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So
does Brian Tormey, one of the founders of AgEx. "There
is not enough business out there to have (so many) different
players, so there will be consolidation in the years to come,"
Tormey said. David Sunding, agricultural economist at UC Berkeley,
says these companies have a difficult challenge. "Agriculture
is so decentralized, and these companies are going to have a
very hard job marketing," Sunding said. "It's not
impossible, but I think the jury is out how these things will
work." He also sees a higher resistance in agriculture
to using the Internet than in other industries, although farmers
in California are generally more computer-savvy than their counterparts
elsewhere.
"At
the end of the day, these companies will fly if they generate
cost savings (for customers)," said Sunding, who doesn't
expect more than a few to survive. The survivors will be those
that attract enough buyers and sellers to ensure a steady flow
of transactions, said Satish Nandapurkar, who heads the e-business
operation for the Chicago Mercantile Exchange. In the early
stages of the industry, that's not happening, and customers
are never sure they can count on getting a response after posting
an offer, Nandapurkar said.
Clearly,
AgEx and the others are focusing on building that critical mass
of clients. Those are the marching orders for AgEx's international
sales force, said Royce Nicolaisen, the company's other co-founder.
Revenue flows from the membership payment that allows a business
to conduct trades on the Web site, as well as transaction fees.
AgEx has an annual membership fee of $5,000 and a one-half of
1 percent transaction cost. The online trading exchanges typically
have different business strategies or focus on different crops.
AgEx initially launched trading floors for almonds and walnuts
but plans to add others by the end of September for juice concentrate,
rice, beans and tomatoes.
Horsepower.com,
based in Tulare County, has a broader target, encompassing 430
commodities for online trading. Nuttrade.com, with operations
in Modesto, zeroes in on tree nuts, including almonds, walnuts,
pistachios, pecans and cashews. But all the dot-coms essentially
provide the same service of offering a neutral site on the Internet
where farmers or distributors of farm products can post certain
quantities of their commodities for sale and try to attract
buyers such as canneries, food manufacturers or brokers.
Or
a buyer can take the initiative. A food processor, for example,
will indicate an interest in acquiring a certain amount of raw
or processed product and try to get suppliers to fill the order.
Contacts are made, and the haggling begins. Officials with AgEx
and the other companies make the case that e-commerce is a quicker
and cheaper way to conduct business. It can cut out the middleman
such as brokers, reduce the sales force, speed up transactions
and literally open a whole new world of customers that businesses
couldn't reach by traditional means or didn't even know existed.
Many businesses using the Internet for such transactions are
seeing those benefits. "You have, in effect, a store open
24 hours a day, seven days a week, 365 days a year," said
Kebede Gashaw, with Woodland-based Morning Star Co., which has
three tomato processing plants in California. Morning Star,
the largest tomato cannery in California, has been using AgEx.com
and Horsepower.com to acquire fresh tomatoes currently being
harvested to supplement its traditional method of contracting
with farmers before the crop is planted.
Customers
from all over the world can get onto the Internet site, view
offers and decide whether to make a purchase, said Emmanuel
Esteve, whose family owns California Almond Packers and Exporters
(CAPEX). The Esteves' business, with a packing plant near Chico
and a marketing office in Stockton, started using AgEx.com the
first day it became available last winter. "It brought
in some new customers (from Hong Kong and in the United States)
that traditional channels hadn't brought to us," Esteve
said. CAPEX has also used the Nuttrade.com site.
Without
giving specific numbers, Esteve said CAPEX has managed to buy
or sell something less than 10 percent of his almond supply through
online trades. "It's a decent amount. I expect it to grow,"
he said. Nicolaisen said he is pleased with the progress AgEx
has made in its first six months of operation. "We've met
with great acceptance by both buyers and sellers on the almond
exchange," he said. About 5 million tons of almonds valued
at about $6 million changed hands in that time -- more business
consummated than on any other Internet exchange for any other
agricultural product, he said. Still, an additional 65 million
tons of almonds posted on the AgEx site didn't draw customers.
That's what that international sales force is for -- to find more
customers and introduce them to online trading.
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