E-Auction of tea in

India

Presentation by
Basudeb Banerjee
Chairman
Tea Board of India
1

Presentation contents
1.

Different primary marketing channels for tea in

India

2.

Role of public tea auctions in the primary

marketing of tea

3.

Existing manual public tea auction system

4.

Present electronic tea auction system

5.

Key learnings and proposed electronic tea

auction system
2

Primary marketing options

Private sale In the form of loose tea in bulk packages
directly to the primary buyers
Private sale in the form of consumer packs (tea content
not exceeding 1 kilogram in one pack) directly to the
primary buyers
Direct export in the form of loose tea in bulk packages
and/or in consumer packs to overseas buyers
Dispatch of loose tea and/or packet tea to consignee or
commission agent or as a stock transfer (non auction
route)
Dispatch of tea in loose form in bulk packages for sale
through public tea auction
3

Channels of Primary marketing for tea

Tea manufactured from
tea leaf by Tea Factory

In the form of loose tea

in bulk package

To domestic consumer
through
Retail outlet

Directly to the primary

registered domestic
Buyers
(non auction route)

Directly to overseas
Buyers (direct export)

In consumer packs
i.e. Packet Tea

To registered consignee
or commission agent or
as stock transfer

Through public
tea auction

To semi wholesaler or
Retailer for sales
To domestic consumer
In the form of
Loose tea

To merchant packers
for sales to
Domestic consumer
as packet tea

To registered primary
buyers

Directly to overseas
Buyers as
Direct export

To domestic consumer through

secondary buyers

To domestic consumer
Through our retail
outlet

Public tea auctions

Public tea auction handles more than 500 million
kilograms annually out of the 800 million kilograms
available in the form of loose tea in bulk packages
Public tea auction handle only loose tea in
packages, the net content any package is
generally between 20 kilograms and 45 kilograms
Packages are in wooden tea chests, jute bags,
paper sacks etc.
There are five important stake holders in any
public tea auction Auction-Organizers,
Seller/Manufacturers, Brokers/Auctioneers, Buyers
& Warehouse keepers
5

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
6

Public tea auction locations

in South India
Auction
Centre

Auction Organizer

Year of Auction held

starting on

Cochin

Tea Trade Association

of Cochin

1947

Tuesdays
and
Wednesdays

Coonoor

Coonoor Tea Trade

Association

1963

Thursdays
and Fridays

Coonoor

Tea Serve

2003

Wednesdays

Coimbatore

Tea Trade Association

of Coimbatore

1980

Fridays

The manual public tea auction

system
Despatch of lot-wise teas by the
manufacturers to the warehouses
approved by the concerned auction
organizers
Issue of garden invoice by the
manufacturers to the concerned
brokers/auctioneers
Issue of Arrival & Weighment Report
(AWR) by the warehouse owner addressed
to the concerned broker/auctioneer
8

The manual public tea auction

system
Auction organizer forwards such AWRs to
Brokers/Auctioneers
Cataloging of lots with detailed information like
name of the manufacturers/sellers, number and
type of packages, gross weight, net weight, grade
of tea, date of arrival in warehouse, date of
despatch from garden etc.
Inspection of tea in the warehouse by the
concerned brokers and drawing of samples from
the lot stored in warehouse
Preparation of small packs of trade sample out of
total sample drawn in a lot based on the eligibility
criteria of the auction buyers
Despatch of such trade samples to different eligible
buyers by the Brokers
9

Existing manual public tea auction

system
Brokers carry out tasting of tea to assess its quality
for the purpose of valuation (organoliptic)
Valuation exercise based also on the existing market
trends and quality of the tea
Issue of such valuation report in respect of each lot to
all the auction buyers by the Brokers
Offering and serial bidding of lot-wise tea for sale in
the auction hall on the auction day by the
brokers/auctioneers as per timings prescribed the
auction organizers.
Buyers are generally physically present except those
availing of proxy bidding rule
Public outcry system
Selection of highest bidder for any lot and declaration
of out lots in absence of reasonable bid from the 10
buyers

