ELECTRONIC COMMERCE AND REMOTE RURAL AREAS: A CASE STUDY FOR A GREEK ISLAND C.I. Costopoulou1, H.C. Passam2 and A.B. Sideridis1
ABSTRACT The Internet, fueled by the phenomenal popularity of the Web, has acted as a catalyst for the growth of electronic commerce. During recent years the field of electronic commerce has seen rapid growth in several sectors. The aim of this paper is to encourage the development of electronic commerce in the agricultural sector of remote rural areas. More specifically, it describes an Internet-based electronic commerce application for trading perishable agricultural products (vegetables, fruits and flowers) on a Greek island. The proposed application aims to effectively cover the farmer-to-trader business relationships and collaborations. Keywords: Electronic commerce application, Remote areas, Agricultural products, Internet.
INTRODUCTION Electronic commerce is the way of "doing business electronically" (European Union, 1998). It is based on the electronic processing and transmission of data, including text, sound and video. It encompasses a wide spectrum of activities, such as electronic trading of goods, electronic ordering of tangible goods, online delivery of intangible goods, electronic support for traditional business, the advertising of goods, direct consumer marketing, public procurement, and customer services. As a rapidly expanding field, a number of electronic commerce approaches have been developed in several sectors, each of which requires a particular approach (Laopodis et al., 1998). Several sectors have developed their own approaches in view of integrating electronic commerce applications. In this context, the agricultural sector requires the development of specialized applications for the successful adoption of electronic commerce with low risk. The implementation of electronic commerce applications for the agricultural sector will make it possible to trade at low cost across regions and national frontiers, to gain access to the global marketplace, and to develop efficient distribution channels for the physical delivery of products ordered electronically. Furthermore, these benefits can play a significant role in overcoming some of the main disadvantages of remote rural areas, such as distance and isolation. For the trading of agricultural products, the establishment of favourable business relationships and collaborations is becoming increasingly important in the face of market globalization (Costopoulou, 1998). For perishable agricultural products, the application of the WTO (World Trade Organization) agreement and the revision of the CAP (Common Agricultural Policy) for fruit and vegetables will intensify the competition with third country products. In consequence, there will be a need for greater competitiveness of fruit and vegetables and the implementation of modern methods of marketing by the adoption of a comprehensive strategy for the promotion of exports. This is especially true in countries such 1
Informatics Laboratory, Agricultural University of Athens, 75 Iera Odos, 118 55 Athens, Greece, E-mail:
[email protected] 2 Vegetable Crops Laboratory, Agricultural University of Athens, 75 Iera Odos, 118 55 Athens, Greece.
as Greece where the exportation of fruit and vegetables makes a significant contribution to the rural economy. This paper presents a practical approach for applying electronic commerce to the agricultural sector in remote rural areas of the European Union. More specifically, it describes an electronic commerce application for perishable agricultural products, such as fruit, vegetables and flowers. A particular problem faced in remote rural areas is that the method of marketing, trading and distribution of these highly perishable agricultural products with a short period of availability, presents difficulties due mainly to the lack of communication and cooperation among traders and farmers, and inadequate distribution programming. As a result, delays in distribution and reduction in quality occur. The structure of the paper is as follows: The next section gives a brief overview of electronic commerce. The following section describes the business partner requirements for electronic commerce applications in remote rural areas. The fourth section presents a particular electronic commerce application in the case of the Greek island of Samos. Finally, the conclusions are given.
