A better marketplace for almonds

Transcription

1 A better marketplace for almonds

2 A properly designed online marketplace for almonds will establish fair, competitive prices with reduced volatility. Our online marketplaces have achieved the following benefits: A 25% to 50% reduction in price volatility A 2% to 5% improvement in pricing More reliable prices and credible market information Increased confidence for both sellers and buyers Enhanced risk management capabilities More efficient planning and lower logistics costs

3 An online marketplace can be designed to reduce price volatility When designed properly, an online marketplace reduces the price volatility associated with uncertainty by providing reliable and credible market price information to buyers and sellers. Prices generated by the trading events will become the benchmark, and they significantly narrow the range of prices for transactions outside of the trading events. $5,000 $4,000 $3,000 $2,000 $1,000 $0 Dairy Industry Transaction (Small) Individual Seller Price Before there were trading events, industry prices and individual transaction prices were volatile Dairy Industry Transaction (Medium) Dairy Industry Average With the introduction of trading events, the range of prices narrows Dairy Industry Transaction (Large) An online marketplace can be designed to better reflect market conditions CRA s online marketplaces are designed to attract sellers and buyers who want better, more reliable information about prices and market conditions. Supply and demand are brought together via CRA s trading platforms that have achieved successful outcomes in hundreds of trading events across a range of industries. Clearing prices are determined through a fair, transparent process, reflecting supply and demand conditions. Winning quantities are awarded to those buyers who value the product the most. In this way, price and quantity outcomes reflect market conditions, and winning bidders are those bidders willing and able to pay the market price. Almonds are ideal for this marketplace because: There are standard categorizations on quality, grade, size Prices are subject to significant volatility Greater transparency and more credible market information are needed The market is complex with a large number of participants An online marketplace can be an effective price discovery process Prices are determined through a fair, transparent, and effective price discovery process as supply and demand are expressed for multiple products simultaneously Products are offered in different time periods simultaneously as determined by sellers, and buyers benefit from this additional flexibility in buying and selling options Buyers bid on various products and delivery periods, reflecting their substitution capabilities and portfolios of complementary products The confidence of sellers and buyers is enhanced by smoother forward price curves and reliable forward-looking market information Benefits Benefits of a well-designed transaction mechanism include: Provide effective price discovery Minimize information and transactions cost Generate credible, reliable market information Establish fair, trusted transaction experience Increase sales and profits, reduce procurement costs Attract new customers, expand product offerings Facilitate risk mitigation for sellers and buyers Improve customer relationships Enable win-win for both sellers and buyers Satisfy regulators and other stakeholders

4 Case study: GlobalDairyTrade Online Marketplace $20+ billion transacted since 2008 Challenge and Opportunity Fonterra, the world s leading dairy exporter, wanted better price transparency, price information, and price risk management. Solution CRA designed and developed the electronic trading platform, GlobalDairyTrade (GDT), which includes both a public information site and a secure bidding site. CRA is also the independent Trading Manager in charge of GDT s trading events. How GDT helps raw milk suppliers optimize revenue Raw milk can be processed into various combinations of intermediate dairy products. The price signals from GDT trading events enable suppliers to respond to market conditions and select the optimal mix for production. Suppliers optimize their profits and improve their bottom line by processing raw milk into the highest-value products. In cases where production flexibility is limited, the value differentials inform investment in processing capabilities. Buyers benefit from increased supply offered for products in highest demand. $4,000 $3,500 GDT platform reduces price volatility and the frequency of contract renegotiations 15% revenue increase in events 167 and 168 Since 2008, GDT has grown into a multi-seller, multi-buyer platform. Hundreds of participants from around the world have participated in GDT s twice-monthly trading events trading about 100 products in each event. GDT generates benchmark prices that are used throughout the international dairy industry, and futures and financial contracts are traded based on the prices and outcomes generated by the platform. Over $20 billion of internationally traded dairy products have been sold on this growing marketplace. $3,000 $2,500 $2,000 $1,500 $1,000 TE-117 TE-119 TE-121 TE-123 TE-125 TE-127 TE-129 TE-131 TE-133 TE-135 TE-137 TE % revenue increase in events TE-141 TE-143 TE-145 TE-149 TE-151 TE-153 TE-155 TE-157 TE-159 TE-161 TE-163 TE-165 TE-167 TE-169 Revenue Revenue Optimized TE-171 TE-173 TE-175 TE-177

5 Case study: Ocean Spray s Online Marketplace 800,000 gallons transacted per year Challenge and Opportunity Ocean Spray needed improved price transparency, market-based price information, and enhanced price and quantity risk management for their co-op members and customers. How trading events help Ocean Spray strengthen customer relationships Ocean Spray s trading events allow customers to express how much they value the product. That mechanism did not exist prior to the development of the cranberry trading platform. In this example from an Ocean Spray trading event, different customer segments responded differently as price increased. Some were sensitive to price while others demonstrated a consistent need for Ocean Spray product regardless of the price. Selling their product to customers that need it the most and value it the highest strengthens Ocean Spray s relationships with their best customers. Trading events provide credible information about the market for cranberry concentrate Solution CRA designed and developed an electronic marketplace which includes a public information site and a secure bidding site. The marketplace is based on sound economic and bidding theory, as well as extensive CRA experience in bidding mechanisms and market designs. The cranberry marketplace designed and managed by CRA holds four online trading events and transacts about 800,000 gallons of cranberry concentrate per year. Gallons 350, , , ,000 Bargain Hunters: Reduced demand significantly after R1 and out completely after R3 Price Sensitive: Withdrew demand as prices increased Price Takers: Demand unchanged at ~150k gallons regardless of price 150, ,000 50,000 0 Round 1 Round 2 Round 3 Round 4 Round 5

6 How it works 1 2 Q1 3 Q1 $300 CRA provides extensive expertise in trading platform and market design, implementation, and participation for businesses, sellers, buyers, governments, and other market participants. For over 20 years, CRA has designed and managed electronic marketplaces that generate more reliable price and market information, reduce price volatility, and lower transaction costs. 1. A starting price is set for the product. 2. Buyers submit the quantity they are willing to buy at that price. 3. After the bidding round closes, if demand exceeds the quantity offered, an algorithm determines the price increase for the next round. 4. This process repeats round by round until demand for the product is equal to the quantity offered. 5. Only bidders that remain active until the close of the trading event win product. Design of Bidding Mechanisms CRA develops trading platforms and other market designs that are tailored to the unique needs of a marketplace. Bidder Support & Strategy CRA provides market participants with strategic advice and other valuable support services prior to and during the bidding process. 4 Q1 $300 $375 $410 $440 $450 $455 Implementation of Bidding Processes CRA has implemented and managed hundreds of successful trading events with transaction values ranging from hundreds of thousands to billions of dollars. Software & Electronic Trading Platforms CRA develops and customizes software applications, systems, trading platforms, and tools used to manage trading events and to support bidders and other participants. Q2 Market Monitoring Regulatory & Litigation Support Q3 Q4 Q5 Q6 Winning bids Q7 CRA provides independent analysis and monitoring of market mechanisms. We facilitate the entire process, improving the design and implementation of the market mechanism to ensure that it is conducted in accordance with the objectives and expectations. CRA delivers expert regulatory and litigation services in disputes and other matters involving trading platforms and other bidding mechanisms.

7 Brad Miller Vice President Robert Lee Vice President Trading.crai.com