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Principal, Xamax Consultancy Pty Ltd, Canberra
Visiting Fellow, Department of Computer Science, Australian National University
Michael Jenkins, Centre for Information and Communication Technologies, Science Policy Research Unit, University of Sussex, United Kingdom
Version of 16 August 1992
© Roger Clarke and Michael Jenkins, 1991, 1992, 1993
Published in Journal of Strategic Information Systems 2,1 (March 1993)
This document is at http://www.rogerclarke.com/EC/CALM.html
On-line trading is the buying and selling of goods or services through an interactive telecommunications-based computer network. This paper describes a system which was developed in Australia for the particular conditions which exist in the livestock sector of that country. Known as CALM, the system is claimed by its owners to be the first in the world to offer a national IT-based livestock trading scheme.
The strategic intentions of CALM's owners and sponsors are assessed from the perspectives of the market operator and the industry participants, and some cautious generalisations made concerning on-line trading systems generally. Weaknesses in the explanatory power of strategic information systems theory are identified, and the suggestion made that these weaknesses derive from the predominantly competition-oriented approach of contemporary theory.
The CALM On-Line Trading System
On-line trading is an application of Information Technologies (IT) to the process of contracting for the sale of goods or services during on-line sessions between remote buyers and sellers. In some cases the parties perceive themselves to be in direct conversation with one another, while in others the buyers are in conversation with a third party, such as an exchange operator or an auctioneer. On-line trading is distinguishable from Electronic Data Interchange (EDI) in several important ways. The delays in transmission of offer and acceptance are much shorter, the amount and complexity of the data necessary to execute a trade are generally less, and a 'many-to-many' or broadcast communication model may be used rather than the 'one-to-one', directed-message approach inherent in on-line trading.
On-line trading is not a new phenomenon. In the late 1970s working examples were developed in the United States, not only in sophisticated financial markets (eg. the NASDAQ OTC Exchange), but also in the cotton markets of the South (TELCOT) [Davis 1980, Lindsey et al 1990]. A number of studies have explored the policy issues affecting the design and operation of such network-based trading mechanisms [see for example Bell 1983, Promethee 1990 and OTA 1991]. Other researchers have looked at the technical, economic and social issues created by the implementation of electronic trading networks (ETNs) [Mansell & Jenkins 1992].
The potential benefits of electronic markets for agricultural commodities have also been much discussed [USDA 1979, Langdale 1979, Schlei 1980, Henderson & Holder 1982, Bell 1983, Turner et al 1983, Rhodus et al 1985, Martin 1985]. As with many other promises of the Information Age, however, the translation of technical possibilities into institutional realities has been slow. Indeed, most of the attempts of the late 1970s failed. Reasons that have been cited for the slowness and difficulties include inadequacies or immaturity of the technologies, inertia resulting from the large investments in existing physical infrastructures, the reluctance by actors to embark on a new round of organisational learning and the absence of a leader [Lundvall 1989].
It is important that successful on-line trading schemes be studied, in order to understand the economic, social and political incentives associated with their success. This paper presents a description and analysis of a successful Australian on-line trading system known as CALM (Computer Aided Livestock Marketing), which began operations in mid-1987. The study on which the paper is based was undertaken at the conclusion of the system's five-year foundation phase. A series of interviews was conducted with seven of CALM Services' 33 staff, and published and internal documentation was gathered and analysed. Reference was made to existing literature on on-line trading, particularly in the agricultural and pastoral industries.
A companion paper considers CALM from the viewpoint of the community as a whole and policy-makers in particular [Jenkins & Clarke 1992]. This paper, on the other hand, adopts the perspectives of the participants in the marketplace and of the market operator. It commences by providing background to the industry sector prior to CALM's introduction. The system is then described, and its nature and performance evaluated with the aid of strategic information systems theory.
The great economic importance of the pastoral industries to Australia is demonstrated by Exhibit 1. In 1990-91, meat and livestock earned $A3.4 billion in export revenue, dairy products $1.9 billion, and wool a further $2.9 billion. The value varies widely from year to year depending on the world market and domestic conditions; for example, wool in 1990-91 was down from double that figure only two years earlier. Domestic sales of meat are worth about another $4 billion annually. Since 1901, the growth of other industries, particularly mining, has seen the output of the pastoral industries fall as a proportion of GDP from 13% to 3%, and as a proportion of exports from 54% to 21%. Nonetheless, Australia is the largest beef exporter in the world, and has the largest sheep population of any country, and the livestock industries remain very important to the standard of living of all Australians.
