Guwahati: Traders crowd around wooden desks in a huge dusty auditorium, poring over thick catalogues describing chests of tea. A broker seated at the front of the room calls out prices in a rolling cadence as the traders shout and gesture, signalling their bids.
A sharp rap of the gavel closes each sale, and the process starts over—under market rules, the auctioneer must sell at least three lots in a minute.
The scene repeats itself every Tuesday and Wednesday morning here at the Tea Auction Centre in Assam, heart of India’s famed tea country, wedged among Bhutan, Bangladesh, Myanmar and China.
Buckwhacked: Tea pickers return with their load in the evening from the fields of the Makaibari Tea Estate in Darjeeling. India is the world’s largest producer and the third largest exporter of tea.
Tea has been traded this way in India since 1861. But this year, the cacophony of the public tea auctions will give way to the gentle tapping of keyboards: India’s tea markets are going digital.
Just as electronic trading rocked the floors of the New York Stock Exchange and the Chicago Mercantile Exchange, the move to computerized auctions promises to turn the tradition-bound world of tea traders upside down. While tea growers and large multinationals have welcomed the promise of computerized trading, many small tea brokers fear an electronic exchange will mean the end of their livelihoods.
The government body that sets the rules for tea sales in the country, the Indian Tea Board, sees electronic trading as a way to help planters who have been hit hard by low tea prices for much of the last decade. Electronic trading is supposed to result in fairer prices and lower transaction costs.
Studies in other commodity markets around the world have shown even modest reductions in costs through automation can produce large increases in trading volume. The Tea Board’s effort is just one such experiment in India in which computerized spot trading is being promoted to improve the prices impoverished farmers receive for their crops.
The main advantage of the computerized system, according to the Tea Board, is that buyers can bid from anywhere, without having to be physically in the trading hall—or even in the same city where the tea is warehoused.
“That means buyer participation will be more, competition will be more,” said H.N. Dwibedi, a consultant who has been advising the Tea Board on computerized trading. “Greater competition ensures that the true price is discovered.” India, the world’s largest tea producer, is also the third largest exporter, after Sri Lanka and Kenya.
Today, nine auction centres like the one here in Guwahati operate throughout the country, handling about 55% of the 1 million tonnes of Indian tea sold each year. (The rest is sold from plantations directly to tea companies or consumers.)
An electronic system is particularly attractive to large tea companies, such as Tata Tea Ltd, which owns Tetley brand tea, and Hindustan Unilever Ltd, the Indian arm of the international consumer products company Unilever NV, which owns the brand PG Tips. Collectively, the two companies control 45% of the market.
Tata hopes the computerized system will allow it to better coordinate its purchasing efforts nationwide and save on labour costs, according to Kevin Paul, a senior manager in the exports division of Tata Tea.
The auction system may also give an advantage to large purchasers by making it more difficult to split lots, a practice in which several small buyers team up to jointly purchase a single large batch of tea.
For that and other reasons, many smaller buyers are fearful—especially those who act as bidding agents for distant tea companies. “If their principals are in a position to bid from hometowns anywhere in India their role would be minimized,” said Jayanta Kakati, secretary, Guwahati Tea Auction Centre.
Eventually, the nine centres might be consolidated, perhaps resulting in one national spot market.
Brokers are concerned, too. Some say that an electronic exchange will allow planters and factories to bypass them and sell directly to the market, although they are quick to point out that tea, unlike many other agricultural goods, is not a true commodity. Each batch of tea is unique and buyers must sample it to know the quality of what they are buying, making tea more akin to fine wine—where the vineyard, the soil and the weather all play vital roles—than it is to winter wheat or pork bellies.
“We will have to change but there will always be a requirement for someone to assess the quality of the tea, make proper cataloguing of tea,” said Bikram Barua, director of Contemporary Brokers, one of north India’s largest tea traders. “For that, I don’t see that the broker will disappear.”
Even some buyers who support the electronic market say they have concerns about its design. For instance, they worry that the entire tea catalogues may be offered for sale simultaneously.
Some tea buyers say they prefer a serial auction, where lots are offered one at a time, because this allows them to adjust their bids to obtain enough of the right kinds of tea to maintain a consistent taste in their tea blends.
©2008/THE NEW YORK TIMES