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Approaching coffee trade the modern way
Nguyen Dinh Doi, who owns two hectares of coffee in Buon Ma Thuot City in the Central Highlands province of Daklak, now finds coffee trading more attractive. For him, the normal business of private traders approaching farmers to buy their produce may become a bygone practice in the not too distant future, given the debut of the country’s first coffee exchange center in Buon Ma Thuot last week.
Though ineligible to register himself as an official member of the exchange center, which requires farmers to have at least three hectares of coffee each, Doi says he will manage to join the modern trading form soon.
“I will call for some friends to jointly register as a member together,” Doi says after he takes a sharp look into the trading activity and asks pit-brokers of the center for more information.
Currently, only 10 enterprises and two farming households have become members of the Buon Ma Thuot Coffee Exchange Center (BCEC) in Daklak Province which started operating last Friday. Despite the limited participation, the coffee exchange center is believed to become a busy trading market for both domestic and international coffee businesspeople.
A long way to build the coffee market
Daklak Province authorities must have walked the longer winding way to build BCEC than any markets or commercial centers in the country. Though the project won licenses five years ago, construction was begun in late 2006 due to many adjustments on scale and capital. People still argue whether the center is a traditional farm produce supply market like wholesale ones in the Mekong Delta or an exchange floor with modern course of dealing.
Moreover, the central government also has a great expectation to make BCEC the first pilot trading center of agricultural products. The model enables coffee farmers and enterprises throughout the country to trade directly at the floor or place buying and selling orders via the Internet. The center is also an ideal venue for farmers to hold coffee showrooms or auctions thanks to assistance of the settlement bank, as well as visit quality control systems, warehouses, or processing factories.
However, the biggest aim of the center is to shorten the gap between coffee sellers and buyers, protect farmers and producers from losses as all information on price and productivity will be as open as on a stock exchange.
“Vietnam does not have such a commodity trading center so far,” says BCEC’s director Nguyen Tuan Ha.
While contractors were building the center, Ha and some officers left for HCMC to learn about the stock exchange’s operation, and even consulted some experts how to arrange the floor or electronic boards at the center. Besides, the center is designed following farm produce exchange floors in China, Brazil, and London coffee futures market in the UK.
Fortunately, they’ve finally overcome the confusion of operation model after France Development Agency (AFD) agreed to finance over 800,000 euros for the center to buy equipments and help officers to attend overseas training courses.
However, the long journey of six years to build and put the center into operation is as hard as the progress to train farmers kick the traditional trading habit and familiarize themselves with the modern coffee exchange floor, says Luong Le Phuong, Deputy Minister of Agriculture and Rural Development.
Like a stock market
A farmer who comes to the center for the first time may never believe it is a coffee market due to the professional design. The exchange floor is located on the first story equipped with over 10 computers for traders to search information and place orders. They can refer more on productivity, and Vietnam’s and the world’s coffee prices displayed on a big TV screen before making a decision.
On the second floor, a large hall is constructed to facilitate training classes for officers and disseminate information to farmers and enterprises. The story also houses the head offices of Vietnam Technological and Commercial Joint Stock Bank (Techcombank), who is assigned to settle payments among traders, and Vietnam Superintendence and Inspection Company of Coffee and Agricultural Products for Export and Import, or Cafecontrol, who will inspect coffee quality during transactions.
A system of four warehouses of An Giang Coffee Joint Stock Co. is also arranged behind the center with the holding capacity of around 30,000-35,000 tons. Besides, the center prepares a factory to help farmers process raw material and then bring the product into trading.
Like the HCMC stock exchange, coffee prices in Vietnam and worldwide are printed on paper and delivered to traders. In the central room of the first floor, pit-brokers in BCEC uniforms will update information in front of three large screens that display trading of the world’s markets in London, New York, the transaction information of members, and the VNCOFFEE index.
Robusta coffee is now being traded on the floor and calculated in consignments of five tons each. Trading members having buying demand must put in collateral being 10% of the product’s value.
Trading is conducted in Vietnam dong and the tick-size is VND50 per kilo. Trading band is limited at 10% of the reference price. After order matching, buyers will transfer the money to Techcombank’s accounts within a working day later, which is so-called T+1. Meanwhile, sellers will finish contracts to affirm the ownership of coffee consignments after three working days (T+3).
“Both coffee farmers and enterprises will meet difficulties with the new trading steps mentioned above,” Ha says when the floor started operating. Anyway, BCEC has organized training classes for over 200 families and many coffee enterprises in the province earlier.
He adds that the requirement of three hectares coffee will encourage farmers with small cultivated areas to cooperate together to register as the center’s trading member like the example of farmer Doi at the beginning of the article.
SGT
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