China needs Netherlands

China needs Netherlands Edward Y. M. Zhu CEO, CHIC Group Tel: +86 21 6707 7888 Email: edwardymzhu@gmail.com Dec 12 th, 2013 Table of Contents 1. CHIC Group & CHIC Foods Brief Introduction 2. UNESCO-CHIC Biosphere Integrated Rural Urbanization Program (BIRUP) 3. Three Rural Issues (Root Problems) & Challenges in China Today 4. Globalization & Urbanization Trends with Food Demand & Supply Imbalance 5. Business Opportunities & Recommendation for Netherlands 6. CHIC Group & Wageningen UR at work for you 1

CHIC Group Brief Introduction CHIC Group at a Glance Headquartered in Shanghai, China with a state-of-art R&D center and an Open Innovation Center of Execellence on the campus With around 10,000 employees globally The group consists of six divisions: - Food - Agriculture - Home & garden products - Medical equipment - Supply chain management solutions & execution (Training & Consulting) - BIRUP Five controlled joint venture Fruit processing plants One Thailand wholly-owned Coconut water processing plant One controlled joint venture Home & Garden Plant Two Brix 12 concept fruit based dessert bistros Eleven branch offices and 130 subdistributors throughout China in Medical Orthopaedic Devices Canada USA West Coast USA East Coast Europe: France, Germany, UK, Switzerland China Korea Dubai Japan Thailand Philippines Singapore Australia New Zealand 2

CHIC Group at a Glance CHIC GROUP IS A SIMIS COMPANY WITH VALUE ADDED DIFFERENTIATED PRODUCTS, SERVICES AND BUSINESS MODELS: S: Solution I : Investment M: Management I : Innovation S: Service We grow only when our people grow! Pictures of CHIC Group Headquarters, R&D Center, and Knowledge Center of Excellence in Shanghai CHIC Group at a Glance 3

CHIC Foods Brief Introduction CHIC Foods Overview China s largest Fruit Processing & Processed Fruit Exporter Major customers: Geographic footprints: US, Europe, Australia, Japan, and China. We provide end-to-end total supply chain solution & management focusing on Fruit Growing & Processing with: Innovation Sustainability Superior & Consistent Quality Operational Excellence Supply Chain Visibility 4

Table of Contents 1. CHIC Group & CHIC Foods Brief Introduction 2. UNESCO-CHIC Biosphere Integrated Rural Urbanization Program (BIRUP) 3. Three Rural Issues (Root Problems) & Challenges in China Today 4. Globalization & Urbanization Trends with Food Demand & Supply Imbalance 5. Business Opportunities & Recommendation for Netherlands 6. CHIC Group & Wageningen UR at work for you UNESCO-CHIC Biosphere Integrated Rural Urbanization Program (BIRUP) 5

BIRUP Overview UNESCO-CHIC Biosphere Strategic partnership between UNESCO and CHIC Group for development with sustainability and balance between Man and Biosphere (M&B Under UNESCO) Integrated Rural Urbanization Program ( IRUP ) A new urbanization approach that the Chinese central government adopted to narrow the gap between the urban and rural areas through modernizing agricultural industry and reducing rural poverty Location: BaNan District, Chongqing 11 BIRUP Overview - Themes A new life style community Education: Universities, Colleges, Vocational Schools, bilingual K12 Schools Work: Office Park, R&D centers Leisure & Sports Centers Agri-Tourism Township: civic center, shopping centers An Agribusiness Intensive Assembly Park End-to-end Total Supply Chain approach in one place Agriculture: Crop, Poultry, Horticulture Food Processing: Fruits, Vegetables, Meat Related services: Whole Sale Market, Logistics Park with produce food warehousing and logistics 12 6

Sustainable Operation Mechanism to Three Rural Reform establish BIRUP Overview Solution Elements Transforming 229 million household farming throughout China into technology-enabled Large Scale Farming. Highly intensive use of labor, water, and fertilizer. Agriculture Peasants Transforming individual peasants into Professional Farmers or Workers. About 275 million workers remain in agriculture (35% of the labor force). Sustainability Villages Under the guidelines of the UNESCO Man & Biosphere harmony (Economy, Society, Environment) Transforming the declining villages (1/4 of the labor force has been absorbed by urbanization) into Integrated Rural Urban Towns in the rural area next to big cities. Current structure is inefficient with very small and fragmented farms. Land tenure issue is holding back productivity improvements and modernization of China s agriculture. 14 7

