The East African Tea Trade Association secretariat whose offices are based in Mombasa has announced the government directive on reserve price on KTDA effective from sale 28.
“The government of Kenya has issued a directive that tea sold in the auction should retain a reserve price that not only meets the cost of production but also gives the farmer a fair return.
As a result of the directive, KTDA has instructed Brokers offering its tea to adjust its valuation to a prescribed price that will be the reserve price below which the tea should not be sold effective from sales 28.
Buyers are informed that the Brokers will not accept bids for KTDA teas below the valuation.
According to Oxford Dictionary, a reserve price is the price stipulated as the lowest acceptable by the seller for an item sold at auction. Put in another way, the reserve price is the minimum price that the seller (KTDA) will accept as the winning bid in an auction.
The reserve price has a direct effect on the selling price of tea from KTDA. This means that the selling price is expected to be higher hence farmers selling their tea under KTDA will get better returns for their tea.
It is not clear whether the set reserve price will be hidden from buyers or not. When the highest bidder bids above the reserve price, the system will indicate “Reserve met” if not it will display “Reserve not met”.
Sellers are allowed to give the reserve price information to potential buyers.
However, buyers of tea marketed under the umbrella of KTDA will not be happy with the use of reserve price because it encourages bidding at levels which may not win.
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