Population (million head) Cattle and Calves 23.8 Sheep and Lambs 162.8 Pigs 2.4 Head Sold (million) Slaughterings Live Export Trading* TOTAL Cattle and Calves 8.0 0.1 1.9 10.0 Sheep and Lambs 35.0 3.0 12.0 50.0 Pigs 4.9 0.0 0.1 5.0 * including breeding stock, store stock, feedlots and dealing Cattle slaughterings having been running at about 70% of the kill in the late 1970s, and calf slaughterings at about 50% Exports and Domestic Sales ($m) Export Of Total Sales Exports $m % Beef Meat 2597 5.0 Sheep Meat 363 0.7 Pig Meat 24 0.0 Other Meat 222 0.4 TOTAL EXPORT MEAT 3206 6.1 TOTAL DOMESTIC MEAT 4000 - TOTAL LIVESTOCK 165 0.3 TOTAL DAIRY PRODUCTS 1858 3.5 WOOL 2944 5.6 Export income from wool halved between 1988-89 and 1990-91
In 1991, Australia had a population of about 24 million cattle, 163 million sheep and lambs (the largest of any country in the world, and about 20% of the world's total population) and 2.4 million pigs. In 1990-91, about 10 million cattle, 50 million sheep and lambs and 5 million pigs were bought and sold, with about 80% of the cattle, 70% of the sheep and almost all of the pig sales being for slaughter. The industry is subject to continual and severe perturbations not only from local weather conditions, but also from trade conditions and politics in the major markets in North America and Europe.
The efficiency and profitability of pastoral industries are dependent on effective and efficient trading in livestock. The large numbers of livestock involved, the wide differences in animal characteristics and the vast distances of the island continent create a complex marketplace. The need for many animals to be sold several times during their lives, sometimes over very long distances, means that market related feedback between producers and consumers is severely attenuated.
The Australian beef and sheep industries are not highly vertically integrated, although the pig industry is. Because of their export value, the focus of this paper is primarily on the cattle and sheep industries. There are many thousands of family-run farms and stations and few larger, corporatised properties, not all of which are closely linked to value-added enterprises further along the production chain. Intermediate trading in livestock takes place for a variety of reasons. Many are sold for domestic slaughter, and many for export, both for slaughter offshore and for breeding stock. Many more are traded within Australia, by producers for breeding purposes, for store stocking (i.e. for medium-term re-sale) and for feedlotting (i.e. for short term re-sale). There is some activity by dealers seeking a turn in the market. Exhibit 2 provides a livestock flow-model.
An outline of the industry's institutional structure is provided by Rickards et al . The players in the traditional livestock market then comprised:
A closer analysis of buyers identifies the following classes:
Between them, these players operate a total of about 150 abattoirs, although the population has been declining.
Participants in the industry have resisted significant involvement by governments. The industry does, however, have a statutory authority which has the prime responsibility for marketing Australian meat and livestock in Australia and overseas. The Australian Meat and Live-stock Corporation (AMLC) was established under an Act of Parliament in 1977 but is funded entirely by industry levies. Membership is drawn from producer organisations, domestic processors, exporters and retailers. During its first decade it focused on market promotional activities, standard setting and market intelligence.
For many years, the dominant mechanism for livestock trading has been for the animals to be moved long distances to a saleyard, inspected by potential buyers, and sold by auction [BAE 1981, 1983]. Saleyard activities have always been a very important feature of country life, and there are very large numbers of saleyards in Australia. Buyers generally restrict their visits to local sales and more distant but (for them) important sales, although they may use agents to act for them in other locations. There is therefore a relatively small number of buyers present at any particular sale. The cost of returning unsold animals to the paddock is sufficiently high that sellers generally feel forced to accept the available price. The combination of these factors results in relatively high volatility in prices paid.
There is also an amount of trading amongst local producers, and farmgate trading, with buyers travelling to properties and negotiating contracts with producers on-site. This offers convenience to the producer, but does not necessarily result in a competitive price. There is a strong regional bias in livestock trading with stock being moved out of the more remote northern areas for finishing, sale and slaughter in the less thinly populated areas of the east and south.
During the late 1970s and early 1980s, trends were apparent toward fresh approaches to trade in livestock. In particular, price-per-lot was giving way to pricing according to 'liveweight' or on an 'over-the-hooks' basis, either by 'carcase weight', or 'carcase classification' (involving a 'price grid' which reflects not only weight, but also other qualities as well). In addition, the rule of caveat emptor, which necessitated prior inspection by potential bidders, was giving way to 'sale by description' and 'auction by description' with warranty by the seller, market operator and/or saleyard as to the accuracy of description. All of these techniques are much more information-intensive than traditional sales methods, requiring the provision of pre-trading data to potential buyers, and the transmission of post-trading data back to the producer.
During this period, several applications of IT to livestock marketing were trialled, variously using telex, videotex, and terminals directly connected to a central computer [Rickards et al 1983]. Of particular importance was a trial system demonstrated in 1977-78 by the Australian Meat Research Committee (AMRC), and a resulting production system funded by the AMRC, developed by the Agricultural Business Research Institute (ABRI), and installed in 1982-83 in the New England region. In 1982, the AMRC funded ABRI to apply its experience to a study of 'the feasibility and economics of establishing a network for electronic sale of sheep and cattle throughout Australia'. This report [Rickards et al 1983] provided the basis upon which CALM was developed, and is heavily referenced in this paper.
In 1985-86 the Australian Meat and Live-stock Corporation (AMLC) formed two new divisions supervised by Committees created under its statutory powers. One of these, the Authority for Uniform Specification of Meat and Livestock (AUS-MEAT), was established to focus on quality standards, and accurate and consistent descriptions. The other, Computer Aided Livestock Marketing (CALM), was to "lead the industry in improving communication along the marketing chain, so that consumers in Australia and overseas can obtain a more consistent and predictable meat product" [AMLC Annual Report, 1987/88, p.34]. It was to do this by applying computers and telecommunications to livestock trading. In the remainder of this paper, the term CALM will be used to refer to the system, and CALM Services to the organisation which performs the managerial, marketing, market operator and administrative functions in relation to the system.
