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Vegetable Marketing Organization
Project: Digitization of Market
The impact of IT intervention has not been limited to corporations big and small. IT is also playing its transformational role in markets and exchanges of all kinds. .
Transaction cost usually constitutes a huge chunk of the total expenditure that final consumer has to pay, sometimes outstripping production and material cost. In the whole production chain of cut flowers, for example, production cost incurred by growers usually constitutes about 42%, while transaction cost taken up by auctioneers( 3%), wholesale traders ( 12%), retailers (43%) when combined amounts to well over 50%. Even for more efficient industries like garments and toys, the company Li and Fung discovered that the ratio of transaction cost to production cost is believed to be in the region of 3 to 1.
There is no shortage of attempts at reducing transaction cost in each and every industry. Hong Kong, when it migrates increasingly from an industrial economy into a service economy, has increasingly moved its innovative focus away from production cost reduction, and increasingly moved its innovation focus into the transaction cost reduction arena. In place of factories, we witness the emergence of capital markets and an expanding cluster of exchange institutions: the stock exchange, the commodities exchanges, the gold and silver exchange, the foreign exchange, etc. In place of integrated manufactories, we see the emergence of a trading hub which orchestrates transactions across continents. Around these exchanges and hubs are supply chain organizers and trade facilitators. We see logistics orchestration, port containerization and transport standardization coming to the fore. Accompanying these are the clusters of exchange regulators and trade dispute arbitrators.
How then does IT play its role in market transformation? The transformation of the exchange operation in the Vegetable Marketing Organization is one good example.
The buying and selling of vegetables is of course as old as history. But as a form of exchange it does present some unique challenges, as distinct from, say, the exchange of gold. Firstly, the product is inherently perishable, which make it very difficult to be withhold. Efficiency in transaction could drastically reduce the impact of delay-induced deterioration. Secondly, as a product of nature, it is difficult to be standardized. This entails a necessity for site-inspection, and bargaining has to be built into the exchange routine. Auction emerged as an age-old price-forming institution. If we could find ways to enhance auction efficiency, this could bring up the productivity of traders significantly, which in turn could bring down the price of vegetables substantially as well. Thirdly, all transactions entails the accounting, payment settlement, record reconciliation routine, which could add up to huge processing cost if one were to stick to paper instruments. Each paper instrument has to be written on by various parties, be circulated across the entire logistic chains and eventually end up in the back-office for processing. Could all the above be digitized?
A few visionaries with the Vegetable Marketing Organization understood the transformation potential of market digitization. And ICO was brought in to modernize the system. Once the system has been put in place, it has contributed to enlarging the yields-to-market ratio, to the freshness of vegetables on the dinner plates, to auction efficiencies, and to the reduction of processing costs.
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