III.b. E-Commerce and Primary Commodity Markets: E-COMMERCE AND SMALL ENTREPRENEURS
III.b. E-Commerce and Primary Commodity Markets: E-COMMERCE AND SMALL ENTREPRENEURS
(including oil, gas and other minerals, and agricultural products). Thus, short of wholesale
diversification into manufactures and services, their immediate interest is in how
e-commerce may affect competitiveness in their traditional export markets. Global
commodity chains for tropical goods generally differ in market structure from those for
manufactured goods. Historically, they have been characterised, in individual producer
nations, by a high degree of market power exercised by government procurement agencies
and by international price-stabilising agreements among producer nations. On the other
side of the market, exporters have been faced by large multinationals wielding significant
market on account of the control of brand names and distribution channels18. In principle,
a monopoly seller on the exporter side was intended to counter the bargaining power of a
monopsonist/oligopsonist on the buyer side. In general, however, even where this worked,
the losers have been small-scale producers, who have not often shared in the higher
revenues. Government commodity marketing boards have been winding down in many
countries, and international price stabilisation bodies have been doing likewise, reflecting
their lack of effectiveness.
Enter ICT, which is an important impetus to changes in the organisation and functioning
of world markets for agricultural products. How are these changes likely to affect the
financial prospects of developing country producers? As far as market governance is
concerned, ICTs have made it possible to hold auctions at source as well as online. In the
case of bulk tea, for instance, such auctions now take place in both Africa and Asia,
leading to the closure of the London Terminal Auction in 1998. These trends can be found
in other markets. The Cochin Oil Merchants Association of India has formed an alliance
with the clearing arm of the International Pepper Exchange to offer future contracts in
coconut oil and copra19. Trade will be screen-based rather than open outcry, with the ultimate objective of moving over to Internet trading and creating a B2C portal. In the case
of rubber — where three Asian producers (Indonesia, Malaysia, and Thailand) control
about 80 per cent of global output — the six largest tyre groups plan to launch an Internet
exchange by the end of 2000 in order to break the market power of this quasi-cartel20.
In some markets, there is a tendency for wealthy consumers to demand higher-quality
brands and organic methods. In December 1999, the first online coffee auction was held
for 10 high-quality Brazilian coffees (pre-selected by tasters) coming from ten farms21. A
single exporter represented the suppliers, while 23 bidders qualified. While Brazilian coffees
are normally sold at prices below the New York benchmark price, the auctioned coffees
commanded an average price 73 per cent higher than that benchmark. Shortly before the
auction the farmers sold the coffee to the nominated exporter and a formula was agreed
for splitting the premium. Among the lessons learned is that, Internet notwithstanding,
suppliers continue to depend critically on a sound physical distribution system. Farmers
and roasters are seldom equipped to handle intermediary export functions like transportation
to port, letters of credit, payments, documentation, and shipping. Another is that size of
shipment is crucial to making a profit, and that guaranteeing a minimum economic size
(essentially filling a cargo container) can be difficult with speciality coffees.
In the case of gourmet tea, conventional whole-leaf is preferred to crush, tear, curl
varieties, although the capacity for smallholder tea growers to meet the required quality
standards is still weak. There is also a segment of the market (still small) that pays a
premium for “fairly traded” produce. In the case of coffee, Equal Exchange is a specialised
“fair trade” importer from growers’ co-operatives in developing countries22. In Costa Rica,
a small company, Café Britt, completes the entire cycle of growing, processing, exporting,
importing, and selling via its website23. A number of websites have sprung up to provide
market and technical information, agronomic advice and risk-management tools to coffee
and tea farmers in developing countries24. On the one hand, the Internet may permit readier
direct access of small producers and their co-operatives to overseas customers; on the
other, the demand for coffee produced by organic methods or meeting other customerdictated
standards may favour a few large producers whose production methods can be
easily monitored and verified.
OECD DEVELOPMENT CENTRE
Working Paper No. 164
E-COMMERCE FOR DEVELOPMENT: PROSPECTS AND POLICY ISSUES
by
Andrea Goldstein and David O’Connor
IIIb ECommerce and Primary Commodity Markets ECOMMERCE AND SMALL ENTREPRENEURS - To learn more about this author, visit OECD Development Centre's Website.
Like this article? Share it with your friends
Most low-income developing countries continue to be primary commodity exporters
(including oil, gas and other minerals, and agricultural products). Thus, short of wholesale
diversification into manufactures and services, their immediate interest is in how
e-commerce may affect competitiveness in their traditional export markets. Global
commodity chains for tropical goods generally differ in market structure from those for
manufactured goods. Historically, they have been characterised, in individual producer
nations, by a high degree of market power exercised by government procurement agencies
and by international price-stabilising agreements among producer nations. On the other
side of the market, exporters have been faced by large multinationals wielding significant
market on account of the control of brand names and distribution channels18. In principle,
a monopoly seller on the exporter side was intended to counter the bargaining power of a
monopsonist/oligopsonist on the buyer side. In general, however, even where this worked,
the losers have been small-scale producers, who have not often shared in the higher
revenues. Government commodity marketing boards have been winding down in many
countries, and international price stabilisation bodies have been doing likewise, reflecting
their lack of effectiveness.
