Although coffee futures are traded electronically on
both LIFFE (www.liffe.com) and ICE (www.theice.com) no electronic market places for the
physical trade in green coffee have emerged as yet. A number of serious attempts
have been made but failed to attract the required interest and we are not aware
of any electronic market place that was actively trading green coffee (as
opposed to coffee futures) by end 2010. Apart the fact that the international
coffee trade remains very fragmented with numerous actors, there are probably
two major reasons for this - one is discussed below, the other in topic
06.01.03. [1]
Because coffee is not
homogeneous end-users need to know what quality they may be purchasing.
The reason futures markets work is that they trade a fully standardised product:
anyone wishing to deliver (tender) coffee to a futures market first has to have
that coffee stored, graded and certified. This ensures that anyone taking
delivery from a futures market knows in advance what kind of coffee can be
expected. Of course most operators on the futures markets never tender or
receive physical coffee, but the basis to do so is there which makes trading
possible…
Coffee quality varies enormously and development of
internationally accepted green coffee standards that roasters could trust enough
to receive coffee 'unseen' has to date proved impossible. Roasters do need
advance samples of the physical coffee they receive and they do need to be able
to reject substandard deliveries. But at the same time they also need to
safeguard their supply line. This is why direct dealings with trade houses and
exporters remain the preferred option. There are mainstream roasters who use
electronic documentation throughout but unless and until a number of them give
solid backing to the idea of an open electronic marketplace for green coffee,
there is little chance of one emerging any time soon.
In fact it is
questionable whether the mainstream coffee industry (85/90% of all coffee
roasted) presently has any interest in advancing beyond the electronic trading
and execution of futures and options. This enables the industry to purchase
physical green coffee at a differential to the futures markets. Final prices are
then established using electronically traded futures. Put differently, today's
futures markets all operate electronically and are used as a tool for the
pricing of most physical or green coffee, leaving only the sourcing and
implementation of the actual purchases to be carried out through direct
contacts.
This is not the same as an 'electronic market place
for green coffee' but it would appear this is all the market requires at this
stage. This is why otherwise great ideas as Intercommercial Markets for
example, now Eximware - www.eximware.com , and InterContinental Exchange's
eCOPS system - www.theice.com have failed to advance into green
coffee trading. Futures markets operate combined electronic trading and
documentation systems quite successfully but, this is a very different
environment from the trade in physical, in green coffee. [2]
Many specialty coffee sellers would like to see an
electronic market place where green coffee can be offered and bought at prices
that are not based on the futures markets but on actual quality. But this ideal
always comes up against the fact that no serious importer or roaster will
purchase specialty coffee unseen, i.e. without being able to assess the quality
and know the supplier before committing to a purchase.
But until such issues are resolved, instead of this
business to business (B2B) model, the most obvious e-commerce activity in the
coffee world will likely remain that of business to consumers (B2C), in which
roasters, importers and some specialized producers with the requisite logistical
capability sell small amounts, often in retail packs, directly to individual
consumers or wholesale to small retailers.
There is no doubt that the technology exists to make
Internet-based, e-commerce coffee trading feasible. It will not take off,
however, until enough market participants are comfortable with using it to
provide the critical mass necessary to make it viable.[3]
[1]See topic 08.01.03 and section 09.02 for more on
futures and differentials. See topic 03.01.10 on the difference between
mainstream and specialty roasters.
[2] See topic 06.01.04 for more on the eCOPS
system.
[3]Electronic market platforms, we suggest, allow
buyers and sellers of a particular product to make contact and exchange
information, after which some might proceed to initiate actual transactions
directly, i.e. not via the platform. See for example www.leatherline.org, also operated by the
International Trade Centre - ITC. Electronic market places on the other hand
would allow them to also enter into and execute legally binding transactions,
requiring much more complex and demanding systems to deal with electronic B2B
or Business to Business trades.