Lettuce Pray

By Shai Oster

Hebei province, China's breadbasket, is a long way from Douglas Trett's mechanized, 4,000-acre corn, cotton, nut and wheat farm, north of Fresno, Calif. "I just came back from a field where a man was working barefoot with oxen," Trett says in a tone of wonderment, as if he has just returned from another planet.

It's hard to imagine China's peasant farmers, with their garden-size plots and primitive technology, matching Western agroindustry, but Trett will do his part to get them there. He has been hired by Chinaveg, a private company owned by the Hong Kong venture-capital firm Interasia and other investors. Trett's mission: to modernize farming techniques for the 6,000 tons a year of lettuce that Chinaveg grows, washes, cuts and packages for sale to buyers in China, including KFC's operations there, to the Japanese fast-food giants Ajinomoto and Yoshinoya and to hundreds of supermarkets.

A few intrepid companies like Chinaveg are doing with farming what's already been done in manufacturing: leveraging China's cheap labor and growing domestic market to build a low-cost export operation. The best potential profits lie outside China, especially in Japan, which imports more than $3 billion in agricultural products annually, and in South Korea, which will ease its import restrictions in 2004. China already ranks as Japan's No. 1 source of imported fresh vegetables (the U.S. ranks second) and is No. 2 in processed fruits and vegetables (after the U.S.).

Companies like Chinaveg are also transforming the weakest part of China's economy. Peasants were the first to benefit from Deng Xiaoping's early economic reforms in the late 1970s but have lagged far behind coastal residents in the years since. The growing disparity threatens social stability. About 150 million farmers have poured into overcrowded cities, looking for work. Modernizing agriculture could renew economic growth outside the cities.

Chinaveg founder Xavier Naville's original goal was more modest: just get the lettuce grown and delivered. Naville, 33, who was born in Marseilles, began Chinaveg in 2000 by signing contracts with hundreds of farmers, each cultivating less than a tenth of an acre. Chinaveg gave them special seeds and pesticides acceptable to the U.S. Department of Agriculture, which were demanded by customers like KFC. In turn, the farmers sold the pesticides for a quick profit and ruined the crop with highly toxic replacements. Come harvest, the farmers tried to sell for a higher price on the open market.

Chinaveg no longer relies on rings of police around fields to protect its crop. It has built business relationships using local farmers as middlemen (and watchdogs). The next step is to introduce equipment, like tractors, that can increase yields and quality. Already Chinaveg is growing. Total sales were up 40% last year, to $5 million--picture a head of lettuce being sold every second--and sales of higher-margin packaged salads also grew 40%, to $2.7 million. In the U.S., bags of "fresh-cut" produce are the fastest growing segment of the market, up from sales of $300 million in 1993 to $2 billion in 2001, according to the Produce Marketing Association, an industry group. Expect the same in Asia. --By Shai Oster