The Hindu Business Line : Tea e-auctions here to stay

Traders gather around wooden desks in a dusty auditorium, pouring over thick catalogues describing tea chests. A broker seated at the front of the room calls out prices in a quick, rolling voice as the traders shout and gesture, signalling their bids. A sharp rap of the gravel closes each sale, and the process starts over. Under the rule, the auctioneer must sell at least three lots in a minute and the scene repeats itself twice a week. Tea has been traded this way since 1 861.

But now, things are different.Mouse replaces gravel and the cacophony of the public auctions gives way to gentle tapping of keyboards. Tea auction in India is going digital. Just as electronic trading has changed the floors of the country’s stock exchanges, the computerised tea auctions too promise to turn the tradition-bound tea trade upside down. Many small tea brokers fear that an electronic exchange will mean the end of their future.

But the Union Government and the Tea Board have been determined to push electronic trading in tea to attract more buyers and sellers and to ensure fairprices and lower transaction costs, though there is no fiat from the Government with regard to participation of brokers in the electronic trading. The participation would be optional, Mr Jairam Ramesh, Union Minister of State for Commerce, made it clear while inaugurating the country’s (and also the world’s) first e-auction of tea in Kolkata recently. (Interestingly, the first manual tea auction system too was launched in the same city, 147 years ago).

To consolidate soon

— A. Roy Chowdhury

A file picture of Mr Jairam Ramesh, Union Minister of State for Commerce, inaugurating the e-auction facility in Kolkata .

He, however, seemed convinced that the benefits of e-auction would attract more traders to it. In due course, all separate auction centres will be consolidated resulting in a single national spot market. “By September next year, there will be a national cyber market for tea”, Mr Jairam Ramesh observed. Right now, only 52 per cent of the total sale in the country is routed through auctions as against 100 per cent in other major tea producing countries such as Sri Lanka and Kenya. High quality Darjeeling and Assam orthodox tea are offered for private sales, bypassing auctions.

Advantages

The main advantage of the computerised system is that buyers can bid from anywhere, without having to be physically present in the trading hall or in the same city where tea is warehoused. This means buyers’ participation will be more and, therefore, the competition. Greater competition, it is felt, will ensure that the true price is discovered. Also, electronic system should help automate the compilation of tea catalogues and elimination of paperwork involved in settling sales, saving brokers time and money.

Reports have it that the electronic system is particularly attractive to large tea companies such as Tata Tea, which owns the Tetley brand, and Hindustan Unilever. Together, these two companies, accounting for about 45 per cent of the market, have been pushing for electronic auctions, hoping that the computerised system will allow them to better coordinate its buying nationwide and save on labour costs. The electronic auction system may also give an advantage to large purchasers by making it more difficult to split lots, a practice in which several smaller buyers team up to jointly buy a single large batch of tea.

Precisely for this and other reasons, many smaller buyers, particularly those who act as bidding agents for distant tea companies, therefore, keep their fingers crossed. If the principals are able to bid from their hometown anywhere in India, their role would be rendered redundant. A section of brokers too are worried as they feel that an electronic exchange will allow planters and factories to bypass them and sell directly to the market.

The switchover from the manual to electronic system has not been smooth and easy. “We’re delayed by one year”, said the Minister, attributing it to the delayed government procedures. But then, there were other problems.

But, before that, a bit of history. In 2002, the Tea Board commissioned A.F. Ferguson to suggest measures as to how to overhaul the prevailing manual “outcry” system of auctioning. The suggestions included standardisation of processes across auction centres, establishment of a robust price discovery mechanism, discontinuation of certain practices that had evolved over the years but were against basic auction principles, ensuring transparency in the overall system and leveraging IT to achieve best results for both sellers and buyers of tea, ultimately benefiting consumers.

Lessons from Delays

As Ms Roshni Sen, Deputy Chairman of Tea Board, pointed out in her presentation, e-auction was first introduced in 2004 in a limited way but could not continue due to problems in design. The job was entrusted to IBM and Accenture. As a result, all auction centres returned to manual system again in January 2007. But the Tea Board did not give up. It continued in its relentless pursuit and in September 2007, NSE.IT, a wing of National Stock Exchange that specialises in designing trading platforms, was selected to re-design the e-auction system.

But the delay, as Ms Sen explained, helped the authorities learn some lessons such as not to drive the proposed e-auctioning by an overwhelming desire to get a consensus, not to replicate existing manual systems, not to underestimate the “change management” requirement but to focus on price discovery and auction principles and to build redundancies to accommodate technology malfunctions.

Future plans

The future plans include user testing through active participation of auction stakeholders, introduction of e-auction sale in all major tea auction centres by January, introducing a transparent payment and settlement banking mechanism and making the system self-sustaining gradually within three years.

At first, although the trading will be conducted by computers, buyers and brokers will still have to be present at the exchange. The system will be opened up for remote trading on the Internet as soon as it stabilises.

The complete switchover from manual to computers may not be easy for yet another reason: it will be hard for firms and individuals long used to floor trading to adapt to electronic system. The traditional tea traders, though not computer-literate, could walk into the trading floor and get the pulse of the market within a few minutes. But the new generation feels the computer is better. So the old timers could not stand in the way.

More Stories on : Tea | E-Commerce & E-Business | Other States

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Bay storm threatens to hit Lanka

Seafood exporters urged to focus on value-added products

Shrimp farmers seek compensation

Cheaper fuel pulls down inflation rate to 8.4%

Spot rubber declines further on global cues

Tea e-auctions here to stay

Arrivals surge at Kochi tea auction

Demand for Indian tea in Pakistan on the rise

Numero Uno

Futures trading resumes in 4 commodities