 "Assam tea industry at unease with new auction system")
With barely ten days left for the roll out of pan-India tea auctioning system, the Assam tea industry has raised serious concerns and has sought clarity on them. The industry is of the view that till “pertinent issues” raised by them were resolved, the Tea Board of India should put on hold the rolling out of the new system.
From June 21 onwards, the Tea Board plans to start the pan-India auction system, whereby buyers from any of the six auction centres, spread across the country, could bid for teas. However, the industry and tea brokers have said that there were no “proper guidelines” from the Tea Board on several issues.
Pertinent among them has been the issue of advance payment by the broker to tea gardens, a practice in vogue currently, against the pledge by the gardens to sell teas via the broker. Presently, the brokers make advance payments to tea gardens and gardens in turn invest that money in managing its day to day affairs. Latter, when the broker sells the teas of the garden at auction centre, the dues are settled simultaneously. Even after introduction of settlement banking, where payments from the buyers were done directly to bank accounts of the gardens, the gardens could ask the settlement bank (IndusInd Bank is the settlement bank in the outgoing system) to credit a certain sum to the broker’s account to settle the advances.
The new system, claims the industry and brokers, does not allow the practice as it says it “defeats” the purpose of settlement banking. “This system of advances to the sellers is there in all trades and hence it cannot be ignored. If the seller gives it in writing that the sale proceeds should be deposited in the brokers account then that should be allowed,” said R T Jindal, chairman of Guwahati Tea Auction Centre (GTAC) at a meeting held on June 8 here, to discuss the new system with representatives of Tea Board, industry and brokers.
A tea industry source said brokers have stopped advance payments to gardens and many small tea gardens were facing financial crunch all of a sudden. “As majority of medium and small sellers are dependent on this financial arrangement, the industry is in dire straits as to where to get finances in the eleventh hour. This issue has reached concerns of alarming proportions due to lack of guidelines by Tea Board,” the source said.
However, Goodricke, like many other of the producers, is of the view that after some runs of the pan-India e-auction, the process could be better understood. “As producers, the pan-India auction will give us better price discovery as the market reach will widen. But the brokers may be having some issues related to the process. Only after some auctions like these are concluded, we can understand the scenario or any issues better”, said A N Singh, MD and CEO of Goodricke.
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The brokers have also raised concerns about indemnity against 'C' form sale to unknown buyers. A representative of Guwahati Tea Auction Buyers Association (GTBA) told Business Standard that in the current system the buyers often sent the ‘C’ form later, many times through courier, as brokers mostly knew them and could rely on their verbal assurances. However, the Tea Board guidelines are unclear as how they would obtain the ‘C’ form from buyers under the new system, as many might be unknown to them. ‘C’ form is often needed to claim tax exemptions.
“The Tea Board is yet to clarify on this as they had no answer. The brokers need to be protected in case the buyer does not submit the required C Form,” the representative of GTABA said.
“There is need of more clarity on some of the aspects which have been highlighted by the producers and buyers”, added Azam Monem, vice chairman of Indian Tea Association (ITA).
The Assam tea industry is also of the view that as it is currently having its second flush (this the period, generally from mid-May to July, when the premium quality tea is produced in Assam), it isn’t the right time for experimentation with a new system.
Dipanjol Deka, secretary of Tea Association of India (TAI), said the state’s tea industry, though has no objection with the new system if issues are convincingly resolved, would want the Tea Board to roll out the system only after the second flush ends in Assam.
“This period is the 'second flush' period in Assam and this crop is the most important for us. The price of second flush sets the trend of tea price for the entire season. This is not the right time for experimentation as the sellers would badly suffer if the system collapses or doesn't work smoothly,” Deka said.
The GTAC too has requested Tea Board that new system be put in place only after all the problems are resolved and as such to postpone the start of the new system and start from Sale 30 (last sale number was 25 at GTAC).
Business Standard tried contacting Tea Board vice chairman Bidyananda Barkakoty to elicit the Board’s views on the issues, however he did not respond to phone calls.