"CALM is an electronic saleyard auction for buying and selling cattle, sheep, lambs and pigs, on the basis of an objective description, while the stock remain on the property or feedlot. Buyers can bid from anywhere in Australia. CALM combines the advantages of auction selling with the efficiency of sale by description" [CALM User Information Card, 1991]. CALM commenced trials in November 1986. When it was launched commercially on 1 July 1987, Australia became "the first country to offer a national computerised livestock marketing scheme" [AMLC Annual Report, 1986/87, p.9].
The CALM enterprise is run by a Board with wide industry representation. In mid-1992, CALM Services comprised 33 field and head office staff, and used the services of the AMLC's Computer Division. CALM has enjoyed strong support from the Minister for Primary Industry, and from the Department of Primary Industry and Energy.
The CALM system was initially funded by increasing the industry levy which finances all AMLC activities, but the objective was set for it to be self-funding by the early 1990s. The levy applies to all animals slaughtered or exported live. It was proposed by Rickards et al [1983, p.97] as 10 cents for cattle and 1 cent for sheep and lambs. The levels it has actually been set at are for cattle, 20 cents per head in 1987 reducing to 6 cents in 1991, for calves 7.2 cents, for bobby-calves 2 cents, for sheep and lambs 1 cent and for pigs 4.6 cents. The levies raised $1.3m in 1987/88, $1.8m in 1988/89 and $0.3m in 1989/90. Since then, shortfalls in CALM's operating account have been covered by the AMLC's general industry levy, and have represented only a small percentage of AMLC's total turnover.
The purposes of the CALM system were stated by Rickards et al [1983, pp. 10, 86-93] to be:
The summation provided in CALM's 1991/92 Annual Report continues to reflect those original aims: "CALM's mission is to contribute to the creation of a competitive and consumer-oriented industry which uses CALM's unique marketing and market intelligence system and, ultimately, to make that system commercially self-supporting. The CALM marketing system puts together the benefits of over-the-hooks sales and the advantages of auction selling by providing open competition and market intelligence about the sales generated ... Part of CALM's mission is to provide a national auction market at very low cost to the participants ... CALM is owned by the industry and provides many benefits to every sector".
Key features of the system were to be [Rickards et al, 1983, pp. 29-50]:
Areas of concern which it was perceived that the system needed to address were [Rickards et al, 1983, pp.10, 23-25, 86-93]:
Several formats are used, of which the original and most commonly used is the 'simultaneous auction', described below. Another form is the 'sequential auction', the electronic analogue of saleyard auctions, in which a lot is displayed and bids are accepted until bidding ceases, and the lot is either knocked down to the highest bidder (if that bid was above the reserve) or passed-in. In what CALM Services refer to as 'the CALM Exchange', a vendor offers a lot for sale, with a reserve price which he may choose to display or to keep confidential. Each bidder may make a bid, and the first bid made at or above the reserve gets the lot. CALM also supports remote participation in live saleyard auctions, in a sales mechanism it calls 'interface sales' This is seen by CALM executives as an important strategic direction, although mobile phone contact with the head office may replace the temporary installation of terminals on the end of relatively slow telecommunication lines. The remainder of this section describes the dominant 'simultaneous auction' method.
Simultaneous auctions are held each week for each of cattle, sheep and pigs, and additional special sales are held periodically. Pairs of lot number and current price are displayed on-screen. A starting price may be set by the vendor, but is in most cases set by the market operator based on market knowledge. By keying the Lot Number, a bidder may make a bid one increment higher than the price currently shown for that Lot. The size of the increment is pre-set by CALM Services, and is equivalent to $2 per beast for cattle, 20 cents for sheep and 50 cents for pigs, or about 0.5% of each beast's value. Bids are irrevocable. If a bid is equal to or greater than the reserve price, and is the highest bid made, then the bidder is bound by his contract with CALM Services to purchase the lot.
Each time a bid is made, the cursor remains adjacent to the price which has been most recently modified. When the current offer is close to the vendor's reserve price, the price is changed to blink-mode, and when it has reached the reserve it is displayed in bold. The lots are sorted into order by region, and within region by stock type. Lots are generally sized so as to fit into livestock transporters, to facilitate the logistics of stock movement.
Several different sale options are available to bidders, viz. dollars per head (Head), cents per kg of liveweight (Liveweight), cents per kg of dressed weight assessed after slaughter (Carcase), and/or cents per kg carcase weight and quality (Grid or 'quality grid'), also assessed after slaughter. Unless assessed by a fully qualified assessor, a lot may only be sold on a Grid basis.
