• The market is not static - and neither is the risk

    General change or evolution has an effect on the positioning and exposure of exporters and traders or trade houses. Examples are the ever-increasing concentration of buying power in the hands of a small number of very large roasters, also now in the specialty trade, and the ongoing switch to the just-in-time supply chain. Large roasters concentrate more and more on their core business: the roasting and marketing of coffee. Procurement at origin, delivery and financing the supply chain is therefore increasingly entrusted to specialized trade houses and in-house trading firms, usually in the form of long-term supply contracts for a range of coffees. Such contracts may even stipulate delivery dates at roasting plants.

    Another example of change or evolution in the marketplace is growing transparency in the coffee pricing chain. This limits trading margins, certainly for the more standardized qualities that very large end-users require. At the same time, near instantaneous global access to information means 'the market' as a whole learns more or less at the same time of important developments, which undoubtedly serves to increase price volatility. E-commerce again plays a role through the running of tenders and, sometimes, reverse auctions that price standard qualities accurately and quickly.

    All this evolutionary change impacts on the way the coffee trade does business and, by implication, changes the risks it incurs as well. Having fewer but very large business partners, for example, also means having fewer but larger performance risks, and the trader or trade house may be more or less forced to dance to their partner's tune.

    The concentration of buying power is not limited to roasters. The same development is evident in the coffee trade, where today a small number of really large trade houses dominate.

    The just-in-time system can be said to increase trade risks. But it also enables trade houses, especially larger ones, to add value because their turnover and their total range of activities both increase, often when they establish operations in producing countries in competition with local operators. The large trade houses' relatively easy access to cheaper international credit than is available to local operators has obviously facilitated their entry as direct players into origin markets.
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