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E-Commerce Adoption and Rural Sustainable Livelihood Development, the Case of Smallholders in China's Agro-Food Sector Yi

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E-Commerce Adoption and Rural Sustainable Livelihood Development, the Case of Smallholders in China's Agro-Food Sector Yi E-commerce adoption and Rural Sustainable Livelihood Development, The Case of Smallholders in China’s Agro-Food Sector Yi Cai PhD Candidate, College of Economics and Management, Hubei Rural Development Research Center, Huazhong Agricultural University Email address: [email protected] Chunping Xia* Professor, College of Economics and Management, Hubei Rural Development Research Center, Huazhong Agricultural University Email address: [email protected] Cuicui Wang PhD Candidate, College of Economics and Management, Hubei Rural Development Research Center, Huazhong Agricultural University Email address: [email protected] Scott Loveridge Professor, Department of Agricultural, Food and Resource Economics Michigan State University Email address: [email protected] Selected Paper prepared for presentation at the 2019 Agricultural & Applied Economics Association Annual Meeting, Atlanta, GA, July 21 – July 23 Copyright 2019 by Yi Cai, Chunping Xia, Cuicui Wang, Scott Loveridge. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. E-commerce adoption and Rural Sustainable Livelihood Development, The Case of Smallholders in China’s Agro-Food Sector Abstract: We investigate the impact of e-commerce adoption on smallholder livelihood in China’s agro-food sector. Based on a sustainable livelihood framework, as well as a survey-based data set that allows us to correct selection biases by using Propensity Score Matching (PSM), we find that the most common approach for smallholders to participate in agro-food e-value chains is to cooperate with local e-tailers and become a e-tailer supplier. Moreover, e-tailer suppliers have more livelihood assets and are in better external e-commerce conditions than traditional suppliers that are not in the e-value chain. The PSM results further suggest that agro-food e-value chain participation has a positive and robust impact on improving smallholders’ agricultural income, while reducing their not marketed portion. We also find evidence about the digital divide between heterogeneous e-tailer suppliers. Results imply that policies should encourage and facilitate smallholder participation in agro-food e-value chains, and further promote smallholder self-learning to achieve long-term livelihood improvement. Finally, we advocate a balanced point among rural e-commerce development, rural socio-economic development, and sustainable livelihood development for smallholders in underdeveloped regions must be sought. Key words: agro-food e-value chain, participation effect, smallholders, sustainable livelihood, rural China. 1. Introduction Connecting smallholders with consumer markets efficiently is an ongoing challenge in developing markets. Modern Information and Communications Technologies (ICTs) can increase smallholder welfare from agricultural marketing ventures by offering them timely and accurate information to reduce information and transactions costs that lead to inefficiencies and weaken their bargaining position (Goyal 2010, Courtois and Subervie 2014, Jensen 2007). With ICTs, the problem of information asymmetry between agro-food producers and consumers can also be alleviated (Jensen 2010, Aker 2010, Just et al. 2002, Aker 2011). Furthermore, the internet can provide rural households with learning and employment opportunities (Akca, Sayili, and Esengun 2007, Hollifield and Donnermeyer 2003). E-commerce involves purchasing and selling of goods and services, or the transmitting of funds or data, over an online network. E-commerce adoption by smallholders and small and medium-sized enterprises (SMEs) has a positive impact on improving rural residents’ livelihood and revitalizing rural China (Guihang, Qian, and Guangfan 2014, Zhang et al. 2018, Lin, Xie, and Lv 2016). Evidence also suggests rural e-commerce development reshapes the natural landscape (e.g. building warehouses and roads) and social-economic structure (Leong et al. 2016). As the result of e-commerce deployment for Chinese rural development, there are increasingly more rural successful e-commerce practices, which create more jobs and opportunities for rural households (AliResearch 2015). Defined by Alibaba, a Taobao village refers to a village where at least 10 percent of its residents operate online stores with annual sales of at least 10 million Yuan in total (USD 1.6 million). Most of the Taobao villages are in southeastern China and engage in processing industries such as garment, footwear, furniture, and pottery business (AliResearch 2014). The impact of mobile and internet adoption on farmers' marketing strategies