The Hindu Business Line : Division of lots must go, says tea trade

The tea trade has demanded that the current division of lots be done away with, as it is not conducive to competitive bidding and therefore not rendering correct price discovery, under a given supply and demand situation. Under the existing system followed by the trade, what reaches the auction is not fully sold in the auction but ends up being sold as `outlots' by the brokers, further dampening competition in the auction hall.

The Tea Board had, on the basis of recommendations made by the A.F. Ferguson and Company on `Primary Marketing of Tea', initiated certain reforms in the tea auction system.

The first phase of the recommendations were implemented in January 2003. The consultants had recognised that divisibility could not be done away with in one go.

Since division is the need of the buyer, at the expense of the seller, buyers dividing the lots were asked to pay a `divisibility premium' for it.

Under the divisibility norms prevalent at various auction centres, a divisibility premium of five per cent is payable by each co-buyer of the lot.

Thus, the effective sale price of a divided lot would be 1.05 times the "knocked down" price for all buyers of the lot. But this five per cent is not paid in most of the cases and the effective sale price remains at the "knocked down" level, under the claim that it is an inclusive price; consequently, the producer loses huge amounts of money.