The auction system is always acclaimed as the universal remedy for the marketing of tea. Marketing of tea through the auction system is the most popular method of disposal of tea. It is the very nature of tea as a product of infinite varieties that has made it retain this system for such a long time. The quality of tea depends as much on nature as on man. The jat of the tea bush, soil, altitude, climatic changes, wind velocity, and seasons, all play their part in infusing the varying degrees of quality into tea. It is very sensitive to atmospheric changes; the day to day weather changes leaves their impression on the quality of the tea. Unlike most other commodities, tea cannot be designed to be brought and sold on predetermined specifications. Tea is an infinitely varied product, which needs to be sampled and catalogued, almost accurately, bag by bag.

The London Tea Auction was a grand tradition that lasted 300 years. From the very first event in 1679, until the last sale on 29 June 1998, the London Tea Auction was a regular event that made London the centre of the international tea trade. Three hundred and fifty pounds of Assam tea were dispatched to London on May 8, 1838, and sold at India House, London, on January 10, 1839. In the early days tea was sold by the ‘candle’. This meant that rather than allowing bidding to go on for an unlimited length of time, a candle was lit at the beginning of the sale of each lot, and when an inch of the candle had burnt away, the hammer fell and the sale was ended. The foremost vendor during the early stages was the East India Company. On the purchasing side too, all activities were again confined to a small group of tea merchants, who enjoyed an exclusive right to operate at the auctions.

In India too, sale of tea by public auction had been the principle channel of primary marketing of tea for over a century ever since the first tea auction centre was set up in Calcutta (now Kolkata) in 1861. Auction centres were opened up at Cochin in 1947, Coonoor in 1963, Guwahati in 1970, Siliguri in 1976, and Coimbatore in 1980. At present these public auction centres handle more than 500 million kilograms annually, out of India’s total production of 980 million kgs. Guwahati is the largest auction centre in India, trading in a volume of above 140 million kilograms. Sri Lanka also started a tea auction centre in Colombo in 1883. The Chittagong auction centre commenced operating from July 16, 1949 and Jakarta from December 11, 1972. East African auction centres began channelling their own teas through Nairobi in 1956, Mombasa in 1969, and Limbe in 1970.

Auction system and procedures generally serve two basic purposes:

n To provide a Guaranteed Transaction Protocol in which specific rules and regulations have been specified to govern all the transactions (pre-sale, sale and post-sale) that are involved in the auction system. Most of these activities (except the actual bidding) take place outside the auction room and are handled by the individual systems of the respective auction participants with varying degree of electronic support.

n To act as a Price Discovery Mechanism, through fair and transparent bidding in the auction room. This is of course the basic objective of the auction system namely to enable price discovery especially for a non-homogeneous commodity like tea.

Keeping the above purposes in mind and taking advantage of the advent of information technology, a consultancy firm AF Ferguson & Co. had first recommended introduction of electronic bidding in the public tea auction system in 2002. The firm was engaged by the Tea Board of India to study the primary marketing of tea in India. Around 2003, the Tea Board, in consultation with the tea industry, accepted this suggestion for introduction of electronic auction as a viable step towards enlarging the benefits for the tea industry. Another consultancy firm, Accenture, was engaged by the Tea Board around the same time, to develop the modalities for introduction of e-auction system for tea. Though software was designed and trial runs were made at a few auction centres, but it had to be discontinued due to some glitches in the software. Then, in the latter half of 2007, the Tea Board engaged another firm NSE.IT to redesign the entire e-auction system. The newly designed software by NSE.IT was first introduced in Coonoor and on May 20, 2009, it was successfully started in Guwahati. Now it has been introduced in all the auction centres in India in a phased manner. India is the first tea producing country in the world to introduce the e-auctioning system.

Traditionally auctions had been conducted in a manual fashion which is often referred to as ‘open outcry’ auction. One of the primary objectives of the auction system is ‘Price Discovery’. The ‘open outcry’ bidding system, which existed prior to introduction of electronic system, had several inherent disadvantages. With improvements in internet technology, electronic auction (e-auction) has become very popular with respect to selling several other commodities as well as for various kinds of industrial procurement. E-auction has the power to put in place a fair price discovery mechanism. The greatest advantage of e-auction is the ability of the auctioneer to significantly improve the efficiency of the auction process, thus ensuring that every auction becomes able to put in place a fair price discovery process. Its other benefits include ability of the bidders to be able to participate from their geographical location(s) at their convenience thereby increasing the chances of participation in auctions. Therefore, one can expect cost reduction in procurement also. On the other hand, the buyers will get reasonable time for bidding any lot in this system. The system will also reduce transportation time and cost for both the sellers and buyers. Also it will reduce/eliminate duplication of data entry by the various auction stakeholders — manufacturers, warehouses, auctioneers and buyers. The e-auction system integrates the entire process starting from creation of invoices till the delivery of tea from the warehouses. E-auction will offer transparency in the process including a record of bid history. Buyers’ anonymity can be preserved in electronic system, which was not possible in the manual system. The e-auction software has been designed in such a way that the producers can now monitor the market trends online by sitting in their remote tea estates through the internet.

With the introduction of e-auction in all the six tea auction centres of India, the sound of the ‘Gavel’, the emblem of authority through the centuries that had remained as the Herald’s wand for transferring the ownership of the many millions of tea sold at the auctions, will be heard no more. The auction hammer has been replaced with the computer mouse. It is the beginning of a new era in the tea industry. Let’s hope the e-auction would be able to deliver what ideally the auction platform must provide, namely, a fair price discovery mechanism and an efficient auction process.

Bidyananda Barkakoty