Agri Business

Nilgiris tea industry staring at damp Diwali

PS SUNDAR Coonoor | Updated on January 16, 2018

Cash flows of not only tea producers, buyers and sellers but also of some60,000 small growers have been affected by the settlement module inthe pan-India auction systems dampening the festival mood

Snag in pan-India auction software triggers cash crunch

Thousands of workers in the tea industry in the Nilgiris, the largest producing district in South India, are facing the possibility of not receiving their Diwali bonuses this year.

Glitches related to the payment settlement software of the Tea Board’s e-auction system have triggered this crisis.

Cash flows of not only tea producers, buyers and sellers but also of some 60,000 small growers have been affected by the settlement module in the pan-India auction systems.

This has put them in a quandary ahead of the festive season, when payments related to the bonus payouts have to be made.

However, the Tea Board’s decision to put on hold its new module for some four weeks and revert to the earlier system during that time is likely to provide some respite to those connected with the industry.

“At the meeting called by the Tea Board Chairman in Kolkata on Monday, I requested him to resolve the issues immediately. Diwali is fast approaching and with a cash crunch, all sections are facing severe problems following the implementation of the new module from September 12,” Ramesh Bhojarajan, Chairman, Coonoor Tea Trade Association, told BusinessLine.

“On the one hand, factories are unable to pay bonuses to their workers, and on the other, small growers and small-scale factory owners are unable to spend for their purchases,” he said.

Since September 12, five auctions — Sale nos 37 to 41 — had taken place, with teas worth over ₹55 crore sold.

“However, there were enormous post-auction payment failures and delays. Some buyers, including exporters, have stopped bidding, and are waiting to get delivery of the teas already bought in earlier auctions. Their contention was that even after paying, they had not received delivery of the teas, which meant a cash block,” said Bhojarajan. As a result, nearly 37 per cent of the teas offered in the latest sale (No 41) remained unsold, with buyers not showing interest.

The trend also seemed to be influencing the prices.

In Coonoor Tea Trade Association auctions, more than half the teas offered goes to exports. Also, more than 90 per cent of the offer for sale comes from the small-scale sector, popularly called bought-leaf factories.

Besides, 90 per cent of the teas from these factories are sold only through CTTA. “So, when factories fail to get their prompt payments, there is severe cash crunch all over the district,” said Bhojarajan.

Out of cash

“Many sellers ran out of cash because in the new module, they did not receive payment for the teas they had officially sold off. In some cases, the payment date has been extended, which meant a further delay in the receipt of their money. Factories have borrowed heavily to overcome this technical snag. There were also taxation issues as there were differences in the amount mentioned in the Sale Note and the actual payment received. This has led to tax authorities levying a penalty on factory owners”, he added.

Tea producers squarely placed the blame on the Board for not testing the pan-India auction software comprehensively before implementing it.

Brokers faced the peculiar problem of money paid to sellers coming back into their accounts, causing a further cash crunch in the industry.

“Adequate homework and extensive testing of the software has not been done by the vendor to whom this job was entrusted. Shouldn’t the Tea Board fund the losses incurred by the trade and the planting community,” asked N Lakshmanan of Golden Hills Estates.

Sources said that though the North Indian tea industry is still grappling with payment-settlement issues in the new auction system, the bonus payouts had largely been made in September, ahead of the Durga Puja celebrations.

Similarly in Kerala, despite the prevailing crisis, firms have managed to make bonus payouts ahead of Onam, while some have deferred them.

Small growers worst hit

“The impact is serious as small growers are not getting their due share from the factory owners for the green leaf they had supplied for processing. Small farmers live on credit and at best hand-to-mouth and any delay or denial of their due payment causes untold economic problems to them,” said H Thiagaraj, President, Nilgiri Small Tea Growers’ Association.

“We are happy that the Tea Board has put on hold its problematic Module for the next four weeks or until further orders as we believe that small growers will henceforth get their due returns for their green leaf. This can ease our pressure during the Diwali festive season,” he added.

Published on October 19, 2016

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