Enter ICT, which is an important impetus to changes in the organisation and functioning
of world markets for agricultural products. How are these changes likely to affect the
financial prospects of developing country producers? As far as market governance is
concerned, ICTs have made it possible to hold auctions at source as well as online. In the
case of bulk tea, for instance, such auctions now take place in both Africa and Asia,
leading to the closure of the London Terminal Auction in 1998. These trends can be found
in other markets. The Cochin Oil Merchants Association of India has formed an alliance
with the clearing arm of the International Pepper Exchange to offer future contracts in
coconut oil and copra19. Trade will be screen-based rather than open outcry, with the ultimate objective of moving over to Internet trading and creating a B2C portal. In the case
of rubber — where three Asian producers (Indonesia, Malaysia, and Thailand) control
about 80 per cent of global output — the six largest tyre groups plan to launch an Internet
exchange by the end of 2000 in order to break the market power of this quasi-cartel20.
In some markets, there is a tendency for wealthy consumers to demand higher-quality
brands and organic methods. In December 1999, the first online coffee auction was held
for 10 high-quality Brazilian coffees (pre-selected by tasters) coming from ten farms21. A
single exporter represented the suppliers, while 23 bidders qualified. While Brazilian coffees
are normally sold at prices below the New York benchmark price, the auctioned coffees
commanded an average price 73 per cent higher than that benchmark. Shortly before the
auction the farmers sold the coffee to the nominated exporter and a formula was agreed
for splitting the premium. Among the lessons learned is that, Internet notwithstanding,
suppliers continue to depend critically on a sound physical distribution system. Farmers
and roasters are seldom equipped to handle intermediary export functions like transportation
to port, letters of credit, payments, documentation, and shipping. Another is that size of
shipment is crucial to making a profit, and that guaranteeing a minimum economic size
(essentially filling a cargo container) can be difficult with speciality coffees.
In the case of gourmet tea, conventional whole-leaf is preferred to crush, tear, curl
varieties, although the capacity for smallholder tea growers to meet the required quality
standards is still weak. There is also a segment of the market (still small) that pays a
premium for “fairly traded” produce. In the case of coffee, Equal Exchange is a specialised
“fair trade” importer from growers’ co-operatives in developing countries22. In Costa Rica,
a small company, Café Britt, completes the entire cycle of growing, processing, exporting,
importing, and selling via its website23. A number of websites have sprung up to provide
market and technical information, agronomic advice and risk-management tools to coffee
and tea farmers in developing countries24. On the one hand, the Internet may permit readier
direct access of small producers and their co-operatives to overseas customers; on the
other, the demand for coffee produced by organic methods or meeting other customerdictated
standards may favour a few large producers whose production methods can be
easily monitored and verified.
OECD DEVELOPMENT CENTRE
Working Paper No. 164
E-COMMERCE FOR DEVELOPMENT: PROSPECTS AND POLICY ISSUES
by
Andrea Goldstein and David O’Connor
IIIb ECommerce and Primary Commodity Markets ECOMMERCE AND SMALL ENTREPRENEURS - To learn more about this author, visit OECD Development Centre's Website.
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Kim CastleWith nearly two decades in the advertising and design business, with clients like Domino's Pizza, General Motors, Direct TV, Pedigree, Wolfgang Puck, Higher Octave Music, Hollywood Celebrity Products, Disney, and Paramount, as well as thousands of entrepreneurs around the world define, structure, communicate, and position their business for greater profits, BrandU(R) co-creators Kim Castle and W. Vito Montone discovered that entrepreneurs could experience the same power that big brands command for a fraction of the cost with the world's only process-based results-drive Integral approach to business creation. BrandU(R) is helping entrepreneurs grow with the power of extreme clarity from idea...to brand...to market(TM) and helping one million entrepreneurs become successful and whole so that they can make a difference in the world. Are you one of them? If you want to experience clarity all the way to the bank(TM), get started now at http://www.brandu.com. - Visit Kim Castle's Website |
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John BrennanJohn Brennan Ed.D. Dr. Brennan is President of Interpersonal Development, LLC, a training and development firm. Interpersonal Development has provided sales training and coaching to more than 3,000 sales reps from over 100 companies. A native of Australia, Dr. Brennan received his doctorate from the University of Rochester. His dissertation researched the effectiveness of Behavioral Modeling Technology in training people in interpersonal skills. While he has spent most of his career designing or delivering training, he was also a Vice-President of Sales of a training and development franchise with operations in 25 markets. Dr. Brennan has designed and delivered sales training in North America, Asia, Europe, Australia and the Middle East. He has been a guest speaker at numerous national and regional professional conferences. When Microsoft wanted Best Practices articles on sales for their web site, they called Dr. Brennan. The results are at http://office.microsoft.com/en-us/FX011387391033.aspx His firm’s clients have included Volvo, The Prudential, Merrill Lynch, Eastman Kodak, Gannett, Equifax Europe, the Economist Group and countless small businesses. - Visit John Brennan's Website |
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Cheryl MatthynssensCheryl is a life skills coach, licensed Chemical Dependency Counselor and a 20 year entrepreneur. Cheryl's dedication to achieving a life of balance led to her expanding her teaching from the simple managing of life's daily challenges to adding financial well being as well. A direct marketer with DrinkACT, she is gaining ground in the online community with her concepts of making sure business owners, entreprenuers and employees have well rounded life styles. She opened up a small affiliate site - The Balance Guide- to help others find resources for mental and emotional well being. Visit Cheryl's blog to see more of the diversity beyond business she has began offering online at www.thebalanceguide.blogspot.com - Visit Cheryl Matthynssens's Website |
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