The Tea Board of India has come up with a new auction format - Bharath auctions - from the start of this year that is expected to result in better price discovery, lower transaction costs and ensuring the quality of tea sold through the system is good.

Though a section of the trade has expressed unhappiness over the new system, officials and auctioneers say “Bharath Auctions” are good for the industry and all the hue and cry raised are because “people have not understood” the format properly.

After the auctions were flagged off in South India, tea gardens in North India (including Assam and West Bengal) are likely to move to the new format, based on the Japanese auction system, by February-March. 

‘Done reasonably well’

PK Bezboruah, Chairman, Tea Board of India, said the new auction system that commenced in Kochi last week has done reasonably well. 

At Coonoor, glitches were reported in the system and the sale was periodically stopped. The leaf tea auction got extended by a day and the dust tea auction was postponed by a day. 

Tea Board’s Executive Director Dr M Balaji said the glitches arose due to connectivity problems of the internet and nothing to do with the new system.

The new format replaces the old English system following a study undertaken by the Indian Institute of Management, Bangalore (IIM-B). The institute studied the old system closely and suggested the Japanese model for improving the price discovery mechanism and ensuring a robust system.

Preventing manipulation

“In the previous auction system, people were withholding bids till last few seconds and that was preventing active price discovery. But under this system that will be eliminated and so we expect it to lead to better price discovery. It seems to have performed reasonably well in the recent auction in Kochi which went live,” Bezboruah told BusinessLine.

“In the new system, you cannot manipulate particularly coming up with last-minute bids. The system will not allow you to make such an entry. Bids have to be planned the previous day itself,” said an auctioneer source without wishing to identify.

One of the auctioneers said it was still early days and nothing can be understood until a few rounds of mock sessions are held. It may take a few weeks for the sales to settle.

Balaji said training for the new system was launched in December 2019. A few training and mock sessions were held in South India. “We have considered all the feedback from the stakeholders. Nevertheless, we will observe the progress of the auction for a month to see if any changes are required”, he said.

Understanding the system

The Tea Board of India is set to have a series of meetings with stakeholders in North Indian tea gardens to ensure a smooth transition to the new system. The first round of meetings will be held on Friday.

 “At least 70 per cent of the buyers seem to have understood the new system. Those complaining are the ones who don’t want any change. People should understand that the system is not for retailers but for blenders and packeteers,” the auctioneer source said. 

“The Bharath Auctions are expected to lead to lower transaction cost and ensure fair price discovery. It is difficult to say just yet how this will pan out eventually. But it should be rolled out in North Indian auction centres within the next two months. Since the quantities are low during these months it can be managed better,” Vivek Goenka, Chairman, Indian Tea Association said.

Learning to manage office

The auctioneer source said the new system would ensure quality as in the old system sub-par quality tea was introduced through last minute bids. “Today, the quality parameter is of prime importance to fetch good prices. This system will ensure that,” the source said.

The source also discounted complaints about weak or slow Internet links. “This system is here to stay. When a platform has been created for the good of the industry, people should adhere to it. They should learn to manage their office and even begin working for their bids two days in advance,” the source said. 

Balaji said the significance of the “Bharath Auction” is that it finishes off early unlike the English auction which was time absorbing. Buyers have to make quick judgements and bid cautiously.

“In fact, there won’t be any room for ‘winners’ curse’ in this internationally-tested system. We notice that buyers and sellers are meeting at mid-path in the bids and hence is beneficial to both of them”, the Tea Board Executive Director said.

(With inputs from PS Sundar, Coonoor)