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Small tea buyers avoiding 5 pc premium payment on odd lots

Kohinoor Mandal

Kolkata , Sept. 19

SMALL operators at the tea auction houses have successfully found out a way of bypassing the statutory five per cent premium for odd lot deals as certified in the Tea Marketing Control Order (TMCO), 2003.

According to auction house sources, despite the strict TMCO guidelines, trading in small quantities of tea continues unabated but the benefits of it have not been passed on to the producer or the broker.

As a result the average price realisation of tea have kept on falling in 2003 compared to that in 2002. A section of the brokers and producers are reported to have identified the matter and informed it to the Tea Board.

As per the TMCO norms, if a tea lot is broken then the buyer would have to pay a five per cent premium on the knocked down value to the broker. Any lot below 10 chests is marked for supplement sales and up to 15 chests division of lots are not allowed.

Small buyers are creating groups among themselves and instead of dividing a lot, one member of the group is buying out the whole lot and then reselling among themselves. In the process, no one pays the five per cent premium. Instead only one per cent sales tax is paid for re-sale.

"This sort of an arrangement keeps on happening and it is totally informal. There is no statistics to prove how many such deals are taking place everyday but everybody in the auction house is aware of it," sources told Business Line.

Financially such a deal also makes sense for the small buyers. For example, the price of a tea lot up for sale is Rs 50 per kg. A small buyer if he breaks the lot and buys it he will have to pay Rs 52.50 per kg after calculating the five per cent premium.

Instead, if he buys it from another small buyer, who had purchased the total lot, the price of the same tea would be only Rs 50.50 per kg. A senior Tea Board official confirmed that they were aware of this phenomenon and the Government was working out ways to stop it. Mr N.K. Das, Tea Board Chairman, was not available for comments.

While introducing the TMCO, it was pointed that it would help in jacking up the tea prices but the reality is different. The average tea price at the auction centres till August 2003 was Rs 71.70 per kg as against Rs 71.83 per kg in 2002.

While the orthodox tea prices have increased from Rs 76.86 per kg last year to Rs 80.69 per kg this year, CTC prices have dropped marginally to Rs 65.84 per kg from Rs 66.59 per kg.

The most positive aspect of the TMCO is that all players have got themselves registered and have even filed their returns for the first quarter of 2003-04. The total volume of tea sales through the auctions has also increased.

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