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
To learn more about this author, visit OECD Development Centre's Website.
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