UNESCO-CHIC BIRUP April 16, 2012 Mr. Hans d Orville, Assistant Director-General for Strategic Planning from UNESCO, signed BIRUP document with Mr. Edward Zhu, CEO of CHIC Group, at Paris, France. UNESCO-CHIC BIRUP White Paper v2.5 (March 2013) Download at: It is the first time UNESCO form such a partnership with Chinese private enterprise. BIRUP Overview China s Reform Plan Third Plenary Session of the 18 th Communist Party of China (CPC) Central Committee set to deepen reform. Nov. 9 th to 12 th in Beijing Quoted from Wall Street Journal & Xinhuanet: The reforms are essential for China as it tries to find a sustainable growth model over the medium and long term. History shows that land and agriculture is deeply related to the fate of Chinese people. The old urban-rural dual structure is expected to be reshaped following reforms in such fields as the land system, the social security system, modern agriculture and law. Document proposed a variety of experiments, including putting together markets for farmers to swap land, imposing property taxes more broadly as a way to restrain rapidly escalating property prices, creating an intellectual-property court and expanding carbon-trading exchanges to more cities. A series of reforms, including phasing out a decades-old residence-permit system, providing additional revenue to localities, giving rural households title to land, and fairer access to public services. Reference links: http://online.wsj.com/news/articles/sb10001424052702304243904579199733018980634 http://online.wsj.com/news/articles/sb10001424052702304644104579193202337104802 http://news.xinhuanet.com/english/china/2013-11/07/c_132867856.htm http://www.ibtimes.com/chinas-third-plenary-session-18th-cpc-central-committee-8-things-know-about-chinas-party-congress 8

BIRUP Overview China s Reform Plan Quoted from China Daily: http://language.chinadaily.com.cn/article-158265-1.html The plan looks for ways to improve the livelihood of China's 650 million rural residents, whose incomes lag well behind those of urban China. For those that remain on the farm, the plan would give them greater property rights and allow them to mortgage their properties. It also envisions experiments in allowing farmers to sell their land. Hundreds of millions of Chinese farmers also have migrated to Chinese cities for work but have been disadvantaged there because they lack the residence permit needed to get pension, medical and education benefits similar to those of urban residents. The migrants are under pressure to save whatever they earn in case family members get ill and they have big expenses, which prevents them from contributing more to consumer spending. The plan would give ease migrants ability to get residence permits, called hukou, in smaller and medium-size cities though it would still attempt to strictly control their movement to China's largest cities. That's partly because China's planners fear a huge influx could create slums and partly because cities resist having to pay additional money in social benefits. Urbanization -- a critical driving force for China's long-term economic growth. Urbanization will bring RMB 40 trillion investment into fixed assets (farmhouse land) in the next 10 years and grow RMB 56.8 trillion of GDP. BIRUP Overview China s Reform Plan http://www.rr365.com/english/201311/english_26871.html <The Decision on Major Issues Concerning Comprehensively Deepening Reforms> Selecting partial text III. Modern market system 11. Form a construction-land market that unifies urban and rural areas. Allow the sale, leasing and demutualization of rural, collectively owned buildable land under the premise that it conforms to planning. Enlarge the area in which State-owned land can be leased. Reduce land allocation that does not promote public welfare. VI. Urban-rural development The existing urban-rural dual structure is a main obstacle to integrated development. Efforts must be made to allow farmers to participate in China's modernization. 20. Accelerate the building of a new agricultural-operation system based on a mix of family, collective, cooperative and enterprise operations. Land-contracting rights will be protected. Farmers are allowed to become shareholders in the agriculture-industrialization via their land-contracting rights. Private capital is encouraged to invest in a modern planting and breeding industry, and for introducing modern production and management methods. 21. Farmers will be given more property rights. They are encouraged to develop a shareholding system from which they can realize benefits. Meanwhile, they can also sell a share or take it as collateral or warranty. They also have the right of succession. Moreover, the homestead system in rural areas will be improved, and farmers' usufruct rights of homestead will be ensured. A pilot program will be carried out in some areas to discover other channels for improving farmers' income. A rural property-rights trading market will be established. 9

Table of Contents 1. CHIC Group & CHIC Foods Brief Introduction 2. UNESCO-CHIC Biosphere Integrated Rural Urbanization Program (BIRUP) 3. Three Rural Issues (Root Problems) & Challenges in China Today 4. Globalization & Urbanization Trends with Food Demand & Supply Imbalance 5. Business Opportunities & Recommendation for Netherlands 6. CHIC Group & Wageningen UR at work for you Three Rural Issues (Root Problems) & Challenges in China Today http://www.fao.org/countryprofiles/index/en/?iso3=chn 10

China Current Situation and Challenges Most peasants remain poor (per capita income < $1,200/yr). Disparity between urban & rural areas and wealth & poverty. Food security Food safety issues. Agriculture is a perfectly competitive market. Capital is not being invested in rural areas. Lacking of agricultural talents. Sustainability Rural Urban Income Gap Remains Wide in China Between 1981 and 2005 the percentage of people living below the poverty line dropped from 84 percent to 16.3%. China s Gini coefficient grew from 29 in 1990 to 42 in 2007 to a strong increase in income disparity within a relatively short period of time. RMB (Yuan) 25.000 20.000 15.000 10.000 5.000 0 1978 1980 1985 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Urban Rural 11

