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 the 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.

Through the mechanism of auction system, the Board is in a position to control the production of tobacco to a certain degree, though of 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.

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 for accuracy and better 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 consolidated cheque drawn in favour of the Bank wherein the grower maintains his account, post-dated by the 15th day from the date of sale by crediting the sale proceeds directly to the S.B. Accounts of the growers in various Banks.

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 will be 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.

The growers are assured of remunerative prices in this system by creating an element of competition. About 25-30 buyers from the buying line will participate in auctions on each floor, 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 lots amongst the highest bidders. The growers are also permitted to exercise the option of accepting or rejecting the price offered in auction.

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).

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, farmers realized the final average price of 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 agrees to honor 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 honor 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.

Name of the Region			Code No. of Auction Platform	Location of the Auction Platform	District
1	NORTHERN BLACK SOILS	1	15	Thorredu	East Godavari
2	CENTRAL BLACK SOILS	2	11	Keesara	Krishna
3	SOUTHERN BLACK SOILS	3	19	Vellampally-I	Prakasam
		4	20	Ongole - I	Prakasam
		5	23	Ongole - II	Prakasam
		6	24	Tangutu-I	Prakasam
		7	25	Kondepi	Prakasam
		8	31	Vellampally-II	Prakasam
		9	34	Tangutur-II	Prakasam
4	SOUTHERN LIGHT SOILS	10	21	Podili-II	Prakasam
		11	22	Podili - I	Prakasam
		12	26	Kandukur - I	Prakasam
		13	27	Kandukur-II	Prakasam
		14	28	Kaligiri	Nellore
		15	29	D.C.Palli	Nellore
5	NORTHERN LIGHT SOILS	16	17	Deverapalli	West Godavari
		17	18	J.R.Gudem-I	West Godavari
		18	30	Koyyalagudem	West Godavari
		19	32	J.R.Gudem-II	West Godavari
		20	33	Gopalapuram	West Godavari

S. No.	Code No. of the platform	Location of the Platform	District
1.	1	H.D.Kote	Mysore
2.	2	Hunsur - I	Mysore
3.	3	Hunsur - II	Mysore
4.	4	Periyapatna - I	Mysore
5.	5	Periyapatna - II	Mysore
6.	6	Periyapatna - III	Mysore
7.	7	Ramanadhapura-I	Hassan
8.	61	Kampalapura-I	Mysore
9.	62	Kampalapura-II	Mysore
10.	63	Ramanadhapura-II	Hassan
11	64	Hunsur-III	Mysore

The ideal quantity of tobacco to be handled in an auction platform in Indian conditions is 5 to 6 M.Kgs. Auction platforms are established in the vicinity of tobacco growing area attaching a group of villages ranging from 50 to 100 having almost similar type of soils and produce same style of tobacco. Each platform serves about 2500 growers.

The villages in an auction platform jurisdiction are grouped into clusters (group of villages). The number of growers and number of curing units (barns) are more or less uniform in each cluster. Each auction platform will have around 10 clusters with about 250 - 300 growers in each-cluster. Growers are permitted to offer tobacco for sale cluster wise, one cluster after another cluster on specified dates which gives equal opportunity of sale to all the growers. The sale of the entire produce will be completed in 6 to 7 rounds of sales.

As soon as the bales are delivered at the platform, each bale is marked with a lot number, weighed in the presence of the grower and a receipt is issued to the grower in token of receipt of the produce delivered. The receipt contains the details of lot number allotted to each bale and weight . The weighment starts in the early hours of the day. To have more transparency and ensure correct weighment, Electronic weighing scales have been installed and receipts are generated by the use of computer.

After weighment, the bales are arranged on the platform in the order of lot numbers so that all the bales of a grower will be in a row at one place.

After the bales are arranged on the auction platform, the classifier of Tobacco Board opens the bales and takes out samples from 2 to 3 places and assigns the grade. The sample drawn is also displayed on the top of the bale. The grade once assigned will not be changed except by the Senior Grading Officer or the Auction Superintendent.

Every year, Board grants authorization to buyers who intend to operate and buy tobacco on auction platform(s). The authorized buyers will be permitted on the auction platform for buying only on submission of a Bank Guarantee or a Letter of Standing Instructions (LSI) from the Bank or Payment by a Bank Draft in advance.

The bales are auctioned bale by bale in the order of lot numbers. After the buyers take their positions, the `Starter’ of the Board announces the grade and the price that he puts on it. The guiding factor for setting the starting price is the grade, quality of tobacco, ruling price trend for such style and grade of tobacco. The bids go by not less than 20 paise per kilogram until the bale is knocked down to the highest bidder.

After the starter announces the starting price, if no buyer bids for a bale, the starter may reduce the starting price to a level he feels the bale should fetch in the given market situation. If even then, there is no bid forth coming, the starter may withdraw the bale from sale. Such bale will be re -offered for sale on some other day.

