Why is Pinduoduo Inc. obsessed with agriculture? Thinking from the Perspective of Agricultural Upgrading

In the process of continuous observation and research on the upward movement of agricultural products, our concept has also undergone several major adjustments. For example, in the early days, we thought that as long as we put capital or related factors of production into the rural market, we could bear gratifying fruits. Later, we added talents as a factor of production, thinking that the return of "new farmers" would play a decisive role in this field, etc., but nowadays, most of the reflections have the problem of being partial.

When we exaggerate an element and ignore related supporting facilities and ecology, we will have an overly optimistic or pessimistic conclusion about the present situation. In fact,On the one hand, whether an industry can move forward steadily depends on the input and change of production factors, while the more important dynamic depends on whether the relevant production factors continue to improve.

This article will answer the following questions through detailed data analysis:

1. What stage is the upward movement of agricultural products now;

2. What about the sustainable growth of related factors?

3. Pinduoduo Inc. continues to expand its agricultural products e-commerce business in the new quarter's financial report. Why?

In the past few years, our government has been actively promoting the improvement of farmers' income. The most obvious policy is "land circulation", which breaks the restriction of the original system, so as to increase the proportion of large-scale farming, improve farming efficiency and increase farmers' income.

Taking 2017 as the dividing line, before that, there was an obvious "scissors difference" between the Agricultural Products 200 Index and the per capita operational income. From the logical inference, the scissors difference was mainly the price difference of agricultural products from the fields to the urban market, that is to say,The income generated by the sales of agricultural products in urban food markets is not transmitted to farmers' operational income in equal proportion, and farmers' income is suppressed.

The reason is also easy to understand. Small farmers should keep enough gross profit margin when farming and circulating at different levels, and the profits are eaten by channels. Farmers' premium ability in the industrial chain is extremely weak, and their profits are low.

At the same time, we also found that after 2017, the two lines began to bridge, and at that time, the land circulation was rapidly promoted, which produced a very positive side.

Looking at it from this angle,Encouraged by the policy, the upward ceiling of agricultural products has been opened.

So what stage is this in?

If farmers are full of confidence in increasing income, there is a high probability that this confidence will be fed back to the consumer side, so we use the social consumption situation to look at farmers' confidence in increasing income, as shown in the following figure

It can be clearly seen from the above figure that compared with urban consumption, rural social consumption is more dull, while the scale of urban social consumption fluctuates greatly.After quoting the concept of statistical standard deviation, we calculate that the standard deviation of social consumption in cities and towns is as much as four times that in villages in the above period.

Considering consumption habits, the main reason is that rural consumption is more inclined to durable goods, and it is still quite conservative to improved consumption. From consumption pushing back income, it is not difficult to find that although farmers' income has increased significantly after land transfer, it has not fully changed farmers' consumption confidence, that is to say, the upward movement of agricultural products has not formed a lasting expectation for the increase of farmers' income, and this stage is the key period for building confidence.

The above figure once again verifies the above conclusion. After 2020, per capita income is still increasing, while consumption is obviously declining, and confidence is impacted to varying degrees.

In this way, we can simply summarize the current situation of China's agricultural products: 1. The policy dividend is being opened and the dividend is released for a long time; 2. Rural residents have not yet shown definite optimism about the future, which needs lasting promotion.It is no exaggeration to say that the upward movement of agricultural products is a protracted war.

So what kind of opportunity is it for enterprises represented by Pinduoduo Inc. to enter the field of agricultural products?

In our observation of the data, one conclusion is quite clear: due to factors such as policy dividends, rural residents' preference for "cash crops" has suddenly increased. Look at the following figure again

< img src= "https://static.tigerbbs.com/cc050b01d8abaf84f17d94a471fee6f6 "tg-width=" 688 "tg-height=" 420 ">

We take fruits as the representative of cash crops. In the past few years, the planting area of this part has shown a roundabout increase as a whole. It is particularly noteworthy that,Also in 2017, the slope of this part of fruit planting area curve increased sharply.

In the previous analysis, we have made it clear that 2017 is a turning point in agriculture, and we have got another cross-validation in the above figure, which shows the accuracy of the conclusion. On the other hand, we compare the growth of migrant workers.

Obviously, on the one hand, the income of rural cash crops is expected to increase, and on the other hand, affected by demographic dividend and other factors, the scale of migrant workers going out to work is also shrinking, that is to say,Due to the influence of optimistic expectations in the future, migrant workers choose to return home to engage in cash crop planting, and "new farmers" have become a new social phenomenon.

It is precisely because of the emergence of "new farmers" that the quality of agricultural practitioners has been fundamentally improved and the advanced experience of cities has been brought.It can be said that the upward movement of agricultural products has the potential to break out.

This leads to a new topic in the industry. The planting scale of cash crops is rising. If the operation mechanism of the market is still carried out in the previous cycle (wholesale mode is the main mode, and farmers' profit distribution in the industrial chain is extremely low), it will dampen farmers' enthusiasm and cause the problem of hurting farmers in good years.

