[Assam] Technology will soon override tradition at India's tea markets -IHT

[Ram Sarangapani]

Is an old tradition coming to an end? Maybe this change is indeed good for a
sagging Assam tea industry. Nevertheless, it is sad to see an old tradition
coming to an end.

>From the International Herald Tribune. Highlings mine.

--Ram

http://www.iht.com/bin/printfriendly.php?id=11919452

_____________________

[image: International Herald Tribune] <http://www.iht.com/>
 Technology will soon override tradition at India's tea markets
By Jeremy Kahn
Friday, April 18, 2008

*GUWAHATI, India:* Traders crowd around wooden desks in a huge, dusty
auditorium here, flipping through thick catalogues describing chests of tea.
A broker calls out prices in a quick, rolling cadence as the traders shout
and gesture, signaling their bids.

A sharp rap of the gavel closes each sale, and the process starts over -
under the market's 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 Center in Assam, a state in the heart of India's tea country
nestled between Bhutan, Bangladesh, Myanmar and China.

*Tea has been traded this way in India since 1861. But later this year, the
cacophony of the public tea auctions will give way to the tapping of
keyboards: India's tea markets are going digital.*

In a parallel to the changes that have transformed the floors of exchanges
in London, New York, Tokyo and elsewhere with the advent of electronic
trading, 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 that an electronic exchange will
mean not just
the end of an era, but the end of their livelihoods as well.*

The government body that sets the rules for tea sales in India, 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 past decade. *Electronic trading
is supposed to result in fairer prices and lower transaction costs. Studies
in other commodity markets around the world have shown that even modest
reductions in costs through automation can produce sharp increases in
trading volume.* The Tea Board's effort is just one of several current
experiments in India in which computerized spot trading is being promoted as
a way to improve the prices that impoverished farmers receive for their
crops.

*The main advantage of the computerized system, according to the Tea Board,
is that buyers can bid 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 to the Tea Board on computerized trading.
"Greater competition insures that the true price is discovered."

Dwibedi also said an electronic system should help automate the compilation
of tea catalogues and eliminate the paperwork involved in settling sales,
saving brokers time and money.

India, the world's largest tea producer, is its third-largest exporter after
Sri Lanka and Kenya. Today, nine auction centers like the one in Guwahati
operate throughout the country, handling about 55 percent of the one million
tons of Indian tea sold each year. (The rest is sold from plantations
directly to tea companies or consumers.)

Getting tea to auction can be time-consuming and expensive: Planters harvest
green leaves then process them into black tea or sell them for processing.
Afterward, a broker takes a consignment of tea, warehouses it, assesses its
quality, sends out samples to potential buyers for tasting, and produces a
catalogue listing the teas for sale, a process that can take weeks.

The broker then goes to an exchange and auctions off the consignment. He
ensures that the winning buyer pays the agreed price and takes delivery,
and, in return, receives a commission (usually 1 percent of the selling
price) and fees that include warehousing charges.

An electronic system is particularly attractive to large tea companies like
Tata, the Indian conglomerate that owns the Tetley brand, and Hindustan
Unilever, the Indian arm of the international consumer products company
Unilever, which owns the brand PG Tips. Collectively, these two companies
control about 45 percent of the market and have been pushing for the
electronic auctions.

Tata hopes that the computerized system will allow it to better coordinate
its purchasing efforts nationwide and save on manpower, said Kevin Paul, a
senior manager in the exports division of Tata Tea. The auction system may
also give an advantage to large purchasers like Tata by making it more
difficult for several small buyers to team up to purchase a single, large
lot.

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," Jayanta Kakati, secretary of the Guwahati Tea
Auction Center, said of the agents.

Brokers are concerned, too. *Some say an electronic exchange will allow
planters and factories to 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 is unique, and buyers must sample it to know the
quality of what they are buying.*

"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, head of Contemporary Brokers, one of the biggest tea traders
in northern India. "For that, I don't see that the broker will disappear."

But India's tea brokers are right to worry, said Benn Steil, a senior fellow
at the Council on Foreign Relations in New York.* "It is very hard for firms
and individuals specialized in floor trading to adapt to electronic
markets," he said, noting the difficulties that many New York Stock Exchange
specialist firms have suffered since electronic trading was introduced last
year.*

Even some buyers who support the electronic market say that they have
concerns about its design. For instance, they worry that 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.

This is the second major attempt at electronic tea trading in India. In
2005, the Tea Board mandated that all tea auctions be conducted
electronically, but the trading platform that the Board purchased from IBM
was plagued by software failures, and the entire system was abandoned within
a year. IBM did not return calls over several weeks. An Internet startup,
Teauction.com, also tried to offer online auctions earlier this decade, but
it never gained much trading volume and shut down.

The authorities say this time will be different. The latest exchange is
being designed by NSE-IT, a branch of India's national stock exchange that
specializes in designing trading platforms. By December, the Tea Board plans
to roll out the system in Calcutta, where the first Indian tea auctions
began. Other auction centers will get the software over the following three
months. At first, although the trading will conducted by computer, buyers
and brokers will still have to be present at the exchange. But if the system
performs well, Kakati said, it would be opened up for remote trading over
the Internet.

Older tea traders, many of whom are not computer literate, already speak in
wistful tones about the auction floors and lament the critical market
information they say will be lost when traders cannot observe one another
directly.

"We could walk into a trading floor and get the pulse of the market within 5
to 10 minutes - who is buying from which country and why," said Ulhas Saraf,
who heads Saraf Trading, a tea company in Kochi, India.

But Saraf, who began trading tea in the 1950s, said he could not stand in
the way of progress. "The new generation feels the computer is better," he
said.
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