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  • 4.2.10-CONTRACTS-USING INTERMEDIARIES

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  • Using intermediaries

     
     

    Agents. Modern communications, especially email, permit regular contact with many more clients than was the case just ten years ago and the traditional agency function is increasingly making way for direct trade. Even so, it is not always feasible to deal directly with individual buyers in more than just a few markets, especially when time differences come into play, and many exporters still use agents.

    A local agent is on the spot, speaks the language, knows the buyers and usually can discuss more than just the one origin most exporters represent. This makes an agent an interesting conversation partner who is more likely to get a buyers attention. And for exporters, agents provide a two-way information flow because they know local conditions and often gain insight into the activities of competitors.

    Agency agreements must make it clear what each party is permitted and expected to do. If an agent is given exclusivity in a given market (sole agency) then the exporter can demand that the agent does not market also for any of the exporters direct competitors. Larger agency firms sometimes represent a stable of exporters, including some from the same origin, and smaller exporters may have to accept this because they cannot generate sufficient business to make a sole agency worthwhile for the agent. Such firms who do not work under an actual agency contract really function more as preferred sales channels than as true agents.

    Brokers work within a given geographical area, bringing local buyers and sellers together. Like agents they declare the name of both the buyer and the seller, and receive a commission but do not represent a party. Traders buy or sell in their own name and for their own account. Agents or brokers who do not declare the buyers name operate as traders because they take the coffee over their own name.

    Importers and traders. Growing interest in niche products and markets, accompanied by the reappearance of small roasters (e.g. in the United States), has revitalized many importers who are once again increasingly fulfilling the traditional function of sourcing specific types of coffee (specialty, organic, but also mainstream qualities) in producing countries and bringing these to market. Today many importers represent single estates and individual exporters under agreements where, in exchange for exclusivity of supply, they undertake to stock and promote particular types of coffee. This potentially attractive alternative to the commission agency option mentioned above is discussed further in 03.00 Niche markets.

    Their ability to carry stocks is of great importance, as it also enables less widely traded coffees to be immediately available in the main import markets. Larger, more vertically integrated trade houses usually handle more easily traded coffees, standard qualities which are relatively widely bought and sold. Some of the very large houses at times almost operate as market makers in that their pricing becomes a reference point, even for origin, as shown below.

    First and second hand. Coffee sold direct from origin is first hand (there were no intermediate holders). If the foreign buyer then re-offers that same coffee for sale, the market will know it as second hand. But international traders also offer certain coffees for sale independent of origin: in so doing they are going short in the expectation of buying in later at a profit. To achieve such sales they may actually compete with origin by quoting lower prices than the producers. Market reports then refer to second hand offers or simply the second hand. Traders can buy and sell matching contracts many times, causing a single shipment to pass through a number of hands before reaching the end-user, a roaster. Such interlinked contracts are known as string contracts.