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Teething problems in Pan-India tea e-auction

Teething problems in Pan-India tea e-auction

THE first public tea auction in the world was held in Calcutta (now Kolkata) on December 27, 1861, by R. Thomas & Co (now J. Thomas & Co Pvt Ltd, still the world’s largest auctioneer, handling about 200m kg of tea annually.

For nearly 150 years, the auctions were held manually. Tea auctions account for the sale of about 50pc of tea produced in India, with the rest being accounted for by private sales. In 2009, the government introduced electronic auctions; last year, 534m kg of tea were sold through e-auctions at seven centres — Kolkata, Guwahati, Siliguri and Jalpaiguri (all in eastern India) and Kochi, Coonoor and Coimbatore (in the south).

Earlier this year, the union commerce ministry decided to introduce a pan-India e-auction system to ensure that small growers got a better price for their tea and to ensure uniform auction rules at all centres. Last month, sale number 25 of 2016 conducted by the Tea Board of India became the first pan-India e-auction of tea, which was unveiled across five centres.

For the first time, the premium Darjeeling tea was also sold through the e-auction system. Buyers from anywhere in India can now bid in any of the auctions held across the country.

According to Santosh Sarangi, chairman, Tea Board, the government had consulted all the stakeholders over the past 18 months before introducing the system. Nearly 60pc of the tea offered through the first all-India e-auction (about 1.75m kg) was sold. Both corporate and small buyers participated in the auction.

The average price fetched at all the centres was Rs135.75 per kg, slightly lower than the previous week’s rate of Rs145.2. Darjeeling tea fetched a price of Rs404.33.

Of course, the roll-out of the pan-India e-auction was not smooth especially in the south. The Cochin Tea Buyers’ Association in Kochi approached the Kerala high court seeking a stay on the implementation of the new rules. While the court refused to stay the auctions, it urged the Tea Board to consider the grievances of the association.

Dharmendra Vora, president, Cochin Tea Buyers’ Association, says that the new auction rules would affect small tea traders at the Kochi auction centre. He cited the absence of small traders at the Kochi auction, where only 25pc of the tea was sold.

Of the 120 active tea traders in Kochi, nearly 100 are small and medium players, who will not be able to participate in the pan-India auctions, say the traders.

Vora accused the Tea Board of arbitrarily fixing a minimum lot size of 20 bags to be bought by a single buyer, as against the earlier minimum size of nine lots. The association says it is difficult for small buyers — who buy from different sellers and blend the tea — to invest additional amounts to buy 20 bags.

The new system favours corporate buyers and discriminates against smaller buyers, the traders argue. The new rules also prohibit proxy bidding, which small traders often indulge in.

Corporate buyers have called for more settlement banks in the new system. Just one state-owned lender, Bank of India, has been appointed as the settlement bank.

However, the National Federation of Small Tea Growers of India, the Darjeeling Tea Association and the Siliguri Tea Auction Committee, among others, are all for the new system, which they feel will prevent cartelisation and lead to improved prices at the auctions.

For India, which ranks number two after China in terms of tea production, 2015-16 was a record year. According to the Tea Board, the country produced 1,233.14m kg of tea (a growth of three per cent over the previous fiscal), the highest-ever production.

According to the Tea Board, north India (which includes the two major tea-growing states, Assam and West Bengal, which are located in the east) saw production grow by 5.52pc last year. But in south India, production fell by nearly 7pc because of adverse climatic conditions and labour problems in Kerala.

Small growers, who account for about a third of total production, are to be found mainly in Tamil Nadu, West Bengal and Assam. More than 90pc of the tea grown in India is CTC (crush, tear, curl), with orthodox production and green tea contributing the rest.

Last year, the Tea Board had made it compulsory for registered manufacturers to sell at least 50pc of their produce through auctions. Thus, north India auction centres saw a nearly 40pc growth in sales and southern centres reported a 26.22pc growth in auctions.

For the first time in 35 years, exports also breached the 230m kg-mark, touching 232.92m kg, a growth of 17pc, and valued at Rs44.93bn (17.51pc). The main export markets included Russia, Iran, Germany, Pakistan, Bangladesh, the UAE and Poland.

India’s highest tea exports were in 1976-77, when it sold 242.42m kg of the commodity in the overseas markets.

But questions have been raised in recent years about the presence of metals in Indian tea. Worried about the impact this would have on exports, the Food Safety and Standard Authority of India (FSSAI), recently approved a draft standard prescribing a limit of not more than 150mg/kg of iron fillings in tea.

The food regulator has also directed agencies across India to implement the new rules relating to metal fillings in tea powder. The tea industry had wanted the limit to be increased to 500mg/kg in tea, but the FSSAI refused. The new limits compare well with the limit of 120mg/kg in the developed world.

Iron fillings end up with tea dust at the time of processing, especially if the machines are old. Usually, tea processors use magnets to remove iron particles, but tiny particles remain in the packets.

Published in Dawn, Business & Finance weekly, July 11th, 2016

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