The catalogue for an auction is normally released one clear working-day ahead of the auction. The market remains open for a minimum time of 15 seconds per lot (e.g. with a half-full screen of 20 lots, the minimum time open would be 5 minutes). After the minimum time has expired, each bid made on any lot extends the life of the auction by a further minute. An auction generally contains a number of screens, and each screen typically takes 30-40 minutes to reach completion. A further feature of the system is program bidding. A bidder may set a bid limit and request the CALM system to automatically bid up to that limit. This facility required careful conception and design, in order to build in a delay factor, and be fair to both bidders and vendors.
In order to list a lot on a CALM auction, the vendor must arrange for a CALM-accredited assessor to prepare an assessment of the lot within a designated period prior to the auction. Assessors must be accredited with CALM, are graded into four levels, and are identified in the catalogue. Many assessors are employed by or contracted to livestock agents.
Comprehensive Operating Conditions apply to each kind of livestock. These specify such matters as the requirements relating to assessment, the price adjustment procedures to be applied where a lot is misdescribed, and conciliation and arbitration procedures. During the first four years of operation, only five disputes were submitted to arbitration.
The vendors' identities are shown in the catalogue. The auction is conducted anonymously, however, with no party other than the market operator aware of the identities of any of the bidders. CALM Services provides the identity of each successful bidder to the vendor (or his agent, as appropriate). Where the final bid has come close to the reserve, the highest bidder is able to display the reserve, and can either accept the reserve on-line, or contact the vendor to initiate negotiations. The vendor is not provided with unsuccessful bidders' identities.
Feedback to producers regarding the quality of their product has been a feature of the system from its inception. In the case of sales based on dressed weight or carcase grid, post or fax were initially used This information was made available on-line in 1990.
A further feature is CALM Market Intelligence, available since mid-1991. This comprises a number of components, including statistical reports on CALM sales prices, historical trends in CALM sale prices, both nationally and regionally, market commentaries, overseas market details, commentaries, tender results and finance market data (in particular exchange rates and interest rates). The market intelligence service has been provided at no cost beyond connect-time fees, as a means of attracting more agents and producers onto the CALM system, and habituating the existing user-base to log into CALM. It is menu-driven, and has attracted considerable and increasing usage. The data is transmitted in ASCII form, and hence, at least in principle, PC-based users could down-load output onto their own disks. In line with Rickard et al's conclusion that it was unlikely that data ownership could be enforced [1983, p.68], CALM Services have chosen not to take steps to prevent re-publication of the data. This contrasts with the situation in some on-line systems for the trading of stocks and shares, where the assertion and exploitation of property rights in such data is a major potential source of revenue for the market operator.
CALM Services have grasped several further opportunities which have presented themselves. One was the Brucellosis and Tuberculosis Eradication Campaign (BTEC) in Northern Australia, which involved compulsory sale and slaughter of affected cattle from quarantined properties. A large percentage of brucellosis-affected cattle are now sold through CALM. Another large one-time project was the administration of the Australian Wool Corporation's Flock Reduction Scheme in 1990. This involved the use of CALM's Australia-wide network to handle 23,500 applications relating to the culling of 13.5 million sheep, and cheques for $42 million. It drew many additional registered users onto the system, and gave them some familiarity with the use of the network.
Further services are provided which are not directly related to on-line trading, but which take advantage of the communications link established between CALM Services and agents and producers, and complement the primary service. In particular, the Merino Flock Register contains the identification and contact details of sheep breeders, together with descriptions of their objectives and specialisations.
As shown in Exhibit 3, the system comprises four elements:
CALM Services currently charges users $25 per hour of connect time, including telephone charges. The reliability of processors and telecommunications has been high, particularly during the last two years. Minor difficulties are experienced, such as a bidder's line dropping out during an auction. In these cases, the market operator extends the auction long enough for the bidder to re-connect and have the opportunity to bid. On a couple of occasions in the early stages only, a multi-channel link was lost for a short time. On a single occasion, an auction has had to be postponed due to communications problems.
The application's functionality is regarded by CALM's executives as a competitive strength, because of its power, its fit to the marketplace's need, and its reliability. Its user interface, on the other hand, is recognised as a weakness partly due to the limitations of the VT100 and Prestel standards (which preclude quality graphics, colour and windowing), partly from the lack of imagination of the original designers, and partly from the formats being embedded in the programs and therefore difficult to modify. Steps are being taken to deal with this weakness, and recent new releases for PC users have provided more convenient and cost-effective off-line entry and down-loading of assessments, and an improved user interface for functions other than the auction itself.
Rural communities are traditionally conservative, and Rickards et al concluded that "the adoption of electronic selling techniques by farmers will not be overwhelming in the early years" [1983, p.29]. Moreover, the failure of several ambitious electronic pig and cattle selling systems in the United States and Canada in the late 1970s suggested that the strategy should be to "develop the market in an evolutionary fashion and thus minimise the chance of over capitalising" [p.78]. Hence they recommended that a relatively low investment should be made in a 'start system' (1984-c.1988), with progressive enhancement to produce a 'target system' (from about 1989). The changes are, moreover, not confined to remote on-line bidding. Other important, concomitant changes are that the bidder has generally not seen the stock, is relying on an assessment and contractual conditions relating to mis-description, and is being urged into bidding on an 'over-the-hooks' basis (i.e. carcase weight or carcase quality) rather than offering a price per head or a price per kilo of liveweight.
