Financial Times

Automated tea auction on hold
The Ceylon tea industry has put on hold proposals to introduce major changes in the way the more-than-century-old Colombo tea auction is conducted, the new Sri Lanka Tea Board chairman George Pelpola said.

The industry has either shelved or cancelled proposals to automate the tea auction, conduct the sale in dollars and establish a futures market because their benefits are not clear and require further study, he said. Software firms asked to design a system to automate the auctions have not delivered a workable solution that could be accepted by all players in the industry, he said in an interview.

The bids to automate the auctions were called by the Colombo Tea Traders' Association, which runs the sale, but were not accepted after being evaluated because they did not show additional benefits over the existing open outcry system.
There were fears that automation might lead to the loss of some of the existing physical bidding, said CTTA chairman Mahen Dayananda.

Although many people in the industry had begun to get used to the automated system during trials, not all buyers were for it. "Most importantly, the buying community was not totally for it - some had serious reservations about their ability to cope. So the CTTA decided to hold it for some time and may revisit it next year," said Dayananda, also a Tea Board director.

Colombo Brokers' Association former chairman and Tea Board director Lallith Ramanayake said the systems to automate the auction that were evaluated had not shown the capability to handle large volumes of tea fast.

"For certain commodities, the physical outcry system is best - competitors can see each other bidding, there are subtle things like facial expressions that indicate what bidders are thinking, which are not found in an automated auction," Ramanayake said.

There were other difficulties such as the need for effective firewalls and the ability of the system to work without interruption. If the automated auction were to break down owing to a power failure or any other reason the repercussions could be enormous with world demand focused on the Colombo auctions, Pelpola said.

Tea Exporters' Association chairman Ajit Goonetilleke, also a Tea Board director, said around 8,500 - 10,000 lots of tea are sold at the auctions each week with the exception of the traditional New Year and Christmas holidays. "The trade circulates between half-a-million and a million samples a week. There are over 450 registered buyers and exporters."

Goonetilleke said the proposed futures market had also been put on hold since the industry decided it lacked the knowledge to go ahead with the idea. This is to be further studied with the help of a foreign consultant with the required expertise.
"We can't say if it would benefit exporters," Goonetilleke said.

The proposal to hold the auctions in dollars is also on hold following Central Bank advice, which cited dangers to the rest of the economy. "The feedback from the Central Bank was that it might 'dollarise' the whole economy," Goonetilleke said.
There were fears that if the auctions were held in dollars, commercial banks might not have enough foreign exchange to meet demand.

"So it was not considered entirely feasible," Goonetilleke said. "Also, a large number of local buyers - the so-called Pettah or bazaar market, mainly for dust - might lose." Colombo is the world's biggest tea auction and volumes catalogued for sale have been increasing in recent years with the almost continuous increase in the crop.

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