![]() ![]() The future for tea trade in East Africa is fragmentation which may be detrimental to smaller tea producers. ![]() Making sense of digital disintermediation For example, tea brokers who were previously important in facilitating payments repositioned themselves as providers of auction intelligence and price data for small tea producers.Ī key finding related to these challenges was that international firms, dissatisfied with the slow pace of change, began to sidestep the auction by becoming involved in “direct sales” with selected producers, supported by digital technologies. But the intermediaries did not disappear. This did have an effect of reducing certain roles connected to the auction. Middlemen adaptation: Eventually after much resistance, aspects of the tea auction were partially digitalised such as e-payments and digital auction catalogues.This meant that any kind of reform was strongly resisted by sectoral bodies. The balance of power in sectoral bodies is often skewed towards middlemen, exactly those who might be cut out by digital technologies. The types of institution: Well-established rules and governance in the tea sector limit the ability to reform the tea auction.These factors make moving trading online more complex, where more complex factors need to be included in a digital system. Tasting the quality of tea, for example, is important to buyers who are mixing different teas together to produce retail products, and there is also a growth in value-added teas where buyers need extra information about ethical standards they want met. But tea trading is becoming more complex. The nature of transactions: Tea transactions are often seen as generic and simple to trade, and so well suited to online exchange.In discussion with key stakeholders involved in the auction, we identified three challenges: An “e-auction” trial was abandoned and over the past decade, digitalisation has been slow and frequently resisted. While on paper the case seems promising, change has not taken place as expected. With falling costs of online access in the region, a digital auction seemed viable, particularly as competitor regions such as Sri Lanka and India are already in the process of digitalising their auctions. ![]() Trade is predictable with a limited number of traders and a strong sectoral governing body. The auction seems a good fit for digital disintermediation in terms of economic models of transactions. Roles of middlemen in the tea value chain: The tea trade centre in Mombasa, home to the tea auction (left) tea tasting (middle) auction warehousing of tea lots (right). The tea auction emerged during the colonial era, and with its antiquated traditions, slow speed, and accusations of corruption, there have been demands to move online.Īn online auction would speed up the processes of trading by cutting out the middlemen in tea value chains (see below) and allowing tea producers to sell more directly to international buyers. Tea is an important export in East Africa and twice a week sellers come together in the Mombasa tea auction to trade tea with international buyers. ![]() But as firms have adopted technologies and with appropriate applications these foundational claims for digital development are important to revisit. In the early days of digital technologies, it was found that they often failed to cut out the middleman due to the “digital divide” where digital skills, infrastructure quality and cost limited the use of technologies in smaller firms. This concept forms the basis for many hopes for development around digital technologies. One of the benefits often associated with digital technologies is the potential for disintermediation – or put more simply “cutting out the middleman”. Digital technologies bring change, but may lead to more challenging conditions for smaller firms. Exploring the Kenyan tea auction we suggest that these ideas need to be rethought. How do new digital technologies enable firms to develop? One process often highlighted is disintermediation, where digital technologies allow firms to “cut out the middleman”. ![]()
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