Therefore,We should not only look at the hope of industry improvement, but also make clear the urgency of improving market mechanism, so as to fundamentally improve farmers' income.

Let's look at the focus and hope of online enterprises on the upward movement of agricultural products with Pinduoduo Inc. as a sample. It is necessary to carefully sort out the mode and changes of Pinduoduo Inc. before analyzing.

Pinduoduo Inc. is essentially a platform e-commerce, which mainly provides merchants with trading channels and traffic support, and its revenue mainly includes advertising revenue and transaction revenue (mainly mobile payment fee is 0.6%).

So we sorted out the growth of advertising revenue in Pinduoduo Inc., as shown in the following figure

In the past five years, due to the user scale and the traffic growth brought by it, Pinduoduo Inc. 's marketing revenue is generally in a rapid growth momentum, which has become the support point for the market to be optimistic about it. However, at the same time, we also noticed that after entering 2021, the growth of this number has obviously slowed down, which is considered by pessimists as weak growth.

As an e-commerce platform, theoretically, the growth of user scale will inevitably lead to the expansion of traffic, which is the basis of the growth of advertising revenue. But why did Pinduoduo Inc. 's advertising revenue stagnate while users were still growing?

We think of the indicator of transactional income. Compared with marketing income, transactional income is more accurate. After all, it represents the actual transaction volume of merchants. It is more intuitive to compare the two sets of data, as shown in the figure below.

Except for Q1 in 2020, the two lines have maintained the same rhythm in most periods (Q1 in 2020 is mainly to actively reduce the burden on businesses under the epidemic situation), but after entering 2021, we found that the two broken lines are increasingly divided,While Q3 trading revenue is still growing substantially, market fees have stagnated.

Prior to this, we expected the differentiation of the two broken lines. After all, community group buying, as a new business, did not contribute much to marketing income, but it contributed to transaction income. But is the truth really so simple? Then it is necessary for us to test the correlation between the two broken lines in the above figure in a long period.

We used excel to measure the correlation between the two lines since 2018, as shown in the following figure

It can be clearly seen that in the past three years or so, the correlation between the two broken lines of marketing and transaction income has been declining, even if the emergency factor Q1 2020 is excluded, that is to say, perhaps the growth of community group buying business has reduced the proportion of marketing income,However, from a long-term perspective, it is not difficult to find that this trend lasts for quite a long time.

This also provides a new explanation for explaining the "anomaly" of Pinduoduo Inc. 's income in Q3 2021:The platform makes profits to merchants at the expense of revenue growth, which means deliberately inhibiting the commercialization ability of the platform.

This has quietly changed Pinduoduo Inc. 's business model. In the past, for a long time, enterprises have adopted strong market fees to attract users, expand the market and then invest in the market, which has grown rapidly but alsoThere are many controversies, such as questioning whether this model can be sustained.

It can be clearly seen from the above figure that after entering the second half of 2020, Pinduoduo Inc. began to reduce the proportion of market expenses, and the operating profit rate was continuously improved. Enterprises were undergoing active profit transformation. From the valuation model,Enterprises seem to be guiding the market into P/E ratio from market sales ratio.

We think it is not comprehensive to consider growth without this background.

After sorting out the Pinduoduo Inc., let's look at the expected upward movement of agricultural products.

As mentioned at the beginning, the key to the upward movement of agricultural products is not only the input of capital and production factors, but the reshaping of business model. Especially after the policy dividend is opened, the benefit distribution mechanism under the original business model is difficult to stimulate farmers' enthusiasm.

In other words, the upward movement of agricultural products should be upgraded from factor-driven to mode-driven. When we take Pinduoduo Inc. as a sample for operational analysis, it is not difficult to find the matching point:

1. Compared with other e-commerce platforms, agricultural products are high-frequency SKU on Pinduoduo Inc. platform. Combined with the background of reducing the market cost of merchants, agricultural products merchants have always had zero commission in Pinduoduo Inc., which is the biggest beneficiary of "burden reduction", or it may improve the platform. Cohesion in merchants, and feed back the recognition of users to achieve positive cycle, which is the starting point of model reengineering;

2. When we use CPI, vegetable basket index or futures index in sub-sectors (such as Yunnan Coffee Bean Price Index) to verify, the relationship between farmers' income and this index is not particularly close. Improving the market distribution mechanism in the sales of agricultural products means reducing the weight of middlemen, and the value of social e-commerce in Pinduoduo Inc. is also here;

3. After entering 2021, the proportion of R&D expenses in Pinduoduo Inc. has increased sharply, which also means that enterprises are gradually transforming from business model-driven to R&D-driven, which may bring lasting changes to agriculture.

As a farmer's child, I still want to emphasize at last that the upward movement of agricultural products is a chore, which needs persistence. I hope everyone can join hands and create a better future.

$Pinduoduo Inc.(PDD)$

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Disclaimer: The above content represents only the personal views of the poster and does not constitute investment advice on this platform.

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