Squeezing the blood out of a durian

With Thai durians selling like hot cakes on Alibaba’s Tmall platform, the regime has every reason to believe its deal to have the e-commerce giant promote Thai products will be a resounding success. But Thai farmers may not necessarily gain as much from this as they expect.

The government warmly received a recent report by the South China Morning Post that around 80,000 Monthong durians, weighing a combined 200,000 kilogrammes, were snapped up by Chinese consumers on Tmall within just 60 seconds of going on sale online.

During Alibaba Group executive chairman Jack Ma’s visit to Thailand on April 19, the Commerce Ministry and Alibaba Group jointly launched a campaign to sell Thai rice and durians on Tmall.com, China’s largest online business-to-consumer platform, which has access to over 1.4 billion Chinese consumers.

Government spokesman Sansern Kaewkamnerd said a host of Thai products have proven popular among Chinese consumers, particularly Hom Mali rice and durians. With the recent explosion of e-commerce on the Chinese mainland, they have become hot items.

I agree with the government that the deal with Alibaba can create enormous opportunities for local business operators but when it comes to farmers, I’m not so sure.

The power of Alibaba’s e-commerce operation was put on display when it sold 80,000 durians in a minute on Tmall.

But the government should not be naive as there is no such thing as a free lunch.

Some may feel farmers don’t deserve to enjoy the lion’s share from this e-commerce deal, but a closer inspection suggests this won’t be a bed of roses for them either.

According to Commerce Minister Sontirat Sontijirawong, the flash durian sale on Tmall has boosted the pre-order prices of Grade-A durians at orchards by 10 baht per kg, taking it as high as 80 baht per kg.

Most Thai orchards these days sign wholesale contracts with Chinese buyers on a pre-order basis for sale in China using online channels.

On Tmall, an order for 4.5-5kg of Monthong durians goes for 199 yuan, or about 992 baht, which works out at 198-220 baht per kg.

As they buy durians at 70-80 baht per kg from Thai orchardists, Chinese traders can make a profit of 10-11 million baht just by selling 80,000 durians on Tmall — in as little as a minute.

Tmall claims over 2 million durians have been sold on the platform to date. Imagine how much profit Chinese traders can make while the Commerce Ministry is happy to see a mere increase of 10 baht per kg from the online trading.

This is the fundamental problem that will not be solved from the deal between the Thai government and Alibaba.

The government seems overly optimistic the deal will help improve farmers’ livelihoods when they start selling online for themselves, but I wonder how many farmers are tech savvy enough to get to grips with this, especially in the short term.

This is particularly the case for Tmall, which operates under a cooperative agreement between the Chinese government and Alibaba. It is a business to consumer (B2C) platform so individuals can’t sell their products on the site.

As a consequence, most farmers who want to sell their produce to Chinese customers through this channel have no choice but to do so via intermediaries or Chinese middlemen.

Being taken advantage of by middlemen is a chronic problem faced by Thai farmers, and the government should not boast of the benefits of the Alibaba deal unless this is successfully tackled.

Still, I agree that this kind of cooperation can potentially represent a great opportunity for Thai business operators, especially SMEs.

Moreover, some Thai e-commerce experts have warned that Thai businesses will be affected by the Alibaba deals.

They worry Chinese products may flood the Thai market and outperform local commodities.

Alibaba’s investment could spell doom for Thai intermediaries and let Chinese middlemen monopolise trade.

Ultimately, Thai manufacturers could conceivably go out of business as Thai products fail to compete in a price war as a result of favourable production costs on the part of Chinese manufacturers.

Despite all of these concerns, the government defended its cooperative agreement with the Chinese e-commerce giant. It said the deal represents a great opportunity for the Thai people, particularly farmers who can sell their own produce on its online platforms.

This is true, but not the entire picture. In fact, with or without the Alibaba deal, Chinese goods have been flooding the Thai market.

Before the agreement was inked, individual customers could easily order goods from Chinese e-commerce websites, including popular Tmall, Taobao and JD.com.

Many Thai shipping operators have offered their services to help local customers buy a range of products from the Chinese e-commerce sites ranging from books and furniture to food.

As a result, local business operators will definitely be affected by the cheaper Chinese products.

They must adjust by ramping up the quality of production, even if Alibaba chooses not to enter the market full-on. That is a matter of survival.