Coffee Industry Goes Online

Coffee Industry Goes Online  

Vietnamese coffee producers and exporters can join the London exchange by accessing to the Hanoi-based Techcombank's headquarters. With the participation of such an intermediary as Technological and Commercial Join-stock Bank (Techcombank), risks for Vietnamese coffee producers and exporters in foreign markets will be minimised when they join the trading floor.

Techcombank’s link with markets

In September 2004, the State Bank of Vietnam licensed the ever first Vietnamese bank, Techcombank, to provide futures contract transactions with foreign trading floors. Accordingly, the bank acts as an intermediary between Vietnamese producers and exporters with foreign trading floors to reduce risks. Techcombank will provide financial guarantee services for local enterprises when they join futures markets. The bank has provided the services for Vietnamese coffee producers and exporters for four months, which have been highly appreciated by the bank’s customers and partners.

When enterprises want to give their orders to the market, they can call Techcombank. The bank will directly post their orders to the trading floor instead of the Refco Group of Singapore, a member enterprise of the futures market of the London International Financial Futures Exchange (LIFFE). This is because Techcombank uses software similar to that of the Refco Group, which directly connects to the exchange. Pham Quang Thang, deputy general director of Techcombank, said that prices changed very quickly, so enterprises would waste opportunities if their transactions were implemented via many intermediaries. When enterprises’ orders are posted on the market, if there is any announcement about order tallying, there will be partners who have issued buying/selling orders at the price as by Vietnamese enterprises.

When a coffee processing or exporting enterprise signs an export contract, if it has not collected enough coffee, there will be two possibilities. The first is a price increase and the second, price drop. If the price drops, the enterprise will find it advantageous. On the other hand, if the price is up, the enterprises will certainly suffer losses. In that case, insurance for futures contract is necessary. The futures market would rather help enterprises avoid risks than simply help them buy or sell things. This means that the futures market insures enterprises’ transactions.

Techcombank has yet to provide online transactions between the bank and its clients. However, Thang said that Techcombank is building an e-commerce system. In the future the bank will run simultaneously telephone-based and online-based systems.

Both technology and policy needed

In Vietnam, there has yet to be any legal document regulating the selling and buying activities via trading floors. Even regulations on online transactions have yet to be finalised. There are clear regulations on telephone-based transactions around the world. Similar regulations have yet to be finalised in Vietnam.

Thang said that Techcombank’s transactions on international trading floors were compliant with Vietnamese laws and the regulations of the floors. Vietnam doesn’t have any regulation on goods traded on exchanges. The fact that the State Bank of Vietnam has allowed Techcombank to provide transaction brokerage services on a trial basis may be a good opportunity for local lawmakers to gain experience from foreign countries in law building.

The Ministry of Trade is considering documents and drafting the amended Law of Trade, which is expected to regulate transactions on international exchanges. Accordingly, management agencies in Vietnam will issue legal documents on online transactions and transactions on international exchanges. Now, enterprises in the world have used many instruments to reduce risks. Therefore, to increase competitiveness, Vietnamese enterprises cannot enter the international market without any preventive instruments.

• Nguyen Thoa