Backhaul to the future – Can digital technology make Central Asia’s agriculture competitive?
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Whether matching drivers with riders or landlords with lodgers, digital platforms like Uber and AirBnB push the marginal cost of matching supply and demand to an unprecedented low. Large infrastructure projects like China’s One Belt, One Road Initiative - which aims at more closely linking the two ends of Eurasia, as well as Africa and Oceania - could create an opportunity to alter the future of Central Asia’s agriculture, if food supply and demand can be matched more efficiently.
The key to this future? The backhaul.
In transportation, backhaul is defined as cargo that is hauled back from its destination to its origin. Since it costs almost as much to move an empty vehicle as a fully loaded one, filling a vehicle on the return trip makes a lot of economic sense. Consider the wasted space of approximately 8 million 20-foot equivalent containers that made the return trip to Asia - mostly to China – between 1995 and 2015 (see graph below). They were largely filled with air. The way things are going, a lot more air will be moved back to China in the next decade.
China’s food demand is rising and will continue to do so in the years to come. A recent study shows that, as China’s population increases in size and wealth, demand for high quality meats, dairy, fruits, and vegetables is rapidly outpacing domestic production. By 2030, Chinese meat demand will increase by 20% to 110 million tons. Meanwhile, demand for dairy will rise by 66 % to 116 million tons, and fruits and vegetables by 30% to 590 million tons.
This has substantial implications for Central Asia’s agriculture. Central Asia’s land per capita endowment is 5 times higher than China’s - 0.5 versus 0.1 hectares per capita. Furthermore, Central Asia’s agricultural productivity is on the rise as antiquated farming practices are modernized and new trade policies unlock the region’s potential as a prolific agricultural exporter. Add to that, people say that it is cheaper to ship wheat from Vancouver to Urumqi (9,233km) than from Almaty to Urumqi (869 km), and the challenges and opportunities become clear. Yet, digital technologies can potentially reduce the costs of matching Central Asian farmers with Chinese consumers along the new Silk Road and make Central Asia’s agriculture more competitive.
Can a global Uber Eats-like service fill all the empty containers and offer Central Asia new opportunities to reach China’s markets? This idea is not new.
In 2014, Alibaba launched its rural integration initiative, based on a simple principle: loaded trucks go out to the countryside, loaded trucks come back from the countryside. In this case, Rural Taobao gave 150,000 villages access to a dynamic online marketplace through which farmers could purchase manufactured goods from the urban centers of the east and sell back agricultural goods. Alibaba’s “Cainiao” platform optimizes the distribution of parcels, substantially decreasing transportation costs. Last November on Singles Day, one of China’s largest shopping holidays, rural farmers sold 450-million-yuan worth of agricultural goods through the platform, whereas 3 years ago that amount was close to zero.
If used strategically, China’s One Belt, One Road Initiative could present an opportunity for Central Asia’s 10.7 million farmers. What role does the public sector have in making this simple concept a reality and in helping Central Asian agriculture flourish? Rather than wait and wish we could travel back in time to change the future, stakeholders should seize the opportunity and act now. Come join the debate (in the comments section below).
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We hope to crowd-in some of the world’s best minds to participate in a global conversation on food and technology through the “What’s cooking? Rethinking farm and food policy in the digital age” blog series. We invite people with diverse backgrounds and perspectives to join us and share their comments.
An interesting article that I fully agree with. The growing well-being of the people of Central Asia also leads to greater consumption of better food and better nutrition. At the same time, countries such as Kyrgyzstan and Tajikistan are mountainous and have limited agricultural land for food production. Taking into account not always rational use of land, for example, production of grain crops (50+ percent of arable land), which is good for the food security of the country, but has a very low profit in comparison with the production of vegetables (4-5% of arable land), requires digitalization of agriculture for rational use of production recources (land, water and labour). And the digitalization should be available to 400,000+ smallholder farmers in Kyrgyzstan who have limited access to the right information about agricultural inputs for production, market information, agricultural prices and consulting services. Without the access to such information, the farmers cannot make the right decisions leading to yield and profit increase, but rather often expose their business to a high risk and loss of money.
Dear Eugene – Thank you for this excellent comment! Indeed, the digital transformation of agriculture can provide solutions to some of agriculture’s most pressing challenges in the region and put small-holder farmers in the center of food systems. The key question, however, remains on what are the key enablers that make digital transformation of the agricultural sector possible, and what the role of the public policies is.
Thank you!
What role for the public sector to stimulate/draw in further private sector investment? I.e. to what extent can alleviating certain constraints be qualified as public goods worthy of public investment? Examples I could think of include removing knowledge barriers among potential users, improving data integration (communication/interfaces) between different systems, and improving telecommunications infrastructure in some regions.
Thank you, Hans, for your comment. This is a great question about the respective roles of the public and private sector in digital agriculture. Indeed, WHAT’S COOKING: Rethinking farm and food policy in the digital age is all about trying to answer this question. The tradition role of the public sector is to promote policies that increase economic efficiency, equity, and environmental sustainability. As you correctly pointed out, education, infrastructure and standardization have long served as great public policy tools in accomplishing these goals and can create the enabling environment private sector investment. What new challenges will the public sector need to address in the digital era? Will governments be able to keep pace with regulating fast-changing technologies such as digital payment platforms that farmers can use to easily procure credit or inputs? And might governments improve data integration and creating open access code to better serve their citizens to use in the 21st century? As argued in our piece, The Goods, the Bad, and the Ugly: Data and the Food System, governments can potentially create substantial economic value by establishing open data networks and, what’s more, free access to vast reservoirs of information can spur the private sector by lowering entrepreneurs’ barriers to entry. We don’t yet have the answer to these questions, but without a doubt the future of agriculture will require careful consideration of what role the public sector can and should play.