Government looks to bring efficiency in tea auction system (News Analysis)
Kolkata : Amid stagnating prices of tea in auctions, the central government is looking at the "imperfection" of the primary market as it aims to bring more efficiency in the system after sellers and buyers of the crop raised issues of operational difficulties along with relatively higher transaction costs involved in the entire process, stakeholders say.
"The (Union) Commerce Ministry has constituted a committee consisting of industry stakeholders to study ways to ensure rejuvenation of the tea sector. This committee will look at all the sectoral issues relating to production, labour welfare, primary markets, marketing, generic promotion, consumer safety, exports and R&D," Tea Board India Chairman P.K. Bezbaruah told IANS.
"The ministry and Tea Board are also looking at primary market (auction) imperfections and possible manipulation of the market by large oligopsonists, as auction prices are flat for the last 5-6 years," Bezbaruah, the first industry representative to head the regulatory body, added.
The auction data suggests that about 272.2 million kgs of tea was sold at an average price of Rs 132.62 per kg from January 1 to July 28 this year.
In 2017, the total tea sold in the six operational auction centres located in Kolkata, Guwahati, Siliguri, Kochi, Coonoor and Coimbatore was 591.08 million kgs, with the average price of Rs 134.36 per kg, while the quantity sold in the primary markets was 505.77 million kgs in 2016 at an average price of Rs 135.36 per kg.
Union Commerce Secretary Rita Teaotia had recently pointed out that India's tea auction platforms "have not had the kind of acceptability" they should have.
She also cited that as the reason for 100 per cent tea not coming to the auctions.
Teaotia had requested Tea Board officials to look at the acceptability of auction platforms and how they can be revamped so that everybody buys through them.
She had also requested the industry to find out ways to make platforms better because they are for the industry to serve its purpose.
However, Indian Tea Association Chairman Azam Monem said when the electronic auction was introduced, the pressing need was to convert the public outcry auction system into a digital platform, make it paperless and lower the transaction costs.
But the issue of transaction cost, involving everything from administrative costs right up to warehousing, logistics, sampling, freight and the like, were "not addressed", he said.
"We are discussing with the government and the Tea Board in terms of policy (for the auctions). The transaction cost issues for e-auctions have to be addressed and the cost needs to be brought down. Otherwise, it is becoming expensive for producers. There could be, on an average, additional cost of Rs 8-10 a kg for selling through the electronic auction channel," Monem told IANS.
"We have said that the auction process has to be completely revamped so that it becomes an effective tool for usage. If you make it efficient to achieve good prices, then there should be no reasons for producers not to opt for it," he added.
Calcutta Tea Traders' Association Chairman Anshuman Kanoria also said the current auction system is "outdated" and "not so efficient" as it involves "high cost and longer lead time for sale".
He also alleged that "auction centres become the dumping ground of relatively poor quality tea".
"The current system of auctions is not viable in terms of competition. People are selling good quality tea privately and there is no law to force them to sell tea through the auction system. Prices in the auctions do not truly reflect the market because relatively poor quality of tea is being sent to centres," Kanoria contended.
"The price in auctions must be increased by bringing more competition. In a recent meeting with Tea Board officials, we have requested that the format must be changed in order to revamp it. And with the revamped system it should be made compulsory to sell a certain level of tea through auctions, if not 100 per cent," Kanoria told IANS.
However, producers said there is "no need for any diktat or ordinance" to sell through auctions as they do not prefer to do so because of "the prohibitive cost" and the delay in realisation.
"Around 50 per cent of the tea is sold privately because producers opted to save costs and get better price and remuneration. The current e-auction system is not able to generate the better price because of the procedural and logistical issues, along with financial implications. Also, the time is also limited for the fair price discovery," Monem added.
(Bappaditya Chatterjee can be contacted at firstname.lastname@example.org)