Gaining acceptance of on-line trading has indeed been a long and slow process. Some resistance has been nothing more than inertia, some has been a healthy suspicion of the new and unproven, and some has been rational opposition on the grounds that on-line trading threatens existing business patterns. Livestock agents, saleyard operators, commission buyers, dealers, livestock carriers and even the print and radio media all have reason to perceive CALM as a potential threat to their livelihoods. It was therefore essential for CALM Services to invest in education and promotion of the concept. It has not done so in an aggressive fashion; for example, by offering financial incentives to participating producers or retainers to agents, or underwriting the emergence of new kinds of agents through franchising. Rather than using revolutionary, confrontationist measures, CALM management has chosen to work as much as practicable within the existing industry conventions.
For all parties, there is no charge for registration as a CALM user, or for the right to connect to the market intelligence system. For livestock agents, the incentives have been promoted, there has been active encouragement of the development of skilled assessors, and the 'Blue Ribbon Agent' scheme hs been introduced, whereby agents who give undertakings demonstrating their commitment to CALM are promoted directly to producers, and provided with the bulk of CALM Services' field support.
To make the system appealing to producers, CALM generally complies with conventional practices in relation to the delivery of stock and the settlement of accounts. Stock transit insurance is provided gratis from the point of delivery to the time of slaughter or off-loading at the receiving farm. CALM field managers and a local-call-fee telephone number are available. In addition, agents have been encouraged to sustain the communal elements of saleyard-based auctions, by inviting producers to gather at their premises to observe on-line auctions. Buyers' interests have been addressed by specifying assessment reports in a suitable form, identifying assessors in the catalogue, providing bidder anonymity, and specifying explicit provisions for the handling of stock misdescriptions.
CALM executives found it difficult to characterise the 'early adopters' of the new technology. The expectation that it would be large agents, particularly those which are corporatised and multi-branch, was in part correct, and in part quite wrong, because many of the branch managers resisted CALM. Nor was a large proportion of the larger, corporatised producers particularly nimble in their adoption of on-line marketing. Some of the early penetration seems to have been among producers whose sons had graduated from an agricultural college and brought back with them an appreciation of the possibilities that IT offered. It appears that market penetration has been and continues to be heavily dependent on local champions, who commit to the idea of progress and change, invest money and effort, and proselytise the local producer community. In some cases this is an established agent, in others an independent who takes the risk and goes out on his own.
Exhibit 4 shows the progress made since CALM's launch. Steady progress has been made in relation to volume and value of livestock traded, registered users, workstations installed, accredited assessors, and the proportion of expenses covered by operating revenue.
PROJECTIONS1 ACTUALS2 Start Target 86.873 87.883 88.89 89.90 90.91 Livestock Listed for Auction ('000 head) Cattle 375 927 25 111 144 204 243 Sheep and Lambs 1000 2470 115 517 952 1241 1094 Sheep and Lambs under FRS - - - - - - 804 Pigs 10 40 46 46 40 Total Lots Listed 25000 62000 ? ? ? ? ? % Sold within 48 hrs 75 75 Cattle 72 ? ? ? ? Sheep and Lambs 81 ? ? ? ? Pigs 60 ? ? ? ? Value of Livestock Sold at Auction ($m) Cattle ? 37 ? ? ? Sheep and Lambs ? 11 ? ? ? Pigs ? 4 ? ? ? TOTAL ? 52 ? ? 135 Participants Producers 163 361 500 ? ? ? ? Agents 520 977 180 ? ? ? ? Buyers 6566 13200 80 ? ? >200 >200 Trucking Firms - 57 - - - - - Total Registered Users 760 ? ? 8200 >26000 Registered Cattle Assessors 40 60 402 ? ? ? ? Accredited Sheep Assessors 40 60 307 ? ? ? ? Terminal Population 684 2200 ? ? ? ? 3500? Peak On-Line Connects 40 55 ? ? ? ? 100 Livestock Listed for Exchange ('000 head) Cattle - - ? 8 ? Sheep and Lambs - - ? 56 ? Financial Performance Annual Earnings (excl. Levies) ($m) 0.5 1.1 1.5 2.0 3.1 Annual Operating Expenses ($m) 2.2 2.9 3.7 4.5 4.6 4.9 Expenses as $ per Head of Cattle 2? 1? 100 27 23 20 17 Earnings as % of Expenses 17 30 33 43 63 Cumulative IT Investment ($m) 1.3 2.0 ? ? ? ? ? Cumulative Total Costs ($m) 5.2 10.0 2.9 6.6 11.1 15.7 20.6 Annual Benefits ($m) 25.0 15.0? Consumer Price Index ? ? ? ? ? % of Total Livestock Sales Listed on CALM Cattle and Calves ? ? ? ? 3 Sheep and Lambs ? ? ? ? 6 Pigs ? ? ? ? ? Notes 1. Projections from Rickards et al [1983, pp.3, 29-50, 87-88], financial data in 1984 dollars 2. Actuals from CALM Services Annual Reports and internal documents, financial data in contemporary dollars 3. Trials commenced in November 1986 and live running on 1 July 1987
The critical question of market penetration is examined in Exhibit 5, which shows that the percentage of total livestock sales being undertaken using the system is still growing, but only slowly and from a very small base. The market share in lamb sales decreased in 1991-92, which the Annual Report attributed to "reduced supply, a prolonged selling season and and increase in direct consignment sales as a result of increasing producer-buyer relationships". Particularly if repeated in other segments, this could be disturbing for CALM's medium-term prospects, because it would be evidence of rationalisation and/or alliances in that market segment, which would result in the electronic market being replaced by electronic hierarchies. Regionally, the penetration has been highly variable.