and incomes, rural industrial competitiveness, and poverty alleviation has long been discussed by scholars around the world (Muto and Yamano 2009, Harwit 2004, Futch and McIntosh 2009, Burrell and Oreglia 2015, Bayes, Von Braun, and Akhter 1999, Aker and Fafchamps 2014, Abraham 2006, Jensen 2007). But until recently, literature focusing on e-commerce, especially the formation and impact of Taobao villages have been not published (Zhang et al. 2018, Qi, Zheng, and Guo 2019, Lin, Xie, and Lv 2016, Leong et al. 2015). Evidence on Chinese rural e-commerce adopters’ welfare improvement from the consumption side has been found (Couture et al. 2018, Fan et al. 2018, Luo, Wang, and Zhang 2019). However, to the best of our knowledge, research focusing on the impact of rural e-commerce on the agro-food production sector is scarce, especially with respect to smallholders. Moreover, from a micro-level perspective, the socio-economic transformation of rural community is literally based on the transformation of smallholders (Scoones 1998, Reardon, Delgado, and Matlon 1992). In other words, it depends upon a change in smallholder livelihood strategies to achieve and maintain sustainable livelihoods (Goldman 2000). In addition, it should be noted that the household’s livelihood strategy is a result of a combination of factors (Dorward et al. 2003). It is not only constrained by the livelihood assets owned by the household, but also limited by the external conditions such as market conditions, institutional support, social public service, and culture. All of these challenges coalesce into a sustainable livelihood framework, which is a practical framework for analyzing a concept of sustainable livelihood (DFID 1999). As e-commerce adoption requires more skill than dialing mobile phone and surfing the internet, we first explore the most common strategy for small farmers in China’s underdeveloped regions to benefit from e-commerce. What is the connection between smallholders’ livelihood strategy on agro-food e-value chain participation and their livelihood assets and external e-commerce conditions? With regard to the impact of ICTs adoption, what is the average effect of e-commerce adoption on smallholders? In addition, digital divide refers to the acquisition, use or impact of any uneven distribution of ICTs between different groups (Norris 2001). The digital divide between small farmers will inevitably arise because many small farmers lack certain capital, skills or knowledge and therefore cannot fully exploit the newly introduced ICTs (Van Dijk 2012, Bach, Shaffer, and Wolfson 2013, Qiu et al. 2016). Evidence about the digital divide between rural e-tailers in Taobao village has been found (Guo et al. 2017, Luo and Niu 2019). Empirical study also indicates that Chinese rural online shoppers tend to be younger, richer, live closer to e-commerce terminal and village center (Couture et al. 2018). From this perspective, it is important to explore whether heterogeneous small agro-food producers differentially benefit from the same e-commerce adoption. In this study, we integrate smallholder’s e-commerce adoption and sustainable livelihood analyses in an exploration of the rural development implications for China. To evaluate the impact of e-commerce adoption and further explore the potential digital divide between smallholders, we also need a proper counterfactual that follows statistical comparisons between groups of households that are alike in all relevant pre-treatment characteristics except e-commerce adoption. Using a cross-sectional household survey from rural China, we address the selection bias and isolate the causal effect of e-commerce adoption by employing Propensity Score Matching (PSM). The aims of the paper are twofold: (1) to contribute to a better understanding of the implications of e-commerce adoption for smallholders integrated into agro-food e-value chains; and (2) to contribute to a broader theoretical and methodological discussion on the need to incorporate rural development and poverty reduction into ICT research (Zheng et al. 2018, Walsham 2012). 2. Chinese rural e-commerce development and the impact on the livelihood of smallholders Rural e-commerce development in rural China Even though decades have passed since the introduction of e-commerce, only recently have many more smallholders in rural China gained access to the online market by selling agro-products directly to consumers via online e-commerce platforms (e.g., Taobao) and online chatting Apps (e.g., Wechat). The total amount of Chinese rural e-commerce transactions doubled in 2015 compared with 2014, reaching 353 billion Yuan (approximately US$54 billion) (CCFA 2017). In the following year, the figure exceeded 467.5 billion Yuan (approximately US$72 billion). The driving force for Chinese rural e-commerce development comes from
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