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Brokers Role

India is the largest producer and consumer in terms of quantity. Till 1996, India was also the largest exporter but now it is Sri Lanka followed by Kenya. In all the major producing countries namely India, Sri Lanka, Kenya, Indonesia, and Bangladesh, the British established the tea plantations and therefore the mode of sale has been through the public auctions. In terms of quantities sold Guwahati is the largest auction center in the world followed by Mombassa.

Auctions are held at the following auction centers:

North India           South India
Guwahati               Cochin
Calcutta                Coonoor
Siliguri                   Coimbatore

Under the physical auction system, tea produced in the gardens is transported at the seller’s risk and cost to the registered warehouses of the associations; tea must be sold compulsorily through the latter. The teas are then transported to the warehouses of the auction center preferred by the seller - usually the nearest auction center from the estate.

Thereafter, the broker gets into the act: his sampling department draws out between 8-11 kgs of tea; this is distributed to all registered tea buyers holding a sample entitlement; this dispatch is independent of whether the recipient is interested in buying the teas or not. In our opinion, this practice represents an immediate loss for the seller.

Thereafter, the samples are divided into different sizes as per the directives of the auction committee; this is sent individually along with the catalogue and valuations. This process consumes between three to five weeks from the date of the manufacture of the tea.

The buyer then re-posts the teas to the real buyers at their respective destinations, if he is a commission agent. The real buyer not gets to taste the teas and put a price on them.

The buyer is now ready for the physical auction. The auction takes place at various days - not simultaneously at all the centers. The lots are auctioned in a sequential order. In a particular lot, the broker allows the quantity of teas to be bid for jointly; it may be bought by a maximum of three buyers. If the teas are sold, the seller receives payment after two weeks. Since the time of manufacture, between six to eight weeks lapse before the seller can recover his dues.

For some reason if the teas are not sold, the brokers may insert the teas again for sale through the public auction system – but only after two weeks. Should the teas be sold this time, the sale proceeds are likely to come in five weeks from the day the teas were first printed for sale. The total time taken from the point of manufacture to the point of sales recovery is 11 weeks. However, this time-span could stretch depending on the arrival of teas with the minimum period elongating from nine weeks to a maximum of 15 weeks.

The amazing thing is that in a world which is getting increasingly transparent, the real buyer and the seller are not aware of what could be transpiring inside the auction room: lack of transparency.

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