Aging Farmers may Solve a Problem Aging will speed up decline in agricultural labor force and allow for larger farm size. 2009 Ag. Labor Force Dedicated Ag. Workers 297 million 100 million Dedicated Farmers as % of Labor Force 13% % Dedicated over 45 yrs age 60% % Dedicated under 35 yrs age 14% 2035 Dedicated Ag. Workers 25 million % of Labor Force 3% Source: Statistical Yearbook 2010 and Carter, Zhong & Zhu 2012. Photo taken in Nov. 2012 @ Anhui, China I have 5.5 mus (0.92 acres or 1/3 of a hectare) growing peaches. I will work until I die and give up the land to the collectives. My children will never want to come back to this poor place to work so hard and live so poor like I did throughout my life --- Mr. Liu ShengLi, a 75 years old peasant in AnHui Table of Contents 1. CHIC Group & CHIC Foods Brief Introduction 2. UNESCO-CHIC Biosphere Integrated Rural Urbanization Program (BIRUP) 3. Three Rural Issues (Root Problems) & Challenges in China Today 4. Globalization & Urbanization Trends with Food Demand & Supply Imbalance 5. Business Opportunities & Recommendation for Netherlands 6. CHIC Group & Wageningen UR at work for you 12

Globalization & Urbanization Trends with Food Demand & Supply Imbalance Globalization Move (Trigger) Chongqing & Central China 2010s Shanghai Japan:1970s Coastal cities of China: 21 st Century 4 Dragons: Singapore, Korea, Taiwan, Hong Kong: 1980s 4 Tigers: Thailand, Malaysia, Indonesia, Philippine: 1990s 13

Urban Population Growth in History 1990 Millions 2012 Millions 1990 % of total population 2012 % of total population 1990-2012 % growth World 2,259 3,690 43 53 63 Low income countries Middle income countries High income countries 108 239 21 28 121 1,320 2,426 36 50 84 831 1,025 74 80 23 Euro area 216 253 71 76 17 Netherlands 10 14 69 84 40 China 300 699 26 52 133 United States 188 259 75 83 38 Source: The World Bank http://wdi.worldbank.org/table/3.12 China s Urbanization (Trigger) China's urban population will expand from 572 million in 2005 to 926 million in 2025 and hit the one billion mark by 2030. In the next 20 years, China's cities will add 385 million people to the urban population more than the entire population of the United States today. By 2025, China will have 219 cities with more than one million inhabitants compared with 35 in Europe today and 24 cities with more than five million people. Over the next two decades, migration will play a much larger role, accounting for about 70% of the new urban residents; The process of migration & urbanization, fueled by governmental policies, drives the growth of the consumer market by widening the affordability & availability of goods. 14

Growing Urbanization in China 2012 Source: UN, World Population Prospects Food Consumption in China (Kg/capita) Urban Rural 1990 2005 2011 1990 2005 2011 Food Grain 130.7 77.0 80.7 183.5 146.2 119.5 Vegs. 138.7 118.6 114.6 134.0 102.3 89.4 Edible Oil 6.4 9.3 9.3 5.2 6.0 7.5 Pork 18.5 20.1 20.6 10.5 15.6 14.4 Poultry 3.4 9.0 10.6 1.2 3.7 4.5 Beef & Mutton 3.3 3.7 3.9 0.8 1.5 1.9 Eggs 7.3 10.4 10.1 2.4 4.7 5.4 Fish 7.7 12.6 14.6 2.1 4.9 5.3 Milk 4.6 17.9 13.7 1.1 2.9 5.2 Melons/Fruit 41.1 56.7 52.2 5.9 17.2 21.3 Source: NBSC, China Statistical Yearbook Urbanization will be a key driver of changing consumer diet. (More protein based crops: Corn & soybean) 15

Arable Land (Hectares per Person) Arable land (1000 hectare) Arable land per capita (hectare) China Netherlands 2011 111598.50 1042.40 107 times United States High income countries World Low income countries Middle income countries China Netherlands 2011 0.51 0.38 0.20 0.18 0.16 0.08 0.06 Source: World Bank (citing: Food and Agriculture Organization, electronic files and web site.) http://datamarket.com/data/set/13dn/arable-land-hectares-per-person#!ds=13dn!fet=14.5i.4k.2s.4t.l.6e&display=line Agricultural Productivity 84 times! Agriculture value added per worker (2000 $) 2000 2011 Growth Netherlands 42,717 60,409 41% United States 38,641 49,817 29% Euro area 27,285 33,035 21% High income 16,376 21,970 34% Middle income 719 954 33% China 447 713 60% Low income 285 336 18% World 1,059 1,087 3% Source: The World Bank http://wdi.worldbank.org/table/3.3 China needs Netherlands! 16

