The Biz View from Peking U

Why Jack Ma becoming a dairy farmer is a big deal

PUBLISHED : Tuesday, 02 September, 2014, 9:11am
UPDATED : Tuesday, 02 September, 2014, 9:23am

Jack Ma has become a dairy farmer. In June, his private equity firm Yunfeng made a $320M investment in an Inner Mongolian dairy company owned by Yili Industrial Group. In doing so, he has joined the ranks of Legend Holdings, Netease and other Chinese technology giants who have made surprising jumps into agriculture (often through private equity investments).

These new “agri-tech nerds” are popping up all over China. Internet giants, mobile entrepreneurs and other tech nerds are suddenly launching projects in cows and blueberries. For example, Lenovo owner Legend Holdings now lists agriculture as one of its five core investment areas.

This is a very big deal. This new collision of technology and agriculture is one of the most important phenomena in China today. It is also one of the weirdest. We’re pretty sure Bill Gates never owned a pig farm.

What is really happening is that cutting-edge Chinese brainpower is finally being applied to food quality and safety. High tech innovation and new business models are being brought to a very low-tech sector of the economy. And this collision is already yielding important insights. Here are a few worth noting:

Technology can reshape the economics of food production.

Can you engineer a better cow? That’s going to be a key question as tech-smart companies apply their process management skills to pretty low-tech Chinese farms. This can be biogenetics, targeted crop management, food processing and so on. But expect technology to fundamentally change the economics of food production in China.

Branded advantaged food products can scale quickly.

China’s technology survivors know the meaning of consumer-tested quality and the value of scalable enterprises. The agriculture business in China is really just getting started and creating a reliable quality product is the first step. Reliable quality products are also the basis for scaling quickly. Scalability is step two. We are already seeing tech giants bringing a quality and scalability mindset to agriculture.

There will likely be several new routes to market.

Unlike in consumer electronics, going-to-market in agriculture in China is a huge capital sink. You need trucks, factories, refrigerated warehouses and so on. The consumer-focused technology giants are likely going to change this as they piggyback China’s over-the-top spending on infrastructure. Alibaba has been very successful in doing this in their B2C business. In agriculture, expect an increasing focus on going direct-to-consumer via modern trade.  

There are opportunities to catch a rising star.

China’s tech tycoons are generally pretty tired of markets where the only direction for price is down. But with rising consumption, limited land and a government mindset to support moderate inflation, agriculture pricing can go in the other direction. It can increase, or at least remain stable, which is an opportunity to benefit from rising prices. Such pricing is also a nice hedge against consumer electronics.

A final point. The contrast when a new economy meets the old is always stark and unusual. And yes, I’m definitely waiting for the first picture of Jack Ma inspecting a husbandry facility.

But new-meets-old is a very powerful combination. Just look at the impact Silicon Valley has had on the energy sector over the past ten years. Or how much impact Elon Musk and his electric cars have had on the auto sector in the past five years. Tech innovation plus radically new business economics could be the biggest things in Chinese agriculture over the next ten years.

You can read more about such Chinese mega-trends in my #1 best-seller the One Hour China Book.