Electronic Tea Auction in India � Harnessing Technology

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Electronic Tea Auction in India � Harnessing Technology Powered By Docstoc
					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 consumer packs
                                                             in bulk package                                                                                      i.e. Packet Tea




                              Directly to the primary
                                                                                       To registered consignee
 To domestic consumer          registered domestic                                                                         Through public
                                                          Directly to overseas         or commission agent or                               To registered primary
       through                        Buyers                                                                                 tea auction
                                                         Buyers (direct export)            as stock transfer                                        buyers
      Retail outlet            (non auction route)




                 To semi wholesaler or
                   Retailer for sales                                                                                                        Directly to overseas
                 To domestic consumer                                                                                                            Buyers as
                     In the form of                                                                                                             Direct export
                       Loose tea




                 To merchant packers
                                                                                                                                            To domestic consumer
                     for sales to                                                  To domestic consumer through                               Through our retail
                 Domestic consumer
                    as packet tea                                                  secondary buyers                                                outlet




                                                                                                                                                                                    4
          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       Auction Organizer             Year of    Auction held
Centre                                      starting   on
Kolkata       Kolkata Tea Traders           1861       Mondays and
              Association                              Tuesdays
Guwahati      Guwahati Tea Auction          1970       Tuesdays
              Committee                                and
                                                       Wednesdays
Siliguri      Siliguri Tea Auction          1976       Thursdays
              committee                                and Fridays
Jalpaiguri    North Bengal Tea Auction      2005       Initially it was
              Committee                                weekly but
                                                       then
                                                       fortnightly
Amritsar      Kangra Tea Planters Society   1964       Fortnightly
                                                                          6
          Public tea auction locations
                 in South India

Auction      Auction Organizer       Year of Auction held
Centre                               starting on
Cochin       Tea Trade Association   1947    Tuesdays
             of Cochin                       and
                                             Wednesdays
Coonoor      Coonoor Tea Trade       1963    Thursdays
             Association                     and Fridays
Coonoor      Tea Serve               2003    Wednesdays

Coimbatore   Tea Trade Association   1980    Fridays
             of Coimbatore

                                                            7
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
  Warehouse owner by the Broker                    11
   Background to the Project for e-
              auction
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
   the market place to drive the above              12
 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                  Data Center
   •Operations                •Centralized
    Management                 hardware
                              •Application
                               Software
                                                              Coonoor
                                                               •PCs
 Guwahati                                                      •LAN
  •PCs
  •LAN
                                             Coimbatore
                                               •PCs
                                               •LAN

   Kolkata        Siliguri
    •PCs           •PCs
    •LAN           •LAN
                                   Cochin
                                    •PCs                           14
                                    •LAN
    Present Electronic Auction :
              Access
Users login into the indiateaportal system using their unique username
& password




                                                                         15
        Present Electronic Auction :
            Pre-Auction Process
Broker enters lot information through the ‘AWR Entry Form’




                                                                  Lot details entered into
                                                                        the system
                                                             16
      Present Electronic Auction :
          Pre-Auction Process
Broker sets valuation, taster’s comments & ask price
using the ‘broker valuation’ form




                                                       Valuation, comments & ask price for each
                                                              lot are entered by broker
                                                                   17
      Present Electronic Auction :
          Pre-Auction Process
Broker publishes the catalog for a sale using the ‘publish catalog form’




                                                                                Broker’s published catalog with each line
                                                                                corresponding to a lot
                                                                           18
Lots can be grouped together in case buyer wants the
system to provide the average purchase price for
these lots




                                                       ‘buyer valuation’ form
                                                                                                                         Pre-Auction Process
                                                       Buyers set valuation & taster’s comments for lots using the
                                                                                                                     Present Electronic Auction :




Valuation, comments for each lot are
entered by buyer;
19
      Present Electronic Auction :
           Auction Process
Broker’s auction floor prior to start of auction




                                                        Auction floor of the broker before the
                                                        start of the auction
                                                   20
                                    Present Electronic Auction :
                                         Auction Process
                             Buyers enter bids on their auction floor & view the highest bidder for
                             each lot
Lots added by buyer to his ‘My
gallery’




                                                                                          Autobid of value
                                                                                          ’70.0’ is set on this
                                                                                          lot by this buyer
                                                      This buyer is currently the top
                                                      bidder on this lot
                                                                                                           21
        Present Electronic Auction :
             Auction Process
                                    Top bid (65.0) is greater than the ask
Brokers view progress of auction    price (60.0), hence in blue




                                   Broker has option to sell during
                                                                 22

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




                                                                                Lot-wise bids entered into the system by
                                                                                buyers
                                                                          25
   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                      : 100% live (Both
                                 Leaf and Dust)
    Other Centers in the South   : 100% live on
                                 Leaf only
    Siliguri in the North        : 25% of Leaf
                                 only
    Kolkata in the North         : 0%

    Technical/software glitches
    Communication glitches
    Change Management issues

                                                       26
                  TYPICAL ISSUES : BUYERS
                                          Analysis / Current status
       Issues raised by buyers
                                       Mindset issue; any form of electronic
•   Parallel bidding versus            bidding would entail parallel bidding
    sequential                         Lessens ability to hedge prices and
                                       increased bidding time, thus leading to
                                       “true price” discovery




                                       Currently at more than 3 lots per minute
•   E-auction is time consuming        Buyer reluctance in raising number of lots
                                       to a page




•   Last second bids not registered    Currently resolved
                                       Requires buyers to be more prudent




•   Broker’s “Ask Price” needs to be
    displayed on the buyer auction     Brokers unwilling to show “Asking Price”
    floor                              Can be implemented on the system in a
                                       week’s time




                                                                                 27
            Present Electronic Auction:
             Issues raised by brokers
                         Analysis / Current
        Issues raised         status
•   Lower Price
    realization             Have asked them not to
    compared to
    manual auctions;        keep e-auctioning as the
    hence Producers         last activity of the day
    are not willing to      Initiated a Producer
    sell through the
    e-auctions              appreciation program




                            Kept the supply chain
•   E-auctions will
    make the role of        unchanged
    the broker              Decision to “sell” still
    irrelevant              retained with the broker

                                                       28
     Present Electronic Auction:
     Issues raised by producers
          Issues raised          Analysis / Current status
• Highest bidder          •   Policy Issue
  name during an                   Buyers insist that knowing the
  auction should not               interested party for a lot helps in
  be displayed                     identifying areas of demand

• Drive greater           •   Policy and Change Management Issue
  price discovery:                 Ultimate goal of the system
  have all lots up for             Some amount of technical change
  auction at the                   on the system required
  same time

• Lower price             •   Change management issue
  realization and %              Enough data points to prove that it is
  sold in e-auctions             essentially a supply-demand issue
  than manual
  auctions

                                                                         29
   Changes required in the present
     electronic auction system

 Suggestion received to separate Tea Portal and E-
  Auction
 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

                                                 30
       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
          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
                                                               Auction Engine
4. Market viewing by price, quantity, etc.
5. Transaction confirmation



                                                                               Transactions




                                                                     Central Back-
                                                                        office
User office


                                                                                        35
               Proposed Electronic Auction
                              Process flow



                                   Central Back-
                                   office




Auctioneer


                                                   1. Buyers to pay funds
                                                   2. Take delivery from
                                                      warehouse
  1. Contract note to buyers
                                                   3. Download data
  2. Bill for buyers to pay
  3. Delivery order
  4. Issue Memorandum of sale                            Buyer
  5. Download data
                                                                            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

				
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