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The Indian Tea Association (ITA) will soon appoint an agency to look into the possibility of reforming the auction process so as to make it more ‘user-friendly and cost-effective’.
According to Azam Monem, Chairman, ITA, the agency will be entrusted the task of coming up with solutions for introducing ex-estate sales, with a view to reducing transaction costs.
“The auction system, which was digitalised in 2007, needs an overhaul to eliminate wastage and bring in more efficiencies. There is a need to re-examine high transaction costs, including free sampling, bidding processes and efficient logistics,” Monem said, while delivering his address at the 135th annual general meeting of the ITA in the city on Thursday.
Some of the suggestions made by the ITA to the Tea Board include revamping the auction mechanism by introducing ex-estate sales; holding a pan-India auction on a single platform under one catalogue with teas at various storage points for delivery, be it Kolkata, Guwahati, Siliguri or ex-estates and the need to revoke the mandatory 50 per cent sale through auctions so as to derive maximum value of the teas produced.
There are three auction centres each in South India and North India at present. The Tea Board, however, clarified that it would not interfere with the auction system and would leave it to industry to decide and finalise the necessary infrastructure and software required for the revamp. “We will not interfere with the finalisation of the software,” Arun Kumar Ray, Deputy Chairman, said.
Swap mechanism
Meanwhile, ITA has embarked on a pilot project, engaging a consultant to carry out trials of a swap mechanism. Mock sessions of the swap mechanism are now in its eighth week, with a select group of auction buyers and producers.
According to Monem, swaps can enable a producer to maintain a constant cash flow week-on-week, despite price volatility. It would also enable bought leaf factories to hedge their future sale realisations with green leaf prices.
“Buyers also benefit, where they have an opportunity to lock in prices at their lowest point and buy the physical tea closer to the time of usage, thus, saving on inventory and storage costs,” he said.
The swap mechanism would require approval of the financial regulators prior to implementation on real-time basis, he added.
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