Cattle CALM Throughput Slaughterings 6927 6271 6948 7180 7000 % Penetration Calves CALM Throughput Slaughterings 1183 971 994 1050 1000 % Penetration Cattle and Calves Combined CALM Throughput 111 144 204 243 272 Slaughterings 8109 7242 7941 8230 8000 % Penetration 1.4 2.0 2.6 3.0 3.4 Sheep CALM Throughput 200 390 600 5102 830 Slaughterings 15000 12400 16100 185002 16000 % Penetration 1.3 3.1 3.7 2.82 5.2 Lambs CALM Throughput 310 560 610 560 380 Slaughterings 17200 16500 16800 16500 15000 % Penetration 1.8 3.4 3.6 3.4 2.5 Sheep and Lambs Combined CALM Throughput 510 950 1210 1070 1210 Slaughterings 32200 28900 32900 35000 31000 % Penetration 1.6 3.3 3.7 3.1 3.9 Pigs CALM Throughput 40 46 46 40 40 Slaughterings 4923 5007 4944 4860 5000 % Penetration 0.8 0.9 0.9 0.8 0.8 Notes: 1. The market available to CALM is regarded by CALM executives to be most sales for slaughter, a small proportion of the sales for store stock, feedlots and dealing, and none of the sales for breeding. These tables make the assumption that the unavailable sales for slaughter and the available sales for other purposes are approximately equal 2. In 1991, an additional 10 million sheep were culled in a Flock Reduction Scheme (FRS), and 8.5% of these were sold via CALM 3. The 1992 slaughterings figures are unofficial estimates. All other figures are from AMLC Stats  and CALM internal reports
The conditions confronting the industry have been far from stable, and it is therefore very difficult to assess whether improvements in meat quality have arisen from the reduced handling of livestock, and to find evidence of increases in prices paid to producers as a result of having a wider range of bidders in the market. Cost-savings are easier to demonstrate, however, and CALM Services claims that, in respect of BTEC cattle, "savings estimated by industry at $33.40 a head have accrued in respect of freight, insurance, handling time and feed" (AMLC Annual Report, 1990/91, p.41). By mid-1992, total CALM costs were about $10 per head of cattle listed and still falling (prices per head of cattle were in the range $300-$600). Of this $10, the users of CALM Services pay about $6 per head directly and the remainder is paid indirectly by all participants in the industry through the allocation of a small percentage of the general industry levy.
In the 1991/92 Annual Report, CALM executives claimed that although still only about 60% self-financing, the system is already cost-justifiable: "the industry's investment in CALM is already paying dividends: CALM has become a major contributer to educating producers and stock agents on live assessment and carcase characteristics; CALM has increased the rate of acceptance of sale by description; and CALM has made producers, processors and agents pay more attention to the marketing of their product. ... The sum total of these industry benefits created by CALM measures millions of dollars. These benefits, although real, cannot be worked into CALM's accounts. If they could be formally quantified, CALM would be showing a considerable positive balance". As early as mid-1988, the AMLC Annual Report claimed that "CALM sales results are now acknowledged as being the most reliable national guide to market prices". If the systems' benefits are considered as extending to all sales rather than only to those made directly, and the costs are allocated across the full market volume, then the subsidy from the general industry levy is around 10 cents per head.
If the expectation had been to quickly replace traditional forms of trading with an on-line marketplace, then the undertaking would have to be regarded as unsuccessful. As expressed in 1988, however, CALM Service's objectives were to "lead the industry in improving communication along the marketing chain, so that consumers in Australia and overseas can obtain a more consistent and predictable meat product", by applying computers and telecommunications to livestock trading, and to be self-funding by the early 1990s.
In its mature phase, it appears that CALM will fulfil the role of the 'primary market', in which the going rates for different classes of product are established. A variety of 'secondary markets' will then accept these prices, and thereby achieve very low transaction costs. The apparent efficiency of secondary market trading is in part due to its failure to contribute to the costs of the primary market's infrastructure and transaction processing. The question arises as to what proportion of the market CALM needs to attract in order to achieve long-term viability. It may be that even if market share were to stabilise only modestly above the present 3-6% of livestock sales, the scheme may achieve its self-financing objective, and secure the many unmeasurable benefits for the industry and the Australian economy as a whole.
This section assesses CALM from the perspective of the young and turbulent body of knowledge generally referred to as 'strategic information systems theory'. The analysis adopts the provisional structure used in Clarke [1992a]. This identifies in turn the motivations underlying the system's conception, design and exploitation, the nature of the processes of development and of implementation, the degree of intended change in the industry sector's structure and processes, and the management process which resulted in the system's emergence.