Existing manual public tea auction

system
Issue of delivery order and tax invoices to the
highest bidder by the broker
In North India, two types of Buyers are operating,
credit buyer and cash buyer
Credit buyer can take delivery of tea from the
warehouse before prompt date without payment.
But cash buyer is required to pay in cash before
taking delivery of tea
Receipt of payment towards tea price from the
buyers within stipulated prompt date
Payment to manufacturer by the broker within
prompt date after deducting VAT/SST/CST/
Warehouse charges etc
Deposit VAT/SST/CST to the Commercial Tax
Department of concerned state government
Payment of warehouse charges to the
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Warehouse owner by the Broker

Background to the Project for eauction

A report was commissioned by the Tea Board in
2002 in which a private consultant, A.F Ferguson
recommended an overhaul of the current manual
out cry system
Standardization of processes across auction centers
Establish a more robust price discovery
mechanism
Ensure compliance with government/tea
board/tea trade association rules
Discontinue certain practices that had
evolved over the years e.g. division of lots,
Quantum increase in the transparency of the
overall system
Leverage emerging IT technologies available in
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the market place to drive the above

Present Electronic Tea Auction

system

Tea Portal

Information Dissemination

Electronic Auctioning

Demand side information

Pre sale processes

Supply side information

Auctioning

Operational information

Post sale processes

Communication utilities

Reports
13

Present Electronic Tea Auction system

Tea Board
Internet

Development
Staging
Operations
Management

Data Center

Centralized
hardware
Application
Software

Coonoor
PCs
LAN

Guwahati
PCs
LAN

Coimbatore
PCs
LAN

Kolkata

Siliguri

PCs
LAN

PCs
LAN

Cochin
PCs
LAN

14

Present Electronic Auction :

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

15

Present Electronic Auction :

Pre-Auction Process

Lot details entered into

the system

Broker enters lot information through the AWR Entry Form

16

Present Electronic Auction :

Pre-Auction Process

Valuation, comments & ask price for each

lot are entered by broker

Broker sets valuation, tasters comments & ask price

using the broker valuation form

17

Present Electronic Auction :

Pre-Auction Process

18

Brokers published catalog with each line

corresponding to a lot

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

Valuation, comments for each lot are

entered by buyer;

Lots can be grouped together in case buyer wants the

system to provide the average purchase price for
these lots

Present Electronic Auction :

Pre-Auction Process

Buyers set valuation & tasters comments for lots using the
buyer valuation form

19

Present Electronic Auction :

Auction Process

Auction floor of the broker before the

start of the auction

Brokers auction floor prior to start of auction

20

Present Electronic Auction :

Auction Process

Lots added by buyer to his My

gallery

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

This buyer is currently the top

bidder on this lot

Autobid of value
70.0 is set on this
lot by this buyer
21

Present Electronic Auction :

Auction Process
Brokers view progress of auction

Top bid (65.0) is greater than the ask

price (60.0), hence in blue

22
Broker has option to sell during

bidding time if high bid is satisfactory

Present Electronic Auction :

Auction Process
Brokers knock down lots they are prepared to sell

23

Present Electronic Auction :

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

Winning buyer & price

24

Present Electronic Auction :

Reporting

25

Lot-wise bids entered into the system by

buyers

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

Present Electronic Auctions

Current Status
Electronic auctioning of tea is currently being
conducted at 5 of the 6 Auction Centres on a limited
scale except for Coonoor

There are different levels of conversion to the

electronic platform
Coonoor
Other Centers in the South

Siliguri in the North

Kolkata in the North

: 100% live (Both

Leaf and Dust)
: 100% live on
Leaf only
: 25% of Leaf
only
: 0%

Technical/software glitches
Communication glitches
Change Management issues
26

TYPICAL ISSUES : BUYERS

Parallel bidding versus

sequential

Analysis / Current status

Mindset issue; any form of electronic
bidding would entail parallel bidding
Lessens ability to hedge prices and
increased bidding time, thus leading to
true price discovery

