The Hindu Business Line : Tea e-auctions to ensure fair price discovery

New design
The Ministry had put the draft discussion paper for new market design for e-auction on the Website.
Under the redesigned auction system, the registered manufacturers would be able to sell any category through the public auction system.
The proposed system would have complete list of tea available to buyers at one glance.

New Delhi , Oct. 4

Tea auction principles and processes are being reformed by redesigning e-auction since the existing system suffers from several disadvantages.

The Minister of State for Commerce, Mr Jairam Ramesh, told Business Line that his Ministry had recently put on the Web site the draft discussion paper for new market design for e-auction with the main objective of making the price discovery process transparent. Stakeholder meetings and seminars were now to be held, beginning from October 20, to get the feedback, Mr Ramesh said adding that the software necessary to ensure e-auction across different centres would be in place by next March/April.

Price Discovery

The Ministry's discussion paper said e-technology had been introduced only in few pre-sale activities such as cataloguing, sale activities such as bidding process and post-sale activities such as delivery orders. The current e-auction system requires the presence of bidders in the auction hall, limiting the number of buyers to bid in any auction day and declining buyers the facility to bid from their preferred location.

There is also shorter time for price discovery due to display of limited numbers of lots for bidding at a time. A major failing of the existing e-auction is that it could not ensure anonymity of bidding because of the display of the buyer's name in bidding process. Hence, it was not an improvement over the manual auction system.

Tea Auction

The new redesigned auction system is meant to ensure that registered manufacturers are able to sell any category, quantity and grade of tea through the public auction system and registered eligible buyers should be able to buy any category, quantity and grade of tea through the same system. The participation for all registered eligible buyers in the tea auction process would ensure competition, leading to fair price discovery.

The auctioneer and buyer would judge only on the basis of tea standard and quality and there would not be any indication of garden name or mark in the catalogue. It is also proposed to dispense with the concept of lot. The information in catalogue might include date/week of manufacturing, name of tea garden owners, total quantity of tea in kilogram of any particular grade, grade of tea and invoice number and date. Once catalogued, the tea would be in the catalogue till the entire quantity is sold.

The proposed system would accord complete flexibility and at any given point of time, the Tea Trade Association (it is a market on its own with unique multi-party status consisting of buyers, sellers and members), the buyers and the auctioneers would have complete information over the types of tea sold.

e-Catalogue

The proposed system would have standard contract descriptors, unique combination of mark, garden and grade, complete list of tea available to buyers at one glance (e-Catalogue) and a price discovery mechanism. One of the two auction methodologies (Respective Price Methodology and Single Price Methodology) could be used for the purpose of automatic matching of bids.

In order to ensure online interfaces, the auction system would provide online information to the market participants who are logged into the system by giving bid confirmations with a split second response, automatically match the bids and give out acceptance confirmations within a couple of seconds of closure of session time for that tea.

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