Tea planters embark on project of swap mechanism for better cash flow

Amid the current auction scenario of "depressed prices", the tea planters' body has embarked on a pilot project engaging a consultant to carry out trials of a swap mechanism which will enable a producer to maintain a constant cash flow despite price volatility, an official said on Thursday.

"Given the current auction scenario of depressed prices, the association has embarked on a pilot project engaging a consultant to carry out trials of a swap mechanism which must need the ultimate approval of the financial regulators prior to implementation on real time basis," Indian Tea Association (ITA) Chairman Azam Monem said.

He said the swap mechanism mock sessions are now in its 8th week with a select group of auction buyers and producers.

"Here it is seen that swaps can enable a producer to maintain a constant cash flow week on week despite price volatility. It also enables the BLFs (bought leaf factories) to hedge their future sale realisations with the green leaf prices."

The 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 cost, he said while addressing the 135th Annual General Meeting.

The digitalisation of the auction system way back in 2007 held the promise for reduction in transaction costs and fair price for the producer.

The system, according to Monem, needs an overhaul and reforms to eliminate wastage and bring in more efficiency.

The Tea Board, however, said it would not interfere with the auction system and would leave it to the industry to decide and finalise the necessary infrastructure and software required for the revamp.

"We will not interfere with the finalisation of the software," Board Deputy Chairman Arun Kumar Ray said.

The Tea Board, as part of the auction reform process, has recently tasked the ITA to engage an expert to work out the solutions for introducing ex-estate sales, Monem added.

--IANS

bdc/mag/bg