ELECTRONIC COMMERCE According to Kalakota and Whinston (1997) electronic commerce has different definitions: • From a communications perspective, it is the delivery of information, products, services, or payments via telephone lines, computer networks, or any other means. • From a business process perspective, it is the application of technology toward the automation of business transactions and workflow. • From a service perspective, it is a tool that addresses the desire of companies, consumers, and management to cut service costs while improving the quality of goods and increasing the speed of service delivery. • From an online perspective, it provides the capability of buying and selling products and information on the Internet and other online services. Depending on the nature of the transactions involved, electronic commerce can be subdivided into the following distinct categories (European Union, 1998): • business-to-business, • business-to-consumer, • business-to-administration, and • consumer-to-administration. Business-to-business category enables companies to order products, bill customers, trace product shipments, and transfer funds electronically. It includes such specific applications as automated trading systems, electronic markets, business information services etc. This category has been well established for several years, particularly using EDI (Electronic Data Interchange) over private or value-added networks. Business-to-consumer category enables the supply and delivery of goods and services by companies to consumers. It includes such applications as information services, virtual malls, homebanking, electronic payment etc. This category has expanded greatly with the advent of the World Wide Web (Web). It is noted that consumer-to-consumer transactions can also take place. Business-to-administration category covers the transactions between government organizations and the private sector. It includes such applications as electronic tenders, taxation, social security, public information services etc. Consumer-to-administration category has not yet emerged. Electronic commerce needs new skills for network literacy by consumers. However, in the wake of a growth of the above
categories, government organizations may extend electronic interaction to such applications as welfare payments, self-assessed tax returns etc. In the past, electronic commerce often meant expensive and rigid business-to-business systems using EDI technology (Papastamatiou and Charalambous, 1997). EDI is the computer-to-computer exchange of standardized electronic transaction documents. It enables companies to exchange business information faster, more cheaply, and more accurately than is possible using paper-based systems. However, EDI has not seen widespread acceptance because of some specific limitations. EDI applications are costly to develop, and require highly structured protocols and previously established arrangements. They also provide limited accessibility and only partial solutions to the transaction process. Moreover, they are very narrow in scope (Kalakota and Whinston, 1996). Today, electronic commerce is moving beyond EDI, either using Internet or extending EDI technology. The Internet technology, fueled by the phenomenal popularity of the Web, has acted as a catalyst for the growth of electronic commerce.
REQUIREMENTS IDENTIFICATION There have been a significant number of studies for the classification of the remote areas of the European Union (TYPORA, 1992). Among the categories that have been defined are agricultural areas (where the main occupation of the inhabitants is agriculture), and tourist areas (where the main occupation of the inhabitants is the provision of tourist facilities). As stated above, most of the rural inhabitants of agricultural districts have agriculture as their principal occupation. Consequently, their methods of distribution and sale of agricultural products in the market must become the most efficient so as to achieve the maximum profit. In tourist areas, the multitude of agricultural products on the local market so as to cater for the tourists’ demand during the "high season" is of considerable significance. In the case of selling or buying highly perishable agricultural products with a short period of availability the above considerations are even more important. In general terms, for the trading of agricultural products the identified business partners and their roles are the following (Fig. 1): • Farmers are the physical producers of the agricultural products who are interested to sell their products from the moment of harvest, and without delay. • Wholesalers are acting as brokers. • Traders are the customers of wholesalers and/or farmers.
Farmers
Traders
T
Wholesalers
Figure 1: Agricultural business partners relationships Bearing in mind that electronic commerce gives farmers and traders a greater elasticity in their contact and the possibility to develop a closer relationship, which will facilitate their demands and expectations, an application of electronic marketing and trading should be
developed taking into consideration each time the specific requirements and the existing activities of the business partners in each remote rural area. In order for the development of this electronic commerce application to assist agricultural business partners in an efficient and cost-effective manner, the Internet infrastructure is used. The Internet has a main wide-use and low cost technological infrastructure, which make it ideal for electronic commerce applications. Moreover, the most popular and fastest growing Internet application, the Web has captured the attention of the marketplace. The Web has a global information-sharing architecture that integrates online content and information servers in a fast, cost-effective, and easy-to-use manner (Kalakota and Whinston, 1997). The Web architecture forms the basis for electronic commerce applications since it can be used for marketing and advertising, customer service and support, and for developing new markets and distribution channels (Themistocleous and Polymenakou, 1998). The proposed electronic commerce application will also be Internet-based for another reason: agricultural business partners (mainly farmers) can allocate only limited resources for such an activity, at least in the beginning. In this paper an electronic commerce application for perishable agricultural products is described for Samos, which is a relatively remote island of Greece with an active tourist industry. It was considered advisable for the nucleus of such an application to start locally or regionally, before any attempt to apply it on a large scale (Laopodis et al., 1998).
