Pinduoduo Inc. (NASDAQ: PDD) Q2 2020 Earnings Call Highlights
David Liu, VP Strategy
“…One in four Chinese workers work in agriculture, but the industry makes them less than 10% of China’s GDP. This is because agriculture has lagged behind other industries in digitization. Nearly 98% of farmers in China work on farms smaller than two hectares. It is difficult to standardize growing practices and achieve economies of scale. The rural workforce is aging and in decline as young people choose to work in the cities. The lack of coordination for food production makes farmers vulnerable to price swings, while wastage and high incremental distribution costs add to consumers’ burden. Those are the challenges.
And the opportunity is that agricultural e-commerce can solve a number of these problems. Based on figures from the Ministry of Commerce, the implied total addressable market in 2019 for PBOC agricultural goods sales in China was RMB8.1 trillion, with less than 7% of these sales taking place online. In contrast, the online penetration for physical goods in total was 23% in 2019.
Pinduoduo is already one of the leading e-commerce platforms for agriculture. In 2019, we generated RMB136.4 billion or 13.6% of our GMV from agriculture produce and related goods. 1over 240 million or 38% of our annual active buyers purchased in this category last year, with a 70% repurchase rate.
Pinduoduo has become the go-to destination for high quality, great value aquaculture products. This recognition deepens through the pandemic. During 6.18, we saw orders for agriculture products grew 136% to RMB380 million. Nearly three quarters of the orders came from Tier 1 and Tier 2 city users.
We expect to continue gaining market share in agriculture and we see potential for our agriculture GMV to exceed RMB1 trillion in 5 years. Why do we think agriculture e-commerce can be tackled — can tackle the challenges outlined earlier? Well, put simply, only when you digitize demand and supply, then can you drive efficiency and gains through the value chain in between.
Online retail has an advantage in terms of greater visibility. From production all the way to distribution, we have a unique position to make the value chain more efficient and bring more value to producers and consumers through investment and partnership that can also unlock commercial opportunities. Our vision is to realize the economic potential of China’s vast agricultural resources by improving its overall quality and production efficiencies.
Starting with production, our efforts thus far have centered around the development of human capital through farmer training as well as initiation of pilot farms in our Duo Duo Farms program. Together with partner institutions such as China Agriculture University, we have been part of farming knowledge and business training to almost 90,000 new farmers thus far who tend to be younger and more digitally savvy. We see this initiative as a way to see a new generation of farmers who are more adaptive to new technologies.
Duo Duo Farms is a demonstration of how reorganizing resources through cooperatives and bringing our economic expertise can help farmers living in impoverished regions sustainably improve their productivity and household income. Duo Duo Farms serve as a test bed for us to introduce technologies to farmers such as drip irrigation, while also introducing changes to existing farming practices to drive meaningful change.
Building upon these experiences, we plan to invest in technology necessary to implement precision farming such as robotics, IoT sensors and low powered data transmission. Precision farming can help optimize inputs, better control diseases and reduce production costs. Our ongoing smart agriculture competition, jointly organized with the Agriculture University of China and with the support of the UN’s Food and Agriculture Organization, exemplifies our interest to identify cost-efficient and scalable technology that can be promoted as standardized solution across China.”