e auction for tea- the indian experience

8/10/2019 E Auction for Tea- The Indian Experience

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E Auction of tea in

India

Presentation by

Basudeb Banerjee

Chairman

Tea Board of India


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Presentation contents

1. Different primary marketing channels for tea inIndia

2. Role of public tea auctions in the primarymarketing of tea

3. Existing manual public tea auction system

4. Present electronic tea auction system

5. Key learnings and proposed electronic teaauction system


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Primary marketing options

Private sale In the form of loose tea in bulk packagesdirectly to the primary buyers

Private sale in the form of consumer packs (tea contentnot exceeding 1 kilogram in one pack) directly to theprimary buyers

Direct export in the form of loose tea in bulk packagesand/or in consumer packs to overseas buyers

Dispatch of loose tea and/or packet tea to consignee orcommission agent or as a stock transfer (non auctionroute)

Dispatch of tea in loose form in bulk packages for salethrough public tea auction


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Channels of Primary marketing for tea

Tea manufactured from

tea leaf by Tea Factory

In the form of loose tea

in bulk package

In consumer packs

i.e. Packet Tea

To domestic consumer

through

Retail outlet

Directly to the primary

registered domestic

Buyers

(non auction route)

Directly to overseas

Buyers (direct export)

To registered consignee

or commission agent or

as stock transfer

To registered primary

buyers

Directly to overseas

Buyers as

Direct export


Through our retail

outlet

To semi wholesaler or

Retailer for sales


In the form of

Loose tea

To merchant packers

for sales to

Domestic consumer

as packet tea

Through public

tea auction

To domestic consumer through

secondary buyers


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Public tea auctions

Public tea auction handles more than 500 millionkilograms annually out of the 800 million kilogramsavailable in the form of loose tea in bulk packages

Public tea auction handle only loose tea in

packages, the net content any package isgenerally between 20 kilograms and 45 kilograms

Packages are in wooden tea chests, jute bags,paper sacks etc.

There are five important stake holders in anypublic tea auction Auction-Organizers,Seller/Manufacturers, Brokers/Auctioneers, Buyers& Warehouse keepers


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Public tea auction locations

in North India

Auction

Centre

Auction Organizer Year of

starting

Auction held

on

Kolkata Kolkata Tea Traders

Association

1861 Mondays and

Tuesdays

Guwahati Guwahati Tea Auction

Committee

1970 Tuesdays

and

Wednesdays

Siliguri Siliguri Tea Auction

committee

1976 Thursdays

and Fridays

Jalpaiguri North Bengal Tea Auction

Committee

2005 Initially it was

weekly but

then

fortnightly

Amritsar Kangra Tea Planters Society 1964 Fortnightly


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Public tea auction locations

in South India

Auction

Centre

Auction Organizer Year of

starting

Auction held

on

Cochin Tea Trade Association

of Cochin

1947 Tuesdays

andWednesdays

Coonoor Coonoor Tea Trade

Association

1963 Thursdays

and Fridays

Coonoor Tea Serve 2003 Wednesdays

Coimbatore Tea Trade Association

of Coimbatore

1980 Fridays


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The manual public tea auction

system

Despatch of lot-wise teasby themanufacturers to the warehouses

approved by the concerned auction

organizers

Issue of garden invoiceby the

manufacturers to the concerned

brokers/auctioneers

Issue ofArrival & Weighment Report(AWR) by the warehouse owner addressed

to the concerned broker/auctioneer


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The manual public tea auction

system

Auction organizer forwards such AWRs to

Brokers/AuctioneersCataloging of lots with detailed information likename of the manufacturers/sellers, number andtype of packages, gross weight, net weight, gradeof tea, date of arrival in warehouse, date ofdespatch from garden etc.

Inspection of teain the warehouse by theconcerned brokers and drawing of samples fromthe lot stored in warehouse

Preparation of small packs of trade sampleout oftotal sample drawn in a lot based on the eligibilitycriteria of the auction buyers

Despatch of such trade samplesto different eligiblebuyers by the Brokers


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Existing manual public tea auction

systemBrokers carry out tastingof teato assess its quality

for the purpose of valuation (organoliptic)Valuation exercisebased also on the existing markettrends and quality of the tea

Issue of such valuation report in respect of each lot toall the auction buyers by the Brokers

Offering and serial bidding of lot-wise tea for sale inthe auction hall on the auction day by thebrokers/auctioneersas per timings prescribed theauction organizers.

