Technology helping food get to market

High technology, as a business, is always talking about time to market. You have to get your product out to the consumer as quickly as possible. But when you compare high-tech to the world of perishable goods, one quickly realizes what time pressure really means. Here, time is measured in hours, not months.

Toronto-based Aucxis Corp. is hoping to bring the two worlds closer together with a European pilot of its e-business auction technology designed to help seafood and fruits and vegetables merchants and flower auctions move their goods more effectively. As it stands now, the European perishable market represents US$150 billion in annual sales. The global perishable market is US$1.4 trillion.

The company was founded in 1998 as e-Auction Global Trading and changed its name to Aucxis in May of this year. The auction technology was gained through acquisitions and the financial technology is home grown. Perishable goods auctions have had their foot in the European marketplace since before the turn of the century and Aucxis acquired several key players there: namely Schelfout Computer Systemen in Belgium and Palm Nieaf Systems in the Netherlands.

The two companies supply a strong installed customer base and TCP/IP-enabled trading systems, according to the company.

how times have changed

Less than 20 years ago the auctions went from the traditional shout process, where prices rise with the auctioneer’s voice until the last bidder remains unchallenged, to electronic auctions which work in the opposite manner.

If, for example, a hundred kilograms of salmon is being sold, the seller sets a price far higher than he or she thinks it will get. A clock, with the price, then starts to tick down. The first person who pushes a button at his or her terminal gets the fish for the price showing. But it is a challenge of nerves. If you hit your button too soon, you pay more than was needed. On the other hand, if you strike too late, the goods are already sold and you get nothing.

Traditionally, merchants had to put up a bank guarantee at each auction and — since the guarantees are not portable — it became a stumbling block for smaller buyers to attend more than one auction. Aucxis signed a partnership with the Dutch bank ABN AMRO to provide financial services to its customer base. So now when buyers enter the auction network, the only money they have to show is the money they plan on spending that day.

“When you buy a product a request goes out to a financial hub that we run. Do I, or do I not, have the amount of credit needed to consummate this transaction?” explained Dan McKenzie, president and CEO of Aucxis.

So from a remote location a buyer could purchase flowers from one auction, fish from another and fruit from a third, all with one financial guarantee.

“A person logs on and says they want to spend $5,000 today, so the system goes and gets the money from the account, then it comes back to the hub (which is real time) and it sits there,” McKenzie said. “The way we do that is by real-time debiting your account.

“The way we can add value is by increasing the industry liquidity,” he added. “If we can find a way to eliminate a bank guarantee then all of a sudden the industry has more working capital. So I have one credit system and I can buy from any auction that is on the network and it all works seamlessly,” McKenzie explained.

speed is the key

Needless to say the technology has to be exceedingly fast. When the clock is moving down it is in real time, McKenzie explained. “When you stop the clock, you have to have the money and [all of this] has to happen in 85 milliseconds or less, otherwise you get disgruntled buyers.”

The pilot goes live in January 2001, with seven Dutch fish auctions representing 73 per cent of the fish purchased at electronic auctions today, according to McKenzie.

For buyers working in another currency it is easy. “You buy in your own currency, we do the foreign exchange conversion,” McKenzie said.

By aggregating all of the buyers, sellers and auctions, Aucxis can negotiate wholesale rates structures for its partners for financial, informational, network or logistical services, McKenzie explained.

After the pilot, Aucxis plans on moving to countries like Great Britain and France. One potential auction partner is Plymouth Trawler Agents Ltd. in Plymouth, England. It is currently using the Schelfout auction technology, said David Pessell, managing director of Plymouth Trawler. But, he added, life will be easier when the Aucxis financials are added to the solution.

“It would take a huge management problem off of our hands…it would be a major headache removed for us if we could just hand that over lock, stock and barrel to somebody and say you take care of the buyers,” Pessell said. At the moment the auction does not have as good control over bank guarantees as he would like, he said. The auction hopes to have the complete Aucxis solution sometime next year.

Right now, in addition to its on-site auction, it has eight remote sites up and running, with the capacity to add 22 more. Each site is capable of handling multiple buyers. The addition of more buyers, from remote locations, should help to increase the prices fishermen get, according to Pessell.

Another advantage of adding remote buyers to an auction is to reduce the likelihood of buyer collusion designed to keep prices down, McKenzie said.

But all of this doesn’t necessarily mean higher prices for the consumer.

“I think what will happen in the industry is that a lot of the middle men will be gradually cut out of the selling process,” Pessell explained.

“I think the difference to how it was five years ago is phenomenal.”

crossing the pond

Cracking the North American market may be a bit more difficult for Aucxis since there is less auction tradition here than in Europe.

Clearwater Fine Foods in Halifax, N.S., is one of the world’s largest harvesters of lobster. It has 26 vessels out harvesting the sea and sells most of its catch directly to high-end restaurants and retailers around the world, according to James Davison, director of e-commerce at Clearwater.

“Everything we do toward live lobsters and all of our species is geared toward top quality, so our buyers are less price oriented and more quality oriented and therefore they don’t necessarily get involved in the auction format,” he said.

Though Clearwater may not involve itself in seafood auctions for the foreseeable future, Davison said the idea’s time certainly has come.

“I think the model fits well when there is already an auction in place. A fresh fish auction – why not put it on-line?”