CASE STUDY OF SAMOS Characteristics of the area The island of Samos lies in the Eastern Aegean. The total population of Samos island is about 42,000 permanent inhabitants (1991 census). Between May and September there is a significant increase due to the influx of tourists and tourist service providers. In 1996, 92,282 arrivals from abroad were recorded together with 27,057 domestic arrivals with an average of 8 and 3 overnight stays respectively. The number of domestic arrivals does not include individuals who stayed with relatives or who possess their own accommodation. The demand for perishable products in summer is significantly higher due to the increase in population, but local production is insufficient to meet this demand. In 1996, the total production of tomatoes on Samos was about 1,620 tons. If we estimate that the per capita consumption of tomatoes is 1,5 kg per week, it is clear that the local tomato production barely covers even the demand of the local inhabitants. Therefore, it is clear that to cover the needs of the island’s population as a whole, tomatoes must be imported from other areas of the country. In view of the highly perishable nature of the product and the rapid fluctuations in demand, transport must be carried out by the quickest possible method. Another problem that is encountered is that the central market for perishable products is located only in Athens and this hinders the direct transportation of products (e.g. from other islands or elsewhere on the mainland direct to Samos). The current practice of imports from the rest of the country relies on peer-to-peer communication with wholesalers by telephone and fax. The main disadvantages of this practice is that the customers do not precisely know all the characteristics of products and pay a significant amount for transportation. It is concluded that the existing method of marketing and distribution of perishables on Samos presents significant difficulties due to: • the small and uncoordinated production of these products within the island, • significant fluctuations in demand, with a large increase during the summer months, • a lack of communication and cooperation with producers in other districts,
• transport problems, and • inadequate distribution programming.
To avoid the above problems, the development of an electronic commerce application is proposed which will have as its objective the modernization of the methods of organization and marketing of perishable produce within the domestic market of Samos so as to meet demand more efficiently. This application will have the following possibilities: • For local farmers, the immediate distribution of their products within the island and other parts of the country. • For traders, a direct and programmed market for products derived both from local farmers and from farmers elsewhere in the country who wish to sell their products on Samos. The term farmer covers the following types: producers, agricultural cooperatives, agribusiness and export wholesalers. The term trader covers: import wholesalers, local shops, restaurants, hotels, consumers, agricultural product companies and probably individual customers. Electronic commerce application for agricultural products The proposed application aims to effectively cover the ordering and trading process of perishable products on Samos. The principal modules of this application are: a Farmer Module, a Trader Module, an Agricultural Products Catalogue, and a Farmer-to-Trader Matching Mechanism. This application supports the most important stages for the establishment of farmer-to-trader business relationships and collaborations. The products advertising is achieved through the Agricultural Product Catalogue, the farmers and traders advertising and the provision of further information is handled through the Farmer Module and Trader Module, respectively. The identification of the potential partners is achieved though the Farmer-Trader Matching Mechanism, while the exchange of information is achieved via Internet electronic mail. The main characteristics of the application modules are: Farmer Module: It includes structured data for each member of the farmer type. These data concern the contact person of each farmer and a number of attributes referring to his products such as the type and variety of crop, and the estimated production quantity, quality, period of availability and price. Farmer data may also include free text description, field features, product pictures, field images etc. Trader Module: This includes structured data for each member of the trader type. For each trader it provides information about the contact person, the estimated demand quantity, quality, demand period and the prices of the particular products. Trader data may also include trader profile etc. Agricultural Products Catalogue: This comprises structured product information, which is stored in a database. Structuring product information consists of classifying products into categories (those requiring special transport temperature or packaging), and entering the individual attributes of each product in separate fields in the database. This is essential to perform parametric search (search by attribute value). For each product, structured information about contact persons, the estimated product quantity, quality, the period of availability and price is provided. Farmer-to-Trader Matching Mechanism: This mechanism effectively supports the development of cooperation among farmers and traders. Farmers registered within the database of the system may submit collaboration profiles, indicating the type and variety of their products, the estimated production quantity and quality, the period of availability, price and the traders sought (e.g. local traders, wholesalers). Traders may also submit their collaboration profiles, indicating the required products (type, variety) and the estimated demand quantity, quality, demand period, the price of the products and the farmers sought
