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Selling beans via cell-phone

On one busy day in San Salvador last April, some US$1.7 million worth of fertilizers and pesticides changed hands.

Actually, a few slips of paper changed hands. The 12,000 metric tons of fertilizer and 37,500 liters of pesticide were nowhere to be seen, because the sales took place at the Bolsa de Productos Agropecuarios (BOLPROES), El Salvador's fledgling commodities exchange.

Standing before a wall-sized whiteboard covered with scrawled prices, a group of business-suited traders shouted bids for standardized lots of fertilizer while consulting with clients over cellular phones. The bids that matched offers for each lot resulted in contracts that would later be settled by brokers representing buyers and suppliers from around the country.

The raucous bidding was music to Sandra Munguía's ears. The youthful general manager of BOLPROES said the record-setting session was evidence that producers and consumers of agricultural commodities in El Salvador were starting to understand the real value of using an exchange.

Since BOLPROES opened for trading in 1995, Munguía has spent much of her time trying to convince the agricultural community of just that.

The exchange was created by a group of 100 Salvadorian business concerns that wanted to bring greater efficiency, predictability, quality and transparency to the sale of commodities such as coffee, beans, rice, wheat, corn and fertilizers. Most Salvadorian farmers still sell their produce to middlemen who come to their fields and offer a price based on a quick visual appraisal of the crop. These middlemen, known as "coyotes," typically pay low prices that reflect the high costs of dealing with small lots along a lengthy chain of middlemen, distributors and retailers.

"Farmers know they lose money to the ‘coyotes,' but they are used to the convenience of being paid on the spot, and they don't like the idea of submitting their products for quality testing," said Raúl Saca, a commodities trader for CORCEPRO S.A., in San Salvador.

In order to sell through BOLPROES, producers must first provide a sample of their product for testing and classification by a certified laboratory. Red beans, for example, are classified on the basis of how long they must be cooked. Other crops are tested for humidity, impurities and broken grains.

Once a sample has been classified, a producer can offer lots for sale through a trader registered at BOLPROES, who buys and sells contracts for the lot in exchange for a small percent of the transaction value. Traders guarantee payment to the producer at the contract price, regardless of subsequent fluctuations in a crop's market value.

"This has clear advantages for the producer," said Saca. "Since all the middlemen are eliminated, the final price tends to be higher," regardless of the quality grading assigned to a lot. The system even benefits producers who aren't selling through the exchange. The latest contract prices are listed in local newspapers, giving farmers a benchmark they can refer to when negotiating with a "coyote."

BOLPROES is attractive to industrial buyers because it gives them an accurate idea of the quality of the commodity they are buying. A substantial percentage of grain sold through traditional means is ultimately found to be unusable--a loss that must be assumed by the buyers.

Despite these advantages, Munguía has had a tough time convincing skeptical producers and buyers. Her efforts were boosted in 1996 when a portion of a $1.7 million grant from the IDB's Multilateral Investment Fund (MIF) was used to strengthen BOLPROES and similar commodity exchanges in Costa Rica, the Dominican Republic and Nicaragua.

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