Most existing literature associates the motivation for strategic systems with the competitive framework of Porter [1980, 1985]; see also Parsons , McFarlan , Ives & Learmonth , Porter & Miller  and Keen . In particular, it focusses on the notion of competitive advantage, on the sustainability of advantage [Clemons 1986], on the implementation of IT as a competitive necessity in order to neutralise a competitor's advantage [Vitale 1986, Warner 1987, Brousseau 1990] and perhaps gain 'second-mover advantage', on leveraging on the organisation's existing characteristics and advantages [Beath & Ives 1986, Clemons & Row 1987, Ives & Vitale 1988, Hopper 1990] and on strategic alignment of IT with corporate objectives [Henderson & Venkatraman 1989, Earl 1989, Broadbent & Weill 1991].
The AMLC's objectives for CALM were the improvement of operational efficiency, of market pricing efficiency, and of product quality and the match between product characteristics and market demand. The AMLC is a statutory authority, funded by all participants in the industry sector, with responsibilities related to the marketing of the sector's products. Its members seek to harness profit-based incentives through maintaining competition within each of the segments of the industry, to limit government intervention, to ensure appropriate self-regulation, and to achieve equity for the various classes of participants.
There was no competitor to CALM, and if the immediate prospect had existed of one or more emerging, then the AMLC may well have let market forces follow their own course. Rickards et al considered that due to the likelihood of economies of scale existing up to and well beyond the size at which the system was to operate, the conditions for a 'natural monopoly' probably existed, at least at the time. However, since the market would be relatively easily contestable, they perceived the role of government extending to facilitation, partial funding of the costs of establishing the industry infrastructure, and perhaps purchase and dissemination of market-derived information, but not to ownership of, operation of or direct control over the market itself [1983, pp.65-69].
It appears that the dominant interest represented in the formulation of the objectives and the design of the system was that of the producers. It is also apparent, however, that a leading role was adopted by an inner group of 'progressive' producers, that the interests of all parties were represented, and that no major alteration to the profitability or market power of the participants in the industry was intended.
Competition-based strategic information systems theory does not provide a satisfactory framework for describing and explaining the AMLC's intentions. An interpretation of 'strategic information systems' is needed which treats competition as an element of a broader theory. For example, Clarke [1992b] identified the strategic motive for multi-organisational IT applications as being either a threat to competitors, a defence against intruders, or a facilitator of improvements at a level higher than that of a single participant. CALM's function was clearly facilitative rather than threatening or defensive.
The processes of development and of implementation of a strategic information system are generally characterised as competitive, collusive among nominally competing suppliers, or collaborative within an alliance of complementary enterprises [Barrett & Konsynski 1982, Gummesson 1987, Johnston & Vitale 1988, Rockart & Short 1989, Wiseman 1989]. CALM was clearly collaborative in nature, but universal to the large and diverse livestock industry sector, rather than being restricted to a small number of related companies. The conventional taxonomy appears to be inadequate to properly explain the CALM pattern.
Strategic information systems may be intended to have various effects in relation to the industry sector's structure and processes. In particular, the intent may be the maintenance of existing structures and the automation of existing processes, or their rationalisation, or their substantial change, or their destruction. CALM expressly sought to bring about change, or, perhaps more realistically, to accelerate and complement change which was already looming. It did not seek to do so in a directly revolutionary and confrontationist manner, but rather by working through existing channels of communication. The most directly threatened enterprise group, stock agents, have been used as a primary means of reaching producers, and encouraged to adapt their businesses to discover the potentials of the new technology. CALM Services is seeking industry efficiency, and is not particularly concerned whether this arises from disintermediation, from functional reallocation, from innovation by existing players, from replacement of old institutions by new ones, or from other means. Its operations are, however, subject to a medium-term self-financing constraint.
The literature has generally presumed that strategic systems arise from semi-plannable management processes [Rackoff et al 1985, Earl 1986, Vitale et al 1986, Lederer & Mendelow 1988]. Recently, the serendipitous origins of many of the key cases has been more closely examined, and approaches sought whereby inventiveness arising at all levels and locations in an enterprise can be exploited [Mintzberg 1990, Ciborra 1991]. CALM's origins can be traced to the combination of awareness of IT developments, observation of early attempts to apply IT to on-line commodity trading in North America, and appreciation that improvement of the industry's products demanded a more information-intensive approach. The sequence of events shows an early trial, a period of inactivity, followed by a steady line of development. The 'semi-plannable process model' therefore appears to provide a satisfactory basis for assessment.
Now that the system is established, the competitive viewpoint is more directly relevant. Traditional livestock trading mechanisms, including saleyards, farmgate contracts and word-of-mouth, continue to compete with CALM. Alternative electronic markets provide only limited direct competition, with one major pastoral house offering a Videotex-based service based on photographs of stock rather than assessments. In addition, two alternative pig-marketing systems exist, one with some electronic support. Another development of some relevance is the Electronic Wool Exchange (EWE) launched recently by the Australian Wool Corporation; this is, however, rather less than a full auction system (it functions in a similar manner to the CALM Exchange), it is not interactive, and it is relatively unsophisticated in its application of IT. CALM executives do not perceive any competitor being capable of gaining 'second-user' advantage, because the enterprise is already set to develop its own second wave of technology.