(e.g. agricultural cooperatives). The matching process takes into account all relative database information as well as the profiles of both farmers and traders. The notification of farmers and traders for the successful matching of their profiles is performed automatically. Moreover, in this application, another module, called a Demand-Forecast Module, may be added for the forecasting of product demand. This module can be used by traders who want to make programmed orders by calculating the estimated demand quantity of the products scientifically. Demand for the products will be estimated using the model "Almost Ideal Demand System" (Deaton and Muellbauer, 1980). This model is preferred due to its simplicity and ease of use. It has already been used in studies concerned with the demand for vegetables and fruit (Tiffin and Aguiar, 1995). The user interface of the application is Web-based and consists of a number of types of query that can relate to the Farmer Module, Trader Module, Agricultural Products Catalogue, and the Matching Mechanism. Users of this application can search and quickly find the information relating to the product they are looking for. The proposed application will be Internet-based, allowing all potential businesses to participate with minimal cost and complexity. On Samos, the existing telecommunication infrastructure is almost fully digital and connection with the other islands of the area and Athens is based on submarine optical fiber cables. Access to the Internet is achieved through Internet Service Providers (e.g. OTEnet, Forthnet).
CONCLUSIONS The proposed application aims to effectively cover the ordering and trading process of perishable agricultural products on Samos. It can be used to provide precise and low cost information to farmers and traders who seek specific partnerships. For both of them, this application can bring greater efficiency, increased responsiveness and cost reductions. The development of such an application will significantly contribute to the modernization of the methods of marketing and distribution of agricultural produce within remote rural areas, and its employment may subsequently be extended to other rural areas of Greece where similar market difficulties exist. It will also overcome some of the main disadvantages of rural areas, such as distance and isolation. In our opinion, the development of agricultural electronic commerce applications will give a new perspective to the agricultural sector. This is especially true in countries such as Greece, where agriculture makes a significant contribution to the economy and where many areas of production are isolated and far from the site of consumption.
REFERENCES 1. Costopoulou, C I, Sideridis, A B and Passam, X K (1998). Electronic commerce for sensitive agricultural products in Greece. To appear in Proc. of 12th National Conference on Business, Greece. 2. Deaton, A and Muellbauer, J (1980). An almost ideal demand system. American Economics Review, 70, 312-326. 3. European Union (1998). Electronic commerce - An introduction. Availiable at http://www.ispo.cec.be/ecommerce/introduc.htm 4. Kalakota, R and Whinston, A B (1996). Frontiers of electronic commerce. AddisonWesley, Publishing Company.
5. Kalakota, R and Whinston, A B (1997). Electronic commerce: A manager’s guide. Addison-Wesley, Publishing Company. 6. Laopodis, V, Conte, A and Elefteriadou, I (1998). A methodology for introducing interoperability in industrial sectoral applications of electronic commerce. pp. 679-684. In: WAGNER, R R (ed.) Ninth International Workshop on Database and Expert Systems Applications. IEEE Computer Society, N.J 7. Papastamatiou, G and Charalambous, O (1997). Electronic commerce application in the Greek economy: A practical approach. pp. 235-252. In: BOSCO, M M and FODIADIS, D I (eds) Electronic commerce in the framework of Mediterranean counties development. Egnatia Epirus Foundation, Ioannina, Greece. 8. Themistocleous, M and Poulymenakou, A (1998). Developing electronic stores: Some critical considerations for practice. pp. 667-671. In: WAGNER, R R (ed.) Ninth International Workshop on Database and Expert Systems Applications. IEEE Computer Society, N.J 9. Tiffin, R and Aguiar, M (1995). Bayesian estimation of an almost ideal demand system for fresh fruit in Portugal. European review of agricultural economics, 22, 469-480. 10. TYPORA - ORA (1992). Research and technology development on telematic systems for rural areas - Typology of rural areas. Office for official publications of the European Union, Luxembourg.
