The Hindu Business Line : UPASI moots de-mutualised body for tea e-auctions

Proposals
Wants an additional category called "Seller-Buyer" in the Manual Public Tea Auction System.
Says anonymity of buyer absolutely essential.

Kochi , Dec. 22

The United Planters' Association of Southern India (Upasi) has suggested the setting up of a demutualised auction body (DMAB) to organise and conduct tea e-auctions. The planters' body has come out with this proposal

while accepting some of the points in the draft discussion paper circulated by the India Tea Board on new market design for e-auction.

DMAB is defined as one where owners do not automatically get the trading rights by virtue of their ownership, according to Upasi. However, de-mutualised body per se does not bar any owner from acquiring trading rights, provided he/she comply to the admission criterion laid down by the body, Upasi sources told Business Line on Friday. "Primarily, it means good corporate governance practices whereby clear distinction is maintained between trading division and division dealing with the ownership, so as to avoid conflict of interests".

The Association also suggested inclusion of an additional category called "Seller-Buyer" in the Manual Public Tea Auction System (Auction Process) wherein key stakeholders are defined.

Welcoming the widening of coverage to rope in more buyers in the e-auctions, the sources said: "Tea shall be judged only on the basis of standard and quality by the auctioneer and buyer and therefore, there shall not be any indication of garden name or garden mark in the catalogue."

Price Discovery

Similarly, the buyers of tea shall be only on the basis of the requirement of the intending buyers and shall not be influenced by the activities of other buyers on any auction day and therefore there shall not be any indication of the name of bidding buyers on any auction day.

According to the sources, anonymity of the buyer is absolutely essential for a better price discovery and also for competition in the auction system. However, it opposed anonymity of seller as brands/marks play a very important economic function. Not only that, the garden that have already established brand value will lose out besides making cumbersome for the buyers to go in for subjective analysis of the tea that they purchase.

Sampling

Suggesting that the concept of lot may be dispensed with, it said that lot size should continue as it might not be possible for large producers to include teas of same grade in a single lot as producers with larger quantities would have problems with regard to consistency of quality.

With regard to sampling, the decision whether to give or not to give samples should rest with producer, and if required the samples be given at a cost.

It accepted all the information in the catalogue except indicating the name of the garden owner, which, it said, "is irrelevant". However, it is essential that the garden name should be revealed.

Bidding

After the bidding is over and if the tea is not sold, it is should be up to the discretion of the producer to withdraw, the association has suggested.

Such teas if remain unsold after auction, the same may be withdrawn by the seller and sold directly or can be offered for sale through this system at a later date. The auctioneer should not have the freedom to handle the sale of such teas privately, using his contacts. The provisions available in the existing e-auction system for direct sale should be made available in the new system also. If required such teas could be categorised as `non-catalogued teas'.

Sale Catalogue

Between the two auction days, sellers may have option to withdraw before the time of displaying catalogue to the buyer. Instead of two auction days, the producer/seller should have option to withdraw after every session.

Buyers may be allowed to offer bid from their own place subject to their membership of the concerned auction organisers.

They said that framing of e-auction rules could be done by all the key stakeholders viz. sellers, buyers, auctioneers, Tea Board etc keeping in mind the larger interests of the sellers as the product for sale belongs to that of the seller.

On standard contract descriptors, the Upasi sources said: "It can be observed from the auctions that the produce that is sold in the auctions follows a set pattern. This pattern enables us to standardise the list of tea that is to be auctioned in an auction centre."

However, considering the need for closure within the trading session, "we suggest starting with one or one and a half hour and subsequently modify the same as per the requirement."

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