Kolkata: The Tea Board of India has said it will only allow cash-and-carry settlements of auctions, after auctioneer Carritt Moran and Co. Pvt. Ltd defaulted on payments to tea producers.
The board said in its 22 January order that auctioneers should release tea from warehouses only after buyers pay. This will be effective from the next auction—sale 5—scheduled next week at Kolkata, Guwahati and Siliguri.
“The move is aimed at discouraging brokers from giving cash credit to buyers,” said Roshni Sen, deputy chairman of the board. “Our aim eventually is to stamp out the practice of lending to buyers and producers, for which auctioneers such as Carritt are suffering.”
The 131-year-old Carritt Moran, the world’s second largest tea auctioneer, went belly up after failing to pay producers and was found to have diverted money paid to it by buyers to service its own debts.
The board will appoint a settlement banker so that auctioneers don’t settle trades on their own. “Four private banks have already made presentations, and we expect to appoint a settlement banker within a month or so,” said Sen.
India produces around 950 million kg of tea a year, half of which is auctioned.
Cash-and-carry settlements have been introduced at all auction centres in southern India quite some time ago, but buyers and auctioneers in the east have resisted it so far.
“The Tea Board has been contemplating the introduction of cash-and-carry settlement for quite some time... The fall of Carritt has given (it) the strength to push through systemic reforms,” Sen said.
Buyers currently have to pay within 14 days—called prompt period. Though this is not being reduced immediately, the National Stock Exchange (NSE) has suggested that it should be cut to three days. Sen said the board it still considering NSE’s suggestions. However, brokers are not permitted to extend credit to buyers beyond the prompt period.
Some buyers are opposing cash-and-carry because they fear for their survival without credit from auctioneers, said Rabindra Nath De, director of Star Tea Co. Pvt. Ltd. “But the Tea Board doesn’t seem to be in a mood to budge.”
McLeod Russel India Ltd, the world’s biggest tea plantation company, is happy with the move, however. The auction system will be more foolproof, said Aditya Khaitan, managing director of McLeod Russel.