The Tea Board of India is working on a plan to modify the existing auction mechanism which is expected to boost tea prices and help sellers reach out to a larger buyer base, apart from improving the quality of tea.
The move follows the recommendations of IIM Bangalore (IIMB), which was appointed by the Tea Board to come up with suggestions to improve the tea pricing scenario in the country.
“We have accepted the recommendations made by IIMB and are working towards implementing their suggestions. Besides, we have already incorporated around 75 per cent of the suggestions in the new auction centre at Jorhat (in Assam) and would implement it across India,"said A K Ray, deputy chairman, Tea Board of India.
After conducting a detailed study on the current auction mechanism and as flagging concerns over declining tea quality, IIMB has come up with a four-pronged strategy and has recommended implementing the Japanese format of auctions.
Under this format of auctions, the process is simplified and a reverse auction held.
Following its fact finding mission and analysis of historical data, IIMB proposed to bring in price dynamism in the auction process, provide equal opportunities to small and individual buyers, improve industry operating standards and bring in simplification in the auctioning mechanism.
Terming the current auction process as an outdated model, B Mahadevan, professor at IIMB, who was part of the study, said, “The auction format needs revision and there has to be daily sessions for the out-lot tea. There also needs to be a rebid process where, after a sale, buyers will be again offered to rebid for tea. These measures will improve prices”.
Out-lot teas refers to those teas which could not be sold in the auctions. Under the current system, these teas are re-catalogued for the subsequent or later auction but IIMB has recommended selling these teas on the very day of the auction.
Usually, 1/4th of the teas which enter an auction are out-lots.
Under the revised auction format, which the Tea Board is working on, teas which have already been successfully bought by a buyer will be again offered for sale to other buyers in the last hour of the auction. The selling price in the successful round of bidding will become the minimum bidding price in the re-bid process.
Mahadevan suggested that the tea catalogues need to be redesigned alongwith their digital format and there needs to be standardisation of the grades of teas sold in the auctions and their packaging.
While there are only 27 grades of tea in Kenya and Sri Lanka, in India, the gradation process is allegedly skewed and there are 918 grades of tea which confuses buyers as well as the brokers. IIMB has recommended sticking to a maximum of 28 tea grades.
On the other hand, the Tea Board, following the recommendations of IIMB will soon be devising directives which will make certifications under FSSAI or EU norms mandatory for tea which will enter the auctions. Presently, certifications are not compulsory.
“If we aren’t putting in place quality parameters, we are shooting our own foot. We (India) have not progressed sufficiently on quality parameters”, the professor said.
He added that the quality of tea is extremely important not only for better price realisation, but also because unlike the in the past, when India enjoyed a monopoly status in tea exports, it now has to compete against 78 tea-growing nations which offer good quality teas.