17 July 1998

Perfect market – thats Belgian flower auction

By Philip Clarke

WHAT makes a perfect market? According to Belgian businessman, Luc Schelfhout, it is one where supply and demand meet in open, fair and transparent conditions. It is a place where buyers compete on price, sellers compete on quality and all other influencing factors are eliminated.

That may all sound a bit Utopian. But seeking to achieve it is one of the driving forces behind Mr Schelfhouts development of electronic trading equipment over the past 15 years.

His company has mainly focused on perishable products – principally fruit, vegetables, flowers and fish. But it has also established electronic markets for cattle, meat and milk.

One example is the Euroveiling flower market at Laken – the largest such wholesale outlet in Belgium. Each morning up to 500 retailers arrive at the centre and log on to one of the terminals.

The sale is based on a falling price or "Dutch auction" system. A sample of each lot is paraded before the buyers and a price appears on one of five large clocks on the wall in front of them (see picture). This value then starts to fall, moving anti-clockwise on the display until a buyer presses his button to stop the clock and lock in the price. His buyers number appears on the screen to confirm the trade. The next sale begins.

According to the companys UK representative Bryan Renn, there are three main advantages with the system – speed, transparency and administration.

On a falling price market, only one bid is necessary. When the trade is in full swing, up to 1200 lots an hour can be moved on one clock – equivalent to one lot every three seconds. With buyers often trading on two or three clocks simultaneously, and also linked in to other auctions in the country, the action is fast and furious.

The use of electronics also rules out the possibility of human error, leading to a more transparent trade.

As for administration, all invoicing and accounting is done automatically, while market data.

Mr Renn also believes better prices can be achieved using a Dutch auction, as the pressure is really on the buyer to put in the first bid.

One possible drawback is that remote purchasers never get to see the produce they are buying. But this is more a conceptual difficulty than a practical one and is easily overcome, says Mr Schelfhout.

For example, in the fruit and vegetable sector, the 12 main markets in Belgium employ their own independent controllers to ensure quality is up to scratch. Buyers tend to know what they are getting anyway, just from the name of the vendor and his reputation in the business. But the company has also developed a video imaging facility as back-up, which works well in some situations.

Every market need is different, says Mr Schelfhout, so packages have to be tailor made. For example, two years ago the company installed its first cattle auction at Rodez in the south of France.

Instead of the traditional "open outcry" arrangement, 30 computer terminals now surround the auction ring. As each animal enters, a start price appears on the clock. Bids are entered at the touch of the button and the value starts to climb. A deal is struck when no new bid is received for three seconds.

Again this is quick, transparent and easy to administer.

But, despite having set up systems for over 100 wholesale markets world-wide, so far the company has had only limited success in the UK.

"Our philosophy is that, where theres a market theres an opportunity," says Mr Schelfhout. "But the UK does tend to be more conservative. There is also the problem that supermarkets are increasingly dealing direct with farmers."

The further down this route the industry goes, the less chance there is of the market operating perfectly, he maintains.