IIM-B’s revamped auction system is expected to make it better by improved price discovery.
For improving the existing price discovery at tea auctions, Indian Institute of Management (IIM) Bangalore is coming up with a new means to revamp the existing auction methodology.
What is Tea Auction?
Tea is one of the most important agricultural as well as manufacturing products, like other products it also needs a proper marketing channel for disposal. Tea Auction is a means of disposing of the teas produced by manufacturers to a wide range of buyers in a competitive manner for the fair discovery of price.
Auction makes it possible to distribute a large quantity of tea within the shortest period and in an organized manner. Furthermore, it provides reliable means of selling and buying tea. In India out of 800 mkg bulk packaged tea, 500 mkg is sold through public auction annually.
How Does Tea Auction work?
In the auction process, auction organizers monitor the whole auction mechanism and publish reports of the sale. Sellers or manufacturers do not have an active role in this system. They simply give the authority of their tea to concern broker and this broker used to sell tea after tasting and grading. These brokers are the controller of the whole selling process. They collect samples of tea from the warehouses and send them to registered buyers. Accepting or rejecting a bid for a particular lot of tea is also in their hands. Buyers are the bidder for tea in the auction. Tea is kept in registered warehouses and warehouse keeper has to take all the responsibility of this tea. After the selling process is over at the auction, brokers use to issue a permission receipt to the buyer to collect the particular amount of tea from concern warehouse.
Existing Auction Method
Electronic bidding or shortly e-auction system of tea has been there from quite a lot of time. This electronic platform brings more transparency to the auction system so that tea producers get a fair price.
The present auction system has some beneficial effects on the producers giving them a large marketing platform. Buyers are benefited in the sense that they are able to purchase tea of a much broader variety than they would otherwise be able by moving from garden to garden individually.
Why Revamping The Auction System
Despite the transparency offered by the e-Auction system, it has faced many glitches over the past years. Both buyers and producers were unsatisfied with the whole scenario.
South Indian tea is cheap and poor in quality as compared to north India. The present prices in north India are making it difficult for the industry to survive. Prices of such tea are rising because people are demanding cheap tea and marketers are making good efforts to make them saleable. Various good Tea Gardens have shut down due to low prices in the market. Thus, there is an immediate need for a better pricing system. IIM-B’s revamped auction system is expected to make it better by improved price discovery.