After bidding, the grower is given an option in the system to refuse the price offered for the bale if he is not satisfied and reoffer it for sale.

After the sale is concluded, if the buyer finds that a bale purchased by him is badly handled, mouldy, funked or damaged or nested or in some other manner unfit for sale and such remark is not marked by the classifier on the bale ticket and announced by the starter, the buyer can repudiate the sale and notify to the Senior Classifier (SGO). The Senior Classifier (SGO) will investigate the matter and either uphold or reject the contention recording the reasons in either case on the bale ticket. If the contention is upheld by the Senior Classifier (SGO) the bale will be returned to the grower for reoffering. In case, the Senior Classifier (SGO) does not uphold the contention of the buyer, the sale stands.

After bidding, the bales purchased are delivered to the buyers. In case, the buyer delays the lifting of bales beyond the period specified, Board levies demurrage charges.

Buyers are required to make payment of the invoice value to the Board by cheques post dated by 10 days. Board makes payment to growers by a consolidated cheque drawn in favour of the bank (wherein the grower maintains his account) postdated by 15th day from the date of auction sale both in Karnataka and in Andhra Pradesh.

Board collects Service charges from growers and buyers @ 1% each on the value of tobacco sold and Cess (duty of Excise) @ 1 paise per Kg from the growers.

Buyer (Tobacco Trader) shall obtain an authorization from the Tobacco Board to participate and purchase tobacco at an auction platform (Rule (5) of Tobacco Board (Auction) Rules).

(Provided under Regulation (13) of Tobacco Board Auction Regulations)

A person intending to operate as a buyer at a platform shall make an application in Form VII to the Director of Auctions within the stipulated date. The intending buyer should contact the Regional Managers of Tobacco Board at Guntur / Ongole / Rajahmundry and/or Mysore for further details.

Applicant shall furnish details such as – name of the platform one intends to operate, address, purchases made during the previous 3 years, names with signatures of persons authorized to act on behalf of the applicant and places where the tobacco will be stored.

Separate applications shall be made for each platform.

Application shall be accompanied by a copy of certificate of registration issued by the Tobacco Board as dealer/ exporter/packer and a fee of Rs.500/- per auction platform. The last date for receipt of applications for authorization as buyer is 30th June in the case of Karnataka and 15th January in the case of AP.

On receipt of the application, the Director of auctions will grant authorization in form VIII, to all those who fulfill the above requirements and who does not have any dues to Tobacco Board and did not commit any offence by violating provisions of the Tobacco Board Act /Rules/Regulations.

Authorization once granted shall remain in force till the end of the calendar year (as per Regulation 13(5)C of Auction Regulations).

• The internal marketing set up was streamlined, eliminating to a maximum extent, exploitation of growers.
• The system has created an element of competition among buyers which was lacking in traditional marketing system.
• The system ensured a statutory MSP to the growers.
• The system has enabled the farmers to dispose of their produce within reasonable period of time.
• Grower-Sellers obtained reasonably better returns with added advantage of timely payment.
• The grading standards at farm level improved which proved beneficial to the growers as well as traders.
• The administrative expenses of the buyers have come down considerably in terms of establishment, maintenance and over-head charges.

• The sale price differentials for various grades and styles of tobacco helped to establish a quality-price relationship which in turn led to quality consciousness among the growers.

The Tobacco Board has proposed to introduce an electronic auction system for marketing of FCV tobacco to bring transparency in the auction system so as to solve the problems of trade cartel, ceiling price, discrimination in allotment of bales, recording the auction details etc.

M/s. Cranes Software International Limited, Bangalore, a CMM Level 5 and ISO 9001 certified company, has been awarded the e-auction pilot project for implementation at J.R.Gudem-II auction platform.

The e-auction pilot project was started in J.R.Gudem-II auction platform on 29-May-08 and continued till the end of marketing season i.e. 2-Jul-08. The e-auction system worked well. The major stakeholders of the tobacco industry viz. farmers and buyers well accepted the new system.

Since the pilot project in J.R.Gudem was run for a limited period at J.R.Gudem in June,2008, the Board implemented a full pledged pilot project at Hunsur-II auction platform in Karnataka in the 2008 auction season and it was inaugurated by Sri. Jai Ram Ramesh, Hon’ble Minister of State for Commerce & Power on 9-Nov-2008. The e-auction continued till the end of auction season.

• Buyers can plan their own buying strategy in pre-auction by keeping their remarks on grade, quality, starting price etc. in their HHTs which helps them in bidding process.
• Role of chanter will be eliminated.
• The manual writing of IF-5 can be withdrawn.
• The ceiling price does not arise.
• The buyers can be limited to bid within their BG limits.
• The buyers can have complete data of bales in their HHTs, which can be downloaded to their smart cards, if provided.
• The system is completely transparent in bidding process and facilitates Growers’ Registration, Payment system and improve overall efficiency of the auction system.