Buyers are generally physically present except thoseavailing of proxy bidding rule

Public outcry system

Selection of highest bidderfor any lot and declarationof out lots in absence of reasonable bid from thebuyers


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Existing manual public tea auction

systemIssue of delivery order and tax invoicesto the

highest bidder by the brokerIn North India, two types of Buyers are operating,credit buyer and cash buyer

Credit buyer can take delivery of tea from thewarehouse before prompt date without payment.

But cash buyer is required to pay in cash beforetaking delivery of tea

Receipt of payment towards tea price from thebuyers within stipulated prompt date

Payment to manufacturer by the brokerwithin

prompt date after deducting VAT/SST/CST/Warehouse charges etc

Deposit VAT/SST/CST to the Commercial TaxDepartment of concerned state government

Payment of warehouse chargesto the

Warehouse owner by the Broker


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Background to the Project for e-

auction

A report was commissioned by the Tea Board in2002 in which a private consultant, A.F Fergusonrecommended an overhaul of the current manualout cry system

Standardization of processes across auction centers

Establish a more robust price discoverymechanism

Ensure compliance with government/teaboard/tea trade association rules

Discontinue certain practices that hadevolved over the years e.g. division of lots,

Quantum increase in the transparency of theoverall system

Leverage emerging IT technologies available in

the market place to drive the above


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Tea Portal

Information Dissemination Electronic Auctioning

Demand side information

Supply side information

Operational information

Communication utilities

Pre sale processes

Auctioning

Post sale processes

Reports

Present Electronic Tea Auction

system


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Present Electronic Tea Auction system

DevelopmentStagingOperations

Management

Data CenterCentralized

hardware

ApplicationSoftware

Internet

CochinPCsLAN

GuwahatiPCsLAN

Kolkata

PCsLAN

Siliguri

PCsLAN

Coimbatore

PCsLAN

Coonoor

PCsLAN

Tea Board


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Users login into the indiateaportal system using their unique username& password

Present Electronic Auction :

Access


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Broker enters lot information through the AWR Entry Form

Lotdetailsentere

dinto

thesystem


Pre-Auction Process


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Broker sets valuation, tasters comments & ask price

using the broker valuation form

V

aluation,comments&askpriceforeac

h

lotareenteredbybroker


Pre-Auction Process


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Broker publishes the catalog for a sale using the publish catalog form

Brokerspublishedcatalogwitheachline

correspondingtoalot


Pre-Auction Process


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Buyers set valuation & tasters comments for lots using the

buyer valuation form

V

aluation,commentsforeachlotare

e

nteredbybuyer;

L

otscanbegrouped

togetherincasebuy

erwantsthe

s

ystemtoprovidetheaveragepurchasepricefor

t

heselots


Pre-Auction Process


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Brokers auction floor prior to start of auction

Auctionfloorofth

ebrokerbeforethe

startoftheauction


Auction Process


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Buyers enter bids on their auction floor & view the highest bidder foreach lot

LotsaddedbybuyertohisMy

gallery

This buyer is currently the topbidder on this lot

Autobid of value70.0 is set on this

lot by this buyer


Auction Process


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Brokers view progress of auction

Top bid (65.0) is greater than the ask

price (60.0), hence in blue

Broker has option to sell duringbidding time if high bid is satisfactory


Auction Process


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Brokers knock down lots they are prepared to sell


Auction Process


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Users view the auction results of lots through the Auction results page

Winning buyer & price


Auction Process


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Auction organizer views the bid history for lots using the bid history form

L

ot-wisebidsentered

intothesystemby

b

uyers


Reporting


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Present Electronic Auctions

Current Status Electronic auctioning of tea is currently being

conducted at 5 of the 6 Auction Centres on a limitedscale except for Coonoor

There are different levels of conversion to theelectronic platform

Coonoor : 100% live (BothLeaf and Dust)

Other Centers in the South : 100% live onLeaf only

Siliguri in the North : 25% of Leafonly

Kolkata in the North : 0%

Technical/software glitches

Communication glitches

Change Management issues


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TYPICAL ISSUES : BUYERS

Issues raised by buyers

Parallel bidding versussequential

E-auction is time consuming

Last second bids not registered

Brokers Ask Price needs to bedisplayed on the buyer auctionfloor

Analysis / Current status

Mindset issue; any form of electronicbidding would entail parallel bidding

Lessens ability to hedge prices andincreased bidding time, thus leading totrue price discovery

