New Jorhat Tea e-Auction Platform: Service Provider to Double up As Auction Organiser

Kolkata: In about four months from now, Assam’s Jorhat town, a household name in India’s tea world, will be home to a new e-auction platform.

The most distinctive feature of the planned e-market place for tea will be that the platform provider, that is, the system integrator will also double as auction organiser. Which simply means there will be no direct involvement of tea trade outfits, such as the Guwahati Tea Auction Committee (GTAC) in the conduct of the auctions. It will be between the new system integrator and sellers (producers) and buyers.

This is in contrast to the existing arrangement with NSEIT of the National Stock Exchange, which acts only as the platform provider and, therefore, the participation of all the three sections -- buyers, brokers (auctioneers) and sellers, who represent a tea trade outfit, for example, the Calcutta Tea Traders Association (CTTA) or Siliguri Tea Auction Committee (STAC) is automatic.

India is one of the top tea producers in the world, and also one of the top consumers. Tea production in 2018 stood at about 1,330 million kg (mkg) against 1,325 mkg in 2017. Exports in 2017-18 were 266.57 mkg, valued at Rs 5,065 crore ($786 million). Tentative estimates for 2018 place exports at 250 mkg. Various surveys and studies estimate that around 80% of the total tea produced in India is consumed domestically.

Around 50% of the tea produced in the country is sold through the auction system supervised by the Tea Board, a regulatory body under the Ministry of Commerce. The rest is sold privately.

For the new arrangement, the Tea Board has inked a memorandum of understanding with mjunction Ltd, a joint venture of SAIL and Tata Steel. mjunction won the bid submitted in response to the Request For Proposal floated by the Tea Board. Some of the key conditions laid down by the Tea Board and accepted by mjunction are: the selected bidder must itself own the customised and secured public e-platform and should guarantee that the service and technology that it will provide are the best available.

Second, the service that it will provide should be different from the existing e-auction platform and its model should be able to accommodate a large number of buyers and sellers, thereby ensuring “fair price discovery in a transparent and secured manner”. It will be awarded the Organiser of Tea Auction Licence under the provision of The Tea (Marketing) Control Order 2003 and the arrangement initially will be for one year with provision for renewal every year under the 2003 order.

The key functional specifications are: weekly scheduling of auctions, facility for simultaneous multiple auctions, preparation for e-auction catalogue, online valuation of teas offered, fixation of base value in consultation with the relevant seller, tracking status of transactions and publication of online trading reports and analytics. The stipulated functions will also include collection and testing of, collection and settlement of auction proceeds and delivery of teas to the buyer’s destination. The last-mentioned function will include arrangement for providing logistical support.

It is for mjunction to assess if a physical centre is needed and if it finds so, it has to set up a physical centre. The Tea Board has emphasised that the service provider should ensure that there is a programme to evaluate teas with reference to defined parameters, such as, characteristics and type. It will be for the service provider to suggest the best method to be adopted for the purpose.

At present, auctions are conducted across all the recognised centres (actually seven, including Amritsar, but effectively functioning six – CTTA, GTAC, STAC and the centres at Kochi, Coonoor and Coimbatore) under a single rule of the Tea Board called Pan India e-Auction Rule. Apart from the registration with the Tea Board, sellers and brokers need to be registered with the auction centres where they intend to offer their teas. However, buyers registered in one auction centre can participate in the bidding process of all the centres.

Now, about the doubts in the context of the specified objectives, given the fact that the producer segment has two distinct categories – large/dominant and small growers. Will the new arrangement favour large producers (sellers) and will small growers be assured of a level-playing field? Tea trade veterans say that it is an auction and, naturally, teas on offer will be sold to the higher bid. All tea estates, big or small, registered with the Tea Board, will be able to upload their teas on the platform.

Tea trade sources also have some concerns on the vital issue of price discovery, to be more precise remunerative price, which is a function of demand and supply and how much competition there is in a given sale and for particular lots. The selected service provider is understood to have sought to allay the apprehensions of would-be stakeholders, saying that its programmes and systems will be the most advanced and those should help realisation of the price discovery objective. Also, buyers will have sufficient time to register their bids. The convenience factor should attract competitive participation, it is claimed.

For the record, it may be mentioned that as per The Tea (Marketing) Control Oder 2003, it is mandatory to offer 50% of tea produced in auctions but the quantum exported and used for packet tea production is excluded.

The writer is a senior journalist based in Kolkata.