Agro-product trading floors in countries with developed agriculture in the world have proved their strong role in regulating the market. In Vietnam, although the agro-product trading floor was established a couple of years ago, only a modest number of sellers and buyers opt to trade here. The Vietnam Business Forum would like to introduce an article by Mr Nguyen Viet Vinh, Secretary General of Vietnamese Association of Coffee and Cocoa (VICOFA) on concerns over this type of trading.
Despite immediate delivery, transparent transactions, stable prices and goods with verified quality, etc., Vietnamese agro-product trading floor is not appealing enough to both buyers and sellers.
Many floors closed
Currently, agro-product trading floors in Ho Chi Minh City and Buon Me Thuot are almost empty with customers. Buon Ma Thuot Coffee Exchange Center (BCEC) which was opened in 2008 was invested in a professional manner and is a modern trading floor, conforming to international trading practices. However, it is now only operating sporadically. Only a couple of dozens of tonnes of agricultural products are traded per each session. Similarly, Sacom-STE was opened in March 2010 but until now, only about 100 tonnes of sugar have sell and buy orders matched per day.
Despite BCEC’s efforts to make practical adjustments such as reducing the regulated weight of a traded lot of commodity from five tonnes to one ton, allowing farmers to sell products even when they have not been harvested, or getting a loan of up to 70 percent of the value of the deposited lot of commodity at the time it is deposited based on depository certificate…, it is still difficult for BCEC to attract enterprises and customers. A majority part of enterprises and people are still fond of traditional trading practice.
Even worse, Can Gio agro-product trading floor (in Ho Chi Minh City) had to close down after a couple of dozens of trading sessions. Its closure is due to the fact that trading conditions are not as convenient for customers as when they deal with merchants. Similarly, the cashew nut trading floor in Binh Phuoc was forced to close down after some experimental trading sessions due to the regulation that only enterprises having deposited commodities could have buy and sell orders matched. Meanwhile, no enterprises had commodities in stock.
Vietnam is a nation with strengths in such farming products as coffee, rubber, cashew nut and pepper. Establishment of commodity trading floors is a right policy. However, in order for the model to be a success and get attention from the society, orientation and strategy development need to be provided by managing agencies. Success experience of agro-product floors in the world is a suggestion for Vietnam in establishment while showing quite a few limitations in development and management of this model.
Experience from neighbouring countries
There has never been any commodity trading floor which gains success right after its establishment. Malaysia commodity exchange center can be taken as an example. It was formed in 1968. The current model got reformed and restructured in the 1990s and is still maintained until today. However, it took nearly ten years after the restructure for the exchange center to make breakthroughs and gain success.
Facts have shown that so as to have success like today, the agro-product trading center of this nation has got firm support from the Government in many ways. The very first assistance it is offered is through funds managed by the Government. Malaysian Government repurchases a certain proportion of shares in order to be able to get involved in management. Secondly, the Government has the right to appoint important positions. The exchange center just has the right to make proposal. This practice is similar to those implemented at other regional centers: 1/3 key positions are appointed by the Government, which guarantees transparent and fair operation of trading floors. Producers and financial investors need to be protected.
Like many other developing nations in the world, the agricultural product consumption system of Thailand is through lots of intermediaries. In direct transactions among farms and processing enterprises, farmers are often placed at a disadvantageous position in negotiations with collectors. Prices are often unstable due to imbalanced supply-demand. The Government of Thailand, therefore, issued the policy to construct agricultural central markets or agricultural wholesale markets. This aims at creating a bridge to link famers with such markets and thereby helps to stabilise the agricultural market and increase income for farmers.
So far, Thailand has established 68 rice central markets, 18 vegetables ones and three maritime product ones. Each market receives a credit assistance amount of 20 million baht from Thailand Government in five years’ time as well as assistance in trade promotion, information provision, training or organisation of workshops, etc.
Government’support is the most important
Establishment of an agro-product exchange center creates a new consumption channel for enterprises and relevant entities, particularly for farmers to approach e-transactions at the center via matching of buy and sell orders. The benefit of forming this coffee exchange center is to create transparency and competitive prices.
However, to have effective operation of an agro-product exchange center and to avoid failures encountered by a number of global trading floors of this type, it is crucial that the factor of major conditions for establishment be given top priority, i.e. there must be large volume of commodities, volume must be large enough and requirements on quality, packaging and grade, etc. must be met. The next conditions are set on the number of enterprises participating in trading at the floor. There must be enough selling and buying enterprises. Just a few buyers and sellers will lead to unhealthy competition. Enterprises are required to reach certain level of finance, business and legal capacity.
It is essential that managing agencies have strict mechanism and management so that enterprises and people feel secure when trading at exchange centers. To this end, small-scaled and fragmented production must be shifted to a large-scaled one. We need to standardize both scale of commodity supply and quality of commodities supplied at such centres.
In addition, managers of trading floors need to prove their advantages over tradition trading practice.
In the Commercial Law, commodity trading floor is mentioned. However, the law fails to provide specific regulations to facilitate the development of commodity trading floors. The support from managing agencies is not effective enough to get the commodity trading floors widely known and its superiority to traditional transactions acknowledged properly. Another problem lies in the limitations of the trading floors which are associated to derivative products as trading floor is not merely related to commodity exchange but also accompanied by financial derivative products. Only when this problem is well tackled, can we enhance the effectiveness, flexibility of commodity exchange centers and make them well respond to international practices. As such, it is obvious that the role of managing agencies is of great importance to the operation of an agro-product trading floor.
Currently, the future of agro-product trading floors which constitute a new investment channel and got introduced just several years ago with lots of expectations is becoming ever more tottering. It is high time rescue solutions were sought for this type of trading with a view to generating right benefits it is supposed to do.
H.A
Vietnamese
