. The central task is to develop a strong agricultural sector without limitations imposed by traditional economic forms.


Challenges ahead
Crowdfunding for agriculture has yet to overcome the overall constraints of the crowdfunding industry, and it is also affected by the risks of agriculture itself. On the one hand, social recognition is relatively low and the industry is often troubled by a lack of public trust, making it a risky business in a stereotyped public conception. On the other hand, agricultural crowdfunding is often branded as “green” or “organic,” but investors (or consumers) can’t see the finished products before investing and some have doubts about the safety of agricultural products. To make it worse, after the investment, agricultural crowdfunding platforms often fail to monitor the production process of agricultural products, creating a tendency of “bad money driving out good.”

Though crowdfunding for agriculture has developed rapidly in the past few years, not all the projects can successfully receive financing. In general, the success or failure of a project can be determined by the following factors. The first is the basic requirements of a project itself, such as financing duration and size. The second is the educational level, organizational structure and management experience of fundraisers, as well as external social evaluation, government policy support and subsidies. The third is institutional guarantee.

At present, crowdfunding for agriculture is plagued with a lack of institutional infrastructure, industry norms and experience. Fake platforms, monolithic project settings and copyright violation of fundraisers hinder the healthy development of agricultural crowdfunding.

Finally, the inherent problems of traditional agriculture in China lie in small and scattered farmers, lack of macro control, low degree of product standardization, difficulty in storage and transport of agricultural products, making it unfavorable for presale-based crowdfunding.


Policy advice
Going forward, we need to improve policy on agricultural crowdfunding and strengthen rural financial policies. Agricultural crowdfunding is an important investment-financing way to improve the quality and efficiency of agricultural policy. Though the concept has been incorporated into the 13th Five-Year Plan and a series of regulatory policies have been laid out, there is no targeted policy and legislation.

Therefore, it is advised to optimize government consulting service and offer fiscal and taxation policy support, to promote operational efficiency of agricultural crowdfunding. 

At the same time, the legal system should be improved to clarify equity of agricultural crowdfunding, mobilize rural resources and promote its application in the field of rural finance.

It is also essential to improve the management system of agricultural crowdfunding and cultivate a batch of demonstration family farms, cooperatives, leading enterprises, socialized service organizations and demonstration coalition of industrialized farm.

Second, pooling resources of agricultural crowdfunding and activating the rural financial market are recommended. On the basis of promoting presale-based crowdfunding in accordance with law, we need to encourage large licensed financial institutions and financial groups to dabble in the market and establish agricultural industrial park and creative agricultural parks, so as to provide comprehensive financial services for presale-based crowdfunding.

As for investment-based crowdfunding, it could ride on regional equity trading market to build agricultural fundraising platforms that could provide a complete set of services such as information management, equity registration custody and transaction transfer.

In addition, we should standardize network loans for agriculture in accordance with the law to realize non-standard equity transfer, profit and loss identification, payment and tax payment and other platform functions through registration and confirmation.

Third, as a nascent being, agricultural crowdfunding is not a charity donation in most cases, but a deal of share and return. To this end, we could open pilot zones for agricultural crowdfunding, plan for a marginal state in advance, lay out safety standards in detail, and further explore ways to improve project rule-setting, investment protection and capital controls.

In the meantime, we should establish an agricultural crowdfunding association to provide risk education, strengthen supervision, modify platform operation and maintain the industry’s credibility. We should also improve the protection of agricultural crowdfunding investment, evaluate the risks of crowdfunding projects, strengthen online and offline credit check, and standardize agricultural crowdfunding by using the constraint mechanism.

Lastly, we should improve the credit of agricultural crowdfunding and strengthen the synergy of rural financial empowerment. Without credit support, the agricultural crowdfunding mechanism will not work properly.

To this end, we need to create a credit network, optimize the collective interactions, highlight the platform-building function of government and reduce political cost, striving to form a good credit environment for agricultural crowdfunding.

In specific, a credit and information disclosure system should be put in place to effectively overlook financial condition and core members of projects, clarify credit standards, risk control and credit checks, rewards and punishments, and establish the credit archives, to fundamentally raise the sense of integrity in crowdfunding for agriculture.


Zhang Zaisheng and Zhou Bowen are from the College of Management and Economics at Tianjin University.

(edited by YANG XUE)