Its a herculean task to get the disposal of teas done in an efficient manner, says PK Sen, chairman and managing director of the company. Sen, a stalwart in the tea industry has been associated with J Thomas since the last 37 years. He spoke to Nandini Goswami of The Financial Express on various aspects of the tea industry and the relevance of auctions in recent times.

What are your perceptions on prices of tea in the months ahead?

The Indian tea industry, during the current period, is going through a difficult phase with lower price levels,particularly so for the south Indian teas. Although, it is difficult to predict as to what turn prices will take in the months ahead, I perceive that the industry will witness a drop in prices from August onwards and quite sharply in November.

However, price levels are expected to be firm from January as the calendar year would have less of carryover stocks on account of a lower production base.

How do you account for the recent decline in prices?

The price decline in recent months particularly for south Indian teas has been felt largely on account of a meltdown in the Russian economy which has resulted in a gross lack of Russian enquiry. It is expected that Indian output will register a fall compared to last year's standards.

The June prices have been higher at Rs 99.67 this year as against Rs 80.37 in 1998, but this has been only for a quantity of 10.1 million kg (mkg) as against 21.5 mkg last year and this would create a pressure on supplies.

Do you think that the Russian enquiry mayincrease in the months to come?

There appears to be a silver lining with the news that the Russians have apportioned a certain amount for teas alone which could mean that there may be a demand for Indian teas in the winter months. The only snag from the importers side is that they are talking of a safeguard against the devaluation of the rouble.

Being the largest tea brokers in the world, how do you react to the decrease in auction teas over the years?

We are indeed the largest auctioneers in the world and earned a revenue of almost $300 million last year by selling about 167 mkg (which is 38 per cent of teas bought to auctions). It is unfortunate that offerings have reduced over time as many of the Indian companies have shifted to packet teas, apart from direct exports. Hence they route a limited amount of their teas at the auctions. For example, Tata Tea or HLL, the two largest companies sell only about 10 mkg and 15 mkg at the auctions. However, there are a host of medium and smallcompanies which still have to depend on auctions in a big way.

Isn't that a problem given the fact that the bigger players depend less on auction houses?

Bigger producers in spite of resorting to direct selling or forward deals will continue operating at auctions to arrive at a benchmark. Moreover, many companies with larger packet tea sales may pick up more from auctions for blending purposes.

Forward deals would mean less teas coming into the auctions, how do you react to the fact?

Increased number of forward deals may not be profitable always. For example in 1998, many producers, in anticipation of further price increases had heavily relied on forwards which boomeranged in the later part of the year when prices slid down and settled at lower levels. As a result, producers who had heavily booked forwards had to bear a pressure on their margins keeping to deals at increased prices. This year, however, there were limited instances of booking forwards to UK in the export market and tosome other European countries.

What is your opinion on the talk of tea futures in India?

Well, futures in commodities may be fast catching on in India, but trade in tea futures happens to be out of sync with this industry. Tea, a major commodity with a 800 mkg plus production, is not conducive to commodity trading on account of a multiplicity of grades as well as variations in quality.

Are you thinking of standardising tea grades both Darjeelings and others into fewer categories. If so, what would be the relevant categories according to you?

Standardising of grades is a very important issue as bringing down grades would help companies too. The relevant categories will be appropriate according to leaf sizes. Too many grades makes it difficult to arrive at marketable lots.

Do you think that changes in the Tea Marketing Control Order (TMCO) if any, would have an impact on auctions per se?

Effectively there would not be any great impact if TMCO is changed. Auctions always servean important purpose and producers will therefore find this as the most appropriate route of selling teas.

But don't you think that amendments in TMCO may result in a drop in auction offerings?

Anyway, it is removed de facto. If it exists, it should be administered properly and should not be observed in its breach.

Does India have any plans to have an international auction centre after London tea auction centre has closed down?

Absolutely not. It has been seen in recent times that auctions have moved to the country of origin and costs are much higher in having an international auction centre.

Do you feel that a generic promotion of tea should be attempted in the country?

Generic promotion of tea is important considering the assault in the market from the soft drink majors. Moreover, to step up domestic consumption, an awareness of the health benefits of tea drinking should be marketed. On one hand, the industry should go in for innovative promotionals to woo the youngerpopulation and nurture the rural markets on the other.

What could be your advice to the producers during the current year?

Quality will be the prime mover --this is all the more relevant in a difficult year, Moreover, increased R&D, replanting and improvement of planting techniques will attain higher levels of efficiency which in turn will help sustaining a firm trend in price levels. And lastly, producers of all Saarc countries particularly India, Sri Lanka and Bangladesh should come together for ensuing a strong regional cooperation.