E-auction is time consuming

Currently at more than 3 lots per minute

Buyer reluctance in raising number of lots
to a page

Last second bids not registered

Currently resolved
Requires buyers to be more prudent

Brokers Ask Price needs to be

displayed on the buyer auction
floor

Issues raised by buyers

Brokers unwilling to show Asking Price

Can be implemented on the system in a
weeks time

27

Present Electronic Auction:

Issues raised by brokers
Issues raised

Analysis / Current
status

Lower Price
realization
compared to
manual auctions;
hence Producers
are not willing to
sell through the
e-auctions

Have asked them not to

keep e-auctioning as the
last activity of the day
Initiated a Producer
appreciation program

E-auctions will
make the role of
the broker
irrelevant

Kept the supply chain

unchanged
Decision to sell still
retained with the broker
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Present Electronic Auction:

Issues raised by producers
Issues raised
Highest bidder
name during an
auction should not
be displayed

Analysis / Current status

Policy Issue
Buyers insist that knowing the
interested party for a lot helps in
identifying areas of demand

Drive greater
price discovery:
have all lots up for
auction at the
same time

Policy and Change Management Issue

Ultimate goal of the system
Some amount of technical change
on the system required

Lower price
realization and %
sold in e-auctions
than manual
auctions

Change management issue

Enough data points to prove that it is
essentially a supply-demand issue

29

Changes required in the present

electronic auction system
Suggestion received to separate Tea Portal and EAuction
Present features of tea portal to continue
Separate platform for e-auction for continuous
availability
Use existing hardware with upgrades

Develop new software

Use opportunity to develop new business
model

Be sensitive to change management but firm

with auction principles of competition and
price-discovery
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LESSONS IN HINDSIGHT
Drive the auction system by your vision of what
it should be and do not be driven by an
overwhelming desire to get a consensus
Do not replicate existing manual systems
Focus on price discovery
Build redundancies to accommodate for
technology malfunctions
Do not underestimate the change
management requirement
Make users pay for operations and
maintenance of the system
31

Proposed Electronic
Auction
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

32

Proposed Electronic Auction

Salient Features of proposed auction system

Optimal market timings

Standard contract descriptor

Uniform price increments

Price discovery

Uniform lot size

Automatic matching

Audit trail

33

Proposed Electronic Auction Model

Separate Infrastructure for Auctions

Separate Infrastructure for Tea Portal

34
34

34

Si

Si
Internet

Auction
centres

Regional offices

34

Proposed Electronic Auction

Process flow
Auction
Organizer

34

34

Order Collector

1. Order Entry
2. Order Confirmation
3. Order Modification/ cancellation
4. Market viewing by price, quantity, etc.

Auction Engine

5. Transaction confirmation

Transactions

User office

Central Backoffice

35

Proposed Electronic Auction

Process flow

Central Backoffice

Auctioneer

1. Buyers to pay funds

1. Contract note to buyers

2. Bill for buyers to pay
3. Delivery order
4. Issue Memorandum of sale
5. Download data

2. Take delivery from

warehouse
3. Download data

Buyer
36

Progress so far
Advertised in the Economic Times & in the Times
of India both on dated: 21st September,2006
inviting Expression of Interest
20 firms responded
Consultancy Evaluation Committee (CEC) has
been constituted to select Consultancy Firm
Meetings of CEC was held on 21st
September,2006,10th October,2006,16th
October,2006 & 16th November,2006
Following firms short-listed:
1. M/s.Metal Junction
2. M/s.NSE-IT Ltd
3. M/s.Global Agri System (P) Ltd
4. M/s.CMC Limited
5. M/s.NCDEX
37

Progress so far
Draft discussion paper was forwarded to all the
stake holders including auction organizers,
Producers Associations, Traders Associations,
brokers etc.
Fifteen stake holders have furnished their views
on the draft discussion paper so far
CEC is finalizing the document on Request For
Proposal for handing over the same to the five
short listed firms with the request to submit
technical & financial deed separately in sealed
envelope
38

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 efficient
Colombo 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
39

Thank You
40