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Inclusive Value Chain Development in China – a Case of Medicinal herbs Cooperative in Lin Mu Village, Shao Dong County

Display Date: 5/17/17


The Hunan Agricultural and Rural Infrastructure Improvement Project is financed by the Government of China and IFAD since September, 2012 in 9 counties of Hunan Province.  The objective of HARIIP is to increase revenue, improve family food security and strengthen resilience of rural households. To achieve this objective the project has provided infrastructure to support agricultural production, living conditions, and improve access to markets. The project has also supported integration of smallholder farmers in value chains through farmers cooperatives.  

Shao Dong county, Hunan Province has the 4th largest whole sale marketplace in China for medicinal herbs and hosts several big pharmaceutical factories. However, poor farmers had hardly benefited from this development largely because of two constraints: a) they lacked initial capital to produce herbs; b), they had limited capacity to produce quantity and quality  which would  meet the requirement of buyers, particularly the pharmaceutical companies.

Yuan Zihao, born in 1991 in Lin Mu Village, graduated from University in 2015. He recognized the economic potential in his hometown, and decided to develop his career in rural areas whilst contribute to the economic development in his village. Together with several farmers, he organized a farmer’s cooperative for herb production, which initially faced the bottleneck of the scale of the production.

The HARIIP successfully addressed these challenges by supporting and strengthening this cooperative, particularly its expansion by integrating the poor households in the cooperative. To date it has gained significant results – currently the cooperative has 294 members and 68% ( 201 HHs) of them are poor farmers. By joining the cooperative, the poor  households have  increased production and improved access to market.

In this cooperative , the project’s supports included: a) poor farmers received saplings and fertilizer for free; b) farmers obtained technical trainings on good agricultural practices and quality control; c) facilitation  to enhance participation of poor farmers in the cooperative, and d) construction of  road linking the herb collection center to the main road.

To enhance membership inclusiveness the households, including poor HHs can use their land as share to join the cooperative. The land right remains with farmers, and the production belongs to farmers. The members have the right to sell products to cooperative but here is no bounding requirement on quantity. Quality is specified in members agreement, and the production process is managed by the cooperative in order to meet the standard of the buyers. The cooperative buys the herbs from members at price 10% higher than market price, and from non-members at market price. Besides, the cooperative annually distributes 70% of the profit to members while the remaining 30% is retained for reinvestment.

This cooperative, lead by the young man Yuan Zihao, significantly increased the scale of production, established contracts with several large herb processing companies and makes profit. To date it manages 244 Ha of land, with centralized planning, technical assistance, technical standard, quality assurance procedures and branding. The cooperative has the capacity for preliminary processing of herbs, including cleaning and drying. The demand on the herbs produced by this cooperative has been increasing and more farmers are expected to join the cooperative in the near future.

Many factors have contributed to the success of this (sub) project, but some are truly critical, and might be inspiring:

  1. The leader, Yuan, plays an important role in this value chain development, especially in the marketing segment. He is business minded, educated, and have good selling and managerial skills. In addition to selling products directly in the marketplace, he, on behalf of the cooperative, signs contracts with pharmaceutical factories and wholesale brokers/traders, i.e. contract farming. This market driven herbs supply  reduces the market risks and optimizes the resources allocation

  2. An innovative approach is used to enhance the technical skills of poor HHs. Many of the poor HHs have relatively low human capital. To address this issue, the cooperative divides the total members to 6 groups, and selects 2-3 TA leaders in each group. The TA leaders, who have better education and better capability to learn, help to train the farmers in their respective group.

  3. The technical standards, production procedures, as well as field management are well documented and disseminated to all members transparently. Every member has to comply with the guidance.

This case is good, not only because it successfully facilitates poor farmers to participate in value chain, it stands out also because it portrays available opportunities for youth employment in rural areas. Supporting young entrepreneurs in rural areas are particularly important, in my view, because they have strong potential to help local economy. In the past years, many farmers immigrate to cities for work because of the income gap between urban and rural areas. The outflow of human capital presents significant challenges to rural development. Supporting youths to develop their career in rural areas will not only help the youth themselves, but has also positive impact to the whole rural areas.


(Acknowledgement: the author would like to thank Zainab Semgalawe, Rural Institution and Implementation Arrangement Specialist, IFAD and Qibin He, IFAD consultant for their valuable inputs; thanks also go to Xie Zhengrong, Hunan PMO and his team for the supports to this mission.)