Currently at more than 3 lots per minute

Buyer reluctance in raising number of lotsto a page

Currently resolved

Requires buyers to be more prudent

Brokers unwilling to show Asking Price

Can be implemented on the system in aweeks time


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Lower Pricerealizationcompared tomanual auctions;hence Producers

are not willing tosell through thee-auctions

E-auctions willmake the role ofthe brokerirrelevant

Have asked them not to

keep e-auctioning as the

last activity of the day

Initiated a Producerappreciation program

Kept the supply chainunchanged

Decision to sell still

retained with the broker

Issues raised Analysis / Currentstatus

Present Electronic Auction:

Issues raised by brokers


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Highest biddername during anauction should notbe displayed

Drive greaterprice discovery:have all lots up forauction at thesame time

Lower pricerealization and %sold in e-auctionsthan manualauctions

Policy Issue

Buyers insist that knowing theinterested party for a lot helps inidentifying areas of demand

Policy and Change Management IssueUltimate goal of the system

Some amount of technical changeon the system required

Change management issueEnough data points to prove that it isessentially a supply-demand issue

Issues raised Analysis / Current status

Present Electronic Auction:

Issues raised by producers


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Changes required in the present

electronic auction system

Suggestion received to separate Tea Portaland E-Auction

Present features of tea portal to continue

Separate platform for e-auction for continuousavailability

Use existing hardware with upgrades

Develop new software

Use opportunity to develop new businessmodel

Be sensitive to change management but firmwith auction principles of competition andprice-discovery


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LESSONS IN HINDSIGHT

Drive the auction system by your vision of whatit should be and do not be driven by anoverwhelming desire to get a consensus

Do not replicate existing manual systems

Focus on price discoveryBuild redundancies to accommodate fortechnology malfunctions

Do not underestimate the change

management requirement

Make users pay for operations andmaintenance of the system


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Salient Features of proposed auction system

Registered users only

Multiple users with hierarchy

Anywhere access

Concurrent auctions from all centres

Concurrent auctions by all

auctioneers

Uninterrupted availability

Split second response

Proposed Electronic

Auction


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Salient Features of proposed auction system Optimal market timings

Standard contract descriptor

Uniform price increments Price discovery

Uniform lot size

Automatic matching

Audit trail

Proposed Electronic Auction


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Internet

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SiSi

Regional offices

Auction

centres

Separate Infrastructure for Tea Portal

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SiSi

Separate Infrastructure for Auctions

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Proposed Electronic Auction Model


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Order Collector

Auction Engine

AuctionOrganizer

User office

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Central Back-office

Transactions

1. Order Entry

2. Order Confirmation

3. Order Modification/ cancellation

4. Market viewing by price, quantity, etc.

5. Transaction confirmation

Process flow

Proposed Electronic Auction


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Progress so far

Advertised in the Economic Times & in the Timesof India both on dated: 21st September,2006inviting Expression of Interest

20 firms responded

Consultancy Evaluation Committee (CEC) has

been constituted to select Consultancy FirmMeetings of CEC was held on 21stSeptember,2006,10thOctober,2006,16thOctober,2006 & 16thNovember,2006

Following firms short-listed:

1. M/s.Metal Junction2. M/s.NSE-IT Ltd

3. M/s.Global Agri System (P) Ltd

4. M/s.CMC Limited

5. M/s.NCDEX


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Progress so far

Draft discussion paperwas forwarded to all thestake holders including auction organizers,Producers Associations, Traders Associations,brokers etc.

Fifteen stake holders have furnished their viewson the draft discussion paper so far

CEC is finalizing the document on Request ForProposalfor handing over the same to the fiveshort listed firms with the request to submittechnical & financial deed separately in sealedenvelope


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Progress so far

Recently held Inter-Governmental Group of

FAO on tea at Nairobi, Kenya highlighted

need to make the primary marketing of tea

more efficientColombo and Mombasa also have plans to

introduce e auctions

Collaboration with the East Africa Tea

Trade Association the Colombo Tea Trade

Association and the respective Tea Boards


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e auction for tea- the indian experience

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