Imbalance of Food Supply & Demand in China Globalization Urbanization 1. Migration & growing population 2. Middle class growth Wealth creation Dietary upgrade (more proteinrich) in China 3. GDP Growth 4. Alternative use: use of food raw material for fuel or livestock foodstuff Domestic Consumption Demand on Food China is exporting inflation to the world! Industrialization Agriculture Reform Technology Based Large Scale Farming Lack of Management Talent Business Opportunities Food Security Issue in China Unbalance of Supply & Demand Agriculture Total Factor Productivity Remains Low Urbanization 1. Single family small scale farming 2. Rural work force reduction 3. Arable farmland reduction 4. Soil, water contamination & pollution 5. Infrastructure issue of irrigation 6. Underinvestment in agribusiness 7. Climate change & regulations Supply on safe food or remains the same Food Safety Issue Table of Contents 1. CHIC Group & CHIC Foods Brief Introduction 2. UNESCO-CHIC Biosphere Integrated Rural Urbanization Program (BIRUP) 3. Three Rural Issues (Root Problems) & Challenges in China Today 4. Globalization & Urbanization Trends with Food Demand & Supply Imbalance 5. Business Opportunities & Recommendation for Netherlands 6. CHIC Group & Wageningen UR at work for you 17

Business Opportunities & Recommendation for Netherlands Agribusiness Opportunities for Netherlands & Recommendation 1. Agricultural commodity trading with China on yield difference. Food Safety opportunity in China. Trends include changing production mix, increased domestic and international trade, increased farm size, increased attention paid to food safety and better environmental practices. 2. Produce export to China with food safety/unique varieties offering better value propositions such as taste, texture etc. 3. Investment in technology based larger scale farming and the reform project on the three rural factors. 4. Modern farming in China should start with effective education/knowledge transfer/ consultation services. Netherlands has extensive experience and strong skill set base in agricultural industry, which can be effectively transferred through consultative cooperation, such as JV (CHIC-Wageningen UR). Farm level opportunities include custom machinery services, and agronomic services including improving quality of farm inputs (water, seeds, and pesticide), increased financial services. Marketing chain opportunities include traceability and certification services, residue testing, and improved infrastructure for new domestic and foreign market opportunities. 5. Recommendation Think and Act out of Box! The box of Netherlands for production and operation and the Box of Europe for market! 18

Table of Contents 1. CHIC Group & CHIC Foods Brief Introduction 2. UNESCO-CHIC Biosphere Integrated Rural Urbanization Program (BIRUP) 3. Three Rural Issues (Root Problems) & Challenges in China Today 4. Globalization & Urbanization Trends with Food Demand & Supply Imbalance 5. Business Opportunities & Recommendation for Netherlands 6. CHIC Group & Wageningen UR at work for you CHIC Group & Wageningen UR at work for you! 19

CHIC Group & Wageningen UR at Work for You! 1. Wageningen UR & CHIC Group Collaboration consultation, seminars, training for talents & technologies. 2. Chic China Accelerator, a platform bridging selected global companies that possess Intellectual Property, trade secrets and proprietary know-how with successful Chinese entrepreneurs who have a success track record in China market for strategic partnership, business cooperation, or joint venture in the rapidly growing mega size China market. 3. The Netherlands Center, a hub at which the rich and abundant quality-products and services of the Netherlands and Europe are introduced to the Chinese trade & consumers. It is also a window through which the Chinese people get to know the diversity of authentic Netherlands and European countries. 4. The CEIBS-UNESCO-CHIC 3rd China International Agribusiness Forum, sponsored by CHIC Group, will be held on May 10 th, 2014 in Beijing, China. Prominent business leaders, well known knowledge institutes, and government policy makers will gather together. And a matchmaking event hosted by the China Accelerator on May 11 th, 2014,for European, Californian, and Chinese agribusiness to seek business collaboration opportunities. CHIC Group & Wageningen UR at Work for You! Wageningen UR and CHIC Group signed a MOU in September 2013, which marked the start of collaboration regarding consultancy and business training in the field of food & agriculture. We focus on businesses in China and link those to our international knowledge and network. EFAS: powerful business cases for senior executives The European Food and Agribusiness Seminar (EFAS) provides business training for senior executives and is based on real-life business cases. 20

Safe the Date! Date: May 10, 2014 (Saturday) Venue: CEIBS Beijing Campus Organizers: http://www.ceibs.edu.cn/agriforum/ Q&A Edward Y. M. Zhu CEO, CHIC Group Tel: +86 21 6707 7888 Email: edwardymzhu@gmail.com Thank you! 21