Some enhancements to and extensions of the on-line trading facilities are under active consideration. The recently market intelligence service has proven popular, and further investment in this area appears likely. The business strategy has been to place a higher priority on growth than on short-term profitability, and to earn revenue from connect-time and listing fees rather than charging for information. CALM executives have seen a variety of Videotex systems (which conventionally charge according to the pages of data displayed) achieve limited market share, stagnate, and fail. They judge that their clientele is unprepared to pay for data, and have placed no constraints on access or even on re-publication. The wide dissemination of this information is crucial to CALM Services' broader objectives. This could, however, conflict with its financial objectives, and a difficult transition from gratis provision to charged access to information may confront the enterprise at some stage in the future.
Opportunities are being actively sought to provide further services and thereby attract more users to become more habituated to the system; for example, State Government information about fodder availability for farmers whose properties are affected by drought has been made available on the CALM network, and a similar service may be offered in relation to 'LandCare' information (about land management and environmental issues such as erosion and salinity). At this stage, integration forward into Electronic Funds Transfer (EFT) is not a priority, because settlement is an area of service by agents to producers and buyers. Another potential application of IT is in machine-readable animal identification, using tokens attached to or embedded in the animal. This has the potential to identify specific beasts, rather than merely lots, all the way from the producer's property to carcase examination, and provide more specific and detailed feedback than is presently the case. CALM Services executives do not at present perceive an advantage in pioneering this technology.
CALM has attracted attention outside the Australian livestock industries. Since 1989, its use has been subcontracted to the National Grain Exchange for grain trading. A public company lauched a livestock auction service in New Zealand in early 1991, using CALM Services' equipment and software. Opportunities exist to extend CALM's operations within the pastoral industry (into non-meat products such as hides and wool), along the livestock industry-chain into the meat industry by supporting the sale of carcases, broken meat and cartoned meat, into the agricultural industries (extending the current grain operations, and adding cotton, tobacco and market gardening products), into livestock transportation and perhaps thence into other areas of the transportation industry. It would even be possible, although not necessarily sensible, to offer any of the existing or future services internationally, bypassing local agents for overseas buyers.
To date, CALM Services' strategy has been to act as market operator in areas close to the livestock industry, and in which its staff have expertise. It has permitted other market operators to use its facilities, both within the livestock and in other industries. In these circumstances, it functions as facilities manager, software supplier and consultant. It is considering providing these services in further countries which have adequately sophisticated IT and national telecommunications services. However its policy remains to retain control of its software, and hence not to sell source-code. It will be instructive to re-examine the evolution of CALM Services' business strategy in some years' time.
The distinctive differences which IT was capable of bringing to livestock marketing were that:
The benefits go beyond the advantages to individual participants. The industry and the Australian economy stand to gain from the application of a standard language to animal and carcase description, the greater emphasis on quality and reliability, the feedback from abattoirs to producers, and the resulting greater efficiency of the value-chain, and enhanced attractiveness of Australian product to overseas markets. A move from saleyard-based toward electronic livestock trading supports the general objective of a market-driven rather than a product-driven industry.
For these advantages to be realised, a number of hurdles needed to be overcome. The first was that a highly conservative and highly dispersed community needed to be made aware of the facilities available, and of the advantages of those facilities to them. It has not been easy to communicate with and educate tens of thousands of producers, the majority of whom lack marketing and business management sophistication. Much of CALM Services' own marketing has been targeted at agents, with the intention of encouraging them to carry the message to producers. This has been successful only slowly and patchily.
Some cautious generalisations can be made on the basis of this case study, which appear likely to be of relevance in the conception, analysis, design and implementation of any on-line trading system:
What does not appear on the list of critical considerations is also important: CALM's technology is neither 'leading-edge' nor 'state-of-the-art' but rather 'well-proven', and it is not based on 'open systems' notions but rather on 'proprietary' products. The last critical technological element which became available was the national X.25 packet-switching service, Austpac, which was not available until after the New England trial was commenced in 1982-83. Computer hardware, systems software and networking facilities play only a minor role in CALM's strategic intent. The application software is, on the other hand, critical to the industry-collaborative strategy and to the system's competitive advantage. The combination of computing and telecommunications created the possibility of on-line trading in livestock, but the realisation of the potential has required a great deal of understanding of the application domain, and a long maturation period.
The application of strategic information systems theory was of value in assessing the CALM system and its intentions and impacts. It is apparent, however, that the existing, competition-based approach is insufficient to explain the collaborative nature of the infrastructure and the cooperative process whereby the system was developed. The competition-based elements of strategic information systems theory needs to be complemented by alternative perspectives and in time subsumed by a broader theory.
The assistance of the staff of CALM Services is gratefully acknowledged, especially that of Mr Graeme Forsythe, Marketing Services Manager and Mr Howard Gardner, Chief Executive. The organisation has confirmed the factual data contained in the report, and indicated that it does not oppose the publication of this report, but all interpretations and conclusions are the responsibility of the authors alone. In addition, Michael Jenkins gratefully ackowledges the support of the U.K. Economic and Social Research Council's Programme on Information and Communication Technologies (PICT).
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