| AUCTION
SYSTEM
Prior to 1984, there was no organized
system of marketing for FCV tobacco. The growers used to take their
tobacco to the purchasing platforms set up by the individual tobacco
companies, where the buyer after inspection of tobacco fixes the
price. The offer made by the buyer used to be almost final and
the grower was required either to accept the price or take it to
another buyer which he normally could not do on account of additional
transport costs and handling losses involved. Hence, the grower
had no alternative but to accept the price offered by the buyer.
Admittedly, it was an imperfect market system with no element of
competition among the buyers and as such the grower was placed
in a very disadvantageous position particularly in the years of
surplus crop.
The
primary marketing situation was more or less identified with
rampant illegal practices of delayed or altogether deferred payments
to the growers and under-weighment of tobacco offered for sale.
The system altogether lacks the mechanism to ensure a fair and
reasonable price to the farmers.
The
Board felt that the panacea for all the problems in the marketing
system was introduction of auction system. The Tobacco Board
Act 1975 was amended in 1978 to empower the Board to establish
auction platforms and function as an auctioneer at the auction
platforms (Section 8(2)(cc).
The
Board had studied the auction systems prevailing in the major
producing countries like USA, Canada, Zimbabwe to evolve a system
suitable to Indian conditions and designed Zimbabwean model system.
Although the Indian auction system was designed after Zimbabwe
model, it is unique by itself as it incorporates distinct features
of several auction systems in the World with an innovative approach
to meet the typical socio-economic conditions of the Indian tobacco
grower and the trader.
THE
AUCTION SYSTEM WAS INTRODUCED FOR THE SALE OF FCV TOBACCO FOR
THE FIRST TIME IN KARNATAKA (MYSORE) IN 1984 MARKETING SEASON
AND IN ANDHRA PRADESH IN 1985 SEASON.
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FEATURES
OF AUCTION SYSTEM
Regulation
of Production to match the Demand :
Through
the mechanism of auction system, the Board is in a position to
control the production of tobacco to a certain degree, though
of the late an increasing tendency to indulge in speculative
over-production is in evidence. Registration of area and the
quota of tobacco to be delivered at auction platform are fixed
well before the season, depending on the nature of soil and curing
capacity of barns. Growers are strictly advised not to grow tobacco
in excess of the permitted limits. Growers are authorized to
sell allotted quota of tobacco only on auction platforms. The
quota system also provides an equal opportunity to all the growers
to sell tobacco at fixed intervals.
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Correct
weighment and prompt payment :
Tobacco
bales of growers are weighed in growers' presence before auctioning
and the growers are paid as per these weighments. Electronic
weighing scales have been installed to have accuracy and more
transparency in weighment. This system also provides for prompt
payment to the growers by the Tobacco Board for the full value
of the tobacco sold by a cheque post-dated by 15 days.
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Correct
grading and unbiased classification :
All
the tobacco growers are required to grade their tobacco into
specified farm grades/ plant position grades before offering
the same for sale. Only well graded bales of tobacco are allowed
for sale on auction floors as per the grading regulations. Badly
mixed bales and kutcha bales are rejected. Classification and
assigning of grade is done by the Officials of the Tobacco Board
strictly based on grading standards and regulations which forms
the basis for auctioning.
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Element
of competition :
The
growers are assured of remunerative prices in this system by
creating an element of competition. About 25-30 buyers will participate
in auctions on each floor, who would be in the buying line and
bid for the tobacco bale. The Board's official announces the
starting price considering the factors like quality of tobacco,
demand for particular style and the prevailing market price etc
which is usually above the minimum support price fixed by the
Government. The buyer bids for each bale basing on starting price
and the bale is knocked down in favor of the highest bidder.
Through this element of competition growers are sure to get remunerative
prices depending on the quality of tobacco and prevailing demand.
Whenever there are more buyers for a particular bale at the same
price, the successful bidder shall be decided by drawing lot.
The growers are also permitted to exercise the option of accepting
or rejecting the price offered in auction.
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Price
Support Apparatus :
The
grower is assured of a Minimum Support Price (M.S.P.) for each
grade of VFC tobacco under the system. The MSP is announced every
year before commencement of the plantation season. In the event
of any market crisis when prices fall below the minimum support
prices, Trading Wing of Tobacco Board is empowered and obliged
to make purchases at the minimum support prices announced by
the Govt. of India based on the recommendations of the Commission
for Agricultural Costs and Prices (CACP).
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The
Concept of M.G.P. :
The
Minimum Support Price (MSP) for various grades of tobacco are
formulated by the Government keeping several aspects in view.
As such, the MSP is generally lower than the market prices. It
is observed that there is a tendency on the part of the trade
to mop-up tobaccos by paying prices slightly higher than MSP,
Thereby depriving the farmers of the benefits of real competition.
The Tobacco Board could not do anything to arrest the situation,
as the Trading Wing cannot enter the market as long as the prices
are above MSP. In order to find a solution to this problem, the
Board thought it essential to get a commitment from the Trade
to pay a Minimum Guaranteed Price (MGP) to the grower. During
1988 Karnataka auctions, the Board carried out negotiations with
the growers and traders and announced for the first time a Minimum
Guaranteed price of Rs.14.00 per kg. As against this, the final
average price for that season worked out to Rs.21.61 per kg.
The system of MGP was extended to A.P. in the 1989 season.
Eventhough
the system of MGP had a good impact, it is only an informal arrangement
between the traders and the growers and does not have any statutory
support. The Trade agree to honors MGP subject to the conditions
that the actual production of crop does not exceed 10% of the
crop target fixed and the grade out-turn is normal. During 1993
A.P.auctions, the traders did not honors MGP for black soil tobacco
and paid lesser prices on the plea that the crop produced is
very large and that the exports to Russia were uncertain.
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